Watching Real Estate Agencies Get Dismembered

Oh, this is getting brutal now. If you ever want to see a business model dismembered slowly, take a look at traditional real estate agents.

The sales commissions are being cut as low-cost firms like Purplebricks encroach on the market and listings slow. Now comes the news that the property management sector is under attack too.

The Australian Financial Review reports this morning that online rental bidding platform Rentberry is about to hit Australia. It’s out of Silicon Valley, and it sees dollar signs here.

And quite rightly too. The property management arm of a real estate agent is the lifeblood of the business in terms of cash flow. Commissions and sales can be big, of course, but also lumpy. Rental streams are predictable and consistent. They can cover bills and staff expenses for the agency while the salesmen go to work.

Indeed, one of the criticisms of the McGrath estate agency float was that the business was very highly valued relative to its cash flow from this part of the business. Investors paid a lot for the brand and network. That hasn’t worked out well so far. It’s not looking any better with Rentberry in the picture.

Rentberry allows a landlord to cut out the middle man (the agent) and save on the costs. The landlord can list their property and find a tenant on the Rentberry platform.

Whether or not this is a good idea for the landlord is another question.

Agents aren’t completely useless, though. They can represent you if your tenant turns out to be a disaster. They bring experience and knowledge of their industry. However, the margins they earn here are going to come under pressure. The lure of cutting costs may simply be too great for the owner.

Consider the debate Australia is currently having about interest-only loans. Anything that can cut the cost of holding a property is a further buffer against adverse interest rate moves. It can also provide further cash flow to help gear into something else.

We can only watch and wait to see if the Rentberry platform takes off. These are all good examples of a how a sturdy, proven business model is being upended through technology and innovation.

It also seems to me that commentators who continually harp on about Australia’s housing debt are the proverbial ‘general fighting the last war’.

Don’t get me wrong. I know that’s where the danger lies. But there are too many new developments happening around property compared to the last big cycle for me to see this so-called ‘bubble’ bursting anytime soon. Rentberry is just the latest.

Australia’s Housing Boom

The health of Australia’s housing market depends on the Aussie consumer. And how are they faring?

Not so flash, if you ask management at The Reject Shop. The stock has taken an absolute hammering in the last week. The company announced an earnings downgrade on Friday. The share price is now down 40%.

The company blamed its product mix and the challenging retail environment. That brings up the bogey of an Australian recession from tight-fisted consumers.

I give more credence to the company’s strategy being the problem than the Australian consumer. After all, furniture company Nick Scali is doing a roaring trade at the moment.

Not only that, ‘caravan king’ Gerry Ryan was cited in The Weekend Australian as saying that he’s going to create another 250 jobs in Victoria to meet the demand.

Apparently, Australia’s passion for camping continues unabated. Even better, Chinese, US and German tourists are taking to the backroads with gusto to some of Australia’s most beautiful locations. Bravo!

All three of those economies are travelling just fine. In fact, in the US, previously-blighted neighbourhoods across the country are seeing roaring property values and sales taxes thanks to a new industry: marijuana.

I remember giving a speech a few years ago. I mentioned at the time that there wasn’t any commercial space in Colorado because it was all stuffed with weed. I got a laugh.

Instead of trying to be a comedian, I should have paid more attention and researched the stocks set to benefit as more states (Colorado was the first) legalised the cultivation and sales of pot. US stocks in that sector have boomed.

They’re doing nicely here too. There’s no doubt this trend is going to be unstoppable now. Canada’s Prime Minister Justin Trudeau is moving to legalise it for anyone over 18.

Seriously-rich Australian Barry Lambert intends to run for the Senate on a platform of legalising medicinal marijuana. His granddaughter suffers from a rare condition, and has found relief from a cannabis-based oil.

Over at Australian Small-Cap Investigator, Sam Volkering has been following the development of this industry closely. He’s uncovered the stocks he thinks are set to benefit from the marijuana mania. If you’d like to learn more about this once-in-a-generation opportunity, click here.


Callum Newman,
For Markets & Money

Originally graduating with a degree in Communications, Callum decided financial markets were far more fascinating than anything Marshall McLuhan (the ‘medium is the message’) ever came up with. Today Callum spends his day reading and researching why currencies, commodities and stocks move like they do. So far he’s discovered it’s often in a way you least expect.

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