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Is this the beginning of the end for REA Group Limited?

Storm clouds are rumbling over REA Group Limited (ASX: REA), the owner of property portal, realestate.com.au.

According to the Australian Financial Review (AFR), the company is facing a serious challenge from real estate agents in Melbourne, with 300 agencies appointing a third-party representative to negotiate fairer ad prices with REA Group.

Thanks to its strong market position – the company is estimated to control 61% of the online property advertising market – REA Group has managed to increase prices consistently for ten years. Some estimates put the price increases at 9,000% in five years. But recent changes to its pricing structure, which involves steep price hikes have incurred the ire of the industry.

Now 62 real estate brands with a combined ad spend of more than $100 million a year, are collaborating to bring about cheap, fairer and more equitable prices. REA Group also recently announced that it was raising rates for properties in upmarket suburbs, with agents charged on the location of the listing rather than the location of their office.

At the same time, the AFR reports that talks of new ventures setting up to compete with REA are rising. Real Estate Industry Victoria, which runs property portal realestateview.com.au and adviser Right Click Capital have been in talks with international media companies with a view to expanding its website.

Domain, REA Group’s main competitor, owned by Fairfax Media Limited (ASX: FXJ) has called on real estate agents to ‘unplug’ REA, with Domain CEO Antony Catalano calling increases of up to 60% ‘extortionate’.

New Zealand’s Trade Me Group Ltd (ASX: TME) is in a similar situation to REA Group – with its recent dispute with real estate agents threatening to sink its online property market share. That dispute is yet to be resolved, but REA Group’s problems may only be beginning.

Despite the share price falling more than 14% since its 52-week high of $52 in early March, more clouds are approaching REA Group.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

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