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OPINION

Property Matters: Property franchise looks past the gloom

Property Matters: Property franchise looks past the gloom
April 21, 2017
Property Matters: Property franchise looks past the gloom

However, the main franchisers remain relatively upbeat, working on the assumption that weakness in transactional volume can be offset by grabbing a bigger share of what remains a highly fragmented market. There are also opportunities to broaden the revenue stream to include avenues such as mortgages, sales as opposed to just lettings and other financial services including advice and insurance.

To accelerate the process of increasing market share Belvoir (BLV), has come up with a programme known as assisted acquisition. This is a system whereby Belvoir lends up to 30 per cent of the purchase price to any franchise owner looking to buy another estate agent. This is working well, as it provides an instant uplift in fee income both for the franchiser and franchisee. Group lending of £551,000 in 2016 will add £243,000 to Belvoir's management service fee income. Fee income has already shown impressive growth, jumping by 59 per cent last year to £6.4m.

Belvoir bought Northwood, the largest remaining independent property franchise network, with 87 outlets, taking UK coverage to 300 outlets managing nearly 56,000 properties. Broadening the income stream has been enhanced by moving into straight sales, a complement to the letting side, and revenue from this rose by more than half last year. This is a useful addition to the services on offer, with a big majority of landlords wishing to sell their property being converted into a sales instruction for the franchised office.

The proposed ban on agents charging tenants letting fees is not the sledgehammer blow that some thought it would be. Letting agencies are not going to provide services, some required by law, without being paid, and the onus is likely to fall on the landlords, who in turn will seek to recoup the extra expense through higher rents, which translates into something of an own goal for the legislators, because the idea was to relieve tenants of what some regarded as a relatively opaque system of charges.

The Property Franchise Group (TPFG), formerly known as MartinCo, is adopting a similar upbeat approach, and has added an additional string to its bow with the acquisition of EweMove Sales & Lettings, an online hybrid agent. In the market as a whole, the online side is still quite small in the UK, accounting for just 5 per cent of transactions, but this seems likely to grow once the business model gains acceptance, and with its traditional high-street franchise chain Property Franchise is nicely placed by having an interest on both sides of the fence.

Buy-to-let remains a key source of income, and landlords have been generally reducing gearing, which is good news considering that mortgage interest relief is now being tapered. For those who find that new regulations make their position untenable, there is evidence to suggest that properties coming on to the market will be snapped up by the larger landlords, who are not reliant on mortgages. It's also worth noting that some landlords are incorporating their activities into trading companies to avoid the stamp duty charge and retain the benefits of mortgage interest tax relief.

It seems then that the franchise model still has legs, although it remains vulnerable to any further heavy-handed attempts by the government to raise additional revenue. Demographics are also favourable. Nearly 20 per cent of all households in the UK, or 4.5m, are in the private rented sector, while the social rented sector accounts for an additional 17 per cent. Official numbers project a population in excess of 70m in under a decade from now. This is putting upward pressure on rents, and by 2025 it's estimated that 1.8m more households will be looking to rent. Undoubtedly, some of these homes will be supplied through a fast-growing build-to-rent sector, but given the scale of the growing demand, private landlords and property franchisers look here to stay.