Property Management in Australia

"Property Management in Australia - from punch cards to iPads'

There’s no doubting the Australian real estate landscape has changed over the years. In fact, the industry today is estimated to have over 12,300 businesses spread across the country, contributing $8.9 billion annually to the domestic economy.

Not so long ago it was a very different picture. Australian Bureau of Statistics data says that at the end of June 2003, there were only 10,000 real estate businesses in Australia, with income generated by these agencies totalling just over $7.5 billion for the 2002-03 financial year. Today’s figures represent a 23% growth in the number of businesses, and an increase of nearly 19% in revenue.

Rewind a decade, and the changes are even more telling: in June 1993 the real estate industry comprised only 7,200 businesses generating $2.8 billion in revenue.

Arguably, a key contributor to the real estate industry’s growth in this period has been the rise and rise of the property management sector. According to leading business researcher IBISWorld, property management provides almost 20% of all industry revenue – or around $1.75 billion. But with IBISWorld’s research predicting real estate industry growth to be close to 3% over the next five years, the property management sector could be worth more than $2 billion by 2015-16, of a total real estate industry valued at over $10 billion (see Tables 1a and 1b – IBISWorld statistics).

In many respects, the size of today’s property management industry reflects how attitudes to service, professionalism and property investment have changed in the last thirty years. Industry stalwart Jan Malmstrom, who started in real estate in the early 1970’s, remembers, “Twenty or thirty years ago, a handshake was good enough for a tenancy agreement. Also, you used to be able to lock a tenant out if they hadn’t paid their rent,” says Ms Malmstrom, who is now employed as a property investment management specialist with LJ Hooker. “But the legislation sets the boundaries now, and even though a lot of real estate agents and property managers would say it is sometimes weighted in favour of the tenant, having boundaries within which to operate is an extremely good thing.”

Indeed, many acknowledge the increasing impact of legislation with the rise of true professionalism in property management, to the point where agents need to be abreast of the latest regulatory changes to provide the service required by clients. Certainly, Tracy Billings, residential property manager for Raine & Horne Bondi Junction and Coogee/Clovelly in Sydney’s eastern suburbs, believes the legislation introduced in NSW in January this year has put the onus on property managers to be on the ball. “There were between 10 and 12 changes to the NSW Residential Tenancies Act at the end of January, and if you don’t know what they are, the tenants will – not to mention property owners and the media, which means that if you are not on top of your game, you could end up being the last person in the chain to know,” said Ms Billings.

For example, NSW landlords are now required to install water efficiency devices on taps in properties where the tenant is charged for water usage, while the notice period provided to tenants by landlords has increased from 60 to 90 days. Also, rental bonds have been capped at a maximum of four weeks’ rent, and tenants must be provided with at least one fee-free method for paying rent. “When you combine these changes with other rental property requirements such as smoke alarms, it creates more pressure on the property manager to ensure the rules are adhered to,” Ms Billings added.

Like Malmstrom, Billings remembers a time when property management was a different proposition, and tenants would walk in, pay their rent over the counter, and have a chat. “In some cases you were almost like friends with them, and it was much easier to put a face to a name. Now it is more anonymous – you meet a tenant once and then very rarely see them again, except when they leave the tenancy.”

Billings cites the increasing prominence of technology in the workplace as one of the key reasons for this shifting dynamic, with the completion of tenancy application forms a prime example. “Almost no one will fill out an application form and bring it in to the office on a Monday anymore,” she says. “Whereas once the leasing consultant would hold a Saturday open for inspection and use it as a good opportunity to go out and meet potential tenants face-to-face, now the forms are filled out online.”

One person who has certainly made the most of the technology boom is Mark Woschnak, Managing Director & CEO for leading rental property website rent.com.au. In 2005, Mr Woschnak sold his successful Sydney-based property investment business and moved back to his hometown Perth, where he started rent.com.au, Australia’s first national database comprised exclusively of rental listings. “RENT has now been fully operational for the last four years, and has grown from only 100 users in our first year to the point where we now have over 4,300 property managers uploading their content to the site today. This represents over half of all agencies with a property management department.”

By giving tenants, investors and property managers access to more information, technological innovation has been central to the property management industry’s development – but there has also been another outcome. Fiona Blayney, managing director of successful real estate consultancy and coaching business Blayney Potential Plus, explains. “Technology has created a more even balance between client relationships and service provision – previously if you had the relationship, service was secondary, because agents were just trusted to do their job,” says Blayney. “Now, we’re in the information age, and consumers can go online and Google anything, which means the client is sometimes just as informed as the agent. As a result, trust has been minimised and replaced with knowledge, so when someone rings an agent, they don’t just take what the agent says at face value.”

A consequence of this relationship change between tenants, landlords and property managers, is that client expectations of service have grown significantly, which in turn has driven the property management industry to become a business in its own right. “The sophistication of the property management industry has changed so that it is more than just an adjunct to sales, and one of the key catalysts for this change has been consumerism and the consumer’s approach to service,” added Ms Blayney.

The country’s top real estate executives have also seen the developing status of property management as a business, including Janusz Hooker, CEO of LJ Hooker, a company which has 118,500 property managements in its portfolio. “Astute agents have known for a long time that property management is a key element to the success of their business, but what we are seeing now is a broader market understanding of property management – it’s not just about sales anymore,” says Mr Hooker.

Macquarie Relationship Banking, Macquarie’s business banking division which conducts regular industry benchmarking surveys, underlines how property management has been integral to many real estate businesses staying afloat, particularly during tough financial times. In their most recent Real Estate Benchmarking Survey, the banking group found that while real estate principals have traditionally focused their time and energy on sales, in recent years there has been a shift towards property management as a means of providing consistent cashflow, regardless of how the sales market is performing. The survey found that nationwide, the average number of properties managed by each real estate agency totals 375, although Victoria outstrips other states with an average of 558 managements per office, due to a high proportion of independent offices specialising in property management (see Table 2 – Macquarie Relationship Banking Real Estate Benchmarking Survey 2009).

Furthermore, Macquarie found that on average, income from property management covers 48% of an agency’s fixed costs, which indicates a healthy percentage; although Macquarie also indicates that a fixed cost coverage ratio above 60% represents a stable property management focussed real estate business and a strong foundation for growth (see Table 3 – Macquarie Relationship Banking Real Estate Benchmarking Survey 2009).

And it is those businesses with a strong understanding of the value of property management who have survived during the GFC and even thrived in the years that followed, says Hooker. “In my previous role with real estate investment firm WP Carey, I gained a really good appreciation of the strength of a property management portfolio, because through all the ups and downs of the real estate cycle, and in particular when the GFC hit, our income was almost bullet-proof.”

Similarly, Mark Woschnak believes the growth in property management has been a must for agencies in the post-GFC world. “The industry is still suffering from the combined effect of what started out as the GFC and has translated into a slow property market, largely as a result of housing affordability issues and tougher bank financing criteria,” he says. “It’s created a natural (and much needed) shift to the areas of the market that are working and growing, such as the management of investment properties.”

As such, Woschnak sees Australia moving into what he calls the ‘era of property management’, with a distinct shift towards professional and separate property management departments within agencies, and an increase in the number of ‘rental-only’ businesses. “Agencies are now seeking to grow their property managements in order to sustain themselves financially, working hand-in-hand with property investors as their main clients.”

Undeniably, the arrival of the ‘property investor’ has been another key piece in the evolving property management jigsaw puzzle. Jan Malmstrom has seen the growth of ‘investor’ numbers first-hand. “In the past, landlords somehow just ended up with a house to rent, but they never had a real investment mentality. Building a portfolio was a foreign concept up until about 20 years ago, when the baby boomers really started that notion of investment,” she says.

The shift to an investment mindset has presented a range of new opportunities for savvy property managers, says Mark Woschnak. “We have moved from a landlord being just a client in a rent collection relationship, to that client now being a valued investor with whom the agent can build a relationship to provide a whole range of new services, such as insurance, maintenance services, property portfolio advice and further sales.”

Furthermore, Woschnak says the expanding national investor pool is set to provide future growth prospects for property managers. “According to the last ABS census, nearly 50% of all rental listings are managed by non-agents, which means there is an enormous pool of property owners out there who can still be targeted for property management services.”

The commercial environment

However, investors are not just confining their interests to residential property. In the case of Tracy Billings, commercial managements now contribute up to 25% of Raine & Horne Bondi Junction and Raine & Horne Coogee/Clovelly’s total rent roll of 2,600 properties. This shows that commercial real estate has become a preferred option for many, with some choosing to exclusively buy and sell commercial premises, and others using it to diversify their portfolio.

Interestingly, Jan Malmstrom notes that for this reason, commercial property management attracts different clientele and staff. “This is because certain investors only want to buy commercial property, and you’ll also find that commercial property managers are very different to residential property managers because they are by their nature more commercial in their approach to business and investment,” she says.

Furthermore, Malmstrom believes commercial property management offers people the chance to experience the vagaries of a career in real estate in some unusual locations and industries, from mines to casinos. “I know a number of residential property managers who have made the switch across to commercial property management because it provides a range of opportunities in different industries and because they find it more interesting and in some cases more lucrative.”

Industry standards could improve

It is Malmstrom’s firm belief that property management can take you anywhere, and as an example, she points to the fact that she is in the midst of finalising a Masters in Professional Studies (Property Management) from the University of Southern Queensland, a qualification she says was not possible up to five years ago. But despite the obvious progress at tertiary level, the question still remains whether the industry’s standards are high enough when it comes to entering the profession in the first place.

Tracy Billings, for one, believes the entry requirements for property management are too low. “It is easy now for someone to study for a few hours and get their certificate of registration, which allows them to lease and manage properties. The bar needs to be raised considerably, and this will in turn raise the profile of property management.”

Already, the issue of declining education standards has been in the sights of the Real Estate Institute of NSW, which has slammed the Council of Australian Governments (COAG) recently proposed national licensing system, a move they say will lower the entry level training requirements across the country. The REINSW has warned its state counterparts that the mooted changes will reduce the standard of learning from a Diploma to a two-day Certificate IV program.

This has brought the importance of training and education into the spotlight, with the brightest young property managers now seeking ongoing professional development in their roles. Blayney sees this through her partnership in Real Estate Career Developers (www.recd.com.au), which specialises in real estate recruitment in Sydney and Melbourne. “One of the key issues for recruits is to work in an environment where they are well remunerated, but also where they can receive training and development. As a result, some of our clients are now including industry events such as ARPM (Australasian Residential Property Management conference) in the remuneration packages they offer, plus a dollar value training package for their team members.”

The mounting push to provide a career path and further development for employees shows the lengths to which employers are prepared to go in order to land the best property managers. According to RENT’s Woschnak, this is because Australia’s property management sector will continue to grow long-term, with the combination of declining housing affordability and renting as a lifestyle choice driving up the number of tenants nationwide. “This will see the rental population in Australia grow from around 30% currently to around 40% over the long-term, taking us in line with what is happening in major cities around the world. We could end up following other major European countries like Germany which has over 50% of renters, and France which has over 40%.”

Woschnak cites the increasingly ubiquitous ‘rent generation’, both in Australia and overseas, as evidence of our future as tenants. “For the first time in Australian family evolution, a large portion of this generation actually thinks renting is what they will do for the rest of their lives, despite still aspiring to property ownership. They don’t automatically think they will buy the great Australian dream of a four bedroom, two bathroom house – this is a big difference from ten or twenty years ago.” Furthermore, RENT conducted a survey of renters during June 2011, which showed that almost 57% of tenants are renting because they cannot afford to buy a house, while a further 14% do not aspire to own a house at all (see Table 4 – Rent.com.au ‘Renters Unite and Have Your Say’ survey – June 2011).

A potential impact of the switch to a rental lifestyle could be greater demand from tenants to turn rental properties into long-term homes, through upgrades to features such as kitchen fittings and yards. The upside for landlords and property managers is the security of a long-term stable tenant and guaranteed income. And with Australia’s increasing population and a national rental vacancy rate of 1.7%, it would appear that competition for rental properties is becoming stiffer (see Table 5 – SQM Research National Residential Vacancy Rates).

Another expected impact of Australia’s growing population is an increase in the amount of high-density living, with many of the country’s newest residents already used to living in high-density environments. This will ultimately change our understanding of how many people can live in a home, as it becomes more commonplace for several generations to live under the same roof. Major cities will continue to act as hubs but with urban sprawl moving further out. For Jan Malmstrom, this makes it an exciting time to be in property management. “For instance in Melbourne where I live, there are reported to be 2,000 people a week moving into the city, and even country centres such as Swan Hill, Echuca and Shepparton are growing, which shows that urban sprawl is going a long way,” she commented.

Also, as population numbers surge, the industry’s technology will need to keep pace. Ex-property manager Angus Raine, now-CEO of the Raine & Horne property group, says the next ten years will see an increasing reliance on online services. “Technology will continue to be at the forefront of relationships between property managers, investors and tenants,” says Mr Raine. “To give you an example, when I started as a property manager in the 1980’s, we were using kalamazoo punch cards to run computer programs. Now we’re using iPads and mobile devices.”

Woschnak agrees with the growing prevalence of technology and says we should expect an improvement in the quality of the information available online, with property statistics becoming freely available to investors and buyers. “This means there will be a high degree of transparency in the industry and everyone will have to work harder to stand out. How an agency represents themselves will become more important, and this may result in greater use of videos and mobile applications to focus on the people and services within an agency.”

But with all of this information flying around, Blayney thinks the property management industry should be working harder to use the data it collects. “The number one under-utilised system in every single business I work with, is their database, and to date I have not met anyone who leverages this information to its maximum potential,” she says. “We spend hundreds of thousands of dollars a year on marketing and branding, and we invite all these people to communicate with us through open for inspections, call-ins, and tenant application forms. But we now need to take all this data, put it in a central location, and use that database to communicate.”

According to IBISWorld, other opportunities for property managers include the facilities management arena, with agencies forming joint ventures to look after property services on behalf of government and large corporate tenants, including air conditioning systems, lifts, cleaning, security and grounds maintenance, as well as contracts, leases and relocations. Malmstrom also points to opportunities for the industry to specialise in holiday management and student accommodation, but warns these are huge markets and very labour intensive if not managed properly.

Malmstrom says another trend to watch is the growing need for professional property managers in mining towns. “The mining companies don’t generally have the expertise themselves, and with the mining industry so strong at present, there are opportunities for property managers in areas like Emerald, Gladstone, Karratha and Nhulunbuy,” she says. “However, this is a very different type of management, with only one landlord and a lot of reporting and asset management. But I do believe this area of property management will grow, with the value of mining to our country.”

However, while new property management avenues can provide opportunities for businesses to build on the industry’s organic growth, history shows that reinvention will be an equally important factor. Just as a handshake has been replaced by a legal document, and punch cards with iPads, the next generation of property managers is likely to revolutionise the industry in many more exciting and unimagined ways.