Global experts find IPART review of PEXA pricing is significantly flawed

PEXA Group Limited (ASX:PXA) has released its response to the IPART Draft Report on Electronic Lodgement Network Operator service fees, suggesting that the methodology behind the proposed 20% pricing cut is economically flawed and unreasonable.

This position is supported by analysis from four globally renowned economic experts, all of which deliver a similar conclusion – that the IPART methodology is inherently flawed and not fit for purpose. 

PEXA’s submission argues that IPART has incorrectly used a pricing model appropriate for physical infrastructure that is unsuitable for a capital-light digital business and in doing so, has substantially undervalued the platform’s Initial Asset Base. PEXA Group Limited (ASX:PXA) has released its response to the IPART Draft Report on Electronic Lodgement Network Operator service fees, suggesting that the methodology behind the proposed 20% pricing cut is economically flawed and unreasonable.

This position is supported by analysis from four globally renowned economic experts, all of which deliver a similar conclusion – that the IPART methodology is inherently flawed and not fit for purpose. 

PEXA’s submission argues that IPART has incorrectly used a pricing model appropriate for physical infrastructure that is unsuitable for a capital-light digital business and in doing so, has substantially undervalued the platform’s Initial Asset Base.

PEXA also suggest that if implemented and maintained, the proposed approach poses a risk to the ongoing viability and stability of Australia’s property settlements system.  

The experts commissioned by PEXA to assess IPART’s Draft methodology include:

• Professor Mark Zmijewski (Professor Emeritus, University of Chicago Booth School of Business; PhD, State University of New York at Buffalo)
• Professor Kilian Huber (Professor of Economics and Finance, University of Chicago Booth School of Business; PhD London School of Economics)
• Dr Martin Lally (formerly Assoc Prof of Finance, at Victoria University of Wellington)
• Professor Stephen Gray (Professor of Finance, University of Queensland Business School; PhD Stanford University; Chairman, Frontier Economics); and
• RBB Economics

In its submission, PEXA shows how IPART’s Draft recommendations would impose an unprecedented reduction in revenue threatening future investment in the technology, security and resilience of Australia’s property settlement system.

PEXA Chief Executive Officer Russell Cohen said, “This is the wrong model, using the wrong inputs, producing the wrong outcome.

“IPART’s recommendation could weaken the investment settings that have supported PEXA’s world-first platform, with flow-on implications for Australian home buyers and sellers.

“PEXA is a digital platform that not long ago represented a high-risk venture investment. The IPART recommendation entirely fails to recognise the early risk borne by investors, and the investments required to meet the original goals for a national eConveyancing network.

“Applying a methodology poorly suited for digital platforms creates the risk of a range of unintended and adverse effects, including a risk to settlement stability and ongoing innovation.”

“Upon reading IPART’s draft report, we were concerned that the model used wasn’t appropriate for a digital platform in 2026. This led us to ask third party economists to consider the evidence and provide their analysis.”

Professors Huber and Zmijewski found that IPART had significantly understated the return PEXA’s early investors required to bear the risks of building the platform.

Their report found that IPART had applied a single, low established rate of return across PEXA’s history rather than reflecting the substantially higher returns consistent with the company’s early, high-risk development period and typical venture stage companies.

Dr Martin Lally, a leading finance academic and consultant on cost-of-capital for Australian and international regulators, independently modelled PEXA’s start-up asset base, producing a valuation range of $1-$2.5 billion as opposed to IPART’s calculation of an initial asset base of $367.6 million in its draft recommendation.

RBB Economics also concluded that the $367.6 million asset base assumption was likely to materially understate the economic value of the important assets required to provide PEXA’s regulated services. Further, RBB’s analysis of alternate approaches found PEXA’s prices to be reasonable.

RBB Economics found that “The available evidence does not demonstrate that PEXA’s current prices are materially outside the range of outcomes that might reasonably be expected under workable competition and therefore warrant more prescriptive intervention.

“Nor has IPART demonstrated that the materially lower revenue allowance produced by its BBM is sufficiently reliable and likely to improve outcomes for consumers. Accordingly, neither the threshold case for stronger intervention nor the basis for IPART’s proposed remedy has been established.”

Professor Gray, Chairman at Frontier Economics, found that IPART had incorrectly assessed PEXA’s risk of failure as the world’s first digital conveyancing business. Professor Gray said, “The Draft Report falls well short of the usual standard of regulatory decisions. Particularly in the circumstances of a draft decision that proposes a very substantial reduction to the allowed revenues that the regulator has previously approved.”

These detailed studies add to a substantial and consistent body of evidence showing that IPART has materially underestimated PEXA’s initial asset base, which underpins the proposal to cut PEXA’s revenue by 20%” Mr Cohen said.

“The evidence comes from multiple sources and points in the same direction. IPART itself found PEXA’s prices to be reasonable in 2019. When PEXA was privatised that same year, sophisticated investors paid $1.6 billion for the business, and the original investment case contemplated a valuation of $1.14 billion.

“Taken together each data point provides compelling evidence that IPART has stripped a billion dollars from PEXA’s asset base using flawed economics.

“We respectfully urge IPART to reconsider its Draft recommendation and retain the existing CPI-linked pricing framework, which has provided customers, industry and investors with certainty for more than a decade.”

Independent experts and cross checks all suggest IPART’s assessment is flawed

Value of PEXA Exchange end of year FY27 Initial Asset Base across submissions, FY27 values,

A$m