Auctioneers are facing a combination of falling house prices in London and the South East and plummeting retail property values on British high streets, compounded by Brexit uncertainty and structural changes in the auctions market itself. The result is that fewer sellers are putting their properties up for auction and, of those that are, fewer are being sold.
Click below to listen to the full roundtable with the auction experts:
According to property auctions information service Essential Information Group, the number of lots offered across the country in the year to the end of May 2019 fell by 9% compared with the previous year to 30,474. Meanwhile the number of lots sold over the same period was 10.9% lower than the previous year. Even more dramatically, the total amount raised at auction during the year to May was 14.8% lower than the previous year at £3.8bn.
At the second EG auctions podcast this year, we ask what this means for the auctions market with George Walker, partner at one of the UK’s biggest auctions houses, Allsop; Oliver Childs, head of commercial auctions at online auctions platform BidX1; Max Mason, associate director at 574, the online auctions business of Lambert Smith Hampton; and Daniel Owen-Parr, national development director at auctions finance specialist, Together Money.
For Allsop’s Walker, the biggest problem auctioneers are facing at the moment is convincing sellers to drop their price expectations in a difficult market.
Getting pricing right
“It’s very public when you have a ballroom auction, the figures are pretty clear to see. The success rate in our May auction was down. I think it was because the market was hesitating,” he says. “It’s about getting the pricing right. Auctioneers always drone on about that. If we didn’t, we wouldn’t be doing our job. With committed sellers and correct pricing and there is a deep market.”
BidX1’s Childs agrees. He says that, although volumes have been falling, the proportion of property sold by auctioneers has remained roughly the same, with EIG calculating average success rates for the year to May 2019 at 74.4% compared with 74.5% a year ago.
“I think what is interesting is that the success rate still seems to be holding up quite well,” Childs says. “So I think for us, the thing is being quite careful with stock selection, working on which clients we should be acting for, getting our pricing right – just to make sure that we can maintain the robustness of the auctions market.”
Yet, although volumes are down, Together Money’s Owen-Parr says that lenders are practically falling over themselves to offer finance to purchasers buying at auction.
“We do see fewer lots out there but we are lending against more properties now,” he says. I think there is definitely more education out there about how you can finance, as well as using just cash yourself. I don’t think there has actually been a better time to get finance. There are more people entering the market now who will lend against property than there has ever been.”
Regional markets’ Brexit boost
For Owen-Parr, there is a split between the Brexit-hit areas of London and the South East, and the rest of the country.
“What I’ve seen over the last few months is some really robust sales outside of London,” he says. “We definitely do see the regions being much busier at this moment in time. We go to a lot of auctions in Liverpool or Manchester and see that there are not just local people buying there now. You get people from all over the country coming to those auctions, looking for that bargain.
“Yield is one of the answers as to why this is,” he says. “Up in the North East you can still get a very nice three bedroom house for £120,000 to £130,000 and you’re still going to get roughly the same rents – £500 to £700 a month – across the north of England. You will get the same there or in north Manchester.”
Walker sees the market shifting in favour of properties which are still able to offer purchasers a secure income stream – no mean feat in an age when online shopping has already caused a spate of high profile retail failures.
“In our market it really comes down to the real estate. If you look at any asset we sell, if it’s a long income, well let and there is growth potential then it’s going to get a good result,” he says. “Our market is shifting, rather than regionally, it’s shifting to the 20% of the better stock we offer. That’s getting as good a price as it ever has done because there are fewer well-let secure income producing commercial assets out there.”
All the auctioneers report an increase in the number of sales taking place both before and after auctions, with buyers attempting to chip at reserve prices in a troubled market.
“We’ve seen a massive uptick in terms of our insolvency clients,” says Mason. “They are seeking certainty and that’s why you’re getting a lot of pre-sales. They want a sale and if someone comes in at a decent price they’re going to take it.”
Mason and Childs both argue that digital platforms are helping sellers to find more buyers by increasing access to the auctions market and by using the increasingly large amounts of data available to track unsuccessful bidders. They add that low overheads also meant that they can offer stock for sale more frequently.
However, Walker, argues that ballroom auctioneers are using the same techniques through online auctions and are also able to benefit from the excitement of a live sale.
End the uncertainty
Nonetheless, all four agree that whether online or offline, one of the main things all auctions sellers and buyers need at the moment is an end to the political uncertainty caused by Brexit negotiations.
“Economics 101 is that markets crave certainty,” says Mason. “As soon as you discover what’s going to happen either way businesses can plan for it. They can then sign that lease that they’ve been negotiating for so long. Then an investor can actually buy that property. It’s just a cycle of confidence. In a way it doesn’t really matter which way it goes as long as you provide certainty.”
“At the moment the market is a little bit thinner than it has been. People are just a little bit unsure,” adds Childs. “We don’t know what’s going to happen. Are prices going to go up post-Brexit? Are they going to come down? What we need in our market is certainty. We need to trade. We need people to be less risk-averse. If they had some visibility in the direction of the market then they will bid and it’s just a question of what level they will bid at. At the moment there is just that uncertainty.”
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