Current Market Insights
The Current Market Insights Podcast is brought to you by Harris Partners Real Estate.
Understanding the property market can be a challenging thing, with highs and lows, twists and turns. The media and agents tend to spread the news they want you to hear, with the advice they want you to follow.
Current Market Insights is an unbiased look into what is happening, what tips you can use to buy, sell, or rent, and that you wont find anywhere else.
Current Market Insights
2SM with Chris Smith - Is REA Group Too Powerful?
Host Chris Smith (2SM’s Across Australia) is joined by real estate expert Peter O'Malley to unpack the ACCC’s investigation into REA Group and the growing backlash against skyrocketing advertising fees. With Australian property sellers now footing the world’s highest real estate ad costs, the discussion exposes how the “Vendor Paid Advertising” model evolved, who really benefits, and whether true competition in the portal space is even possible.
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
Well, cuts to interest rates this year have seen a spike in real estate activity in most parts of Australia. But before you take another plunge into buying or selling, you may wish to turn your attention to the latest alleged case of price gouging in the industry. The ACCC is investigating REA Group the owners of realestatecomau due to concerns about competition and pricing, including allegations of price gouging. The ACCC is investigating the group's market dominance, its subscription offerings and advertising fees. Now, as you may be aware, realestatecomau has become the go-to source for property listings, overtaking domain by a hell of a long way. There is no competition between the two anymore. But are they abusing their newfound power? And what should we be on the lookout for? Joining me now is Peter O'Malley from Harris Partners in Sydney, who's been watching this case very carefully. Peter, welcome to the Super Radio Network.
Speaker 2:Pleasure, Chris. Good morning to you and your listeners.
Speaker 1:Now, am I right that REA the group have just about crushed the other competitors, but the once main competitor Domain, and it's almost a monopoly, isn't it?
Speaker 2:In different markets, domain has fallen to complete irrelevance. Thankfully, in our market in the inner west and the inner city of Sydney, and the same for Melbourne, the inner cities of Melbourne domain still has value to real estate agents. But as you head further into the suburbs, realestatecom enjoys a monopoly situation and they're weaponizing that through their pricing.
Speaker 1:So when you say pricing, is it true that Australia is now far and away the most expensive country in the world to advertise real estate?
Speaker 2:Absolutely. By far and away. It's an unjustifiable cost. So there are reports that real estate agents are now paying up to $5,000 for one advertisement for one house that only as recently as 2009, was costing them under $1,000.
Speaker 1:And that $5,000 is paid by me when I sell right.
Speaker 2:Well, this is why the industry didn't care until very recently. Chris, that's right, the Australian property industry runs on a model called VPA Vendor Pays Advertising. So in the early days when realestatecom and Domain were increasing their advertising fees, agents just laughed it off and said well, it doesn't really concern us because the vendors pay it anyway. But pricing has got to a point now where neither the consumer nor the real estate agent feels that it's justified and the industry is understandably squealing to the ACCC about price gouging. But the reality here for the real estate industry, chris, is they've played themselves down this hole. If you've got a pet crocodile and you feed it, one day it'll come looking for you. And that's where the real estate industry is now, where it's being devoured by the beasts that it created.
Speaker 1:So you can't possibly justify increases of over 10%. What are the increases that are occurring and being eventually paid by the vendor?
Speaker 2:Year on year, we've paid 10% increases to realestatecom and most years to Domain. I must point out that during the GFC in 2008 and during the pandemic years, those increases were set aside, but without a doubt, every real estate agent gets an annual price increase well above the CPI from these websites. What further drains competition is every time a digital disruptor comes into the industry, chris, it's usually gobbled up by domain or realestatecom, so any relief that could be coming for the industry soon evaporates when it ends up in predictable hands.
Speaker 1:See, it's interesting if you're selling a house nowadays and most people listening who may be in this boat say this year or next year, they'd say oh, and we want to get it on realestatecomau, and the real estate agent says no problem, and there is rarely a discussion about how much that process would cost you. But people who are selling their homes had better find out and had better ask the question.
Speaker 2:That's right. Well, this is what's driven the rise in the off-market listings. Everyone listening Chris would know that's a very popular term used in the industry now and really, when people say what is an off-market listing, it's a listing where the vendor is prepared to sell through a real estate agent but doesn't want to pay the exorbitant upfront non-refundable cost to go on realestatecom. So the auction clearance rate in Sydney has been hovering around 50% since last August as interest rates of battered market confidence. So whenever you see a 50% auction clearance rate, the 50% that have failed have all forked out on average about $10,000 for that campaign that hasn't delivered a result. So realestatecom and Domain to a lesser degree are benefiting while the real estate consumer fails.
Speaker 1:So what can the ACCC do? How can they make any kind of increase in advertising fees online reasonable?
Speaker 2:Look. They need to make sure that realestatecom are not crushing competition. So James Packer through MyHome, telstra through JustListed have all had a crack at their property portal website over the years. Chris, it came down to a race in two domain and realestatecom. For whatever reason, domain has not been run effectively in the last 20 years and realestatecom has gone from an equal competitor to an all-dominant competitor. And realestatecom has gone from an equal competitor to an all-dominant competitor. And, as I say every time a disruptor or a new product comes into the market and realestatecom have been very clever in how they've managed themselves. They've been buying a lot of data companies. They're at an unassailable position at the moment where their pricing and their structure is just basically forcing or crushing any competition in place. And that is what the ACCC will look at most is REA Group's sheer market dominance, which is crushing any ability for a competitor to come through and offer a competing product.
Speaker 1:We can thank Channel 9 for this, can't we? Because as soon as Domain collapsed and they didn't know how to run it, or they made decisions that made it not as popular as realestatecomau, we ended up not having an oligopoly but a monopoly, and then prices went up.
Speaker 2:Yeah, look, domain left an opportunity on the table. There's no doubt about that, but I think it starts with the real estate industry was essentially the REA sales force. So people are speculating through this that REA Group one day might be hiring real estate agents directly. Chris, I don't actually see that happening, because the most effective sales force that the REA Group have is real estate agents and you go to real estate courses and they're centered around how to get more vendor paid advertising and how to justify the cost. And agents will say things to vendors like my job is to overmarket your home so you don't undersell, and it's all a justification to pay an unjustifiable price to these websites. Now, if Domain had managed their affairs better whether it be the Fairfax ownership, channel 9, or now the American firm that has purchased it REA, couldn't exercise this pricing power that they are. But Domain has let the industry down in many ways by not holding REA to account.
Speaker 1:One quick one who's the third player in this portal space that operates at the moment, which, I understand, lists certain properties free of charge?
Speaker 2:That's right, it's called Homely, Chris, and the real estate industry has quietly invested in this. So the owners of Homely have gone around and taken seed capital in $50,000 chunks from essentially half the industry. All the big players in the industry are quietly invested in Homely and they are hopeful that Homely can be the third wheel to bring some control back to the real estate industry. But as I read Rupert Murdoch say years ago, when it comes to classifieds, you have to be in first or second place. There's no place for a third runner. So Homely had a nice concept that the real estate industry quietly but definitely invested in. But unfortunately for consumers and real estate agents it's not happening and we're at a breaking point where real estate firms are going broke now because they can't continue to pay these firms to realestatecom, and real estate consumers, when they're selling their house, want to avoid them completely.
Speaker 1:Yeah, fascinating. We'll see where the ACCC ends up with their investigation. I understand they're gathering evidence as we speak. Peter O'Malley, thank you very much for unpacking that for us.
Speaker 2:My pleasure, Chris. Great to catch up.
Speaker 1:Good on you. Fantastic to have you on 2SM Peter O'Malley from Harris Partners in Sydney.
