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Purplebricks share price crashes 40% in five days
On November 1st, Purplebricks was trading on the Alternative Investment Market (AIM) at 54.9p a share. It dipped to a low of 31.78p on Friday, before rallying a little to 33p a share. This amounts to a weekly drop of 39.89%.
If this drop continues this week, it could be game over.
This is significant because Purplebricks has around £58 million in its coffers, taking cash upfront from vendors, and no physical offices, so it should really have a stable share price.
But a huge cloud is looming, taking the shape of a class-action lawsuit by former Local Property Experts, who have ‘worked’ for the company in the last five years – some of whom may still be working, though now as PAYE employees. This might be the reason for the doomed shared price.
Contractors for Justice, the body behind the pending legal action, has stated in recent days that: “The response from former and current Local Property Experts and Territory Owners has been nothing short of phenomenal and to the extent that we have had to recruit more staff to deal with the inbound enquiries…
“The number of Purplebricks agents that have signed up with us now is well into the hundreds and we will be providing a more detailed update in the coming weeks at which point it will be clearer as to when the action itself will formally commence.”
If the action goes ahead and Purplebricks loses, some pundits have calculated that the costs and the pay-out could exceed £25 million. This would of course mean that Axel Springer, which still holds a large amount of stock in Purplebricks, will catch a cold, especially as Purplebricks only squeezed a minimal £5.8 million profit this year, its first ever, £2.2 million coming from the cash of selling its Canadian interest in a one-off move.
The bigger picture is that there are other online agents like YOPA and Strike and if Purplebricks does fail what then for them?
Strike is based in the North, though trying to expand into the South. It offers a freemium service, which in my opinion is always a doomed business strategy. Because buying market share using VC, PE or angel investment is different from having a business that stands on its own two feet.
I could get a fund of say £30 million tomorrow and buy the custom of the property consumer by offering a ‘free’ way to sell a property, and as around 10% of vendors are price or fee sensitive, I am sure I would get takers. This would result in market growth, showing I had ‘users’ and something to offer them. But when that capital runs out so too does the viability of the business model.
By comparison, Connells, a traditional model of agency, does not burn other people’s cash to tempt vendors to use them. To the public, they offer localised, high quality and incentivised practitioners with great tools and training who pay a going rate, eschewing the freemium model. Turnover is vanity, profit is sanity. Maybe a table of agencies showing their annual profits is a better indicator of who the public should use.
YOPA also has done nothing but burn its investors’ capital, some of it being Savills who might now decide enough is enough.
Purplebricks started trading on AIM for around 95p and climbed in 2017 to 498.50p a share. It started 2021 at 106p a share, now post-Olympics which it sponsored, that 33p is probably a swan song trading level. Maybe Axel Springer will move on it. Maybe someone else. But who wants to buy a big problem which soon will have a massive negative branding problem?
People like to entrust their homes to safe options when selling, it is their prize asset after all. As we saw with the original Emoov, and a number of others who failed in this space, unless the UX is brilliant, being cheap is not what the client wants.
Service is above all, otherwise they go elsewhere.
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Knight Frank says money is pouring in to the build to rent sector
Many investors are trying to tease out the best strategy to maximise returns in property. Oliver Knight, who heads up research at Knight Frank, comments that a huge amount of capital is going to be on its way into the build to rent sector:
“The capital committed to the suburban build to rent housing market remains a fraction of overall institutional investment into build to rent…our analysis suggests the sector is set to see significant growth over the coming years, underpinned by strong investment and demand-side fundamentals.”
His colleague Jack Hutchinson agrees: “…a growing number of dedicated suburban build to rent housing investment and development vehicles have been created in the last year to specifically target this burgeoning market. There is a clear opportunity to increase the delivery of purpose-built rental housing and bring the benefits of institutionally-managed products to more renters.”
In its latest report, the key takeaway was that over £275million has been put into this vertical in the past 23 months, and over £7.5 billion may be invested in the next half-decade, depending on the economy.
Cladding scandal pivots amid uncertainty over funding
At present the government is looking to get a fund together from National Home Builders who earn a certain level of multi-million profits a year, to help those affected by the cladding scandal. But many feel the amount is too small.
The fund might raise £5 billion in a decade, though in reality from my analysis the deficit is as much as £50 billion already.
Now, the House of Lords through another mechanism may push extra finance into the equation, looking to put the cost of remediation squarely on the shoulders of the parties who were directly involved.
Some of the Lords are looking to add an amendment to the Building Safety bill, so it will not just be leaseholders who are caught up having to pay for the properties that need to be made safe to live in.
But those who were in the supply chain, they also want an extra £5 billion to be put in by the government from taxpayers money.
A debate is scheduled for next week.
Andrew Stanton is the founder of Proptech-PR, a consultancy for Founders of Proptechs looking to grow and exit, using his influence from decades of industry experience. Separately he is a consultant to some of the biggest names in global real estate, advising on sales and acquisitions, market positioning, and operations. He is also the founder of Proptech-X Proptech & Property News, where his insights, connections and detailed analysis and commentary on proptech and real estate are second to none.