PEXA Group Limited (ASX: PXA) has told the New South Wales pricing regulator that the methodology proposed for setting its fees is built on a flawed asset valuation, warning that the approach would create an unsustainable financial profile if carried beyond the current regulatory period.
The company participated in a virtual public hearing held by the Independent Pricing and Regulatory Tribunal (IPART) of NSW on 21 July 2026, part of IPART's ongoing Review of Electronic Lodgement Network Operator (ELNO) service fees. PEXA, a digital property exchange that facilitates the vast majority of property transfer settlements in Australia, has recently expanded into the UK market.
The core objection: wrong model, wrong base
PEXA argued two things, and they are separable.
First, that the Building Block Model — traditionally applied to regulate physical infrastructure — is ill-suited to capital-light digital infrastructure like its platform. Second, that IPART's proposed Initial Asset Base (IAB) is materially understated, failing to reflect historical investments.
Those claims sit at the heart of how regulated monopoly revenue is set, and understanding them requires knowing what the building block model does.
How regulated revenue is set
The building block model calculates the revenue a regulated business is allowed to recover as four components added together: a return on the asset base (typically the weighted average cost of capital multiplied by the value of assets), a return of that capital over time (depreciation), efficient operating expenditure, and in some frameworks a tax allowance. That permitted revenue is then divided across forecast transaction volumes to produce a per-transaction fee.
Its logic was designed for pipes, poles and wires: physical assets with long lives, observable replacement costs and clearly identifiable investment decisions. Every parameter has an empirical anchor — if a regulator disputes whether a water main exists, it can be inspected.
Digital platforms break that anchor in three ways that matter here.
Where intangible assets distort the base
Software-intensive businesses often expense much of their development rather than capitalising it, particularly in growth phases. An asset base built from capitalised expenditure can therefore understate the capital actually deployed to build the platform — which is precisely PEXA's complaint about the IAB failing to reflect historical investment.
Second, useful lives differ. A substation has a forty-year life; a settlement platform may be rebuilt substantially every few years. If the asset life assumptions applied are too long, depreciation recovery is stretched and inflation erodes the real value of the return. If too short, annual charges rise and consumers pay faster. PEXA has asked for re-evaluation of depreciation, the rate of return on historical expenditure, and asset life assumptions — three parameters that together determine almost all of the permitted revenue figure.
Third, contestable inputs. PEXA described the draft report as relying on "highly sensitive and contestable inputs" rather than robust methodologies, and called for a more cautious, evidence-based approach to any future pricing recommendation.
Why the outcome matters beyond NSW
Three consequences follow if the IAB is set too low and that approach persists.
Recovery of sunk cost. An Initial Asset Base struck for the start of a regulatory period anchors everything after it. If it excludes historical investment, permitted revenue never recovers that spend, and the gap compounds across periods.
Investment incentive. PEXA warned that pursuing the current approach beyond this regulatory period would create an unsustainable financial profile, potentially hindering future innovation and market development. This is the standard regulatory-commitment argument: capital deployed today against a return set tomorrow discourages that capital entirely.
Precedent. A determination in NSW does not bind other jurisdictions, but NSW is among the largest property markets nationally and its methodology tends to be cited elsewhere. PEXA also has UK operations where such approaches can colour how regulators view digital infrastructure pricing.
The regulator's side of the argument
IPART's position does not need to be inferred from PEXA's submission, and it is not unreasonable. The model's purpose is to prevent monopoly pricing by ensuring customers pay efficient costs rather than whatever a single supplier chooses to charge.
Two arguments support a conservative asset base. First, network economics: as volumes grow across a largely fixed platform, cost per transaction falls, and fees should fall with it rather than preserving the margins of an earlier period. Second, prudence: where assets are intangible and self-reported, allowing full recovery creates incentives to over-invest and to capitalise aggressively. Striking the base conservatively shifts that risk to shareholders, which is where a regulator generally prefers it to sit.
PEXA's counter contains the phrase without clear evidence of commensurate customer benefit — a direct challenge to show that lowering the asset base actually helps customers rather than merely lowering the number.
What happens next
IPART's review has already run longer than originally scheduled, with a revised timetable noted by the company in early 2026. The immediate question is whether the final report adopts a different IAB methodology or holds the draft approach.
PEXA's speaking notes from the hearing are available on its website, with a full transcript expected on IPART's site in due course. Both are worth reading, because the resolution will most likely turn on detail rather than principle: which asset life is applied to which asset class, and how historical expenditure is evidenced.
Australia currently has two Electronic Lodgement Network Operators approved to operate nationally, so this review also shapes the economics of competition in conveyancing infrastructure rather than only PEXA's revenue line.
For investors, the practical read is that regulatory risk for digital infrastructure is becoming a pricing problem in its own right. Utility-style frameworks can be applied to platforms, but doing so well requires confronting a question the original framework was never designed to answer: what is the asset base of a business whose most valuable assets were largely expensed when they were built?
Sources
- PEXA Group Limited speaking notes and statements from the IPART virtual public hearing of 21 July 2026: objections to the Building Block Model, the materially understated Initial Asset Base, requests for re-evaluation of depreciation, return on historical expenditure and asset life assumptions, and the warning about an unsustainable financial profile.
- IPART, Review of Electronic Lodgement Network Operator service fees — revised timetable acknowledged by PEXA in its ASX announcement of 30 January 2026, and the public hearing process itself.
- Parliament of Australia, House Economics Committee material on interoperability: two Electronic Lodgement Network Operators are currently approved to operate within Australia.
- Note: explanation of building block regulation, scale economies, regulatory precedent and investment incentive arguments is the author's analysis, not the position of PEXA or IPART.
