"It is difficult to see how Labour can honestly expect to retain credibility with the bond market, and, notwithstanding the PM’s support for Ms Reeves, it would, in our opinion, be beneficial for Mr McFadden to take over. Things need to change – doing the same thing over and over and expecting a different result is bonkers"
- Charles Curran - Maskells
“Some recent publicity has suggested that salespeople from another firm were afraid to reveal to a client the drop in value of a security. If we ever, either due to pressure from a client or from the foolishness of our own salespeople, give a client a market indication that masks the true picture, we will ask the salesperson to buy $1,000,000 worth of those securities at the overly optimistic price”
Paraphrased from “Memos from the Chairman”, Ace Greenberg, May 9th, 1994
This memo came to mind whilst reviewing some of the sales prices in the Prime Central Property Market. Whilst there is no doubt that the mood in the Market has changed since the heyday of 2014 and prices are down, it seems to us that many salespeople either do not understand what is happening, politically or economically, or they do not care, and continue to value properties at prices which are overly optimistic to win instructions.
This has led to many properties not selling or eventually being withdrawn. Our research shows that 58% of flats between £1-£3m in our patch have been withdrawn from sale in the past 3 months. There is, however, value in the PCL market for both buyers and sellers, and honest advice will help find it. Inaccurate asking prices just lead to frustration and fewer sales.
Politically and economically, the UK is on a knife-edge. Interviews with Labour politicians suggest that they are out of touch. For example, they believe that non-doms did not pay tax, and there appears to be a sentiment of “good riddance”. Facts and figures are ignored, and the same belligerent arguments are repeated in the hope that if repeated enough, they will become true.
This thinking is entrenched, and we doubt that much will change as a result. Worse than that, the Prime Minister seems to have lost control of his party. The expected welfare cuts of £5bn have been gutted, and it is inevitable that taxes will now rise. Labour is full of new MPs, most of whom have never worked in the private sector and honestly believe that redistribution of wealth is paramount. Economies do not grow with this mindset, and Labour must remember that running a country is not running a charity.
The ideology that is the redistribution of wealth is difficult for any Chancellor to manage, and Ms Reeves is likely to be under a great deal of pressure. The charged Prime Minister’s question time on Wednesday led to a 7% sell-off in Sterling and spooked the bond market, pushing the 10-year gilt up 4.33% to 4.66%
It is difficult to see how Labour can honestly expect to retain credibility with the bond market, and, notwithstanding the PM’s support for Ms Reeves, it would, in our opinion, be beneficial for Mr McFadden to take over. Things need to change – doing the same thing over and over and expecting a different result is bonkers.
But it’s not just the amateurish way this government is managing the public finances which is of concern, as there are other factors affecting the growth: even with a rapprochement with Europe, the EU just blocked the UK’s attempt to join the pan-European trading block.
The uncertainty of the impact of US tariffs on economic growth remains, but even this might be overshadowed by the inactivity the UK will endure this summer as business waits to see what happens in the Autumn statement. AstraZeneca's talk of delisting and going to New York further highlights the decline of London as a major financial centre. We do not see the green shoots of recovery currently, other than in defence sector stocks…
As we settle down to consider this rather bleak outlook with a digestive and a cup of tea (because that’s what we do), we, as agents, must consider what will support the PCL property market going forward. Realistically, we do see the market falling further. But that has not stopped some of our competitors from pushing high (some might say unrealistic) asking prices, which only results in confusion from both sellers and buyers.
By way of example, in the past 20 or so transactions in our patch, the average discount needed to sell a property is 19% from the original asking price. The market tends to talk about a 10% discount, and that usually reflects the discount from an amended asking price to the sales price, omitting the first discount. The properties which have not sold have, on average, before they are withdrawn, only seen a discount of approximately 11%. Our assertion is that many of these properties came to market with overly ambitious asking prices.
Using data from Lonres.com, we have seen an increase in properties withdrawn as prices (and expectations) are not met. In our patch, there were 92 flats withdrawn in the past 3 months in the £1-£3m range vs 68 sold. In the £3m to £5m market, there were 21 flats withdrawn vs 16 sold, but 29 houses sold vs 18 withdrawn. In the £8m+ market, there were eight houses sold vs 22 withdrawn.
Currently in SW3, there are 151 properties for sale between £3m and £8m, with only three under offer not showing and overall, in our patch, in the £7m to £10m market, there are 87 houses for sale and only one under offer. There is a market, but expectations need to be managed, and there are not as many transactions as one might expect. For the week of 20th June, according to Zoopla Pro, Maskells was 1st out of 146 agents in our patch for sales with three transactions. Of the 145 other agents, many had no transactions at all, and this is peak season.
Through Maskell's extensive marketing reach, we are identifying and guiding genuine buyers in the market, and we have just exchanged contracts on a £16m off-market sale, a £5m flat in Chelsea, a £5m house in Chelsea and a wide array of smaller flats and houses. Our transaction volume has been far greater than we had hoped for at the start of the year, and crucial to this has been the forward-thinking advice.
The point is that we are successfully selling in the context of the market. Of instructions that we do not win, because we are realistic with our values, many often come back to us a few months later. Being an honest broker can only benefit all parties and give confidence to both sellers and buyers, and this is what is needed in today’s market. Our market is supported by the sellers who will not give away their properties cheaply, and this encourages buyers, but when asking prices are so far from reality, the market freezes.
Over-optimistic pricing does not help anyone, particularly with our current national and global economic outlook. If salespeople, who seek to win instructions by masking the true market picture with high asking prices, were forced to put a million of their own money into the transaction, there is no doubt that more accurate prices would be immediately forthcoming, which would result in a more efficient and honest market.
At Maskells, we have not sought to mask the true nature of this market, and with hard work, we have seen positive results: a house launched 2 weeks ago at the right price has attracted over 30 viewings with offers forthcoming.
