The growing malaise in the UK housing market is expected to be underlined this week when Savills, the estate agent that specialises in selling upmarket properties, confirms that transactional volumes are down about 45 per cent on this time last year.
In a separate blow to the industry, Foxtons, which is famous for its fleet of branded minis and its feisty sales tactics, is understood to have called in bankers at NM Rothschild to advise the group on restructuring its debt, a year after it was bought by the private equity firm BC Partners.
Savills, which will report its half-year results on Thursday, has already reported a wide-ranging cost-cutting exercise that will involve reductions in its adverting budget and redundancies. A spokesman for the group declined to say how many people are expected to leave the firm, but said that reports in The Observer newspaper that scores would be cut were "gilding a lily". The group employs 17,000 people worldwide, of whom between 3,500 and 4,000 work in London.
According to reports, the agency's chief executive, Jeremy Helsby, has told staff at the firm's 111 UK offices that he sees house prices falling by 25 per cent by the end of next year. He does, however, believe that house prices in London will return to 2007 levels by 2012.
Savills is known as the "posh estate agent" because of its association with the upper end of the market. The spokesman for the firm, however, said top-end residential property represented just 20 per cent of the company's activity. The 160-year-old company is understood to be benefiting from having an Asian property management business.
Since the onset of the credit crunch, sales of homes worth above £1m are at a practical standstill. As the number of job loses in the City escalates, so those that underpinned the top end of the housing market have been forced to rein in ambitions for ever grander homes.
The group has previously said that house prices have already fallen by 10 per cent in the capital since last year. The spokesman for the group, however, argued that it is the slump in the volume of houses being sold that has led the cost-cutting. The group's share price closed at 240p last Friday, down nearly 50 per cent in the past 12 months. Analysts at the group's own brokers at ABN Amro are predicting that the profits will fall significantly for the whole year and that the dividend will be frozen.
Savills, however, is not the only estate agent to be feeling the heat of the economic downturn. Foxtons, the London-focused group that was bought by financial sponsors BC Partners last year, has called in the investment bank NM Rothschild to review the group that will most likely include a restructuring of the agency's debt.
The company borrowed £390m from Bank of America and Mizuho just before both the capital markets and the housing sector turned last year, leaving the firm facing repayments of £26m a year.
While the group insists that it is not close to breaching any of its banking covenants – conditions measuring turnover in relation to debt laid down by the lenders to ensure that Foxtons does not overstretch itself – it has not replaced 60 staff who left voluntarily in February.
If the group did get into serious trouble, the banks could take ownership of it or ask BC Partners to inject more equity. Both scenarios are unattractive, but if the housing market continues to fall without any sign of improvement, the banks could be forced to act.
It is not just London, however, that is causing the estate agency industry a headache. Last week HBOS said that it was closing 53 offices nationwide that belong to its Halifax chain, with the loss of about 100 jobs. The move comes as part of the bank's "selective asset disposal" programme, which has become necessary after HBOS saw its profits dip by 70 per cent in the first half of the year.
The average price of a home in the UK was £177,351 last month, down from £199,084 in July 2007.Reuse content