Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Categorized | Property

UK estate agents: rent seeking

Posted on November 23, 2016

Money for old rope is how most tenants would describe the various administrative fees charged by an agent before they can move into a rented property. So there was schadenfreude all round when the government said on Wednesday that it would legislate to ban them in England and Wales. Shares in leading listed estate agents Foxtons and Countrywide fell, but the long-term impact should not be significant.

Estate agents have increasingly turned to rentals as a less volatile revenue stream, especially as sales volumes in the capital have shrivelled. The vast majority of the income from lettings comes in the form of a percentage-based charge on the gross rent.

Take Foxtons, the enfant terrible of the UK rental market in the eyes of many millennials. Its average property rents for £440 a week on a tenancy of 18 months. Net of tax, and adjusting for the proportions of tenancies that end or renew, tenants could expect to pay about £446 in one-off fees. That is less than a tenth of the overall income that the tenancy generates for Foxtons. Assuming that the hit to profit is the same, and given that lettings account for half of group profit, that implies a 5 per cent drop in annual earnings.

Those who oppose the ban claim that the charges will simply be passed on as higher rents. In the example above, rents would have to rise 12 per cent to make good the income to the agent lost from tenant fees. Such an increase seems implausible; it is more likely that the income foregone will be loaded on to landlords or absorbed. Margins of 30 per cent before interest, tax, depreciation and amortisation suggest there is ample scope to do so. The experience of Scotland, where a ban on fees was introduced in 2012, corroborates this. Rents rose a little, then drifted back.

And the change does not really alter the longer-term picture. Private renting is on the increase, especially in cities. Foxtons points out that the number of privately rented homes in London has increased at over 7 per cent a year since 2004. Agents have far more to fear from digital disruption of their business model than from a ban on tenant fees.

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