Real estate industry scattered

THE real estate industry is still highly fragmented with more than 50 per cent of businesses in the sector having no affiliation with other companies, according to the latest survey by the Australian Bureau of Statistics.

Only 33 per cent of real estate service businesses belong to a franchise while another 12 per cent are affiliated to a marketing or co-operative group.

The remainder, about 3,380 businesses or 54.4 per cent of the industry, have no affiliation with other agents.

The survey found that the industry is dominated by small businesses with 96 per cent employing fewer than twenty people.

These small businesses accounted for 77 per cent of industry employment and 72 per cent of industry income.

Businesses which employed fewer than five people represented 47 per cent of all businesses in the industry and accounted for 17 per cent of industry employment and 15 per cent of industry income.

At the end of June 1999, there were only nine businesses that employed more than 100 people.

However, the top nine firms accounted for only 4 per cent of industry employment and 5 per cent of industry income.

Being big does not automatically translate into greater efficiencies through economies of scale.

The survey found operating profit margin was only 5.2 per cent for those employing 100 or more staff – the lowest within the industry.

The highest profit margins were enjoyed by firms employing four or fewer people. They managed a 14 per cent profit margin.

Operating profit before tax in terms of persons employed also showed the large firms were not as profitable as the smaller companies.

While the average OPBT was $9,000 per employee, the nine largest firms experienced almost half this at $5,100 per employee.

Membership of real estate institutes was also not universal with about 65 per cent of real estate agents being members.

The real estate industry generated $3.9 billion in income in 1998-99 – a 19 per cent increase on income generated in 1995-96.

About 64 per cent of income came from property sales and leasing commissions.

The other major source of income was commission on property management which accounted for $925 million or 24 per cent of total income.

Total expenses were $3.4 billion.

Labour costs were the highest single expense draining $1.8 billion from turnover. Labour costs per employee for the industry during 1998-99 were $36,500 compared to $30,600 in 1995-96.

Operating profit margins were 12 per cent, a significant increase on the operating profit margins of 8.2 per cent in 1995-96.

Businesses in the industry were concentrated mainly in four States.

New South Wales accounted for 34 per cent of industry income, Victoria 26 per cent, Queensland 19 per cent and WA 12 per cent.

The 831 WA businesses received total revenue of $461 million.

The industry average income per business was $514,300. In WA the average income was higher at about $555,500 per business.

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