McGrath says housing market a tale of two halves as agency looks to recruit more real estate agents

Real estate veteran John McGrath says the top end of town is the strongest he has ever seen in 40 years, but is hopeful that RBA rate cuts will help first and second home buyers.

Real estate group McGrath expects a reduction in interest rates to provide a boost to the lower end of the housing market, heavily impacted by the Reserve Bank’s record run of 13 increases to the cash rate.

The ASX-listed firm said the property market has stabilised and prices in most areas would continue to rise despite economic headwinds. It comes as McGrath managing director and chief executive John McGrath looks for further growth after a strong bounce in profit for the six months to December 31, with plans to add 115 new real estate agencies to the network over the next three to four years.

Mr McGrath said Australia’s property market was a tale of two halves with more wealthier suburbs, notably in Sydney and Melbourne, seeing strong price growth and buyer activity, compared to other parts of the country more impacted by cost of living pressures.

“The top end of the market is probably as strong as I’ve ever seen it since I started in real estate 40 years ago,” he told The Australian “And if you go to the other end of the scale, first and second home buyers have been definitely impacted by increased rates, their affordability and their confidence has been knocked around by 13 rate rises.”

Most economists expect that the RBA will move to cut interest rates from the back half of 2024, which McGrath said would likely be a positive for the lower end of the market.

“A plateauing of rates for the remainder of the calendar year will probably see the market consolidate around these levels,” he said.

McGrath’s John McGrath said the housing market is a tale of two halves. Picture: Julian Andrews

He said that the upper end of the market would continue to be highly sought after and therefore lead to hight prices, while homes within 10km radius of Brisbane, Sydney and Melbourne would also perform well.

“Brisbane’s got a lot of good news over the next five to 10 years happening. And I think that Brisbane has had some increase in values, but it still represents good value for money for a lot of people that are used to Sydney and Melbourne prices,” he said.

“Melbourne probably hasn’t quite kept pace with Sydney and the gap has got a bit bigger recently, so there will be some form of catch-up for it going forward.”

First home buyers looking to escape strong rental price growth and baby boomers looking to acquire an investment property were expected to be two buyer groups looking to take advantage of the current climate, Mr McGrath said.

“For a lot of people, it’s just as cheap to buy as it is to rent because rents have gone through the roof. We’ve seen 30-40 per cent growth in rents over the last 12 to 18 months in many markets that we’re operating in,” he said.

“A lot of baby boomers are able to invest with little or no borrowings for a lot of their investment opportunities. So they will see the window prior to rate reductions as the time to jump into an investment while they’ve been down a few per cent if they don’t need to borrow a lot.”

On Monday, McGrath posted a profit in the six months to December of $7.5m, up $5.7m which included the sale of selected offices and rent rolls, as well as a lift in the value of the company’s investments. Underlying earnings of $4.8m was at the top end of the range of the trading update provided in November, and up 42 per cent increase from a year ago.

The number of offices jumped by 14 per cent to 131 in the half, which McGrath wants to nearly double in the coming years. Mr McGrath said that the firm was attracting top talent because of its brand, reputation and the products it offered.

“In uncertain times, people, be them consumers or industry participants, look for brands that are going to have a track record in uncertain times and brands that they think are growing with the times,” he said.

“In this industry, if you attract the talent, the consumer will generally follow the talent. So if we can recruit high quality agents that are well respected and successful, that’s just going to continue to help us grow our market share.”

McGrath declared a 1.5c a share, fully franked interim dividend and a 1.5c special dividend from proceeds from the sale of selected company owned offices and rent rolls.