REA says home market healthy as it delivers $250m profit on back of capital surge
The cocktail of strong demand for housing, high employment and immigration, and a rate pause is driving the residential market, with Sydney and Melbourne leading the way.
Online listing company REA Group has called out improving home listings in Sydney and Melbourne as it delivered a 22 per cent lift in first half net profit to $250m.
The group declared that Australia’s residential property market remains healthy, with national listings growth driven by the two capitals, while other markets are more subdued.
Higher market activity is being driven by strong demand, backed by near record employment, high immigration and greater confidence that interest rates have now stabilised after the Reserve Bank held this week.
The supply of homes hitting the market is also improving as sellers become more confident about the level of demand, which has resulted in homes selling faster.
The company’s core operations grew revenue by 18 per cent to $726m, and it boosted earnings before interest, taxes, depreciation, and amortisation, excluding associates, by 22 per cent to $439m.
The reported net profit dropped 37 per cent to $127m, reflecting an impairment on Asian-based portal PropertyGuru and other one-off impacts in both periods, with the lift to the $250m profit reflecting its core operations.
REA chief executive Owen Wilson said the result had been driven by strong yield growth and the benefit of a more normalised listings environment.
“This resulted in a strong uptake of our premium products as customers sought to leverage our leading audience to maximise their campaigns in the strengthening market,” he said. “The confidence that interest rates are at or very near the peak, should see the healthy market conditions we are enjoying today continue throughout 2024.”
The momentum was seen in January, when national residential new buy listings were up 12 per cent year-on-year, with Sydney and Melbourne listings both jumping by 28 per cent.
Combined listings for December and January were in line with the six-year average and REA said if the trend continues for the remainder of the financial year, it would anticipate fiscal 2024 year-on-year listings growth of 3-5 per cent.
Mr Wilson said that Melbourne and Sydney were leading the market come back due to strong demand from immigration as well as price growth, which is encouraging vendors.
The company is also seeing more activity from developers as interest rates stabilise, with Mr Wilson saying that material costs were coming down and labour was more available. “That’ll be the last piece of the puzzle to get them to start getting product out of the ground,” he said.
Group operating costs are expected to grow in the mid to high-teens this financial year overall as the company invests in more technology. Losses in the growing Indian business are also expected to shrink, but the company flagged overall losses of $25-$30m from its associates due to tough US conditions and spending on early-stage new investments.
It spent about $10m as it took a share in Arealytics, a provider of commercial real estate information and technology in Australia, and a stake in Indian business Easiloan. REA India’s momentum continued with price and customer growth and new premium depth products generating strong revenue growth.
REA’s flagship site, realestate.com.au, maintained its leadership position and is now running at 4.5 times the audience of rival Domain, and Mr Wilson said buy listing views also increased during the half, culminating in a record number of views in October. “This reflects both investment in our exceptional consumer experience and strengthening demand in the market,” he said.
Commercial and developer revenue increased 11 per cent to $80m with revenue growth was driven by an average 11 per cent price rise, increased depth penetration and higher listings across both sale and lease. Developer revenues were up modestly on the prior year, with increased project duration.
Financial services revenue lifted 4 per cent to $36m. Settlements declined by 4 per cent, however this was more than offset by increased penetration of higher-margin white label products including the Mortgage Choice Freedom product and a stabilisation of run-off rates.
REA will pay an interim dividend of 87c per share fully franked, up 16 per cent year-on-year.
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