Australian real estate sector struggling: Dun & Bradstreet

The challenging trading conditions facing real estate firms in Australia have been highlighted in a new global business failures report by Dun & Bradstreet. 

Real estate firm failures in Australia constitute a far higher proportion of total business failures than the global average, according to the research group. 

The Australian finance, insurance and real estate sector accounted for 16.5% of business failures in the second quarter of 2011, higher than services (14.8%), construction (8.9%) and manufacturing (4.9%). 

The finance, insurance and real estate sector registered a 16.6% increase in failures over the quarter compared with 12 months ago. 

R estate, finance and insurance business failures in advanced countries as a whole accounted for just 5.5% of total failures (made up 3.2% real estate failures, 2.3% finance and insurance failures). 

Globally, real estate failures dropped 14% compared with the same quarter last year. 

In the depressed UK housing market, finance, insurance and real estate failures accounted for only 6.3% of business failures (down 3.2% for the quarter), while in the US the real estate sector contributed just 4.5% of business failures, a quarterly drop of 13.3% 

The increase in Australian failures goes against the global grain, with the D&B report noting a strong decrease in real estate failures globally. 

Overall the number of Australian business failures rose 12.1% year-on-year in the second quarter, up from a 4.1% year-on-year increase in the first quarter of 2011. 

D&B says the rise in insolvencies may reflect “knock-on, lagged effects of the 2008-09 global financial crisis, declines in business credit and higher interest rates”. 

“Outside the mining sector, sentiment is generally still poor and the strong currency is straining profits,” says D&B. 

According to Dun & Bradstreet CEO Christine Christian, insolvency activity in Australia is up across almost all sectors, “with a significant deterioration in retail and service sector failures, reflecting subdued confidence”. 

“There is an increasing risk that the global economic slowdown will intensify the upward trend in insolvency levels. The global economic recovery is running out of steam. Downside risks to growth, including debt crises in Europe and the United States and volatility in financial markets, remain high,” she adds.