New data from Xero showing lackluster sales figures in the real estate sector is likely a hangover from early 2022’s abnormal selling season rather than an indication of a looming crisis, industry experts say.
The Xero Small Business Index reports on aggregated and anonymised transactions from hundreds of thousands of small businesses.
It tracks four metrics: sales, jobs growth, time to be paid, and wage increases.
January’s update shows sales in the rental, hiring and real estate services category were down 2.5 per cent year-on-year and down 0.6 per cent from December 2022 – the lowest sales growth recorded across all of the industries Xero monitors.
Sales growth was led by arts and recreation (up 17.1 per cent) and hospitality (up 15.7 per cent).
Retail sales, up by just 0.6 per cent over the year, was the other weak performer.
Xero Economist Louise Southall said the declines in these categories were most likely a result of interest rate rises.
“The two weaker sectors – real estate and retail – are likely a reflection of the ongoing rises in interest rates on housing activity and discretionary spending,” Ms Southall said.
Across all industries, sales grew by 7.2 per cent in the 12 months to January.
Reacting to the data, MRE Residential Sales Manager Michael Fava said that using sales figures from late 2021 and early 2022 was a risky exercise due to the impact of COVID-19 lockdowns and the property boom during that time.
“It was an abnormal selling season, because you essentially had a window in which buyers were restricted as well as sellers, in terms of being restricted from putting their property onto the market in what we would classify to be normalised conditions,” he said.
“So I think if you’re comparing January 22 to January 23, I don’t think they can be overly compared.”
BresicWhitney CEO Thomas McGlynn agreed that this period was an historical anomaly.
“I think many, many people that would have been in the industry for more than two or three decades will say that it was the most strongest real estate market in Sydney that they would have seen,” he said.
“It was something that came out of nowhere, it wasn’t something that had a buildup, it came out of nowhere.”
Mr McGlynn said that the sales slowdown over the past 12 months had been partly due to interest rates, but also due to a lower number of listings.
“The amount of listings coming to market, year-on-year are very, very low,” he said.
“And so you combine that with the fact that the listings that are coming to market are proving more difficult to sell (due to interest rates) and that is having a big impact on the performance of real estate businesses for sure.”
The sales data comes as PropTrack reports new listings remain well below their 2022 levels.
January 2023’s new listing figures were down 9.4 per cent on the year prior.
An unusually strong selling season at the end of 2021 that extended into early 2022 meant it was always a difficult ask for 2023 to reach the same level, PropTrack Economist Angus Moore said.
“Despite the increase, new listings were still below 2022’s strong levels,” he said.
“Conditions and activity slowed in the back half of 2022 following an extremely busy spring in 2021, which extended into early 2022.
“Activity in the nation’s property markets resumed in January after the usual end-of-year break put a pause on selling campaigns.”
Jobs growth in the real estate sector was down 0.2 per cent year-on-year in January, and down 1.9 per cent between December 2022 and January 2023, according to the Xero survey.
Wages grew by 2.4 per cent over the 12 months to January.
Despite the low sales figures, both Mr McGlynn and Mr Fava were optimistic about the rest of 2023.
“I actually do think that now that real estate businesses have probably been through a period of adjustment in terms of their skill levels, in terms of the things that they’re going to need to do to be able to actively do more business,” Mr McGlynn said.
“So I think there’s going to be a rise in listing levels.
“I’d expect the first quarter, especially leading into Easter, to be a fairly strong period for listings, and I think that real estate businesses should be feeling that they have a great opportunity to be able to do a lot more this year than what they potentially have done in 2022.”
Mr Fava said that strong enquiry levels in January, which had converted to the busiest sales month MRE had seen in four years in February, was a positive sign.
“It’s definitely been a really busy period and there’s no factors at the moment to be able to deter us from thinking anything different over the upcoming months,” he said.
Survey shows confidence
The Xero figures come a week after Optus released survey results showing that more than 80 per cent of Australian real estate agencies are confident in the business landscape going forward.
Data from the new Optus Business Real Estate Industry Pulse 2022 report showed that despite a challenging end to 2022, the industry remains optimistic.
Optimism is highest in Western Australia, where 100 per cent of those surveyed said they were either very confident or quite confident about the business outlook.
Nationally, 81 per cent of agencies surveyed are confident about a successful year.
At the opposite end of the scale, 26 per cent of real estate businesses in South Australia and the Northern Territory said they were not at all confident or not very confident about the year to come.
