Bankwest Future of Business: Focus on Real Estate 2018
Contents Key insights Industry overview What s driving industry growth? Spotlight on Australia Spotlight on Western Australia What does the future hold? What challenges does the industry face? Where do the opportunities lie? Forecasted industry growth 4 5 6 7 8 9 10 11 12 3
Key insights Foreword Understanding factors impacting your industry, and how other businesses in your industry are performing, can be a great gauge for how your business is tracking. The Bankwest Future of Business: Focus on Real Estate Agents Report is designed to give you a snapshot of the current and expected future state of your industry, which could help you plan and spark ideas. The report covers Australia s real estate agents, summarising trends based on statistics from IBIS World, the Australian Bureau of Statistics and other reputable sources. There is notable variation in vacancy rates and housing affordability across the nation. Low vacancy rates on the east coast and increasing housing costs have resulted in strong industry profits across real estate services. Sydney and Melbourne recorded the strongest upswing in dwelling prices at 74.2% and 49.7% respectively in the five years to June 2017 1. In Perth, however, housing prices rose by just 3.7% over the five-year period, while vacancy rates remain at high levels of 6.9% in the 12 months to September 2017, highlighting the gap in housing affordability between the east and west coast. Following colossal growth rates on the east coast in recent years, revenue nationally is projected to stagnate in coming years as house prices begin to normalise. Falling prices are expected to curb property operator and real-estate agent revenue, particularly in the eastern states. In Perth, however, house prices have been on a downwards trajectory since mid 2015 suggesting there is more upside potential. The median house price fell to $512,000 in September 2017, down from $550,000 in September 2014, with average selling days increasing to 70 from 47 during this period 2. Bankwest s 2017 Financial Indicator Series First Time Buyers Report found Western Australia s first time buyers are injecting life into the state s property market, fuelled by the drop in house prices. There are more first time buyers as a proportion of total buyers in WA than anywhere else in the country. WA first time buyers made 21.7% of all purchases in the year to June 2017 the highest proportion in the country. Vying for attention in a growing industry, marketing is becoming a larger portion of real estate service costs as companies focus on building brand awareness. 4 1 ABS 6416.0 2 REIWA
Industry overview Real estate services, which includes both residential and commercial real estate agents and covers valuing, purchasing, selling (by auction or private treaty), managing or renting real estate, accounts for $14.4 billion in total industry revenue. Commercial real estate agents account for just $1.7 billion of total revenue as of 2017. Annual growth, however, for commercial real estate agents is expected to exceed overall industry growth for real estate services in the five years to 2018. Sector breakdown Commercial real estate agents 1,957 Billions ($) 16 12 8 4 0 Revenue Profit % 16 12 8 4 0 Annual growth 2012-17 Real estate services Commercial real estate agents Real estate services 38,439 Primary activities Broking service (real estate) Source: IBIS 2017 Real estate agency service Real estate services employment, seasonally adjusted, 2007-2017 130,000 125,000 120,000 115,000 110,000 105,000 100,000 Real estate auctioning service Real estate management service Real estate rental agency service Time share apartment management service Valuing service (real estate) 95,000 90,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: IBIS 2017 Source: ABS 6291.0.55.001 Growth in Australia s residential and commercial property stock, as well as rising property prices are driving increased employment within the sector. Total employment in the real estate services sector rose by 7.8% in the five years to August 2017 to 125,100. 5
In WA, subdued property prices have reduced the number of enterprises over the past 5 years, likely due to less demand for real estate services following the end of the mining construction boom. What s driving industry growth? Lower Reserve Bank of Australia interest rates for housing finance have improved mortgage affordability for Australian buyers and led to increased demand for real estate services. The lending rate for a standard owner occupier loan was 5.2% as at December 2017, lower than the 6.6% 10-year average, making buying a property more attractive despite rising prices in many states. RBA lending rate, 2012-2017 8.00 7.50 7.00 Percent (%) 6.50 6.00 5.50 5.00 4.50 4.00 2012 2013 2014 2015 2016 2017 Source: RBA 2017 Housing House purchases nationally have increased across new and established dwellings, fuelling the market for real estate services Rising house prices across Australia have contributed to growing industry revenue, driven by higher commission income, and created larger profit margins in the industry 6
Spotlight on Australia Real estate services sector prices have been increasing in the last four years due to strong house price growth across Australia s east coast. With house price growth forecast to slow, the industry is expected to increase its focus on marketing and market research to establish reputation and brand credibility in the market. Rising prices (PPI) across real estate services, 2012-2017* 135.0 130.0 125.0 120.0 115.0 110.0 105.0 100.0 95.0 90.0 2012 2013 2014 2015 2016 2017 *PPI is calculated on an index reference period of June 2012 = 100 Source: ABS 6427.0 Drivers of real estate services prices in the five years to June 2017 include: 45.9% 58.2% increase in Australian increase capital city house prices in Australian housing finance commitments The real estate services industry is forecast to allocate 16.8% of industry revenue to marketing and market research in the year to June 2018. 7
Spotlight on Western Australia Despite Western Australia s relatively affordable housing market, local real estate agents were impacted in the year to September 2017 by a decline in housing commitments. This was driven by a 12.2% fall in the number of purchases of established dwellings to 51,956, while purchases of new dwellings increased modestly by 1.4% to 2,821. WA VS decline in housing decline in housing 11.0% 1.6% commitments Australia commitments Data 12 months to September 2017 Median rents in Perth for houses declined in the 12 months to September 2017. House rent prices Unit rent prices 2016- $380 2016- $350 2017- $350 2017- $325 Data 12 months to September 2017 There are some signs that the Perth office market is stabilising. Office vacancy rates declined from 22.5% to 21.1% in the first six months of 2017 Premium office vacancy rates within the CBD are lower than lower grade offices It takes on average 70 days to sell a property in Perth, the highest recorded in four years. REIWA, September 2017 8
What does the future hold? Establishments and enterprises are expected to contract slightly in the year to June 2018, largely due to projected declining revenues as state markets adjust to changing buyer conditions. House prices in Australia are projected to remain stagnant, which will likely cap revenue growth in the sector. WA first home buyers take advantage of cooling property prices Looking ahead... Decreasing prime vacancy rate Evidence of base rental rates stabilising 16,400 16,200 16,000 Incentives set to ease at the top end of the market, leading to an increase in effective rents 15,800 15,600 15,400 15,200 15,000 14,800 Oct 2016 Jan 2017 Apr 2017 Jul 2017 Oct 2017 Number of WA first home buyers Source: ABS 5609 The restrictions put in place by the Australian Prudential Regulation Authority (APRA) are likely to subdue investor demand on the east coast more than the west coast. Demand for WA housing is expected to steadily improve, driven by first home buyers. In the year to November 2017, the number of first home buyers eager to jump onto the property ladder grew by 4.9% while the number of non first home buyers simultaneously dropped 15.0% implying first home buyers are taking advantage of the more subdued property prices. 9
What challenges does the industry face? There is a historically low number of first time buyers nationally in the market, with millennials opting to rent or live at home rather than purchase a house or unit. Number of first time buyers in Australia, 2007-2017 200,000 180,000 160,000 140,000 120,000 100,000 80,000 60,000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Technology to disrupt the industry Online technology will continue to disrupt the real estate industry, with more online offerings increasing information available for customers, streamlining the property purchasing process and improving access to customers. The rise of co-working spaces in the commercial sector will create challenges for existing suppliers of small commercial lots. 10
Where do the opportunities lie? WA is well positioned to capitalise on opportunities for real estate sales in the next five years. Ageing population Serviced apartments in the aged care sector may create a role for real estate services to enter the market. Relatively affordable housing market High incomes Australia Strong first home buyer market Western Australia Wealth in the cohort of Australians approaching retirement creates a substantial opportunity to sell smaller apartments for low need aged care customers. House price growth (2012-17) 45.9% 3.7% Household income (weekly) $1,438 $1,643 Average number of first home buyers (2016-2017) 89,326 15,256 Source: ABS 6523, ABS 6146, ABS 5609 Evolution of technology Real estate agents will have to improve their understanding of smart houses as buyers increasingly seek properties with the latest available technology. Real estate services companies will need to: Clearly articulate value Seek to exploit opportunities in the build-to-rent sector Transition into build to rent services to help buyers manage rental investment portfolios 11
Forecasted industry growth Australia s growing population, an increasing trend toward medium density housing and forecast improvements in wage growth will underpin growth in real estate services revenue in the five years to June 2022. Uncertainty around the future performance of Australia s retail industry is likely to drive consolidation in commercial real estate, with more than one third of commercial real estate businesses expected to exit the sector. However, moderate growth is forecast for this part of the sector as efficient businesses take up greater market share. Industry growth Real estate services Commercial real estate agents Establishments Real estate services Commercial real estate agents Employees Real estate services Commercial real estate agents Projected growth 2017-2022 4.5% 4.9% Projected growth 2017-2022 4.2% -37.0% Projected growth 2017-2022 7.2% -9.0% Source for all tables: IBIS 2017 WA is well positioned to capitalise on opportunities for real estate sales in the next five years. Relatively affordable housing market High incomes Strong first home buyer market 12
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Sources Australian Bureau of Statistics 6416.0 (June 2017), Residential Property Prices Indexes: Eight Captial Cities, Mar 2017, Table 9b, available at: http://www.abs.gov.au/ausstats/abs@.nsf/ DetailsPage/6416.0Mar%202017 Australian Bureau of Statistics 8155.0 (May 2017), Australian Industry, 2015-16, Australian industry by division, available at: http://www.abs.gov.au/ausstats/abs@.nsf/ DetailsPage/8155.02015-16 Property Council of Australia, National Market Office Vacancy Rate Falling Says New Report, August 2017 Reserve Bank of Australia, Statistical Tables, 2018, Indicator Lending Rates, available at: https://www.rba.gov.au/statistics/tables/ Real Estate Institute of Western Australia, Perth Metro- Perth Market Snapshot, January 2018-01-24 Australian Bureau of Statistics 6427.0 (October 2017), Producer Price Index, Sep 2017, Tables 1,2,3,4 and 10, available at: http://www.abs.gov.au/ausstats/abs@.nsf/ DetailsPage/6427.0Sep%202017 Australian Bureau of Statistics 5609.0 (January 2018), Housing finance Australia, November 2017, Table 9b, available at: http://www.abs.gov.au/ausstats/abs@.nsf/ DetailsPage/5609.0November%202017 Australian Bureau of Statistics 6523.0 (September 2017), Household Income and Wealth, 2015-2016, Household Income and Income Distribution Australia 2015-16, available at: http://www.abs.gov. au/ausstats/abs@.nsf/detailspage/6523.02015-16 Do, K. Real Estate Services in Australia, IBISWorld, September 2017 Kellly, A. Commercial Real Estate Agents in Australia, IBISWorld, March 2017 14
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