Analysis of Australian Real Estate Industry †MyAssignmenthelp.com

Question: Discuss about the Analysis of Australian Real Estate Industry. Answer: 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 Porters 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 re al 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). 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 Porters 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). 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). Threat of Substitutes: Low 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 Australias 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). 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). 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). 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) 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 traditi onal 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. 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 Porters 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 c an be understood from the gap analysis that there is a significant gap between consumers 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. 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., DellAriccia, 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.