Shares in Foxtons yesterday struggled for a second day running after analysts at Barclays warned that cheaper online estate agents such as Purplebricks are acting as disruptors in the sector.
Barclays queried whether Foxtons could continue to justify charging its fees, and said that online agents “will drive commission rates down in time”.
On Tuesday, shares in Foxtons fell by 4% and yesterday by another 2.07%, to finish at 236.80p.
Barclays expressed concern about sales volumes, fee levels and the fiercely competitive nature of the London market in which Foxtons largely operates.
Jon Bell of Barclays also said that while the general election result had removed the threat of Mansion Tax, “the extent to which volumes have rebounded since then is unclear”.
The bank’s analysis, which has implications for other agents, said: “Ahead of the important month of September, we believe that the company’s post-election recovery is likely to be patchy, particularly for estate agency, for four reasons.
“First, there is a lack of available stock in the market.
“Second, last December’s Stamp Duty changes raised the tax on expensive properties – although some way above Foxtons’ average price point, and there could be a ‘spillover’ effect on overall volumes.
“Third, the ‘normal’ level of annual transactions in the capital is likely to have fallen over time: we stay longer; we move less; we dig more basements.
“And finally, we believe there is some pressure on fees.”
Barclays also raised concerns about online agents and questioned whether Foxtons could continue justifying higher fees.
The analysis continued: “Online agents, such as Purplebricks, operate with little or no high street presence and charge much lower fees than traditional players. Growing quickly from a low base (we understand that online market share is around 3.5%), they are disruptors; new entrants changing long-established norms.
“Foxtons has an unstinting belief that its fees – likely to be the highest in the market – are supported by a premium service that delivers superior net returns for its customers.
“Our view is that in a ‘commoditised’ London market, where visibility over prices (expressed in £ per square feet) is high, online agents could start to demonstrate that they can deliver equivalent returns. Should they do this, then operators’ ability to charge more is compromised.
“We believe that new entrants will drive commission rates down in time, and that this will have repercussions for Foxtons, given that they underpin its very high (around 30% EBITDA) margins.
“This underlying attrition is in addition to that arising from a mix change: a greater proportion of new-build sales (15% of its current pipeline, higher than 10%-12% previously) on which commission rates are relatively low.”
While Foxtons is opening five to seven branches per year, a number of other agents are also upping their presence in London.
Foxtons share price is currently down from a high of 295p last August, but up from its 52-week low of 142.70p in November.
Other agents have been less troubled, despite – like Foxtons – delivering less than sparkling results for the first half of this year, after all reported a fall in transactions.
Countrywide shares yesterday dipped 1.46%, and LSL fell 0.28%.