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Green shoots - from the hip
publication date: Apr 13, 2009
author/source: Danielle Simpson
Ronnie Green has seen it all: three recessions, huge changes in legislation and revolutionary technological changes across the industry. It takes a certain kind of individual to navigate such sea changes and by his own admission, Ronnie is an action junkie – whether it’s running 1,500 staff or indulging his sporting passions of sailing, diving and piloting aeroplanes.
Ronnie, the all-action entrepreneur, sold his business to Countrywide 12 years ago, joining the company to head up its London-based brands John D Wood, Faron Sutaria and Gascoigne-Pees lettings arm. US private equity firm Apollo’s acquisition of Countrywide promoted him to head of Lettings and Management, an appointment he relishes even in the current economic climate. His vision is characteristically positive, of a UK more like Europe where renting provides a viable long-term alternative to buying.
PD What are your predictions for the market?
RG Rents will continue to drop as vendors find they can’t sell their properties and more homes come onto the market. With supply outstripping demand, landlords must be more realistic about their rental returns. Agents will have to stick more rigidly to fee structures as the lower the rentals go the less agents will earn. This industry is here to stay and will be strong in the long term. It’s a growth industry and in the future the UK will become more like the continent where renting is a way of life.
The recession is further propelling us towards that model. People are happy to rent knowing they have flexibility. This change is also being fuelled by the increased movement of labour and changes in relationships. Tenants don’t want the responsibility for repairs either. I think the size of the UK lettings market will increase, not just because there are more properties available but because people will start buying property in their mid to late thirties. Historically buyers have climbed onto the property ladder in their twenties. This trend will undoubtedly stabilise the sales market as people will buy when they can afford to buy thus the peaks and troughs will, to some extent, be evened out. The market will recover gradually and the shock of this recession will cause banks and building societies to rethink – and behave better. The recession will definitely leave a scar that will take a long time to heal.
PD What can be done to boost the sales market?
RG This is the third recession I’ve seen and every time it’s the same story – it’s a result of too much money being made too easily and too many people borrowing. The banks always come to grief. In 1974 and 1988 a lot of building societies came unstuck by lending up to 125 percent of value and now, like then, we are two years behind America. In 1986 many savings and loans companies in the US got themselves into serious trouble so it’s nothing new. Fundamentally, the banks need to have longer memories and lend within sensible criteria. Only then will the market stabilise.
When banks strive to lend more than their competitors they lower the bar and produce toxic loans. They need to be sensible. Institutions should never lend more than 75 per cent of a property’s price. If you can’t afford a deposit and the monthly mortgage payments you are over stretched and should opt to rent. Buyers shouldn’t be allowed to borrow more than 3.5 times their combined income either. If they do, they’ll have no disposable income and no money for emergencies so when interest rates rise they are in trouble.
PD What about Stamp Duty. Is it too high?
RG It would be great if Stamp Duty was lowered at the top and lower ends of the market. If the threshold was raised it would help, but I’m not sure whether it would tip the balance although it would certainly encourage people to move. The threshold doesn’t take into account the fact that property prices have risen so much. Today the actual threshold of Stamp Duty doesn’t buy you a lot so it should go up but raising it alone won’t make or break the market.
PD What is your advice to landlords in the recession?
RG Listen to the advice of lettings agents and estate agents because you are paying for that advice – just as you’d pay for a lawyer’s advice. Unfortunately a lot of landlords are obstinate, often because the banks dictate what rental income they require, but they have to realise we live in a changing world and that agents speak from experience. If we can minimise void periods by adjusting the rent landlords will be happier and savvy landlords should not only accept advice on pricing, but also bring properties and furnishings up to the standard recommended by their agent. That is vital.
PD Have you seen an increase in rental arrears?
RG We’ve not found a huge increase in rent arrears. I would expect there to be more rent arrears in the areas around city banks and in docklands where tenants work and reside but overall no. We carry out effective credit control regardless so if rental payments were late we’d take the necessary steps promptly.
PD And in recession, what’s your advice to agents?
RG Communicate with your client when there has been a mistake or you are running behind with a task – don’t stick your head in the sand hoping the problem will go away. If you haven’t managed to deliver something apologise and explain why, then reassure them you are on the case. The same applies for property management issues as it’s easy for mild irritation to grow exponentially through silence. Make management phone calls quickly. Servicing clients and customers on an emotional level is important for sustained business growth.
PD Will we see more agents going out of business?
RG The more legislation that comes in, the more work involved so the harder the costs of running a business. Legislation forces agents to be less flexible with their fees because legislative changes require someone to be employed to implement them. Whereas any lettings agent can be flexible initially or when property is easy to let, it is far more difficult to be flexible when costs are going up because one still has to make a profit.
PD How is technology affecting estate agency?
RG Technology will never replace the human touch. A lot of people are talking about estate agency becoming obsolete but although people can get together without the middle-man. But will a tenant really want to rent a property if they don’t know the property is being looked after or if the landlord hasn’t complied with health and safety legislation? Similarly, as a landlord, would you want a tenant in your property when you haven’t been advised whether it complies with current legislation and which contract to use? How would you know you had the right paperwork regarding renewals and terminations? It’s all very well talking about cutting out the middle-man but personally I don’t think it will ever happen. You’ll always need a back office operation for property management and credit control.
When it comes to selling, vendors need advice regarding the best possible price too otherwise they will end up losing a lot more than the cost savings made by short circuiting estate agents’ fees. Technology is a useful aid but that’s as far as it goes.
PD What’s your view on Foxton’s case for renewal fees?
RG If Foxtons lose I think it will backfire on landlords as lettings agents are the best resource they have. If agents are discouraged from looking at the renewals side of the business the resulting voids will cost landlords a lot more than the renewal fees would have done. I’m a landlord myself and am very happy to pay renewal fees because they mean I have no voids. I’d be happier to pay the renewal fee than have a void period and face paying an additional fee to find new tenants.
The fact that the OFT is continuing the argument against Foxtons is ridiculous! When you take out an insurance policy your broker gets commission every year that you renew – and he does a lot less for that money than letting agents do on renewals – yet people are happy to pay that commission. What’s the difference? I have very strong views on that.
PD Do you have equally strong views on HIPs?
RG I don’t have particularly strong views on HIPs or EPCs. If you prepare a report on any property it saves time when it comes to letting or selling it so I don’t agree or disagree. I think it will take more than HIPs or EPCs to make or break a market. I guess anything that may add to the safety of a property is not a bad thing. I have no problem at all with laws that govern tenant safety as they are of paramount importance.
PD What changes will we see at Countrywide?
RG Countrywide has 1,000 branches and we plan to place lettings departments into those which have not had a lettings function to date. Lettings provides a sustainable long-term income stream that generates more value in business terms than sales income. Naturally we need to choose our managers and locations carefully, and ensure branches are not in competition with existing lettings teams. Branches must also provide the space to accommodate a lettings service. We currently have 150 lettings branches and plan to increase that number to 174 by the year end through a process of start-ups. That number could increase significantly with acquisitions.
Danielle Simpson of thebrandeffect was talking to Ronnie Green for PROPERTYdurm. Log on to www.thebrandeffect.co.uk for info.