Real estate agents down the east coast are slashing commissions to win business as listings dry up.
The pressure on firms in an already slowing market with listings down 9 per cent, has been compounded by the arrival of new agencies that are offering increased commissions to lure staff and was likely to lead to an end-of-cycle shakeout as firms cut staff to rein in costs, industry veteran Charles Tarbey said.
Sydney and Melbourne were unlikely to undergo a sudden crash or suffer as much as the WA capital, where prices have still not halted their decline in the wake of the resources boom, but they would force many firms to restructure and cut staff, said Mr Tarbey, the chairman of Century 21 Australia.
"The real estate industry is going to go through massive change, given we're coming to the end of another cycle," Mr Tarbey told AFR Weekend. "There seems to be an easing there. Perth is probably leading the charge in terms of what we expect to see in real estate."
Low stock levels are persisting into the first large weekend of the real estate year, indicating little change from last year, when record cheap borrowing costs made cash-flush buyers fight hard for homes and push prices higher.
The situation may even be getting worse. There were 802 auctions scheduled for the week to Saturday, 12 per cent below the 916 of the equivalent weekend last year.
"Auction activity appears to be increasing at a slower rate than what was seen over the corresponding period in previous years," data provider CoreLogic said.
But the low level of transactions is now biting into the revenue base of the real estate industry that facilitates it. Prices - in the form of commissions paid to agents - are falling.
"Typically it was 2 per cent but it's come back to 1.65 - 1.7 per cent in the last six to nine months," said Max Prentice, the managing director of Prentice Real Estate, a family owned business dealing in properties in Victoria's Mornington Peninsula towns of Sorrento, Blairgowrie and Rye.
"Some [vendors] are happy to pay the normal rate. But you always get some who want to drive the knife in."
The stock-starved eastern suburbs of Sydney and Melbourne are finding it even harder, Mr Tarbey said.
"In upmarket areas they would be very lucky to get 2 per cent," Mr Tarbey said. "A lot of agents have discounted to even 1 per cent that we saw in certain instances to gain a property for sale."
Cracks are already showing. In Melbourne, Abercromby's director Rob Vickers-Willis has left the Armadale-based firm that deals in prestige properties in the eastern suburbs. Industry sources said he had not been selling enough property.
Asked if it was because he had not been bringing in enough business, director Jock Langley replied that Mr Vickers Willis would consult to the firm.
"He wants to take a step back," Mr Langley said. "He'll take on a consultative role."
Pressure isn't just coming from fixed-fee discounters such as UK-based Purple Bricks and local variant byMyplace.com.au.
Mike McCarthy, the chief executive of Victoria-based franchise business Barry Plant, said his agency's margins rose slightly in the December quarter, but were still below the levels of 2014 and early 2015 when agents were getting additional incentive commissions in the hot market.
The rise of online lead-generation businesses such as Local Agent Finder and Home Guru that refer business to agents were now adding to costs and giving traditional agencies less scope to cut rates, Mr McCarthy said.
"What's happening is the agent is having to share commissions," Mr McCarthy said. "It's reducing the customer's ability to negotiate commission as the agent is already giving up 20 per cent or more to the lead generation company."
As with many industry booms, the buoyant market that saw Sydney price growth in double digits for a second month in January has drawn a wave of hopefuls.
Figures published by AFR Weekend in October showed that NSW, Victoria and Queensland, which have led the country's housing boom, registered more real estate agents in the year to June than previous years.
The end point was clear, Mr Tarbey said.
"We will have fewer agents with fewer properties, but the commissions will be higher," he said.
