McGrath makes $10m turnaround as founder John McGrath says home prices have held up

Sydney real estate identity John McGrath says home prices are defying warnings of gloom, as his firm returns to the black.

John McGrath is upbeat about the property market. Picture: David Swift.

Real estate agency McGrath has announced a $10m earnings turnaround and appointed a new chief executive, as its founder declared much of the residential home market to be in good shape.

While the agency warned dwelling prices were expected to decline over coming months, it said government stimulus packages, supported by banks, and record low interest rates, are likely to cushion the decreases.

And in a company shake-up, McGrath chief executive Geoff Lucas resigned after delivering Monday’s profit results, capping his two-and-a-half year stint at the company.

Replacing him as CEO will be Edward Law, appointed after a 14-year career at ANZ, where he was global head of institutional property.

It came as McGrath reported that full-year revenue was up 11 per cent to $91.69m.

Earnings before interest, tax, depreciation and amortisation was $3.7m, a $10.1m turnaround from underlying an EBITDA loss of $6.4m in 2019.

McGrath also recorded a net profit after tax of $700,000, compared with the 2019 loss of $9.7m, partly as it received a JobKeeper benefit of $2.2m.

Sales per agent jumped 31 per cent jump in the period, despite the negative effects of the COVID-19 pandemic on the residential property sector in the last quarter.

The market welcomed the result, with McGrath shares jumping 6c, or 31.6 per cent on Monday, to 25c each.

Founder John McGrath, who retains a 24 per cent stake, gave an upbeat assessment of the housing market, saying it had dodged the worst predictions given at the outbreak of the coronavirus pandemic, with only city investment units emerging as the “soft underbelly” of the market.

But even here he sees a comeback next year and said the removal of government stimulus packages will not hurt the established home market.

Mr McGrath, an executive director, said coming out of COVID-19 the agency had seen an uptick in listings. “We thought there could have been a 5-10 per cent correction in home prices … but what we’ve seen is that it’s quite stable,” the high profile agent said.

He said some auction results were better than anticipated and while clearance rates had come down, if sales two weeks after auctions were taken into account, then clearance numbers are in the 70-75 per cent range.

The agent also called out the near zero interest rates and said the borrowing capacity of people who remained in jobs or whose businesses were performing was good.

“The continuations of the shortage of stock and record low interest rates have been part of the reason that prices have been maintained,” he said.

New chief executive Mr Law added that major banks had noted about 60 per cent of home loan borrowers were ahead on payments, notwithstanding job losses.

He pointed out the weaker performance of CBD investment units in Sydney and more so Melbourne. However the remainder of the residential housing market had kept its “safe haven” status, particularly as Hong Kong-based capital sought a new home.

Mr McGrath said even the owner-occupied market for apartments was holding up. “l see a return of investors next year with the cost of borrowing at very attractive levels, property yields of 3 to 4 per cent and strong prospects of capital growth,” he said.

“We‘ve come through COVID-19 better than most countries,” he said. “Next year will be a solid year for the residential real estate market,” Mr McGrath added, dismissing fears of hefty price falls as government stimulus rolls off next year.

“The reduction in stimulus will be done sensibly and in a measured way.”

While McGrath had “performed significantly better than the market during the year”, it decided not to pay a dividend.

McGrath closed off the financial year with no debt, $17.3m in cash and $30.2m in net assets. The company said the value of its rent roll was estimated at $52.2m, of which $38.5m was not reflected on the balance sheet.

Melbourne’s stage-four lockdown is expected to have limited impact on McGrath’s results for the 2021 financial year, although it warned some softness in rents was likely to continue through the uncertain economic conditions.

McGrath, which has 99 offices along the east coast, said it was expecting continued market share gains, with experienced agents and strong brand positioning, and some opportunities for acquisitions were emerging.