Estate agent Foxtons said tougher stamp duty rules and harsh trading conditions in London caused earnings to almost halve last year.
In a trading update this morning, Foxtons said revenues hit £133m in the year to the end of December, down from £150m the year before. Meanwhile, quarterly revenues fell to £26m, from £35m the year before.
Adjusted earnings before interest, taxation, depreciation and amortisation fell to £25m – just over half the previous year's £46m.
Sales at the London-focused agent were hit particularly hard, with revenues in its sales arm falling to £12m in the final quarter, from £20m the year before. But while it has previously been able to rely on lettings to make up the shortfall, in the final quarter revenues were flat on the year before, at £13m (although the figure was in line with expectations).
Shares fell 8.3 per cent to 90.75p as the market opened.
Why it's interesting
It's become increasingly clear in recent months that the stellar house price growth experienced in the capital in recent years has ground to a halt, and Foxtons is living proof of this.
The company, which focuses almost entirely on central London, was hit particularly hard as the government sought to tip the scales in favour of first-time buyers, and against landlords and second home owners, with new measures hiking stamp duty on buy-to-let homes, making it harder for foreigners to buy second homes in the capital and placing restrictions on mortgage lending.
To add insult to injury, in November the chancellor ruled that landlords, rather than tenants, must shoulder the cost of estate agents' fees. This morning figures from Homelet suggested rents in the capital rose two per cent in December, compared with 6.8 per cent in the middle of last year.
But Foxtons insisted it was making "good progress", building presence in the private rented and new homes sectors, and opening seven new branches.
However, it warned 2017 is likely to remain "challenging", warning that if conditions persist, volumes are likely to be below those of 2016.
What Foxtons said
Chief executive Nic Budden said:
Looking ahead, we expect trading conditions to remain challenging in 2017. Should current levels of sales activity continue in the short term, it is likely that 2017 volumes will be below those in 2016.
Our balanced business model provides resilience against sales market cycles and we have a strong balance sheet with no debt. Our high-touch approach to customer service continues to be a key differentiator and as the most recognised residential brand in London, we are uniquely positioned to manage through the market uncertainties and take advantage of any change in conditions.
What analysts said
Anthony Codling, equity analyst at Jefferies International, said:
Lettings remains a silver lining, performing in-line with expectations
Foxtons can do many things, but it cannot change market conditions. The sales market in London is tough, but one can rest assured Foxtons is not taking this lying down, marketing (physical and digital) and cost control are top of the agenda. 2017 will be tough as will the comparatives after unusual volumes following last year’s stamp duty changes. The group will do well to see profits flat in 2017 and at this stage we would not be surprised to see this years profits below those delivered in 2016
Tough conditions in the capital are hitting estate agents – and Foxtons is no different. Expect weakness to continue into 2017.