REA flags gradual recovery in property markets

REA has called a gradual recovery in property markets as it turned in a steady September.

REA Group CEO Owen Wilson. Picture: David Geraghty.

Property listings business REA Group has called a gradual recovery in property markets as it turned in a steady September quarter reflecting still subdued sale volumes in key capital cities.

REA chief executive Owen Wilson said the company showed “resilience” as it had been tested by “unprecedented” market conditions. “We are seeing the signs of a gradual market recovery,” he said.

The company is calling the start of a market recovery as inquiry on realestate.com.au was up 30 per cent year-on-year in September and by 33 per cent in October.

“We know the buyers are back and it’s only a matter of time before the sellers follow,” Mr Wilson said. “Average auction clearance rates have returned to the levels we were seeing before the market correction, over 80 per cent in Melbourne and Sydney,” Mr Wilson said.

While the two capitals were hardest hit in the downturn, both in terms of price drops and listing volumes, they could benefit most in an upswing.

“It’s quite likely that Melbourne and Sydney will lead the recovery when it comes,” Mr Wilson said. “Melbourne, I think, is stronger than Sydney.”

REA said the lending environment was improving with interest rate cuts and prudential changes assisting buyers. “Credit is becoming more available than this time last year,” Mr Wilson said.

He said the WA market was still relatively weak while SA had been reasonably robust. Queensland listings were down but not as much as the southern states.

Overall, REA said, current conditions were “challenging” with declines in new residential listing volumes and new project commencements in the last quarter. National listings declined 15 per cent in the period, including listings dropping by 22 per cent in Sydney and 21 per cent in Melbourne.

The company’s revenue after broker commissions was down 9 per cent year-on-year to $202.3m and earnings before interest, tax, depreciation and amortisation from core operations slid by 14 per cent to $114.9m.

The figures were affected by product changes that resulted in more revenue being deferred for the period, and once accounted for revenue declined 6 per cent and EBITDA by 9 per cent. REA also trimmed costs by 2 per cent.

REA shares closed at $102.85, down 3.6 per cent.

Australian residential listing volumes were down 15 per cent in October against a year ago, with declines of 15 per cent in Sydney and 17 per cent in Melbourne.

The company said it would remain focused on cutting costs, and the revenue growth is outstripping expenses.

“We anticipate that the more favourable listings comparatives in the second half of fiscal 2020 will deliver a stronger revenue outcome. The fundamental strength of our business positions us well to benefit from an eventual market recovery,” Mr Wilson said.

REA warned project starts would fall for the rest of 2019, driven by funding constraints, shaken consumer confidence due to inventory quality and lower foreign investment.