Saturday, 2 November 2013

Help to fly? Agents to gain most from government largesse

Preaching to the converted? I got more re-tweets for my fairly flippant Twitter post (@BuildInsight),  “Notice that just about the only people (outside Downing Street) thinking Help to Buy is sensible, are estate agents and housebuilders?” than anything else I have mustered in the few weeks since I first delved into the Twittersphere.

I was prompted by estate agent Countrywide’s assertion in its Interim Management Statement that Help to Buy is “a credible and well thought out policy which will benefit the whole of the UK housing market”. Similar missives have flooded out from the housebuilders ... but virtually no other quarter.
Ironically, the two camps, estate agents and housebuilders, want very different outcomes: for agents it is transaction volumes above price increases that most boosts profits; for the builders, the opposite holds.
For agents, the more transactions the merrier, even if that means not holding out for the last few percent of the client's asking price. September’s data from HMRC showed a 28% year-on-year increase in UK housing transactions, reflecting the delayed impact of Funding for Lending rather than the second phase of Help to Buy which was just about to kick in. A finger-in-the-air projection for the combined impact of the two schemes, when the both get going? I’d say an increase of about 40% to 50% over 2012 transaction levels.

Staff numbers and the odd office location are the main downside for estate agents when, or indeed if, Help to Buy runs its full term in 2016.  Employment in the “Real Estate Activities” section of the ONS Labour MarketStatistics showed a 16% annualised rise in the latest release, far outstripping any other industry sector.  What goes up can go down. For staff that are paid primarily on commission, overheads can shrink to fit reduced sales levels.
For housebuilders, it is far trickier. Price has a far higher impact on profits than sales volumes - which most developers are rarely comfortable eking out much more than 0.75 units per outlet per week, for fear of overstretching themselves and, dare it be said, de-stabilising local pricing.
The real fear in pursuing headlong growth in hot markets, however, is getting caught, as it were, with their pants down, by purchasing too much land at the wrong price and with runaway overheads. The pain of land writedowns, with their impact on banking covenants is still fresh in the memory.
So growth in housing starts could be more measured than the government has bargained for. An eventual run rate in 2014/15 over and above the low levels of 2012? About 30 - 40%, of which about half of which was already in developers’ plans before the largesse of Help to Buy, the first phase of which was available as equity loans for new build solely.

As for the second phase, it seems to have got off with what looks like unseemly haste. The FT reports that the first home bought under the 95% mortgage guarantee scheme - a two-bedroom flat in Dartford, Kent, for £153,500 - was completed on Wednesday, a mere 12 days after Halifax launched its product, rather than the six to eight weeks more commonly experienced. “A number” of other applications are nearing completion, according to parent group Lloyds.
In the secondhand market, agents are likely to make hay as the sun shines, with relatively limited downside to company balance sheets, hence Countrywide’s enthusiasm. For housebuilders, despite their protestations of support, Help to Buy represents something of a double-edged sword and they are likely to proceed with more caution than ministers are hoping for.



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