Property market woes weigh on listed agency and building brands

The slower sales market has started hitting high-profile agency and property brands.

Agency franchise brand Winkworth’s half year results yesterday showed network revenues were down by 5% annually to £26.4m, while pre-tax profits fell 24%.

Meanwhile, housebuilder Barratt Developments’ full-year results showed revenue was up 1% to £5.3bn, helped by higher selling prices, but underlying operating profit fell 18.2% to £862.9m due to higher build costs and lower demand hit

Winkworth warned that its first half was impacted by a weaker second quarter for sales with some completions being delayed into the second half of the year. It said lettings revenues continued to show strength

The franchise brand said sales transactions in the first half of this year were constrained by rising interest rates but said a high level of employment and wage inflation in the UK, alongside a sharp rise in rental prices, helped it beat expectations.

Despite the uncertainty, Winkworth said it achieved the highest volume of sales subject to contract (SSTC) of the top 10 operators in the first half of 2023 and the largest number of exchanges. 

In addition, it had the lowest number of properties withdrawn from sale and were the fastest agent in SSTC, based on TwentyEA data.

Pipelines of agreed sales have begun to rebuild since the start of the year, Winkworth said, but as transaction timeframes have been slow, many of these agreed sales will not complete until the second half of this year. 

As part of its management of the network, Winkworth said it proactively introduces new buyers to offices that may be looking to exit or for whom the platform is no longer suitable. In certain cases, it said, if the group's conditions of business are not met, it is compelled to negotiate the exit of a franchisee.

The update said: “We have this year had to take these steps on several valuable franchise territories that we will look to re-franchise to talented operators in the near future. As a result of this, we anticipate no net change in the number of offices this year, but are confident of going into 2024 with a stronger portfolio.”

Dominic Agace, chief executive of Winkworth, said the outlook for the rest of the year depends on the perceived and actual end of the tightening cycle and the Bank of England's success in managing inflation down towards its target. 

He said: “This will continue to impact directly on the stability of the mortgage market and the number of products available as well, of course, on buyers' confidence.  

“We expect, however, sales market activity to be underpinned by strong employment, sellers coming to the market to manage mortgage cost increases, and buyers motivated by the lack of availability of suitable rental accommodation.  Expectations are increasingly that, having entered a new era of structurally higher interest rates, we will not be returning to the ultra low levels previously seen. The growing belief is, therefore, that there is no purpose in further delaying a purchase if suitable funding can be arranged.

“With post pandemic factors fading, we expect to see a slowing of applicants for lettings. But with supply also reducing, competition for properties will remain intense. This will support rental prices, but affordability ceilings are beginning to limit further increases and we anticipate that these will revert to tracking wage inflation.”

The markets appeared happy or at least satisfied with the results, with Winkworth’s share price rising 0.69% during trading to 146p.

Investors appeared to be tougher with Barratt Developments though, which saw its share price fall by 0.79% yesterday to 439p, after it reported that home completions declined 3.9% to 17,206.

David Thomas, chief executive of Barratt Developments, said: "We have delivered a strong operational performance in a challenging operating environment. Customers continue to face cost of living and mortgage affordability challenges, and new developments are increasingly constrained by an ineffective planning system. The results reflect the hard work and dedication of our teams and the decisive actions we have taken as a business to respond to market conditions.

“Whilst we expect that the backdrop will continue to be difficult over the coming months, we are a resilient business with a strong balance sheet and an experienced management team. We remain committed to building the communities that our customers want to live in - delivering high-quality, sustainable homes at competitive prices to help address the country's housing crisis and drive long term, sustainable growth for our business."