Agencies will vanish: realtor

MORE than 300 real estate agencies in WA – about one in five – will disappear during the first year after the introduction of the GST, according to Geoff Baldwin Team managing director Geoff Baldwin.

Mr Baldwin said the upheaval in the real estate sector would not be unique with other small businesses throughout WA falling over following the introduction of the GST.

“When the GST was introduced in New Zealand, 20 per cent to 30 per cent of small businesses disappeared,” Mr Baldwin said.

“High compliance costs associated with the GST will drive many small businesses, especially in the real estate industry, to either combine with larger companies, sell or

simply close their doors.

“Already, seven real estate offices in the northern suburbs in recent months have either closed or amalgamated with larger agencies.”

Mr Baldwin expects the trend to continue across Perth.

Real estate is one of the only industries where written permission is required from the clients before GST can be charged.

“Without this signed authority, agents are forced to pay from the fee they receive,” Mr Baldwin said.

“Bearing in mind that the average Australian real estate business is running with a profit margin of around 4 per cent to 5 per cent, the implications of having to pay GST on behalf of a client are obvious,” he said.

“Most people do not realise that the margins in real estate are so small and they are under an illusion that the agent takes home all the fees that a client pays.”

On a sales commission of $5,000, the profit retention after paying outgoings was only about $200 to $300, he said.

“It is little wonder that many agents are asking themselves if it is worth the trouble,” Mr Baldwin said.

On top of the compliance costs of the GST are the extra costs and the pressures on turnover brought about by Pay As You Go.

“The fact that real estate companies will now have to pay their company taxes every three months means they will have to keep daily accountancy records which are much more detailed,” Mr Baldwin said.

“In many cases, this and GST will require a full-time bookkeeper, the cost of whom will be beyond most agencies.”

The closure of smaller real estate companies could spell good news for the consumer.

“This rationalisation of the real estate industry will mean that the larger agencies will be in a better position financially and therefore be able to provide improved

services,” Mr Baldwin said.

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