Times are tough in the real estate sector, transaction volumes are down, listing volumes are up and buyers are scarce. Not a great combination when you are trying to sell a property.
It stands to reason that fewer property transactions mean less commission for real estate agents. It also means mortgage brokers are establishing less trail, solicitors are involved with fewer conveyances, buyers’ agents have fewer clients, removalists have fewer jobs and pest and building inspectors have less work. The multiplier effect of a property transaction extends to the retail sector where less furniture, white goods and appliances are transacted. And of course the State Government receives less stamp duty which is one of their major sources of tax revenue.
Currently, on a national basis, we estimate that over the year to March 2011 there were about 390,000 house and unit transactions (our transaction volumes are modeled for the most recent five months due based on the typical lag in receiving the full population of transaction data from the respective state governments). Based on these estimates, the rolling annual transaction count hasn’t been this low since 1997. Over the last five years, the average number of sales on an annual basis has been 480,000; so the current annual figure is tracking about 19% below average.
Looking at the gross value of sales, the story hasn’t been quite so bad due to the large capital gains recorded during 2009 and the first half of 2010. The gross value of house and unit sales across Australia over the 2010 calendar year was $207.5 billion which is only 1.5% below the five year average. The gross value of house and units sales on a rolling annual basis peaked over the year ending February 2008 when $249.2 billion worth of house and units sales were transacted across the country.
So in short… the lower volume of sales is absolutely affecting the hip pocket of real estate professionals and related industries, however the amount of available gross commission is not far below the five year average. Essentially what this means is the total sales commission available to real estate agents hasn’t changed a great deal from the five year average, but the commission is available across a much lower volume of sales. Same size pie, fewer slices. This scenario is likely creating a great deal of competition amongst agents within the real estate sector.
There was an interesting article in the Australian Financial Review today that highlights this point. Written by Ben Hurley and Ruth Liew, the article was headlined ‘Going, going, 10,000 estate agents gone’ and it was featured on the front page and page 55 today (Financial Review, June 3). The article suggests that the number of real estate agents has fallen from around 72,000 back in 2006 (based on Census counts) to an estimate of 60,000 one year ago and 50,000 currently.
The figures are likely to be at least ‘ballpark’ correct – it’s actually difficult to estimate the true number of real estate agents because the registration rules are different from state to state. Competition amongst agents is tough and it’s reasonable to expect that those agents missing out on a slice of the pie are seeking alternative employment.
Without doubt, the current real estate environment is a challenging one for the industry. The main game for industry players ‘toughing it out’ in this low transaction market has got to be an absolute focus on maximising market share – how to get more pieces of the pie. Agencies are also probably looking to grow their rent rolls during these lean times. Rental rolls provide consistent income at a time when sales volumes are down and commission is therefore inconsistent.
Let us know your experience, and if you are in the industry how are you working towards building your share of the market?
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Excellent article, Tim!
Bank’s easy credit and hardly any deposit requirements got everyone into obscene amounts of debt and now there is noone left to borrow – banks are becoming ‘wise’. This has been going for way too long for me to buy the story banks didn’t know what was going on. A lot of bankers cashing in on this ‘assets always go up, borrow as much as you can’ scheme. Little wonder Auction Clearance Rates are now in the doldrums – it couldn’t go on forever!
What is worse, we in Australia had 3-4 years to analyze what the hell went wrong in the US and rest of the world, but easy debt printing didn’t slow for a second by the banks. Ok, in US the sub-prime loans were the problem. What about after the UK? It’s no surprise agents are doing it tough – they had it too good for too long!
Ali Black
Australian Property Bubble Forum