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In recent times, the Australian real estate industry has been marked by uncertainty, placing real estate business owners at a crucial juncture. According to Macquarie Business Banking’s 2023 Real Estate Benchmarking report, they must now focus on retaining talent and adjusting their governance and systems to thrive in this evolving landscape.
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Resilience in Turbulent Times Macquarie Business Banking’s latest nationwide survey of 431 residential real estate firms paints a picture of a resilient industry that has weathered rapid shifts in market conditions over the past few years.
The study identifies a significant paradigm shift in the real estate business, with respondents experiencing both the highs and lows of the property cycle. However, lackluster economic conditions have contributed to a decline in profitability.
Diminishing Profits and Revenues
Domonic Thompson, Macquarie Business Banking’s national head of real estate, highlighted the challenges faced by real estate agents in 2023. Operating costs consistently outpaced revenue gains, resulting in diminished revenues and profitability.
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Thompson explained that while external factors heavily influenced revenue, maintaining control over profit margins and performance was achievable through effective cost management, efficiency, and productivity monitoring. Despite ongoing margin pressure, 71% of respondents reported flat or declining net profit margins in the 2023 financial year, marking an increasing trend of declining profitability since 2014.
Key challenges identified by survey respondents included price discounting and competition (43%), while staff costs (63%) and operating costs (57%) were cited as the primary reasons for the decline in profitability during the 2023 financial year.
Navigating Challenges through Property Management
Despite these challenges, Thompson observed that the industry remained steadfast amid precarious market conditions. Businesses with a strong focus on property management showed greater resilience.
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Thompson emphasized the importance of shifting from price-driven competition to providing holistic value. He noted that 80% of agencies were concentrating on property management growth, emphasizing the need to nurture existing client relationships and appeal to future buyers, vendors, and property managers.
Staffing Challenges
Retaining essential team members and attracting new talent proved to be a struggle for businesses, with one in four people changing roles in the past 12 months. Increased wages and operating costs further compounded these challenges.
Thompson urged agencies to address staff challenges by building trust and respect, highlighting the importance of achieving a balance in people and culture to differentiate agencies, drive better financial outcomes, and enhance business value.
Succession Planning
The market turbulence of recent years, coupled with economic shifts and pandemic-induced challenges, has led many real estate agencies to defer succession plans. Thompson noted a rise in business sale, exit, and succession activity in 2022. However, he emphasized that navigating a highly competitive landscape for transactions remains a challenge.
The survey revealed that 55% of real estate business owners are contemplating succession or reducing operational involvement in their agencies. To maximize business value, Thompson recommended improving performance, implementing robust processes and systems, providing growth opportunities for staff, and communicating a compelling client value proposition.
SOURCE: Property Tribune