Scrutineer: Upmarket property woes

Published on Tuesday 8 July 2008 21:50

Savills 193p -22.25p Dunelm Group 117p -7.5p

SILK frays as much as cotton. Upmarket estate agency Savills' share price was clobbered yesterday as it made plain that the luxury end of the residential property market was not immune to the current ravages of the wider sector.

Chief executive Jeremy Helsby said the industry had hoped the downturn in the mortgage market would be short lived.

The optimistic scenario was a difficult first half of the year followed by a rebound in the second, he said.

Instead, Helsby says life at the ritzy end of the street has got much worse since the spring.

Shares in Savills, which also offers property consultancy, management and investment services, plunged 10 per cent.

Far fewer bonus-confident City operators in the sepulchral financial services atmosphere are obviously not helping the likes of Savills, Foxtons etc, which have a strong London presence from Blackberry-bright Notting Hill to Porsche-flecked Canary Wharf.

Savills said in its latest trading update that sales of luxury homes in the previously soaring London market crumpled 45 per cent in the first half of the year.

Even worse, Savills said there were signs that the London malaise was now moving out to affect prime country property.

As the company made 20 per cent of its profit from its UK residential business last year, the implications for full-year profits are stark. Hence the share price reaction yesterday.

The only part of the market still remaining above the fray of tighter mortgage conditions, says Savills, is properties over 5 million.

Phew. Thought we were in trouble there, for a minute.

BUILDING societies, those bastions of good old-fashioned conservatism, have benefited from the bombshell-magnet that is the publicly quoted banking market.

Nowhere is this seen more than in current retention levels of mortgagors in the societies.

For instance, Dunfermline Building Society's head of business development, Simon Cocker, tells me that his society's current retention level is just shy of 80 per cent.

Historically, that would be regarded as some kind of gold standard for keeping customers.

Cocker says this is partly because of the general malaise in the mortgage market, where consumers are now finding it much more difficult to get the sort of remortgaging deals that they had got used to from thrusting new mortgage players. They are just not available.

Even so, Cocker says he does not see building societies using their current relative position of strength to launch a raft of expansion initiatives.

"It is more a case of running a steady ship at present, battening down the hatches. Members of a mutual organisation would expect that," he says. Quite so.

HOME-RELATED retail shares are on the carpet at the minute. A swathe of the high street linked to the fortunes of the distressed housing market is bobbing about dejectedly in the water in the bow wave from the bricks-and-mortar ship.

Department store group John Lewis, DIY chains B&Q and Homebase, Tesco's non-food offering and a host of other retailers with housing exposure have testified to this.

The latest to flag up problems is home furnishings retailer Dunelm Group, leading to a 6 per cent fall in its share price to a new low. Dunelm's like-for-like sales in the quarter to 28 June fell 2.4 per cent, cutting the rise in like-for-likes in the full financial year to 2.5 per cent.

This is likely to lead to broker downgrades. Landsbanki has already cut its forecast for fiscal 2009 by 10 per cent to 47.2 million, and for the following year by 18 per cent to 50.3m.

It is another example of analysts believing the high street downturn, particularly where connected with housebuilders, will be saucer rather than V-shaped.

Meanwhile, whether spotting a chink in the gloom or whistling tentatively among the taffeta, Dunelm boss Will Adderley says the tough conditions could throw up opportunities for expansion.

Presumably this can only mean the hope that falling property markets will throw up cheaper real estate opportunities for the retailer to expand.

It's a point of view, I suppose.