REA Group says property market getting back into balance

The company is confident that the federal election won’t be a longer term disruption and customers can take interest rate rises in their stride.

REA Group chief Owen Wilson at his office in Cremorne. Picture: Luis Enrique Ascu / NCA NewsWire

The fundamentals of the residential property market remain positive, with an increasingly healthy balance between supply of properties and demand from buyers, online property classified company REA Group said after turning in healthy quarterly results.

While further interest rate rises are expected, the company cited strong bank liquidity, record low unemployment and increased immigration as underpinning the Australian property market.

In April, national residential listings fell 8 per cent year-on-year, with Sydney listings declining 19 per cent and Melbourne 18 per cent, but this was impacted by the timing of the Easter and Anzac Day holiday period and not as bad as predicted.

REA said national listings are likely to be down year-on-year in this quarter, reflecting very strong listings last year and potential impacts from the federal election, but the impact is not expected to be permanent.

REA chief executive Owen Wilson said the March quarter had been driven by a healthy property market with listings up by 11 per cent. The financial services unit also had a strong quarter as did its data business with its Indian business also recovering

The property listings boss was dismissive of “doom and gloom” commentary on the residential market, saying that people were transacting while knowing that rates were rising. “If you look at the projected rate increases, they really only get us back to where we were pre the pandemic,” he said.

He endorsed major bank comments that the majority of borrowers were sitting on healthy cash balances in mortgage offset accounts and were well insulated. “For the last few years banks have been using 5 per cent interest rates for their serviceability calculations,” he said.

Mr Wilson said May listings had been expected to be well down in the lead up to an election but were not. “If there is any impact from the election, it’s really just deferral,” he said. “Some people are predicting a hung parliament, so that might put a damper on the market, but it’ll only be short term,” he said.

REA’s expanding financial services settlements growth is likely to slow in the fourth quarter as the company cycles through exceptional growth last year. It also expects the current industry trend of increased mortgage run-off rates to negatively impact the valuation of future trail commissions at year end.

Developer project starts are expected to be down relative to last year when the market was boosted by home builders and rising construction costs could also hinder some projects.

But REA believes that volume headwinds in the next quarter will be more than offset by higher residential and commercial yields. That is supported by contracted price rises and increased penetration of its products, some March volumes spilling over as well as growth in the data and India businesses. Low-double digit operating cost growth is expected.

REA shares closed down 8.1 per cent at $112.15, amid a broad market sell-off and caution about higher rates slowing the industry.

Core operations generated revenue of $869m and earnings before interest, taxes, depreciation, and amortisation including associates was $523m for the nine months to the end of March.

This was 23 per cent year-on-year revenue growth, driven by the Australian residential business and the inclusion of Mortgage Choice, and EBITDA including associates was up 27 per cent.

Mr Wilson said Australians transacted property at pace during the quarter as continued high demand gave sellers the confidence to bring their properties to market.

“These conditions, combined with record take up of our premium products, contributed to our very strong result. We also continued to see excellent growth in our strategically important financial services, data and Indian businesses,” he said.

The residential property market kept up its post-Covid recovery during the March quarter. National listings increased 11 per cent year-on-year, with Sydney up 14 per cent and Melbourne up 8 per cent.

The Australian residential business delivered strong revenue growth for the quarter, reflecting higher buy listings, the price rise from July, increased depth and Premiere penetration, and continued growth in add-on products.

REA Group’s flagship site, realestate.com.au, consolidated its leadership position, and is now the country’s sixth largest online brand.

“Having the largest and most engaged audience delivers great value to our customers. This is key to our success, and we were pleased to realise a strong increase in active members during the quarter, with greater uptake of our property tracking and valuation tools,” Mr Wilson said.

Originally published as REA Group says property market getting back into balance