REA forecasts housing market to moderate but bullish on operations

Interest rates will have an impact but the market will be aided by the strong economy.

REA expects the residential property market to keep moderating as interest rates rise but expects its operations to keep ticking over. Picture: John Gass/NCA NewsWire

Online real estate advertising firm REA expects the residential property market to keep moderating as interest rates rise but expects its operations to keep ticking over.

The company, best known for its realestate.com.au portal, says rates have already impacted property prices, but noted strong fundamentals including record low unemployment, high household savings and increasing migration, should continue to support demand.

In July, national residential new listings were up 7 per cent year on year, with Sydney listings increasing 18 per cent and Melbourne up 6 per cent, partly as lockdowns were in place last year.

REA cautioned that growth rates beyond that will reflect the strong prior period listings volumes. But the company will benefit from rolling out higher yielding products and new services.

REA shares surged on the news, closing up 6.7 per cent at $132.32 each.

“While we’re mindful of changing economic conditions, with further interest rate rises expected, Australia’s property market is healthy and supported by strong underlying fundamentals,” REA chief executive Owen Wilson said.

Mr Wilson said the company’s growth momentum is backed by an unrivalled audience and a product pipeline that he expects to deliver for users in coming years.

REA boss Owen Wilson said Australia’s property market is healthy and supported by strong underlying fundamentals. Picture: John Feder/The Australian

REA is targeting full year positive operating ‘jaws’, for Australia, with operating cost growth expected to be mid to high-single digits this financial year, as inflation drives up costs.

The company will boost its investment in its thriving Indian operations, where it has the number one audience position, and spending in this market will weigh on the group this year as it strives for long-term growth.

REA’s core operations generated revenue growth of 26 per cent to $1.17bn and an increase in earnings before interest, taxes, depreciation, and amortisation, including associates of 19 per cent to $674m.

The company’s reported net profit increased to $385m, reflecting one-off impacts in both periods. Stripping out REA’s India operations and its purchase of Mortgage Choice, core revenue increased by 18 per cent.

REA will pay a record final dividend of 89c a share fully franked. Together with the interim dividend in February, this was a total dividend of 164c per share in respect of the 2022 financial year, a 25 per cent jump on the prior year.

Mr Wilson cited record take up of the company’s premium listings products, which enabled the company to fully capitalise on the buoyant listings environment. He also noted advances in the company’s property data, financial services and Indian businesses.

“These markets present great opportunities and the revenue contribution of these businesses is growing rapidly,” he said.

REA operates the top sites realestate.com.au and realcommercial.com.au, data and insights business, PropTrack, and a mortgage broking business, Mortgage Choice.

In a sign of strong market activity, residential revenue jumped 24 per cent to $776m, as listings grew by 11 per cent and users took up more products. Financial services core operating revenue also increased 12 per cent on the back of higher settlements and growth in the company’s broker network.

Realestate.com.au boosted its leadership as Australia’s number one address in property as 12.7 million people visited each month on average.

Mr Wilson said it had the largest and most engaged audience. “Active members are proven to drive the most value for our customers, and our focus on personalisation and consumer experience has significantly accelerated the growth of this group during the year.”

REA is majority owned by News Corp, publisher of The Australian and other metro newspapers.