REA Group cautious, but sees recovery

Online property ads business REA turns in resilient quarter amid an uptick in listings as residential markets pick up pace.

REA Group CEO Owen Wilson. Picture: David Geraghty

Online property classified business REA Group has turned in a resilient quarter and is seeing an uptick in listings as residential markets pick up pace.

The company generated $195.7m in revenue from its core operations in the September quarter and earnings before interest, taxes, depreciation, and amortisation of $123.8m.

It cautioned about the ongoing impacts of COVID-19 on property markets, saying there were diverging impacts due to different restrictions on residential listings across Australia, with overall national residential listings declining 2 per cent.

The second wave of COVID-19 restrictions in Melbourne, which banned physical property inspections, caused significant short-term listing weakness ,with volumes declining 44 per cent for the quarter.

By contrast, NSW showed signs of a continued market recovery as restrictions eased, with a 23 per cent increase in listings for the quarter in Sydney.

“While Melbourne’s stage four lockdowns impacted the real estate industry heavily and weighed on our result, it was pleasing to see other markets recover as more normal operating conditions returned,” REA Group chief executive Owen Wilson said.

Despite lower national listing volumes, Australian residential revenue increased for the quarter, as the company reaped deferred revenue from the initial market recovery in June, an improved product mix and selling more add-on products.

But revenue from commercial and developer segments fell as commercial listing volumes were hit by COVID-19 restrictions in Melbourne, and the moratorium on tenant evictions impacted other states.

Large developers are also holding off kicking off large projects due to lower investor demand and immigration levels. But sales in boutique apartment and townhouse projects increased due to the house and land government stimulus incentives bringing first home buyers into the market.

The company said while there had been “positive signs” of a real estate market recovery in all markets following the lifting of restrictions, the COVID-19 health crisis continued to create market volatility.

It said uncertainty remains over the longer term impacts of COVID-19 on consumer confidence, unemployment and the economy, which would flow on to the property market.

In October, national residential listings dipped 1 per cent, with increases in Melbourne and Sydney of 14 per cent and 2 per cent respectively, offset by declines in other markets.

The company said it was seeing strong levels of buyer inquiry, underpinned by low interest rates and healthy bank liquidity.

But in a nod to the impact of the crisis on agents and “inherent uncertainty” about COVID-19 impacts on the property market, the company will not lift prices this financial year.

REA noted it may be hit by the forecast reductions in new developments until 2022 and is also expecting lower listing volumes in its commercial and Asia businesses, which would trim revenue this financial year.

But it is still on track as it has held costs in check. The company had an 18 per cent reduction in core operating expenditure for the quarter, partly as some spending was pushed back.

On the international front, REA has also forged deeper into India, striking a deal to boost its stake in the Elara Technologies business, with a deal worth up to $US70m to give it control of the company.

REA Group is majority owned by News Corp, publisher of The Australian.