Death of a gecko

The effects of the slowing rate of credit issuance (disleveraging) continue to seep into the broader economy. With sales volume charts like this in Queensland it really was a matter of time before something had to give.

It therefore shouldn’t really surprise anyone that the Queensland Real estate industry is in for a tough time after years of easy ridin’ on the back of credit driven mania. Today another small player has fallen on tough times.

Queensland-based real estate group has called in administrators after falling victim to the property market slump. The founder of Go Gecko Pty Ltd Geoff Doyle has also been ousted from the chief executive’s role, The Courier-Mail reports.

New chief executive Noel Scully told the paper there were a number of reasons for Mr Doyle’s departure.More than 40 franchisees attended a meeting on Tuesday, where they were told about eight company-owned real estate agencies were now under review.

Mr Scully blamed difficult conditions for the decision, but said as few as two outlets would close and franchisees would not be affected. The administrator, Vincents Chartered Accountants, said a review would determine what the future course of action.

Go Gecko was founded in 2006 and carved out a niche by capping commissions. It has more than 50 outlets, the vast majority in Queensland and a handful in South Australia, Victoria and the ACT.

Unless we see a major turn around in credit issuance I really can’t see the other branches lasting. It would seem that the Real Estate market is in for some consolidation. Death of the little players while their carcasses are picked over by the big boys as they too down-size to meet the market.

Next to go Mercedes and BMW leasing services.

Go Gecko is not the only one taking a property hit today.

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  1. As I said in the other thread, GoGecko worked on a low cost, high volume strategy. Capping commissions and taking a bigger slice of the traditional RE market worked while the market was moving but it’s come back to bite them with sales volumes this low.

    • I have witnessed in many private and public businesses/operations that bloat usually creeps in during the good times. The longer the good times the larger the bloat and the harder it is for businesses to re-transition to meet the new market conditions without collapsing. Just like their clients it is likely that the RE industry has taken on substantial debt during the “good times” in the belief that it would go on forever.

      Volumes are hovering around 25- 30% of what they were 3 years ago in Queensland. There are simply too many agents in the industry to support that sort of market.

      • Torchwood1979

        That’s why I believe that a recession every 7 to 10 years is a necessary evil. If the good times roll for too long the debt pile grows out of all proportion as expectations get even more unrealistic. Being brought down to Earth once a decade or so helps separate the wheat from the chaff in the business world and expectations of Joe and Jane Public are kept in check.

    • I agree.

      There is an argument that real estate agents will be okay regardless of the property environment – ie, prices up or down, and that stagnating prices is what will hurt them.

      I tend to agree with that, and really this article highlights that the issue is simply volume. Stagnating prices, or the start of a downturn where people try to ‘hold off’ selling would translate to lower volumes IMO.

      Unfortunately I think a certain amount of hopeful schadenfreud is affecting the views on how real-estate agents will fare in a property downturn.

      I don’t have any evidence to offer, but could we not simply look to the US or Ireland for example to see how real estate agents are faring there?

      • We are in the process of purcashing property on the west coast of the US.

        We are doing this processes ourselves and not via 3rd party sales program or promotion. We have personally done the research and contacted the people in the US we want to work with on this.

        I can tell you that everyone we have dealt with so far (our US based RE Broker, the finance folks, the propety inspector, the insurance and property management people, the lawyers etc) have all been amazingly helpful and responsive.

        This maybe because I have gotten lucky with our research on whom to use, or maybe they really don’t have a lot of other work on, or maybe it is just a US work ethic thing.

        Given that our RE Broker isn’t even paid by us (the seller picks up the commission tab for her) she has worked amazingly hard for us so far.

        That is my (very limited and localised or course) experince so far in the US so it is hardly strong argument, but so far I have been really impressed with the service I had received from my US contacts.

        • In USA you can access for FREE the RE site and see the valuation of any home you are interested in. Their is a real free market. In Australia the market is not free, because the information about the market is not free.

          • Yes, the sheer volume, quality and depth of free property, population and suburb data is staggering.

            You would pay thousands of dollars in Oz for this sort of information, if you could find it at all. Brilliant stuff.

          • Hey, thanks for the link. I always like to read the bad stories as well as the good. There sure is plenty of risk in purchasing in the US if you are not careful and you could easily get burnt.

            I am confident we have the right people in place and looking in the right city for what we want to achieve. Indeed the sort of money we are talking is much more expensive than those so called ‘bargin’ places (and definately not doing anything on ebay!). Our aim is to get a decent house in a good suburb in a city that has both Government and private industries supporting the population.

            We have been working on this for many months now, taking it slowly and making sure everything is right for us and minimising any risk as best we can.

            Guess I can keep the MB blogger posted on how it all goes…

  2. Charles Ponzi

    Hurray!!! Funny how binging often leads to purging. More vomit coming before we can start the process of repair.

  3. Sandgroper Sceptic

    Just think of all that skilled labour (property agents have skills right?) that can be redeployed to the mining sector…

    • Driving a leased Merc whilst yabbering into a mobile phone does translate roughly into driving a truck up and down an open cut mine…..surely.

      Had a chat with an RE agent last night at antenatal classes up here in Boganville – she was worried stiff about work post-baby….unskilled jobs on the Fraser Coast are few and far between.

      (though The Princess then mentioned to her that she could become a financial planner with little to no training….)

      • Financial planner = mortgage broker.

        No qualifications required.

        “How much do you earn after expenses?”

        “That means you can borrow $XYZ”

        “Here are some mortgage products”

        “Happy house hunting”

        • Being a good financial planner is nothing like being a mortgage broker.

          However, there are many planners that dont know a lot about investing or economics and spiel out popularist views.

          The irony is that by being truly knowledgeable and talking about the sorts of investment strategies that are suitable for a given environment as well as addressing the economic issues is more likely than not to scare people away as they prefer simple answers, as do the planning businesses.

          Therefore, the most successful planners are those who can repeatedly provide simple answers that sound great, but aren’t effective, to as many people as possible.

          • I agree. My comment was a jab at the financial planning industry of modern times. Zero thought, zero effort, collect the commissions.

            But a good financial planner – that’s another thing altogether.

            “more likely than not to scare people away as they prefer simple answers”

            Very much agree, and this is why the clients are to blame as much as the planners themselves. Financial literacy is a choice, if people choose to be naive and to place their future in someone else’s hands, then they get what they pay for.

            “Therefore, the most successful planners are those who can repeatedly provide simple answers that sound great, but aren’t effective, to as many people as possible.”

            You mean ‘successful’ versus ‘responsible’, right? In that case I agree. Doesn’t that fit with my mortgage broker point? Or maybe the “How I became a millionaire within 3 years!” lot.

          • Pete,

            Yes, we are thinking along the same lines. Successful as in doing the most amount of business as opposed to providing the most successful outcomes. Both parties are to blame, as each individual is responsible for their own understanding. As it stands, the industry seems to have no reason to do otherwise and regulation will in no way resolve these issues.

    • Pull ya head in, Sandgroper.

      We’ve already got enough princesses in the Pilbara.

  4. Quick Question Delusional Economics – Previously it took me some time from other blogs to work out that disinflation meant decelerating inflation.

    I have seen you use disleveraging once or twice before and it went over my head, based on disinflation does disleveraging also mean decelerating deleveraging? As in overall most are deleveraging but some are hedging their bets?

    Thanks in advance for your response.

    • Disleveraging is a term made by H&H which means a slowing rate of credit issuance. In Australia credit is still growing ( currently 6% YoY ) but that rate of growth is slowing. Another year at the current trend and we will have disleveraging, that is negative credit growth.

      Dr Steve keen has done quite a lot of research on disleveraging. He calls it’s effects credit acceleration shock

    • Disleveraging is basically the RBA trying to pilot the economy at stall speed – i.e. the thin line between debt-deflation (house price crash and a recession) and credit-mania (house price rising and reflation of the bubble).

        • Perhaps moreso that we tried to fly too high for too long and we ran out of fuel. I think the thin air up there has made CJ et al delirious and forget the laws of physics.

      • Wow, that is a great way of putting it. Reminds me of when those poor pilots had to land Qantas’s Airbus A380 after the RR engine blew out and crippled the aircraft.

        They had a stupidly small tolerance to land the darn thing. Too slow they would stall and crash, but too fast and they would run out of runway at Changi and crash into the ditch – not good with a massive fuel load still on board. They ended up stopping on the apron with less than 100 metres to spare – basically nothing on a 4 KM long runway! Very lucky.

        Now can the RBA pull of a similar trick?

        • Except the RBA pilots are flying at night, with instruments that have a 60 minute delay, and gusty crosswinds from China and the US.

  5. I think NZ can provide you Aussies with some insights.
    We’ve had a sluggish housing market for about 4 years, the number of real estate agents has dropped about 30%

  6. I hear a stat quoted last week from someone who has good contacts in the RE industry that 10,000 jobs have already been lost in the last 12 months.
    I have no concrete data but the figure came from high up the ladder.

  7. Seriously though, how long was the Queensland property boom? The Gold Coast must be experiencing its first contraction in how long – maybe 40 years? That’s gotta hurt.

    I guess they never expected the double whammy of the absurdly high dollar keeping tourists away combined with chronic oversupply. I think the Gold Coast has overbuilt in some badly planned spots; some of those recently built suburbs in the hinterlands are not central to anything and don’t have the access to jobs (outside tourism) that they need. Along with a lot of the RE agents, a lot of developments in poor locations will surely suffer.

  8. Matt – I suspect for 2 major reasons we will see a more accelerated decline in Australia than New Zealand.

    First – the Median Multiples of Sydney and Melbourne are just so elevated – at 9.6 and 9.0 respectively (refer this years Demographia Survey).

    Second – the build rates / 1000 population are and have been so much higher than say Texas, which has had a greater population growth rate than Australia – but its housing has remained affordable. There has been a massive amount of “bubble stock” (outside conventional Development Ratios) put in place in Australia.

    Australians should be carefully researching the California and Texas housing markets, to gauge their own.

    Its OK to compare New Zealand with……um……Tasmania!!!

  9. Except the RBA pilots are flying at night, with instruments on a 60 minute delay, and gusty crosswinds from China and the USA.