Housing market on the rise as property portals renew battle

The arrival of US property giant CoStar to Australian shores with its purchase of Nine’s Domain is about to shake up the real estate ad market but incumbent giant REA is ready and waiting.

REA Group chief executive Owen Wilson says expectations of a rate cut are boosting demand for housing.

Dominant real estate player REA Group and new US interloper CoStar are preparing for a contest in the advertising market space on the back of a housing rebound.

The US company has all but sealed its $3bn takeover of Nine Entertainment-controlled property portal Domain, just as REA delivered yet another healthy result and expressed confidence it can see off the foreign raider.

CoStar sees Australia as the next market to take on as part of its global strategy under which it has already moved into Britain, where REA last year made its own expansion bid.

But REA – which is majority owned by News Corporation, publisher of The Australian – has signalled that it will fight to protect its position as it rolls out new technology.

“We’re very confident that our strategy is going to become even more engaging for consumers, which I think will keep them more engaged with our site,” REA Group chief Owen Wilson said.

“Our exclusive audience of over six million then underpins the value we deliver the customers. So as long as we keep doing that, it’s very hard.

“One, it’s hard to replicate. And two, we think that’s a winning strategy.”

Mr Wilson highlighted CoStar’s heavy spending in offshore markets, which had not dramatically lifted its position.

Nine’s real estate jewel Domain is about to head into US hands. Picture: AAP

“They’ll spend a whole bunch of money on marketing,” he said, saying the focus should instead be on audience quality.

“Anyone can buy clickbait. But the reality is, you want to engage consumers who are going to deliver value to your customers, and that’s a very hard thing to do – change your consumer preferences.”

The US company’s $3bn takeover took another step forward on Friday when Domain struck a binding scheme implementation deed with CoStar at a price of $4.43 per Domain share. Domain’s board has recommended the scheme and its majority shareholder, Nine Entertainment, intends to vote in favour of the scheme.

Shares in both Domain Holdings and Nine Entertainment spiked in early trading. Domain’s shares closed up 3.1 per cent at $4.38 after it signed up to the deed. Nine is backing the offer, subject to approvals, no other superior proposal and an independent expert’s assessment, and has announced a special dividend for its investors once the sale is completed in the third quarter of this year.

CoStar has pledged to revamp the ailing Domain operation, which has been beset by strategic missteps and a lack of market penetration, by spending on marketing and technology to restore its position.

CoStar Group chief executive Andy Florance said the company “brings a proven track record of building high-traffic online marketplaces that deliver real value”.

“With our technology, scale, and the innovation we’re known for, we see a tremendous opportunity to enhance the Australian property market,” he said.

“By combining Domain’s deep expertise with our global experience and best practices, we will build a more compelling user experience at a lower cost, driving greater value for agents, vendors, and home buyers.”

CoStar Group chief executive Andy Florance.

Mr Florance said the US company was confident this acquisition would foster more competition in Australia. But it faces a difficult task as REA expands its audience reach and its technology spending has topped more than $200m annually.

The sale of a majority stake in Domain also leaves Nine cashed up potentially for acquisitions, but it has come under pressure from shareholders to return the cash given its patchy record in acquisitions. Nine’s shares closed up 6 per cent at $1.58 on Friday.

The environment is improving for both property portals.

Strong employment and expectations for further interest rate cuts are supporting buyer demand and vendor confidence as the country heads into a post-election pick-up in the housing market, REA said.

The company said that the level of available residential stock continued to be elevated. But it pointed to the increase in buyer demand following the February rate cut, which has resulted in a return to modest property price growth.

“The Australian property market continues to be supported by strength in the underlying fundamentals,” Mr Wilson said.

“Expectations of further rate cuts should support buyer demand, and this demand, coupled with steady house prices should underpin seller confidence.”

REA’s results were driven by double-digit revenue growth across its residential, commercial, financial services and India operations.

For the nine months to the end of March revenue hit $1.25bn, an 18 per cent rise year on year, and earnings before interest, taxes, depreciation, and amortisation, excluding associates, were $734m, which is a 19 per cent jump.

In the third quarter, revenue grew by 12 per cent to $374m, and EBITDA, excluding associates, increased by 12 per cent to $199m.

Mr Wilson said it had been a strong quarter, underpinned by double-digit yield growth as the company continued to drive higher value for customers across premium products.

The first interest rate cut in four years, combined with expectations of more to come, spurred demand and supported house price growth across the country. These conditions encouraged sellers to bring properties to market and listings have been matching the very strong levels of this time last year.

Mr Wilson said the Australian property market was supported by strengthening of the underlying fundamentals. He said that expectations of further rate cuts should support buyer demand and this demand, coupled with steady house prices, should underpin seller confidence.

As expected, April listings declined – down 11 per cent year on year with Sydney and Melbourne both 16 per cent lower, reflecting the strong previous period as well as the timing of Easter and the federal election.

The company now expects fiscal 2025 listings growth of 1-2 per cent but yield growth, driven by its premium products, is expected to be between 13-15 per cent this financial year.

REA is targeting positive operating jaws this financial year, with low double-digit group core operating cost growth anticipated.

REA shares fell 2.04 per cent to close at $244.97.