Foxtons estate agent experienced falling shares and was given a sell rating by a broker, which has begun covering the UK estate agent market.
The broker, Peel Hunt, also issued hold ratings to Countrywide, LSL Property Services and Savills.
Broker says Future is Bleak for Agents
It says the long-term outlook for agents is bleak, as fees will start to drop due to competition from online agents.
Peel Hunt said the main issue is when commissions will decline and by how much: “Estate agents operating in London potentially face the greatest downside to commission rates, given the absolute savings that vendors can make using a fixed price agent.”
It also claimed that the general election was generally positive for the housing market, as the result ended uncertainty around mansion tax, rent controls and banning tenant fees.
It adds: “While the near term news is positive and the listed players have diversified into areas with more stable revenue streams, we believe the sector faces longer term headwinds.
“It is still largely exposed to the highly cyclical nature of housing transactions and the growth of fixed price online estate agents is likely to lead to downward pressure, possibly significant, on industry fees and profits.
“The key issue is the pricing structure offered by the online estate agents, which have been expanding rapidly and where the difference in fees is material – especially in higher value areas of the South East and London. The big debate for us is how far and how rapidly will fees fall.”1
Last year, Foxtons charged an average commission rate of 2.4%.
Yesterday, Foxtons shares closed at 270p, down from their 315p high last year, but up from November 2014’s low of 142p.