This week on this Simon Morris blog we’ll be looking at the share price of Foxtons Estate Agents which tumbled this week after the company warned profits would fall as the London property market slows.
Foxtons are known as an aggressive London based estate agency, and they surprised some commentators when they released a trading update which revealed that sales commissions had fallen by 7.8% in the third quarter. Together with tax, debt and interest payments this meant that profit at the chain had fallen to £14.2 million.
Shares dropped sharply
The market reacted with a sharp drop in prices on Foxtons shares of around 20%. The agency said in statement that: “Although the longer-term outlook for London property markets remains positive, the market is expected to continue to be constrained for some time due to political and economic uncertainty within the UK and Europe, tighter mortgage lending markets, and mismatches between the price expectations of buyers and sellers.”
Foxtons claimed that buyers are growing wary on the back of on an expected interest rate rise. The availability of mortgages is also an issue claimed Foxtons after the Bank of England introduced tougher lending criteria.
Tax on properties
The Labour Party have suggested a property on tax on houses over £2m. This political move has stirred fears over the London market as agents believe that 80% of the homes that will be affected are in London and the South-East area.
As far back as August, Foxtons believed that the London property market was slowing down. When the company floated in 2013 the offering was oversubscribed as investors fought to tap the London property market via profits of the chain. Stock Market analysts had predicted profits upwards of £57m, now, it seems profits will be more likely below the £50m mark.
Foxtons spokesperson Nick Budden tried to reassure investors by saying that the chain would continue its quest to open five and 10 new branches a year, while moving in to other hotspots outside of London.
As a London-based property expert, Simon Morris uses his specialist knowledge of the commercial property sector, to advise UK property investment funds on how to use it to maximise profitability.
For more information on property investments please read Simon’s Guide to Property Investment Options.