The boss of the UK’s biggest property franchising network, The Property Franchise Group, says some of his own franchisees will not survive, and that between a quarter and a third of all agents are in jeopardy.
And the head of the second largest franchising firm, Belvoir, said it is getting on average one unsolicited approach a day from an agency owner looking to sell up.
Ian Wilson, CEO of TPFG, told EYE that his warning about firms going out of business applied to both sales and lettings.
He said: “There is going to be a clear-out of the industry.”
He said legislative clampdowns would add significant costs to agents. There was also the threat from online agents with low overheads.
He said: “We understand that some of our franchisees will not survive. I think that there are about 20 Martin & Co businesses in this category. We believe our traditional branch network will be neutral this year in terms of numbers, and that in 2019 there may actually be a reduction.”
The lettings fee ban was a real danger, and he said there were certain triggers that could threaten the future for an agent.
He said that there are around 1.2m sales annually, and 25,000 branches. The sales business was predicated on just one sale a week per outlet, while “lettings is all about volume”.
He said danger signs were when a business has fewer than 120 properties under management and is 90% reliant on lettings income.
Wilson said: “It is why, as a business, we are doing the things we are doing – encouraging our traditional agents to fight back, and to scale EweMove.”
Wilson also revealed that TPFG is now centrally recruiting Local Property Experts to work in the field: “If they can list ten properties a month and sell six, that gives them an income of £60,000 a year.”
Meanwhile Belvoir boss Dorian Gonsalves is looking to help grow his franchisees’ businesses.
He said that the company’s assisted acquisition programme – which helps franchisees acquire local competitors – is set to double this year.
Gonsalves said: “There are currently 17 deals in the pipeline, and an additional 74 franchisees have funding in place and are looking for their ideal targets.
“There will be consolidation in the industry and the reasons are clear – the sector is changing so quickly, and it is going to become more expensive for smaller independents to stay in business.”
In results reported yesterday, Belvoir said: “There remain over 10,000 potential acquisition targets comprising small to medium-sized independent lettings and sales agents in the UK which might look to exit following increased regulation and the prospect of the ban on tenant fees in 2019.”
Wilson said that at TPFG, the emphasis is on helping franchisees achieve scale: last year, franchisees added a total of 2,000 managed properties to their portfolios. In the first three months of this year, there have been acquisitions of 800 managed properties – “so it is gathering pace.”
The fees ban will put at risk 16% of franchisees’ lettings income, said TPFG, while Belvoir put the figure at about 13%. Both businesses remain predominantly lettings focused, with TPFG reporting that lettings accounts for 70% of management service fees, and Belvoir saying that 80% of its business is lettings.
Despite a challenging future, the business rivals yesterday delivered strong results for the 2017 financial year.
The two were the subject of a possible merger instigated by the smaller Belvoir in February – something which Wilson angrily at the time described as a hostile reverse takeover bid. Nothing came of it.
Yesterday, however, Wilson sounded a conciliatory note, telling EYE: “I am glad that, like us, Belvoir have reported good results. It gives confidence in our business models. It shows franchising works.”
TPFG is expected to pay an increased dividend of 5.4p, and Belvoir to pay 6.9p.
The Property Franchise Group
Revenue rose 23% last year to £10.2m, with pre-tax profits up 33% to £4.3m. Its hybrid brand EweMove made a profit in the second half of last year “despite unexpected management disruption”.
TPFG had 403 outlets last year, with 283 high street brands and 120 EweMove.
Yesterday, its share price barely changed on the London Stock Exchange, closing at 136p.
Belvoir
Belvoir reported group revenue up 14% to £11.3m. Pre-tax profits rose 62% to £3.9m.
In its first full year as part of the Belvoir Group, Northwood contributed £1.2m to revenue.
Belvoir had a total of 300 offices last year – 171 Belvoir, 39 Newton Fallowell and 90 Northwood.
Yesterday, Belvoir’s shares edged up about 1%, to close at around 103p.
There are a great many challenges ahead for small independents. We can survive, especially if those like minded of us, who put our clients first, can work together collectively.
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Scotland agents went through the tenant fee ban in 2012. We had no option to deal with it and move on. Although we had to plan ahead by consolidating staff, generate other revenues in income and move more focus into the sales side of the business. Did many of the Scottish agents fold ?…. NO. You work through it and move on. It is harder on the landlord as they have had more costs and we have seen a lot of landlords sell up and leave the business but we are also managing to bring on new landlords every month which is partly down to our marketing strategies and our portfolio figures have stayed static with slow growth.
In Scotland we now have the new PRT lease model operating with no end date on the Tenancy model, again more focused on the tenant. I can see this rolling out down south shortly too.
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Quite a sweeping statement from Mr Wilson and particularly alarming if based on suspicion or knowledge of the parlous state of some of his own franchisees. This comment comes hot on the heels of his comments last week in regard to the “potential” of franchisees/business owners using client funds as an unauthorised overdraft facility! Eg; technically insolvent? I sincerely hope that where both TPG and Belvoir are concerned, that they ensure that any suspicion they have of any of those under their umbrella, is investigated immediately???
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Their branches are audited by their central office annually , compulsory members of NALS , so have CMP, hence they are also audited by an accountant each year. Two separate audits each year.
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That is on only two occasions a year Waco79.
Being insured is not the same as feeling assured.
There is public record of franchises going bust previously so I’m not convinced that the in-house regulation/audit eradicates the situation. Hasn’t in the past!
My business was audited by external Chartered Accountants where their audit took 4 days solid. Are the checks you refer to as detailed?
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Don’t panic!
My guess is that the owner of a business will have to be “professional” and he or she will be responsible for his/her staff’s conduct and training eg AML, GDPR and all regulatory requirements.
It’s not an uncommon structure.
To survive do what AgentV above says except be wary of working “collectively” if the affect is to eliminate competition as that would be illegal.
However training and the training of supervisors to assure compliance with whatever regulatory structure is put in place can be done collectively.
It’s not hard-just different.
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An honest opinion aired by Ian Wilson…..up to a point. In his year end statement to the city yesterday it was less candid except for this which hints at a ticking time bomb. ‘ In all 178 traditional brand offices grew their revenue year-on-year and 105 offices had static or shrinking revenue.’
With the board resignation at Belvoir recently (although that is probably as much to do with the vast expenses run up during the takeover farce) those with an insight to pipelines will have issues as do the rest of us. Clearly TPFG do hope their EweMove brand and increase in local property experts taking on 10 houses and selling 6 a month will be enough! At this moment in time, a biz with a High St presence and online brand is profitable, has a healthy cash flow which is king; lets see how it fares once the shake out in the lettings industry plays through, as recently 70% of their revenue has been from lettings.
As Philosopher said earlier, now the market faces challenges, those with hands on the purse strings will need to be watched carefully… a hard market makes people do silly things.
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‘He said danger signs were when a business has fewer than 120 properties under management and is 90% reliant on lettings income’ …… This bloke really knows how to put foot in mouth.
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