REA Group revenue to be hit by Victoria lockdowns

REA Group remains optimistic about the property market, despite warning of a tough quarter ahead amid Victoria’s virus shutdown.

A Melbourne auction, before the lockdowns hit. Picture: Andrew Henshaw

The REA Group is expecting a tough quarter as it deals with Melbourne’s coronavirus restrictions, but is encouraged by the fact buyers are still out looking for property and banks are still lending.

It came as the online real estate classifieds company cited “resilience” in defying the pandemic slowdown with a 7 per cent rise in annual net profit to $112.6m.

However annual underlying profit fell 9 per cent to $268.9m, as REA battled headwinds including an earlier a drop in residential listings and new project starts, mainly because of restrictions after the banking royal commission.

While the company has taken a revenue hit due to the uncertain environment, it has kept costs under control.

While revenue from core operations was down 6 per cent to $820.3m and EBITDA fell 5 per cent to $492.1m, liquidity in the financial system and government programs like JobKeeper have helped support the market.

REA shares were up as much as 3.5 per cent in morning trade as investors bet on more listings once restrictions are relaxed. They closed up 1.9 per cent at $113.42 each.

“I think the fact that the banks are open for business and lending is one of the cornerstones of why I think the property market, in particular, and also the economy, has been as resilient as it has been,” REA Group chief executive Owen Wilson said.

“The banks have a lot of liquidity. They’re open for business and willing to lend,” he added.

The group’s flagship site realestate.com.au was driving a big increase in buyer inquiry, “so despite what’s going on with COVID-19 the buyers are still in the market,” he said.

REA Group boss Owen Wilson. Picture: David Geraghty

More properties went to market in June and July and Mr Wilson said that even though Melbourne buyers may hold off until they could inspect homes, there could be healthy rebound once restrictions were lifted.

But even if unemployment rose, people may downgrade or exit housing, spurring listings.

After a challenging first half, the property market had shown strong signs of recovery, including improvements in national residential listings led by Melbourne and Sydney before the pandemic struck in mid-March.

REA warned the COVID-19 crisis had created widespread market volatility, citing uncertainty about lockdowns, the flow-on effects to economic performance, and government moves to restore growth.

Property was hit in April and May but as COVID-19 restrictions eased in June, the market bounced, with new residential listings up 11 per cent year-on-year.

In July, national residential listings jumped 16 per cent. with Sydney up 47 per cent and Melbourne up 13 per cent.

“Despite the effects of COVID-19 we saw strong levels of buyer inquiry in July underpinned by low interest rates and healthy bank liquidity,” REA said.

But a cloud looms over the short-term outlook because of Melbourne’s battle with coronavirus.

“The latest COVID-19 restrictions in Melbourne, which ban physical property inspections, are likely to cause significant short-term weakness in listing volumes for the duration of the lockdown,” REA said.

Lower project starts and listing volume falls in commercial and Asia businesses are also likely to hit revenue in the quarter.

REA has already deferred price increases and will only implement price changes if a sustained residential market recovery occurs. It has also responded to COVID-19 by offering subscription discounts and changes to listing products.

The company plans to keep a hard line on costs, which are running 5-10 per cent below last year.

“The property market has shown great resilience, bouncing back from the lows of COVID-19,” Mr Wilson said.

“However, the extent of this recovery is still dependent on the efforts to contain the virus and the outlook for the underlying economy.”

The flagship site realestate.com.au extended its leadership position and it is visited by 60 per cent of people each month, but conditions in Australia are tough.

Local revenue declined 7 per cent to $772.4m this year, driven largely by falls in residential and developer businesses. Residential revenue declined 4 per cent, with lower national listing volumes partially offset by price changes that took effect last year and an improved product mix.

Commercial and developer revenue declined 7 per cent, reflecting the reduction in new project starts, down 27 per cent, partially offset as projects take longer to sell.

New project starts are expected to continue to decline until the end of fiscal 2021, driven by funding constraints and a reduction in consumer confidence and foreign investment.

Media, data and other revenue declined by 19 per cent on the back of lower developer display advertising as fewer projects started. This was partially offset by continued growth from the Hometrack property data business.

Financial Services operating revenue also bumped up due to higher settlements and improved broker productivity. But this was offset by a valuation fall reflecting the expected future trail commission net income.

Citing the expected near-term impact of COVID-19 on loan settlement growth rates, REA took a $7.3m writedown on the value of its financial services business.

REA has businesses in Malaysia, Hong Kong, Thailand and China and overall the Asian businesses contributed revenue of $47.9m and earnings of $8.9m. It has a 20 per cent stake in US property portal Move, Inc. and reported revenue dropped 2 per cent to $US473m.

REA Group is 62 per cent-owned by News Corp, which owns and publishes The Australian.