To say that it’s a bad time to be in Aussie real estate is an understatement. Skyrocketing interest rates, high rents and inflation have left citizens with a foul taste for homebuying and renting, and property portals like Domain (ASX: DHG) are reeling under the impact.
After undertaking a “broad-ranging review” of its cost expectations, the Company expects FY23 costs to be in the range of $250 to $255 million, with around $135 million anticipated for H1 FY23. To address this, Domain has identified and implemented cost savings initiatives of $21-26 million for this financial year, with $6 million expected to benefit FY23 H1.
Pointing to the less-than-satisfactory property market environment, the Company expects its FY23 EBITDA margins to see a low single-digit percentage point reduction versus FY22 on an ongoing cost basis. Overall, Domain estimates its H1 FY23 EBITDA to be around $48 million.
The property portal has also been witnessing a consistent decline in new listings. The 4% new listings growth delivered in Q1 FY23 has been followed by a decline of 16% in October and 22% in November. Inner city Sydney and Melbourne continue to experience particular weakness, with November listings down 38% and 32% respectively.
December is experiencing an earlier-than-usual seasonal decline as agents and vendors defer listings into the 2023 calendar year. The month’s listings are down around 51% in Sydney and 37% in Melbourne. This was a different story in December 2021 when listings activity was unusually long.
Domain is hedging its bets on the second half of FY23 to make up for the losses. It expects its cost-saving initiatives and upgraded contracts to offset the challenges. A material improvement in H2 FY23 EBITDA is anticipated with higher revenue and an additional $15-$20 million cost benefit. Plus, new residential depth and upgrade contracts and business wins at IDS, growth at Domain Home Loans and strong subscription trends in Agent Solutions are expected to rake in additional revenue.
The property sector in Australia has been tempestuous for a while now, with rising inflation and economic downturns plaguing the whole world. Affordable housing has become a distant dream for many as people scramble to save to keep pace with the country’s growing cost of living. There are fewer rental vacancies, and homeowners and tenants are going head to head as both tussle to get the best out of the deal.
The worst part? Things are not about to settle down any time soon. Rents will continue to get more expensive before they become affordable again–if they do.
In the face of these challenges, Domain is focusing on the controllable elements of its business. Particularly controllable yield, which is expected to increase by around 6% in H1 FY23. This performance would be in line with Domain’s FY20 results when listings volumes were impacted by the Financial Services Royal Commission and COVID-19.
Zooming in further, the Company has been shaking up its internal management to better prepare for what’s coming. On December 14, it announced the departure of Chief Financial Officer Rob Doyle. He will be replaced by John Boniciolli, who will join the Company as its new CFO on February 6, 2023.
Times like these demand a proactive approach from real estate companies. With no end in sight for the ongoing crisis, is Domain’s optimism for the second half of FY23 misplaced or warranted?
Alinda is a Business Reporter for The Sentiment
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