Australia’s housing market stands in the face of uncertainty. Heightened inflation, reduced supply and population growth has real estate investors, shareholders and citizens on the edge of their seats.
Amid this, the property advertising firm REA Group (ASX: REA) observed a marginal 1% increase in revenue, reaching a total of $1.1 billion. There was a 3% reduction in EBITDA, resulting in a figure of $651 million, and a 9% dip in net profit, amounting to $372 million. The net profit also experienced a 7% decline, settling at $356 million.
The Company’s revenue growth was primarily supported by the robust performance of REA India, where the segment’s revenue surged by 46% year over year to $79 million. In Australia, there was a 1% reduction in residential revenue, amounting to $805 million. The decline in revenue from property purchases was influenced by an 11% improvement in purchase yield, which was unfortunately outweighed by a 12% drop in national property listings.
Plus, in India, costs escalated due to ongoing investments in personnel, expanded marketing efforts, and increased expenses related to revenue generation. As a consequence, the overall operating costs for the Group escalated by 7%.
REA Group Chief Executive Officer, Owen Wilson, commented, “Our year-on-year performance reflects the comparatively very strong listings environment in 2022. Despite the significantly lower listings in FY23, REA Group’s result demonstrates the strength and resilience of our business as customers continued to prioritise our premium products, leading platforms, and superior audience.”
REA’s outlook for FY24 remains suspended in limbo. The Company reported that uncertainty in interest rates and a shortage of available properties for both purchase and rental purposes continue to impact seller confidence. Nevertheless, there is demand, as evidenced by the favorable auction clearance rates and the return of property prices to growth in the Australian residential property market in 2023. The foundational aspects are positive, including consistently low unemployment rates, rising wage levels, and an increasing influx of migrants, all of which are expected to contribute to the demand for housing.
In July, the national count of new residential properties available for purchase declined by 5% compared to the previous year, although Sydney and Melbourne experienced a 9% increase in their listings. Year-on-year growth rates for the first quarter will be influenced by the substantial listing volumes in the corresponding period of the prior year, whereas listing volumes were weaker in the second quarter of the prior year.
When excluding the impact of mergers and acquisitions, REA feels that its operating costs in both Australia and India will likely see a rise ranging from high single-digits to low double-digits.
As immigration booms and supply pales in comparison, Westpac forecasts house prices to grow by 5% in 2024 led by Sydney while ANZ and NAB have a more mellow view.
Wilson added, “The fundamentals of the Australian property market remain healthy. We are continuing to see strong demand and a return to price growth, and this is converting to a more attractive market for sellers. We believe stabilisation of interest rates is within sight and expect this will lead to an increase in market activity.”
REA expects losses for combined contributions from associates in FY24 to be modestly higher than FY23, reflecting continued tough market conditions for these businesses and investments into future growth.
Alinda is a Business Reporter for The Sentiment
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