29th July 2016
Foxtons profits before tax fell 42% in the first half of 2016, from £18.1 million to £10.5 million, which the group blames on a slowing London property market, thanks to the EU referendum.
However of the £7.6 million fall in profits, around £2.3 million is down to falling revenues, which is really the maximum hit that can be laid at the door of the Brexit vote says Hargreaves Lansdown.
The remaining £5 million or so of reduction in profit comes from rising administrative expenses, largely because of Foxtons’ branch expansion.
Foxtons opened seven new branches over the course of the year, which led to administrative expenses rising by £5.4 million, from £53 million to £58.4 million.
Shares fell 7% in early morning trading. The share price is now down around 30% since the referendum.
Laith Khalaf, senior analyst, Hargreaves Lansdown says: “Brexit may have taken the shine off the London property market, but most of the fall in profits at Foxtons can be put down to the costs of its branch expansion programme.
“The second quarter of the year appears to have been more challenging than the first, with Foxtons seeing a spike in property sales transactions, ahead of the rise in stamp duty for buy to let investors, which was introduced in April.
“Foxtons now expects weak trading conditions in the London property market for at least the remainder of the year as a result of the Brexit vote, which is making them think again about the pace of branch openings. However they remain committed to their long term goal of 100 outlets across greater London.
“Longer term the jury is out on the impact of the referendum result on the housing market. We don’t know whether there will be an economic slowdown, and how bad it will be, if indeed it does materialise.
“Meanwhile monetary policy remains accommodative, with low mortgage rates, Help to Buy and a chronic housing shortage all helping to underpin property prices. Over the last ten years, the population of London has increased by 1.2 million people, but only 200,000 new homes have been built in that time.
“If the Brexit negotiations don’t go well, the London property market is probably first in the firing line because financial jobs could move out of the city. However, at this early stage it’s far too early to judge the likelihood of this happening.”