Political considerations aside, the possibility of Brexit has sufficiently spooked estate agents enough that the CEOs of both Countrywide (LSE: CWD) and Foxtons (LSE: FOXT) spoke out last month over Brexit-related worries. Countrywide CEO Alison Platt said that the company is ?mindful of the political and economic uncertainty surrounding the EU referendum we are taking a cautious view of the coming months.? That may not sound very dramatic, but this type of comment from management should be a yellow flag to investors. Platt may have simply been downplaying expectations for the next few quarters, but Brexit has the possibility to… Political considerations aside, the possibility of Brexit has sufficiently spooked estate agents enough that the CEOs of both Countrywide (LSE: CWD) and Foxtons (LSE: FOXT) spoke out last month over Brexit-related worries. Countrywide CEO Alison Platt said that the company is “mindful of the political and economic uncertainty surrounding the EU referendum [and] we are taking a cautious view of the coming months.” That may not sound very dramatic, but this type of comment from management should be a yellow flag to investors. Platt may have simply been downplaying expectations for the next few quarters, but Brexit has the possibility to wreck major havoc on the UK’s property market. A recent report by Standard & Poor’s found that voting to leave the EU “could potentially reverse the significant boost to real estate asset values that the UK, and London in particular, has experienced in recent years.” Of course, there are other research outfits that have found Brexit would have little effect, but it stands to reason that decreased immigration and businesses moving operations into Europe, as several have planned to do, would slow demand in London at the very least. This uncertainty is the last thing Foxtons and Countrywide need as GDP growth this quarter is forecast to slow to near non-existent and a litany of outside factors weigh on the traditional high street agencies. Chief among the outside factors investors need to fret over is the rise of online-only estate agents. Companies such as easyProperty and eMoov offer fixed-fee property sales starting at £495, well below the 2.5% of the final price Foxtons charges. And while online agents currently only have 5% of the overall market, they’re impacting their larger rivals’ bottom lines. In 2015 Countrywide’s average sale price fell 3% year-on-year and the company placed the blame squarely at the feet of online-only upstarts. The 3% increase in second home and buy-to-let stamp duty is also a major factor in subdued investor enthusiasm for estate agent’s shares. Buy-to-let owners rushed to finish transactions in the first quarter before the new tax took effect on 1 April, which led Foxtons to warn that sales over the next quarters will be down significantly. This will affect both Foxtons and Countrywide, but will hit the former especially hard as prices in core London post codes have already been falling, leading Foxtons to branch out into lower price outer postcodes. This confluence of headwinds has led the market to drive shares of Foxtons and Countrywide down 25% and 11%, respectively, in 2016. In such a highly cyclical industry as house sales, the uncertainty that would follow Brexit would likely send share prices of estate agencies plummeting even further. Investing in a highly cyclical industry requires timing and a contrarian philosophy many investors find hard to stick to. For those who prefer to buy great companies and watch them perform well through thick and thin, I recommend reading the Motley Fool's latest free report, Five Shares To Retire On. These five consumer goods giants sell the brand names that people across the globe buy year in and year out. This has allowed them to reward shareholders in bull and bear markets alike over decades. To discover these five companies for yourself, simply follow this link for your free copy of the report. Ian Pierce has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
Shares of EU have reportedly fallen 11% and 25% YTD respectively and are expected to face headwinds from falling GDP growth and uncertainty relating to the UK vote. Some commentators predict that if UK leaves the EU , demand for homes could fall due to decreased immigration and a reduced number of companies relocating to the UK . Online estate agents have also impacted the companies' growth, with firms such as easyProperty and eMoov offering cheaper fixed-fee property sales compared to traditional estate agents, which Countrywide blamed for the 3% YoY fall in average sale prices.