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REA upbeat about homes market

Lower listings dragged on REA’s first half profit, but the real estate classifieds company expects a recovery will lift revenue.

An auction in Sydney’s Bondi. Picture: Sam Ruttyn
An auction in Sydney’s Bondi. Picture: Sam Ruttyn

REA Group has delivered a steady first half result, with earnings dipping to $272.1m, but says the Australian property market is recovering, driving expectations that listings will recover in the second half.

The company cited “challenging” market conditions with declines in new residential listing volumes and new project starts.

National residential listings declined 14 per cent, which included listing drops of 17 per cent in Sydney and 16 per cent in Melbourne. In addition, new project starts fell 30 per cent over the half-year as developers could not get new buildings off the ground.

Cost control resulted in a 4 per cent cut in total operating expenses but the company said it was also delivering new products.

REA Group CEO Owen Wilson. Picture: David Geraghty
REA Group CEO Owen Wilson. Picture: David Geraghty

REA Group’s core operations generated revenue of $440.3m but net profit was off by 13 per cent to $152.9m and EBITDA was down 7 per cent to $272.1m

The company cautioned that listings remain challenging, with Australian residential volumes down 13 per cent in January compared to January 2019, with declines of 7 per cent in Sydney and 5 per cent in Melbourne.

REA Group said that while there are signs of a market recovery, led by Sydney and Melbourne, full year revenue growth was dependent on improved listing conditions in the second half.

Meanwhile the company is cutting operating costs year-on-year, which will see the rate of revenue growth exceed the rate of cost growth for the full-year.

REA Group chief executive Owen Wilson said key indicators confirmed a recovery in the local property market.

“REA Group is well placed to benefit from this momentum. We anticipate that more favourable listing conditions in the second half of fiscal 2020 will deliver a stronger revenue outcome,” he said.

The company’s local residential business also had the benefit of price increases which came into effect last July, plus stronger take up of its premier product range.

Mr Wilson said the business was facing “unprecedented” market conditions and noted that more customers were committed to the company’s premium listing product.

“We have further consolidated our leadership position across realestate.com.au with record audience engagement and app launches during the half,” he said.

Buyer activity lifted by over 30 per cent for the half, another pointer to recovery.

“These numbers, combined with an increase in auction clearance rates, home price gains and increased mortgage activity, indicate the Australian property market is recovering,” Mr Wilson said.

Mr Wilson said despite the property downturn having been most pronounced in Melbourne and Sydney, the cities were now leading the recovery. He is also expecting a lift in developer volumes later this year as shortages re-emerge.

He said conditions were in place for a recovery with APRA lending restrictions now eased and the banking royal commission completed, with access to finance improving. Anecdotally, agents and developers also have strong forward books, he added.

In Australia, revenue declined 7 per cent to $413.1m for the half, driven largely by decreases in the residential and developer businesses. Residential revenue fell 6 per cent to $283.2m reflecting the unfavourable market conditions, which was partially offset by price changes and more premiere sales.

The commercial and developer segment was off by 4 per cent reflecting the slow down in new projects, funding constraints, soft consumer confidence due to worries about unit quality, and lower foreign investment.

Mr Wilson said the company was well-positioned for a recovery in residential listings as it held the dominant market position.

REA Group’s flagship site, realestate.com.au remains the top property platform in the country, as over 8.8 million people visited on all platforms each month.

The Asian business also delivered a 5 per cent increase in revenue to $27.2m and earnings of $6.3m with strong revenue growth in Malaysia, Singapore and Indonesia.

Read related topics:Property Prices
Ben Wilmot
Ben WilmotCommercial Property Editor

Ben Wilmot has been The Australian's commercial property editor since 2013. He was previously a property journalist with the Australian Financial Review.

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Original URL: https://www.theaustralian.com.au/business/property/rea-upbeat-about-homes-market/news-story/7aaaccc5910eead8f602271de1dbfdab