Australian Real Estate Market Analysis

This assignment requires a comprehensive analysis of the Australian real estate market. Students must apply Porter's Five Forces model to assess the competitive landscape, including rivalry, threat of substitutes, new entrants, and bargaining power of buyers and suppliers. Additionally, a task environment sector analysis is needed to evaluate opportunities and threats, industry profitability, and business strategy consistency within the market. Finally, three feasible strategic recommendations based on the analysis are required.

INDUSTRY ANALYSIS:
AUSTRALIAN REAL ESTATE
Group Report • Dr Campbell Fraser
3112IBA Management Strategy and Decision Making
Group 4: CallumCarmont, Ripjeet Brar, Jayde Lee and Teagan
Brown
Index
1.0 Introduction
2.0 External Analysis: Five Forces Analysis
2.1 Threat of New Entrants
2.2 Threat of Substitutes
2.3 Bargaining Power of Buyers
2.4 Bargaining Power of Suppliers
2.5 Competitive Rivalry
3.0 Internal Analysis:
4.0 Strategic Analysis: Gap Analysis

5.0 Conclusion
6.0 Strategic Recommendations
6.1
6.2
7.0 References
1.0 Introduction
The Australian real estate industry has shown strong economic growth. The property
sector has been impacted by the lower interest rates. The lower value of Australian dollar will
positively impact the investment decision on real estate (Mani, Raymond Choo & Mubarak
2014). Like any other industry, the Australian real estate industry can be analysed on basis of
Porter’s five forces- Threat of new entrants, threat of substitutes, bargaining power of
suppliers, bargaining power of buyers and competitive rivalry. The Australian real estate
market has been non-uniform. The trends reflected in the real estate market vary widely
across cities and regions. One of the key issues that the real estate industry in Australia has
faced is the affordability. The price of the houses in comparison to the average income of
people was really high. However recent years have shown investment from the foreign
market (Brounen & Koning, 2013). Foreign investment from China has been observed in the
Australian real estate market (Gauder, Houssard & Orsmond, 2014). Immigration has also
affected the housing affordability especially in popular cities like Sydney, Melbourne and
Perth. Australia demonstrates a diverse cultural background. People from places like the
United Kindom, Europe, Middle East and Asian countries have migrated to Australia for the
purpose of study and work. The country has a fine education system and competitive work
culture which has boosted immigration and has affected the affordability issue of the
Australian real estate market. The policy of the Federal Government to introduce subsidies to
boost fertility has also affected the real estate market. However, the Australian real estate
market has shown a steady growth in recent years (Crowe et al., 2013).
2.0 External Analysis: Five Forces Analysis
The external factors influencing the real estate industry and the competitive forces present within it
can effectively be analyzed through use of Porter’s five forces model. In recent years the industry has
struck a balance of consistent industry competitiveness driven by sustained uncertainty throughout the
global economic climate and strong industry growth easing rivalry amongst firms (MarketLine,
2017).
2.1 Threat of New Entrants: Moderate
The high cost and significant capital demanded of new entrants to the market means small scale
entrants are better placed for success (MarketLine, 2017). Another factor that impedes entrants to the
market is Government regulation and policy which is regulated by the various State and Territory
Governments. New entrants specifically, need to consider the common entry standards which outline
the training, licenses and for each different state or territory (Reality Bytes, 2009).
2.2 Threat of Substitutes: Low

2.3 Bargaining Power of Buyers: Moderate
The variety of independent customers within the real estate market and their varied size, financial
strength and geographical location, specifically, the type and location of the property in demand, has a
significant impact on the strength of buyer power (CoreLogic, 2015). The key drivers in the
bargaining power of buyers in Australia’s real estate market have been identified as buyer
independence, price sensitivity and financial strength (MarketLine, 2017). On a national level, data
suggests that Australian consumers generally have moderate to high bargaining power (CoreLogic,
2015; MarketLine, 2017).
2.4 Bargaining Power of Suppliers: Moderate
The nature of this industry means the key suppliers operating within it include construction
contractors, building repair and maintenance firms and renting agencies. With a large number of
companies offering these mostly undifferentiated yet undeniably essential services, supplier power is
low. To combat this, it is common for contracts to be established to strengthen supplier power
(MarketLine, 2017).
2.5 Competitive Rivalry: High
While strong growth within the industry over recent years has released some of the pressure on
competing firms, there is a constant rivalry created from the fluctuating market demand and supply.
With a large number of firms offering the comparable properties in similar locations, competition
within the industry is generally intense but healthy, stimulating price competition and improved
products and services (Zhang & Ren, 2006).
3.0 Internal Analysis
The Internal factors that are currently impacting the real estate industry can be analysed through
conducting a resources, capabilities and competitive advantage analysis. Through undertaking the
assessment of these factors this will allow the identification of which resources and capabilities allows
firms within the industry to create a sustainable competitive advantage. The competitive advantage of
a firm is considerably the main factor to ensure it generates excess return and without, the firm has
limited economic reason to be existent (Strategy Train , 2009)
4.0 Strategic Analysis: Gap Analysis
To be successful, an industry should be operating in-line with the demands of its current and expected
future environment (Mir, Abidi, &Durrani, 2007). Furthermore, the capabilities of organisations in the
industry must be consistent with customer needs, as well as having business practices that are
accepted by the consumers of the sector (Mir et al, 2007). As Mir (2007) reveals, by conducting an
analysis of these components, it can be revealed if an industry holds any ‘gaps’. The gap analysis
process aims to ensure that the gaps between the current industry functioning and the current
environment demands are systematically considered (Mir et al, 2007). Using gap analysis, it is
possible deconstruct the current gaps present in the Real Estate industry in Australia, revealing where
firms are potentially not meeting the demands of the industry. The gap analysis functional group that
will be used in this report is the marketing function. The marketing function addresses gaps in areas
such as product quality, price and product concept.

Currently the real estate industry is seeing many ‘disrupters’ to traditional agency practice. Emerging
internet based companies such as ‘purple Bricks’ and ‘Go Gecko’ are providing a new suite of
marketing services to sell properties at significantly lower commission rates than traditional agents
(Adams, 2017). This trend has created a gap between the expectations of consumers in the industry
and what traditional agents are offering. These consumers are expecting a significant online presence
for their property advertisements at the lowest possible price (Adams, 2017). As Adams (2017)
explains, this expectation has rippled into other areas such as property valuations and tenant matching,
applying pressure to the traditional service offerings of real estate agencies. Contemporary consumers
are increasingly time poor and results driven, continually searching for efficiencies in their every-day
lives (Adams, 2017). The majority of these consumers are digitally connected and outsource
traditional services at the best possible price (Adams, 2017). The key driver of the gap creation is
therefore technology. As with many other industries, emerging technology allows for traditional
processes to be automated, allowing cost savings to be achieved and passed on the consumer (Adams,
2017).
The type of gap analysis that will be used is a task environment sector analysis. A sector analysis
addresses three issues: Opportunity or threat, effect on industry profitability, and business strategy
consistency or inconsistency.
 Opportunity or threat: There is a current threat to traditional agents who offer standard real
estate services at moderate commission rates. An opportunity exists in the industry for
business models that wish to challenge traditional practices.
 Effect on industry profitability: Technically, if the automation trend addressed by Adams
(2017) accelerates, profitability ratios should increase. Although gross revenue of the industry
may be less due to the lower commissions charged, these online business models will have
greater profitability over traditional firms. This is due to the automation processes improving
efficiency, removing the need for staff, and having far less overhead costs compared to agents
with physical shop-fronts.
 Business strategy consistency - Ultimately, the trend should see an increase in consistency.
The prime reason being is that automation will remove the inconsistencies caused by agency
staff. The only inconsistency caused to strategies will be fluctuations in the Australian market.
5.0 Conclusion
From the report it can be concluded that the competitive rivalry in the Australian real estate
market is high due to the constant fluctuations in demand and supply. However threat from substitutes

in the Australian real estate market is low. Threat of new entrants, bargaining power of suppliers and
bargaining power of buyers are moderate in the Australian real estate market. This external analysis is
as proposed by Porter popularly known as Porter’s 5 Forces model is of paramount importance as this
model helps to draw meaningful insights about the macro environment of the Australian real estate
industry. Analysis of the micro factors and internal analysis of the industry is also important to
understand the competencies of the firm which helps the firm in building competitive advantage. The
gap analysis of the Australian Real estate industry reflects the current position of the real estate
market and the future vision of the industry is analysed for identifying the strategic gaps. It can be
understood from the gap analysis that there is a significant gap between consumer’s expectations and
the offering of the marketplace. This gap can be reduced with an improvement of the technology
adopted by the Australian real estate market. The change in technological advancement affects every
industry and the real estate market in Australia is not an exception to that. A task environment sector
analysis of the Australian real estate market is also done which helps to draw meaningful insights
about the opportunities and threats, industry profitability and business strategy consistency.
6.0 Strategic Recommendations
Section 6 (Strategic Recommendations): Based upon your analysis, you should prepare at
three feasible recommendations. Ensure that your solutions are guided by your chosen
application of the models.
References
Brounen, D., & de Koning, S. (2013). 50 years of real estate investment trusts: an international
examination of the rise and performance of REITs. Journal of Real Estate Literature, 20(2),
197-223.
Crowe, C., Dell’Ariccia, G., Igan, D., & Rabanal, P. (2013). How to deal with real estate booms:
Lessons from country experiences. Journal of Financial Stability, 9(3), 300-319.
Gauder, M., Houssard, C., & Orsmond, D. (2014). Foreign investment in residential real estate. RBA
Bulletin, June, 11-18.
Mani, D., Raymond Choo, K. K., & Mubarak, S. (2014). Information security in the South Australian
real estate industry: A study of 40 real estate organisations. Information Management &
Computer Security, 22(1), 24-41.