Catherine Cashmore is a market analyst with extensive experience in all aspects relating to property acquisition.

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Catherine Cashmore

4 December 2012

Real estate agents doing it tough amid economic woes and vendor-led marketing alternatives

Real estate agents doing it tough amid economic woes and vendor-led marketing alternatives

It’s not been the easiest of times for the local high street real estate agency over the past two years.

Following a long period during which healthy transaction figures and 70%+ clearance rates were “the norm” – in the Melbourne market at least – the recent sharp downturn in revenue has caused many in the industry to struggle to make headway in a highly competitive and progressively difficult atmosphere.

IBISWorld – “Australia’s largest provider of industry-based research” – estimates revenue for the real estate agent industry will decrease some 4.3% through 2012-2013. Furthermore, according to the report, over the past five years, industry revenue has fallen by 1.6% and currently stands at an estimated $8.9 billion – revised downwards from a previous estimate of $9.61 billion.

Although there was a pickup in annual sales turnover in 2009-10 principally buoyed by various government stimulus packages such as the first-home buyer boost, 2011 and 2012 have hit the industry hard – taking the overall number of transactions back to levels not seen since the mid-1990s.  And although the trend is slowly improving as the year draws to an end, it’s still a bleak remnant of that achieved in the few years prior to the GFC.

The job listings promising potential sales agents commissions amounting to and in excess of $100,000 per year, which attracted so many into the industry while the market was bursting with confidence, would seem a distant dream to a number of less experienced employees who have recently left in search of riches elsewhere.

IBISWorld estimates an annualised drop of 1% in employee numbers as agents, not used to working in a harder market terrain, head for the hills.

It takes a lot of skill negotiating with a reluctant and unconfident buyer who will only show interest if the price is right. Sales success in the industry is often underestimated by those looking from the outside in, who tend to assume agents do little more than stand outside open for inspections handing out brochures.

Competition in some suburbs of Melbourne has caused commissions to be lowered to “flat rate” figures.  In Victoria it’s not uncommon to find some agents prepared to list a property at 1-1.5% (including or excluding GST) – or signing a general authority to share the listing with another agency.  It’s something I happen across at least once or twice a week.

Although it’s hoped – particularly by the government, which plans to replace a diminishing mining boom with another property boom – that investor confidence will return during 2013-14, spurring a new decade of growth, there are no such certainties in a world that is arguably struggling to recover from the brink of economic collapse.

It may not seem as such in Australia, however this was – and is – the continuing reality in many areas of Europe and the USA and we’re not immune.  At the very least, it alters the investor mindset.

As The Australian Mortgage Report 2013 by global consultancy Deloitte pointed out, growth in Australia’s mortgage lending market is slowing – particularity for the big four – and “property prices will remain either flat or (only) grow in the order of 1–5% into 2013”.

Future drops in the RBA cash rate are less likely to be passed on as banks struggle to protect existing margins, and although I’ve read more bullish reports in regard to property prices of late – as a whole, I expect the above prediction to fall closer to the mark.  We’ve entered a new era ruled by cautionary sentiment, and it’s not going to change overnight.

Other reports of households taking advantage of lower interest rates to stack more onto their mortgage is also a concern, with the OECD estimating our household debt to income ratio currently sits at a lofty 183.7%.

 

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