Real estate boss John McGrath believes property market is halfway through correction

John McGrath believes the property market has already ‘endured the worst’ of the current housing cycle, with most of the price falls already having taken place.

Real estate boss John McGrath believes the property market has already “endured the worst” of the current cycle as the agency business looks to transition to an increasingly franchise structure.

Now that the peak of the pandemic boom has passed, Mr McGrath – chief executive of the east coast McGrath real estate network – believes history offers the path out of the current correction.

“I've experienced most of these myself, but I’ve looked historically at the last nine sales corrections and most of them last less than 18 months in longevity,” he said.

“We think we’re certainly nine months into (this cycle) thereabouts at least.

“The other (metric) is severity of price correction and interestingly enough, most of the corrections have been 10 per cent or less in Australia. I think the CoreLogics are playing catch up at the moment.

McGrath Estate Agents boss John McGrath. Picture: Supplied

“We believe that, realistically, in the metropolitan markets of Australia, most of them anyway, were at least 10, more like 15 per cent down from the peak.

“Occasionally, headlines pop out of your iPhone that say 15 per cent more. That’s not going to happen, I think that we’ve seen that.”

While the number of properties sold under the McGrath banner fell 3.6 per cent to 13,344 properties last financial year, the total value of the stock rose to $19.1bn (up 13.9 per cent). Agents sold an average of 31.6 properties at $1.4m.

Mr McGrath is “laser-focused” on growing the network’s 111 agencies to 250 over the next three to four years. The mix will include franchise and company-owned offices. He said the transition to an increasingly franchise model will provide more predictable and stable levels of income.

“We’ve thoroughly tested the theory and we think it has been well received and will continue to be received by our key people,” he said.

Real estate boss John McGrath believes the property market has already ‘endured the worst’ of the current cycle.

The new offices could include an expansion into Adelaide and Perth should a strong franchise partnership emerge.

The business’s full year results on Monday recorded an increase in both underlying revenue (up 1.3 per cent to $112.4m) and EBITDA (up 7.9 per cent to $19.1m) for the financial year. Net profit after tax fell $2m to $11.7m due to a previously flagged one-off, significant items of around $7m.

The company added that its “strong financial position” is also reflected in its balance sheet which shows no borrowings, $34.7m in cash and $49.6m worth of net assets. McGrath’s rent roll sits at a valuation of $50m.

Shareholders will receive a fully franked dividend of 1.0c a share, while a further $2.5m will be allocated to the share buyback program which will double the March commitment.

It follows a special dividend of 1.5c fully franked in March following the partial sale of its auction business and sale of the Parramatta office.

Mr McGrath said that for the past several years he had been searching for an appropriate acquisition which had not come along. But as the market turns over the next 12 months with some significant economic challenges ahead, he believes the cash that has been kept aside to take advantage of opportunities might come into play.

The real estate boss welcomed the NSW state government’s proposed changes to stamp duty which would see first home buyers able to opt in to an alternate land tax, stating that it will “lessen the burden” and stimulate more buyer activity.

“Stamp duty the greatest impediment of transactions at the moment,” Mr McGrath said.

“If that lessens the burden … I think that is not only a good thing to assist us but all homeowners in NSW.”