Domain sees recovery in Sydney and Melbourne markets after 2023 profit misses expectations

More homeowners in Sydney and Melbourne are looking to put their properties up for sale with interest rates nearing the peak, in a move Domain hopes will reverse a sharp fall in its profit.

Nine Entertainment-controlled property portal Domain Holdings is seeing an early recovery in new ‘for sale’ listings in high-yielding Sydney and Melbourne markets ahead of the peak spring selling.

The company said that confidence in the property market was increasing week-by-week across the two major cities with interest rates near the peak, but cautioned that national volumes were being impacted by weakness in Queensland and Western Australia.

Renewed optimism from Domain follows the group’s profit for the 2023 fiscal year plunging 19 per cent year-on-year to $26.1m, including significant items losses of $5.2m and loss from discontinued operations of $7.3m.

The result was significantly less than the $39.1m profit markets had expected, which prompted investors to dump Domain, with shares down 7.9 per cent to $3.76.

Earnings before interest tax depreciation and amortisation fell 13 per cent to $108.6m, while EBIT tanked 24 per cent to $70.3m amid a small dip in revenue from the prior fiscal year.

A rapid increase in interest rates from the Reserve Bank to tame inflation has largely weakened the property market, with listings falling below long-term averages.

Domain chief executive Jason Pellegrino said poor listings in the second half were largely the result of shocks from February’s Reserve Bank announcement to lift the cash rate and the collapse of Silicon Valley Bank in March.

Domain chief executive Jason Pellegrino says the company expects to resume EBITDA margin growth this fiscal year. Picture: Supplied

“Both of those impacts had multimillion-dollar impacts on our revenue — north of $5m to $6m in total,” Mr Pellegrino said.

“The past year was easily the worst listings environment we’ve seen play out ever. September last year saw vendors flee the market and places such as Bondi in Sydney saw volumes plunge by north of 60 per cent.”

Domain is confident that the 2024 fiscal year will see it turn the corner with an early recovery in new ‘for sale’ listings in high-yielding Sydney and Melbourne markets. It expects to resume EBITDA margin expansion in the current fiscal year, supported by improving listings, price increases, uptake of new depth contracts and products and cost restraint.

“We’re primarily seeing an unwinding of the shock and fear from a rapid rise in interest rate rises. It is just an unwinding of that uncertainty, which is what sellers crave as rates, not the level that rates have risen to,” Mr Pellegrino said.

“Right now, sentiment is improving week on week in Sydney and Melbourne and we expect that other markets won’t be too far behind.”

Domain expects that costs in the current fiscal year are expected to increase in the mid to high single digit range from the 2023 financial period expense base of $237.1m. This was more that what analysts including Citi had expected for the year ahead.

“There is increasing strength and confidence in Sydney and Melbourne market. The return is being led by inner city, higher yielding zones, this will then be spreading into broader cities. We expect that Queensland and WA will follow on soon.”

More listings are coming onto the market in Sydney and Melbourne.

The company is also looking for alternative opportunities for profitable growth after its recent decision to pursue a sale exit of its Domain Home Loans joint venture

“We aspire to a business that has the ability to scale and achieve profitable growth. Given our large and highly engaged audience, and what we have learned to date, we remain very confident that home loans can play a key role in our Marketplace strategy over the longer term,” Mr Pellegrino said.

Domain will pay a final dividend of 4c a share, taking the total for the year to 6c, flat from last year.