Estate agent Foxtons expects profits to fall as the London housing market cools. The company trades almost exclusively in London. The capital’s hot real estate market helped the chain grow rapidly in recent years, but the current market slowdown is proving to be a major weakness for the company.
Pre-tax profits in 2016 fell from £41 million to £18.8 million, when changes to stamp duty hurt the housing market.
Analysts are expecting the company to post a profit of £8.9 million for 2017.
Last year, the company said revenues had fallen to £117 million, down 12%.
Foxtons also warned investors of a one-time £2 million charge related to restructuring.
The company’s lettings unit has been more resilient than its sales arm, but this department may soon take a hit. The Government has plans to ban agency fees for tenants.
Foxtons is also facing increased competition from online agents like Purplebricks, which now has a market cap of £1 billion.
London’s housing slowdown has made the market less attractive to investors, as they see little room for prices to pick up in the capital city.
Home prices in London are still high. The average home in the capital costs about $762,810 (http://fortune.com/2016/03/31/london-real-estate-prices/). Comparatively, in the United States, the average home price in Clear Lake, Iowa is $254,023 (http://www.janefischer.com/).
High prices have undoubtedly contributed to the number of home sales declining by more than 20% over the last four years.
But experts argue that London’s market cooldown is long overdue. Between 1998 and 2018, the average home price has skyrocketed 500%.
Brexit and higher taxes when purchasing a home have raised concerns over the viability of investments in the London market.
While London homes still come at a high price, the market is showing signs of cooling. In 2017, home prices in central London fell 21.1%. Westminster prices fell by 19.4%.
Along with stalled growth, investors worry about the implications of Brexit. The United Kingdom’s decision to leave the European Union may have a negative impact on real estate in London.
The U.K. overall is an attractive market for investors, but the economic implications of Brexit on London are still unpredictable. Unpredictability is a major red flag for many investors. Many investors are now turning to Liverpool and other cities where Brexit’s economic impact may not be as significant.
A recent Reuters poll of 33 housing market specialists indicates that inflation will outstrip gains in home prices over the next few years due to weak consumer spending and Brexit.
According to the poll, experts expect home prices in the UK to rise 2% in 2018. Home prices in London are expected to decline by 0.5% this year. But experts anticipate a rebound by 2020, with home prices projected to increase by 2% that year.
Investors are still unsure of the impacts of Brexit and the outcome of divorce talks. Britain has a little more than a year to smooth out the details before leaving the EU. Currently, there is still no clarity on what type of restrictions will be place on the movement of goods and people.