REA Group flags cost savings as COVID-19 weighs

REA Group plans to lower operating expenses by 20 per cent as social distancing measures weigh on property listings.

There were some positive signs for the market, with search activity picking up.

Investors have backed REA Group’s plan to come through the coronavirus by cutting costs as the crisis peaks, before a recovery in which customers are expected to turn more to online property services.

REA’s shares jumped by 7.7 per cent to $95.17 as the company flagged cost savings, while it warned the market was currently being hit by social distancing, business closures and economic uncertainty resulting from COVID-19.

But chief executive Owen Wilson said that as restrictions were lifted conditions for a return to a more normal market were coming, citing lifting of some rules in NSW and WA.

He said that there was a lift in buyer inquiry as people were keen to buy properties, partly while interest rates were so low and first home buyers were also active.

“Buyer activity on realestate.com.au is back to pre COVID-19 levels,” he said. “The banks are also still open for business.”

Mr Wilson said that consumer confidence was slowly improving and it would return. “I think we will return to normal relatively quickly,” he said, noting that consumers would still undertake more digital inspections of properties.

In the short term, REA said weakness in listing volumes and moves to support customers would adversely impact revenues as residential listings fell by a third in April.

Sydney listings were down 18 per cent and in Melbourne they fell 27 per cent, but the company said it was working to offset a portion of anticipated revenue losses with cost-savings to lower operating expenses by about 20 per cent on last year.

REA emphasised it had a strong balance sheet, low debt levels and cash of $135m and it has an additional $149m loan facility with its banking syndicate that matures in December 2021. A $20m overdraft facility was arranged with NAB, with REA putting it in place in case of a significant and prolonged market downturn.

REA said its core operations generated $640.2m in revenue and earnings of $390.8m in the nine months to the end of March. The company said its performance was improving in the last quarter reflecting the continued recovery of the real estate market prior to the effects of COVID-19 hitting in mid-March.

There had been improvements in national residential listings, led by Melbourne and Sydney, and this was particularly evident in the first half of March. National listings were up 3 per cent midway through the month, led by Sydney, but finished down 2 per cent following COVID-19.

Overall national residential listings declined 7 per cent for the quarter, while Melbourne and Sydney were up 6 per cent and 5 per cent respectively.

“Prior to the impact of COVID-19, the market recovery was in full flight with very strong listings in the weeks leading up to mid-March. In February we saw record audience numbers and strong buyer interest, reinforcing signs of the positive market momentum,” Mr Wilson said.

Australian residential revenue was in line with the prior comparative quarter, with lower national listing volumes offset by price changes that took effect last year and an improved product mix.

Commercial and developer revenue increased for the quarter driven by greater product penetration but this was partly offset by a 24 per cent decline in new project starts for the quarter. The company’s financial services revenue increased due to higher settlements.