Breaking Property News – 07/11/2023
Daily bite-sized proptech and property news in partnership with Proptech-X.
CoStar Group acquiring OnTheMarket is not the prime reason Rightmove may be in trouble
Though the deal is not yet done it would seem that CoStar Group is intent on acquiring OnTheMarket and replicating its Apartments.com and Homes.com portal play, by quickly supersizing existing lower ranked property portals. Many know that though I have no commercial tie with OnTheMarket or its CEO Jason Tebb, I have been a big fan of both for a very long time, and I think this deal is an important part of the UK’s real estate evolution.
My day job is helping Proptech founders get from MVP to exit, working on a 1:1 basis with the founders, many of my clients are and have been UK estate agency centric, though we have clients worldwide in a number of verticals, but success or failure of a digitally run Saas model business always after market fit is established, boils down to how it operates. And this is where Rightmove has brought possible destruction upon itself.
The real reason that Rightmove’s share price is now trading at 463p down from 588p, is not because the fundamental model of digital advertising of property assets has hit a WeWork or FTX moment, where all of a sudden the business is built upon sand. No the reason Rightmove is in so much danger is that its business model never evolved.
Explicitly, Rightmove’s ‘failure to embrace the so called ‘proptech’ revolution has left it a financially wounded dinosaur’ whose only revenue strategy is now to squeeze it clients annually until the pips squeak.
Those of you who follow me will recognise that I am borrowing my own quote I used in The Daily Telegraph in 2020, when LSL made noises about acquiring the failing agency Countrywide PLC,
For clarity the full quote, from The Daily Telegraph article in Feb 2020 was ‘analyst Andrew Stanton warns: “Estate agencies of the future will be based on captured data and analytics which provide a clear narrative of what the customer likes and wants.” He adds: “A personalised, tech-based service – with connection across digital platforms and smart phones – means there will be less need for hundreds of branches.” Stanton says that Countrywide’s failure to embrace the so-called ‘proptech’ revolution has left it a “financially wounded dinosaur” and that any merger with LSL is really a hostile takeover, with LSL setting the terms.
Now the LSL deal did not happen and it was the Connells group who acquired the assets of Countrwide PLC, but the tale of the largest estate agency in the UK, going from profit to going cap in hand to its smaller rival, in a relatively short period of time does seem pertinent to where Rightmove may be heading.
What the newcomers to Rightmove’s c-suite may be realising is that OnTheMarket’s (CoStar’s) greatest weapon to dominate the portal space in the UK is Rightmove’s perceived, arrogance and indifference to its customer base. More so than the forty million plus budget that has been hawked around as OTM’s year one war chest under new ownership.
Apart from having been an estate agent for over thirty years in a previous life and having an extensive network of business owners as friends, my Proptech consultancy in the last seven years brings me daily into contact with several types of property professionals, and overwhelmingly when Rightmove is mentioned, they feel hard done by, that they are not listened too, and unless they have a large agency they have no power. But by far the biggest gripe is the escalating costs of using Rightmove and the lack of innovation.
Now I know better than most what the delivery costs of a property portal are, and if you can generate a 70% gross profit line (apart from Covid) and at the same time you are growing your revenue base annually, well you are possibly in a monopoly marketplace. Yes there are three major portals in the UK, but if one is like Blockbusters and rents out the majority of videos, it can call the shots.
That is until Netflix which also was a video rental business for many years, puts machine learning into its operations, and listens to what its clients want and caters for it – then you have evolution, which is what is happening all around as real estate digitally transforms from paper to data, and from data to AI generated workflows.
Rightmove’s problem is that its genesis around 2020, pre-cloud computing, was a group of estate agents helping to fund a company that was looking to go from classified print advertising to a digital format for agents. And yes as consumers eyes are drawn to the portal this allowed many ways to monetise this data. But, CoStar Group is a different animal, it is older and it is primarily a product and tech business, so OTM will also be a launch pad for innovation into the commercial and residential real estate space in the UK, as well as listing inventory.
Which is good as there is a tsunami of property technology that needs to get embedded into analogue property professionals businesses, because over 50% of the world’s population is under 30 years of age and are digital natives, seeking businesses who talk their language and deliver modern propery services in the 2030’s.
The UK property market reflects resilience and stability in Q4 2023
As the year draws to a close, the UK property market is entering into a calmer and more stable landscape. This is according to Nicky Stevenson, Managing Director of Fine & Country, commenting, “Based on the data, we seem to be entering a more settled landscape in the final months of the year. The market continues to display resilience in the face of the wider economic environment, with month-on-month property transactions fairly consistent, supported by committed movers and realistic pricing.”
According to data from Nationwide, house prices saw a 0.9% increase in October, marking the largest monthly rise in over a year. Stevenson adds, “Pricing sensibly remains key, as purchasers are cautious not to overpay. Rightmove data further reveals that 37% of properties have had their asking prices reduced since the beginning of the year. Good quality properties in sought-after locations continue to attract strong interest, with the average price of a prime property standing at £1,258,671. On an annual basis, there has been a slight softening of 0.8.”
The property market appears to be entering calmer territory with unemployment figures and inflation remaining same, and the bank rate being held at 5.25%. According to HMRC, property transactions have remained stable since June this year, although they are down compared to last year. The Royal Institution of Surveyors reports a decrease in homebuyer demand compared to last year, but it has improved since August.
Mortgage approvals dipped to 43,300 in September, below the long-term average. However, according to the Bank of England data, this is a 9% improvement from the start of the year. Although activity from mortgaged buyers is down, the number of cash buyers remains steady and is set to be the second-largest buyer group this year, following first-time buyers. Zoopla statistics indicate that cash buyers accounted for one in three sales in 2023, compared to an average of one in five over the last five years.
“Looking to next year, with anticipated falling interest rates and inflation tracking to reach its target of 2% in the first half of 2025, the property market’s momentum is expected to gather pace. Combined with pent-up demand and the usual springtime uplift in buyer interest, we anticipate a positive shift in market activity,” Stevenson comments.
Despite subdued demand, there are promising signs of recovery and green shoots appearing. Competition in the mortgage market is growing, and consumer confidence has reached its highest level since January 2022, according to the GfK Consumer Confidence Tracker. TwentyCi data reveals that property supply above £1 million has risen by 9% in the past year, albeit remaining below pre-pandemic levels.
Stevenson notes that despite facing significant challenges, the property market remains resilient, as demonstrated by relatively small price falls. Larger house price falls have been protected by low unemployment, growing incomes, and a small but positive growth in the economy. Mortgage lenders are assisting customers with refinancing, limiting the number of forced sellers.
“All eyes are now on the government’s upcoming Autumn Statement to provide a clearer indication of the UK economy’s outlook. Reports suggest that the government is considering an inheritance tax cut, with the potential to abolish it in the future. This news is particularly welcome for homeowners, as the current inheritance tax is charged at 40% for estates worth over £325,000, with an additional £175,000 allowance for a main residence passed onto children or grandchildren.
Married couples can share the allowance, enabling parents to pass up to £1 million to their children with no tax to pay. With rising house prices over the long term, more people are becoming subject to the tax,” Stevenson concludes.
Andrew Stanton Executive Editor – moving property and proptech forward. PropTech-X
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