Almost one in five companies in the British property industry are in financial distress after it was hit with slowing market activity as a result of changes to stamp duty an uncertainty surrounding the referendum.
According to research by Begbies Traynor, the insolvency specialists, more than 25,000 companies in the industry – equivalent to 18.3pc of real estate companies including property managers, residential landlords and lettings agents – are in this condition. The figure is some 6.6pc higher than at the same time last year.
Begbies said that of those in distress, a third are unlikely to be trading in three years’ time. This is measured by its “Red Flag Alert” which monitors negative business practices such as county court judgments and late bill-paying.
Estate agents have been hit particularly hard, registering an 11pc rise in “financial distress” over the past 12 months. The data suggests 25pc of estate agents across the UK are facing financial problems.
Activity across the UK’s housing market has slowed, as reported by the Royal Institution of Chartered Surveyors which said that the number of homes for sale is at a record low and buyer inquiries are also down. There have been fewer transactions, particularly in the capital where the high-end property market slowed, partly due to the increase of stamp duty for homes worth more than £1m in December 2014.
Traditional high street estate agents are also being challenged by online upstarts offering similar services for a lower price. As a result of this environment, the share prices of listed estate agents such as Foxtons and Countrywide have fallen steeply this year, by 44.6pc and 56.3pc respectively, although there is no indication that either company has been issued a ‘Red Flag Alert’.
Next year, the property industry will continue to be hit by policy: there will be a clampdown on letting agent fees, as revealed in the Autumn Statement, and the phasing out of buy-to-let tax relief from April.
But Begbies Traynor said that levels of financial distress across the industry peaked in June 2016 before the referendum, suggesting that voting to leave the European Union did not contribute to the increase in businesses being given the ‘Red Flag Alert’.
Julie Palmer, a partner at Begbies Traynor, said: “Without doubt, 2016 has been a difficult year for the UK real estate industry. Not only did it have to contend with a major slowdown in activity in the run up to the EU Referendum, but over the past 12 months it has also borne the brunt of crippling public policy changes, which have rocked the sector to its foundations.”
She added: “However, while levels of financial distress across the sector are much higher than at this stage last year, positive trading in the months following the EU referendum suggests that any potential negative Brexit impact on the housing industry may still be some way off.”