Back on 7 August 2016, I wrote of six good reasons why REA Group Limited (ASX: REA) is a buy today.
But since then, I can add one more.
Last week, the UK online real estate agent Purplebricks Group PLC entered the Australian real estate market with the aim of disrupting the status quo amongst incumbents.
Founded in April 2014, Purplebricks' business model revolves around the offering of a fixed-fee sale process for property sellers.
The outrageous part of this though is that the fee to property sellers is capped at $4,500 including GST ($5,325 for auctions) for each instruction to sell, with nothing to be paid up front.
Combine this with an online platform allowing vendors to monitor progress on the sale of their home, and a network of 'local property experts' providing a face-to-face experience in what is an otherwise purely online operation, and you have a pretty compelling offer, especially when the traditional so-called advertising costs are included in the fixed fee.
So, where does REA Group fit in to all of this?
First and foremost, Purplebricks is not a competitor to REA Group's realestate.com.au property portal; they're purely an online real estate agent competing directly with existing real estate agents. Their main task is to sell your home.
Additionally, Purplebricks' business model also includes the creation and preparation of advertisements for "all the leading property websites" such as realestate.com.au and Fairfax Media Limited's (ASX: FXJ) Domain.com.au.
Therefore, it's my view that the addition of a price competitive and online disruptor such as Purplebricks will be a catalyst for additional listings in the various property markets around Australia. This should prove to be a benefit to both realestate.com.au and domain.com.au, the two big players dominating the online portal space.
This is, of course, on the proviso that Purplebricks' business model proves to be sustainable.
Foolish takeaway
Purplebricks has been labelled in the Australian media as the Aldi of Australian real estate with projections that property sellers could collectively save themselves $5.75b in reduced real estate agent fees.
Of course, REA Group and Fairfax Media, via Domain.com.au, will also share in the savings.
If Purplebricks proves it can obtain some sort of traction with its potential target market, REA Group will benefit via the expected increased demand for listings.
Similarly to small business customers using Xero FPO NZX (ASX: XRO) for their online accounting needs, property sellers will realise that technology is enabling a better and cheaper way of doing things.
It will be interesting to watch how competition in the Australian real estate industry develops in the years ahead and whether Purplebricks will prove effective in taking on the establishment.
If they're not for any reason, then my original six reasons for buying shares in REA Group today remain.
And if they do prove successful, and listings grow substantially via better service and cheaper pricing, then shareholders of REA Group should benefit greatly from this in the years ahead.
