Marsh & Parsons

Many of the people that I have been speaking to over the past few months have described the current market as ‘tough’ or ‘challenging’ and in comparison to the past two or three years they’re probably right.

However, what I think we have seen so far in 2008 is a return to a ‘normal’ market, with the last two years as having been ‘abnormal.’ It is harsh, but probably true to say that over the past couple of years Estate Agents were, to a large extent, ‘order takers’ and whilst many were successful, the skills essential to become a first rate agent were not being learnt. The past 6 months have changed all that, the job has returned to being what it really is: exciting, frustrating, exhilarating and exasperating, all at the same time. Our job of maintaining the direction of a transaction while being the bearers of both good and bad news to buyers and sellers alike, has become even more crucial to the achievement of the results required by both parties. This market will have the effect of showing customers the positive contribution we can bring to the process and we are now able to provide a service that adds real value. I have lived through these markets a number of times over the past 25 years and the effect they invariably have of clearing out and cleaning up the industry is, in my opinion, a healthy one. The job is once again one in which talented people within the industry can shine. Some businesses will thrive in this market where they will be able to distinguish themselves from the many and I suspect some businesses will wither. The Estate Agencies with great systems and comprehensive training will push to the fore and those that considered training to be unnecessary will soon find it even tougher

In my view fees, which for so long have been on a downward decline, will start to gradually climb to a sensible level. The difference now is that agents will really have to earn them and to prove the value of their service.

Prices in many cases have fallen 7-10% over the last 6 months however, to keep this in perspective; this is following a 31% rise in prices in Kensington and Chelsea in the preceding 12 months. The flip side is that we’re starting to see real value in the London market, smart buyers are back in force making ‘speculative’ offers which in some cases are being accepted. However, as in all markets exceptional properties still command great prices and the ‘cheeky’ offers are never accepted.

I anticipate a busy spring market, although quieter than the past couple of years and for prices to stabilise throughout the rest of the year. People still need to move and with rental returns edging up to around 5%, there is still a compelling argument for the buy-to-let market.

All in all, an average start to the year and I welcome a return to normality.

For the past few years I have been getting a call about once every two months asking how worried I am about the ‘rise’ of the internet only estate agent.

My stock response has always been that I am entirely unconcerned as in my view they are not estate agents at all but more of a ‘property shop’. However, if I’m honest, up until the past 8 months there has probably been a small niche for the internet only estate agent. Very low fees or a fixed fee, internet only advertising, no accompanied viewings, no negotiation, no local advertising, no local presence etc. etc. In a bull market there is an argument that this works in some instances (very, very few) however, not any more.

Now I think things have really changed and that estate agents once more have a chance to prove their true worth. I don’t want to blow our own trumpet too loudly but now the proactive, hardworking, experienced and ‘gritty’ agents can really shine and sellers who do not understand the immense added value that such an agent can bring will probably still be ‘sellers’ at the end of the year.

The only real problem for Estate Agency owners is if they have enough of the right people or if they have fallen into the (easy) trap of just employing ‘nice’ people over the past 3 years and now the market needs agents who are not only good people but who can also sell.

At Marsh & Parsons we have built a selection of offices in prominent sites across central, south and west London. It would have been easier and cheaper to rely more on the internet. Perhaps I have slight Luddite tendencies however, I don’t believe the Net will ever replace the professional estate agent and the events of the past few months have cemented that view in my mind. I would guess that we will see many of the ‘this is easy money’ estate agencies close along with the internet only ones and, I hate to be harsh, but good riddance. We have been judged by the actions of the lowest 5% of the industry for too long and this might be one of the good things that come from the current slowdown.

As a matter of interest, I read that the much hyped entry of Tesco into the market has been put on hold. As far as I am concerned this is (was?) just another type of service offering which serves some kind of purpose when everything is rosy but when times are tough, people will revert to the professional estate agents who will, with a bit of luck, realise their true worth and put their fees up!

It’s amazing how much this industry has changed since I first started in 1982.

In the early days many London agents were, if truth be known, complacent and lazy. They opened their offices at around 9am and closed at around 5.30. Viewings in the evening were unheard of and Saturdays were a very half hearted affair (if at all). Fees were higher and whilst service was charming, it must be said that in many cases it was pretty ineffective. When I first started at Foxtons in 1985 our hours of opening were 9am until 9pm, 7 days a week - now this was revolutionary and I absolutely believe that we had a huge part in changing the face of UK estate agency. Some may mourn the passing of the old ways however the people that really matter, our clients, do not.

The ‘old ways’ also included no websites or portals from where we get more than two thirds of our enquiries, no mobile phones (how did we run a business without them?), limited and hugely expensive magazine advertising, no branded cars (!), no text messaging, no Property Misdescriptions Act and therefore ridiculously ‘flowery’ property descriptions and generally longer opening hours to cater for our clients not ourselves. How times have changed and, in most cases, for the better.  

Our clients want pro-active sales people acting on their behalf, they want a great service where they can trust the integrity of the agent acting for them, they expect intelligent marketing, evening and weekend appointments and a good result, in short they want to enjoy the experience AND the result. Buyers want to be treated fairly and honestly and benefit from the service necessary for us as agents to win the business in what is a very competitive market place. It is my opinion that in many cases (but sadly not the majority) both sellers and buyers get what they want and get great value in the process.

There are still very few industries that can do so much for their client with absolutely no guarantee of payment at the end of the day (no sale – no fee) and spend endless hours ‘chauffeuring’ prospective buyers around without charging a penny for the pleasure.

In my view there are still very few estate agency practices that have got the balance right. In some agencies you may enjoy the experience as the people are ‘nice’ but you’re not quite sure if they’ve got you the best result whilst in others you hate the experience but consider the outcome pretty good. Surely as an industry we can do better than this and this is my focus at Marsh & Parsons—the two outcomes are not mutually exclusive, you can enjoy the experience and the result, and the longer our competitors do nothing about it, the happier I am!   

Opportunity and progress in stormy conditions

After years of heading into the office via my local newsagent on Kensington Park Road, where I take a daily glance at the neatly arranged front pages, its clear to me that bad news must sell newspapers. Recently, quick to exploit our fears,the media have seized upon slowing house price inflation and have enjoyed head-lining gloomy speculation as imminent, unavoidable housing market melt-down. The less dramatic and less eye catching reality, that “things aren’t that bad” is left to the fi ne print of the last paragraph. Recent monthly data churned out by the various lenders and property institutions reports a more subdued national market. However, given their reliance on completion data, these national statistics reflect sales that were agreed months ago and do little to provide an insight into local and current activity or sentiment.

This review looks at what is happening in our immediate area. We will briefly consider the factors that have infl uenced market activity over the last couple of months before assessing those that will determine the market’s trend as we move into spring. While some in our industry appear to have adopted a generally negative outlook, revising forecasts down and predicting stagnation, our approach, enthusiasm, experience and innovative marketing methods has enabled usto meet the challenge of this less certain period and to produce some exceptional prices for our clients already this year.

Last couple of Months: Market Turmoil?

As you are no doubt aware, recent commentary has been dominated by the international credit crunch and the impact it may have on our market. The negative sentiment this commentary encouraged contributed to an Autumn market in 2007 that was characterized by a severe lack of new buyers and indecision amongst existing buyers. Global credit tightening spread to the mortgage markets reducing the products available to fi rst time buyers and borrowers considered less secure. Investment banks acknowledged their uncertain exposure to bad debt generated in the American sub prime housing market and continued to post losses. The fall-out in the City of less "deal" activity, falling profi tability, smaller bonuses and potential job losses did impact values in Notting Hill/Holland Park but not as much as might have been expected.

Marsh & Parsons sales statistics below £2 million show a rather benign pattern when compared to sales over £2 million. With UK investment banks awarding record bonuses in spring 2007 the upper end of the market was driven to record highs only to experience a rapid turnaround in sentiment as the credit crunch began to take hold (see above). The recovery of properties with a value over £2 million at the tail end of 2007 may have been encouraged by the chancellor’s interest rate cut but we suspect city bonuses and latent demand offers a better explanation. While some analysts estimate that bonus payments are some 20% down on last year and much is being paid in stock, the sums involved are still signifi cant. Supply would need to have increased considerably for us to have experienced a sustained fall in house values through this period. With the level of equity in the London house market at an all time high (property value minus mortgage debt) and with interest rates having peaked the kind of forced selling required was not forthcoming. In fact the opposite was evident - vendors withholding stock and not wanting to sell into what they perceived to be a slower market. Then, as now, negative market commentary needed to be met by positive agency work. Confidence needed to be won.

Now: A safe harbour in stormy seas

Going Forward: Bright prospects

Much has been written about the state of the UK property market over the past 4 months and most of it either ridiculously dramatic – the end of the world is nigh or overly complacent—slowdown? What slowdown? What is true however is that we have lived through two years of a very generous market when selling property in many cases was just like ‘shooting fish in a barrel'

In mid November I was asked to debate the property market on Radio 5 live with the founder of housepricecrash.com. As you can imagine it was a lively conversation as he was insistent that the market was due to fall '30-40% in the next 3 years' (he's actually been saying this since 2002 – when he took the decision to sell his own property!) My view is that we should put the property market in perspective. Whilst I don't believe that the market will have such a dramatic correction – falling interest rates, high levels of employment, - no market continues on an remorselessly upward trend forever and all markets have a natural slow down—this is healthy and it would concern me much more if it didn't.

Let's face it; the market has changed and changed dramatically. During the last quarter of 2007, buyers were scarce, in some cases our applicants were down 60% on the previous quarter. Prices had started to fall back from record highs and there was very little activity in any sector of the market. Sellers were in denial that their property, which was already priced at more than any other property in the vicinity had sold for, were unwilling to alter their asking price and the market ground to a halt. To my mind this scenario is very similar to the state of the market following 9/11, everyone sitting on the fence, nobody wanting to be the first to jump off. All were waiting for the very obvious natural break of Christmas to make any sort of decision- and who can blame them?

What has happened in London since Christmas has made me quietly optimistic. New applicants in most of our offices are up on this time last year (when the market was flying) and in most areas transactions are once again being agreed albeit at 5-10% less than the price that the property came onto the market at. It is still a tough time as the impasse that exists between buyers and sellers continues and will continue for probably the first quarter. However agents who are worth their salt will by now be accustomed to a different market, will be speaking to and advising their clients much more and as a result will be agreeing sales and not sitting in their offices with their heads in their hands.

It is right back to a normal market, one that creates great individual estate agents and one that will make us all run better businesses.

It is notoriously difficult to understand the significance of what is happening around us at the time it is actually taking place; only with the perspective of hindsight can the meaning of events become really clear to us.

This is especially true in times of transition and the present is certainly a time of transition for global property markets.

Any attempt to explain recent and current events in these markets must at this stage, be necessarily, tentative and impressionistic.

What is clear is that the global binge of cheap credit is over and there is a supply crunch arising in terms of global oil markets.

The Financial Times recently reported that the Royal Institution of Chartered Surveyors were indicating that new buyers “have been withering for almost a year”.  The article went further to quote humorously from an estate agent in east London that “all poor news on the eastern front, poor enquiries, poor stocks, poor prospects”.

My experience of the current market in terms of central and west London, is markedly different. In recent months, I have been struck by the robust nature of this market in the context of the sub-prime crisis. In trying to understand this, I have come to realise that recent history has shown us that quite often New York’s disadvantage, has proven to be  London’s advantage.

The very strong market in 2005 and 2006 in London was, in my view, not due to the binge of cheap global credit rather, it was a reaction to a flight of money into London which emerged as, not just the cosmopolitan capital of the world, but also the financial capital.

In becoming the world’s financial capital, it could be said that it did so at New York’s expense as the financial markets reacted to a post-Enron culture of increasing regulation that impacted on the US business community. 

London’s ascent in real estate terms into this pivotal global position could be seen as a renaissance. Undoubtedly, we have been bequeathed a wonderful city with magnificent streetscapes and dazzling architecture which combines with a cultural richness that pervades even a passing acquaintance with the city. While London was very much alive in the 1960’s, I think it is fair to say that for much of the 1970’s, 1980’s and 1990’s, it fell behind in the natural order of things.

In hindsight, London’s property prices suffered from this sentiment as well as from the negative equity squeeze of the late 1980’s and early 1990’s. Moreover, Britain during this period, was internally politically polarised which affected how we were viewed by the outside world.

In retrospect the proud but rather protectionist Thatcherite view towards Europe, coupled with a Labour party still coming to terms with era of Arthur Scargill, meant that many large European corporations voted with their feet against Britain when it came to locating their European Headquarters. Our near neighbour in Ireland, and in particular Dublin, was, in my view, the beneficiary of this U.S. reaction as evidenced by the fact that Microsoft, Dell, Intel, Google and Apple, all now have their European Headquarters in Dublin and the rest of Ireland.

In fairness to Tony Blair, Gordon Brown, and David Cameron, we are now regarded as a much more outward looking nation and, therefore, London, in particular, was able to benefit from the post-Enron reaction to increasing regulation in the U.S. This consequential internationalisation of London, has had a significant impact on the strength of the central and west London residential markets.

The media has tended to put the strong residential market performance down to being “bonus” related. While undoubtedly this is, in part, true the underlying reason that the market has done so well is that London is attracting an increasing number of foreigners who are coming, either to live, or to establish bases here. The Conservative Party’s recent proposal to have a domicile tax is, not only, tangible evidence of the scale of the internationalisation of Britain but, more particularly, of London.

When the hullabaloo of the sub-prime crisis passes, as it will, the internationalisation of London will, in my view, continue. Many people look towards the Olympics in 2012 as offering substance to this view. While I don’t disagree that the Olympics will have an impact.  I think, ironically, the supply crunch in oil is going to be much more important to London property in the long-term.

What history has taught us, in property terms, is that if the oil producing nations can gain more of an upside in the price of a barrel of oil, then ultimately some of this money (and it doesn’t have to be a big percentage of it) will wind its way back into the western world, by way of investment in central London housing. We sometimes need to remind ourselves the world, after all, is round!

I listened to a debate on the radio last week in which the general public were being asked to vote on who they thought was more trustworthy: an estate agent, a tabloid journalist or a politician. I am delighted to be able to report that despite what many people may have thought, the politician was voted the least trustworthy, closely followed by the tabloid journalist with the estate agent voted the most trustworthy.

Now - I am conscious that none of the three are at the top of people’s favourite professions however I do believe, in London especially, that estate agents are starting to earn the respect we deserve for carrying out a job fraught with difficulties when dealing with people at their most demanding. After twenty five years in the business it never ceases to amaze me what estate agents can get blamed for. It is incredible how sellers and buyers alike can change from charm and respect to vitriol and irrationality upon receipt of some disappointing news. Don’t get me wrong, I’m afraid it will always be our job to be the “meat in the sandwich”, to be the peace maker and be the bearer of good and ill tidings. As a job it’s exhilarating and frustrating, exciting and demoralising all at the same time.

It may be my imagination, however I feel that the reason for this new found respect is the type of people who are now representing our industry. In the past it was an industry that may not have been first choice on the career list but an industry that people ‘fell’ into and in some cases just existed in! Now I believe that we are attracting some really excellent people who have a wide variety of life experience and the ability to see the job for what it is: a fantastic opportunity to deal with real people, selling real things and not just stuck behind a desk in front of a screen for twelve hours a day. At Marsh & Parsons we insist upon utter integrity from our people so they have the ability to empathise with the buying public in a professional and human manner - they are capable of understanding the trials and tribulations of buying and letting property and can understand the opinions of the ‘injured’ party without stepping back from what they know is the right and proper course of action. It is always an estate agents’ duty to act on behalf of the seller or landlord; however I do not believe this makes it impossible for us to treat the buyer or tenant with absolute respect and this is the reason we are starting to gain in the popularity stakes.

In my view, our growing reputation is hard won, should not be given up lightly and indeed should be built upon.