Real estate in need of renovation

The real estate market is looking decidedly tired, reports JASON BAKER of IBISWorld.

By Jason Baker

The real estate market in Australia has been volatile over the last five years and the outlook for industry revenue is poor.

Over the past five years revenue for real estate agents has been extremely volatile, and revenue for residential property operators and developers has remained stable. Housing affordability has declined significantly, with the biggest declines in 2003 and 2004.

These factors will put downward pressure on both housing prices and the number of housing sales transactions. Drought conditions in some areas will create unfavourable selling conditions for rural properties in affected areas.

There will be low, if any, real growth in housing prices between June 2007 and June 2012, due in part to low first-home affordability, higher real interest rates, high household mortgage commitments, and a rise in the rate of unemployment.

IBISWorld forecasts that industry revenue will decline by 4% in 2006-07. Home affordability will continue to decline, due to higher interest rates, partly offset by the impact of personal income tax cuts. There have been recent reports of a significant increase in mortgagee sales in some areas.

But vacancy rates are expected to tighten further across most CBD office markets in 2006-07, which will also push up office rents and values. This will positively affect real estate agents’ commercial sales and property management revenue.

Net immigration has increased significantly in recent years and, if this high immigration policy is maintained, population growth may be maintained at relatively strong levels. But employment growth is expected to slow during the outlook period and this may potentially produce political pressure to reduce immigration numbers. If so, this would have a moderating impact on demand for both home ownership and renting.

Technology is increasingly having an affect on property listings. Australian-listed realestate.com.au has posted a 2006-07 interim profit after tax of $5.7 million, an increase of 98%. Realestate.com.au is visited by 3.7 million internet users and used by 90% of real estate agents. There are new entrants into this market, such as myhome.com.au.

The industry may not be as safe as houses.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au