ABS data reveals tough times for real estate businesses, but it could have been worse: Tim Lawless
The ABS released their counts of Australian businesses data recently. The data largely flew under the radar, but there are some interesting findings in the data that relate to the housing market and those people working within industries associated with housing either directly or indirectly.
As a stark reminder about the realities of starting a new business, the data shows that of the almost 300,000 new businesses that commenced during the 2008/9 financial year, only 51% were still operating in June 2012. This is an interesting period to analyse due to the onset of the global financial crisis and it is probably not a typical economic period given the severity of the global economic downturn.
At a high level, the study showed there were just over 2 million businesses actively trading in Australia as at June 2012. Compared to a year prior there were about 9,000 more businesses active across the Australian business sector.
Unfortunately a large component of the uplift in the number of businesses were classified as being within an ‘unknown’ industry sector (consulting the technical notes on the release, these are businesses which are yet to be classified by the ATO but are actively trading).
Even though there were roughly 9,000 more businesses across Australia over the year, 62 of the 85 industry groups (excluding the ‘unknown’ category) recorded a decline in business numbers over the financial year. Clearly the 26,440 unclassified businesses would be distributed across the classified industry groups, so it is unlikely that the fall away in business numbers is as severe as some of the figures suggest.
The table below provides an overview of the largest industry sectors based on the number of active businesses at the end of the 2012 financial year.
Construction services are by far the largest industry sector on this measure, representing 12.5% of all businesses. The construction sector includes a wide range of business types, however ‘carpentry services’ were the most populous (44,870 businesses), followed by ‘electrical services’ (35,180) then ‘plumbing services’ (25,580).
Given the prominence of construction and property related businesses as displayed in the data, it is no surprise that the Reserve Bank is looking for home construction to pick up the slack from a slowdown in mining investment over the coming years.
The next largest industry sector was ‘Professional, Scientific and Technical Services’ representing 9.5% of all businesses followed by Property operators and real estate services which comprise 9.4%.
Looking specifically at the third largest business segment, ‘property operators and real estate services’, more than half of these businesses were in the non-residential sector (53%). ‘Residential property operators’ comprised 29% of all businesses in this sector and ‘real estate services’ accounted for 18% of all businesses. Note that formal definitions of each sector can be found here.
All states and territories have seen a reduction in the number of businesses within this category over the past year apart from the Northern Territory. The largest decline in business numbers was in Queensland where there were 734 fewer businesses which is likely to be a reflection on the soft market conditions that have been evident in the State.
The fact that that there are fewer property and real estate businesses over the 2012 financial year should come as no surprise. Housing and commercial market conditions were pretty tough during this time and many smaller or less efficient operators would have felt economic pain. What is perhaps more surprising is that the fallout has not been more significant.
Tim Lawless is national research director of RP Data.