The current state of the Australian property market can be overwhelming, both for homebuyers and investors. If you’re a homebuyer you might need to postpone the quest of securing the perfect home as mortgages become less and less affordable. If you’re an investor, the tumbling property market might scare you away from investing in property or real estate stocks.
However, it is no secret that the demand for residential properties will be ever-present. Other than the fact that housing is a basic human need, recent international border reopening will also add housing demand as thousands of incoming migrants, be it international students, skilled workers, or Aussies who are returning home, all need to put a roof over their heads. Moreover, property is quite a broad field that there are other exciting and less risky areas that will enable you to get your foot in the door.
Still intrigued to add a property company to your investment portfolio? We have compiled three ASX-listed companies that are worth considering, offering essential services within the property world, and with less likelihood to be impacted by market uncertainty or suffocating interest rate.
REA Group (ASX: REA)
Realestate.com.au is probably the first URL that you’ll type into the search engine when you’re looking for a residential property. REA Group is currently the 6th largest online brand in Australia specialising in digital property advertising, with an average of 124 million monthly visits to realestate.com.au on all platforms in 2022. REA Group has also expanded operations to India, Southeast Asia, and North America.
In FY22, REA Group’s market cap is sitting at $16.54 billion with $248 million cash balance. REA Group also delivered excellent FY22 results with $1,170m revenue which is 26% higher from $928m revenue in FY21, and $385m core net profit which is 19% higher than $318m in core net profit in FY21.
Aside from all the glowing numbers on REA Group’s financial performance, REA Group’s business model offers a promising future potential despite the fragile property market. Most of REA Group’s subsidiary brands generate profit through charging a fixed online listing fee to realtors each time a property is listed, thus will not be directly impacted by house prices, interest rates, or the saleability of the properties. Furthermore, REA Group aims to build next generation marketplaces by keeping all property transaction steps under their ecosystem, for example by acquiring Mortgage Choice to assist buyers with mortgage process and PropTrack to provide property data services, to name a few. REA Group has an ambitious plan of targeting double digit revenue growth by 2025, and the fact that they are currently leading the online property marketplace in Australia, this target seems very much attainable.
PropTech Group (ASX: PTG)
The decline in property sales does not mean that the entire real estate operations will be halted too as agents still need to look after their existing clients and tenants. This creates the perfect opportunity for PropTech Group to flourish in digitalising real estate operations and activities without being struck by fragility of the current property market.
The Group prides itself in developing and selling all-in-one Real Estate CRM and Rental Management software to real estate agencies and investors in Australia, New Zealand, and the United Kingdom. CRMs are software that agents use all day every day compared to other SaaS tools, and the software mostly caters to the needs of existing client management instead of relying on uncertain future buyers. The PropTech Group has been working with some big names including Ray White and Raine & Horne in Australia and Century 21 in the United Kingdom.
PropTech Group reported a revenue increase of 74% from $11.6m in FY21 to $20.2m in FY22. The Group also observes a strong cash flow performance in FY22 with inflow of $2.9m compared to $1.1 in FY21. The Group acquired 42% of market share in FY22 from a market size of 12,200 agencies, with 5,106 agencies using 1.93 PropTech Group products on average.
The Group incurred a loss of $2.6m in FY22, but PropTech Group reported no debt on its balance sheet other than M&A payables which is quite rare for a growing company with overseas operations. This reduces concerns around interest rate and repayments, which makes PropTech Group a less risky investment worth considering.
Victory Offices Limited (ASX: VOL)
As more companies progressively return to office or at least implement hybrid working mode instead of fully remote, it is without doubt that the demand for new office space will soar too. As companies are rebuilding their finances, renting a full-service coworking space in the heart of the CBD is indeed a more affordable option compared to renting an exclusive office space. Victory Offices is offering an exciting opportunity for future growth as it caters to back-to-office businesses with premium office spaces across Melbourne, Brisbane, Perth, and Canberra. The Company provides services and facilities on flexible licence terms, including no lock in contracts, as well as continuous onsite administrative and tech support.
The Company has gained more tenants across many of its properties, particularly in the second half of FY22. On average the Company recorded occupancy rates in the range of 15% – 89% during the financial year, which was an increase compared to 6% – 80% in FY21. Some locations were operating in a lossmaking position, leading to closure of 10 office locations during the financial year. However, the decision to cease operation on these locations is expected to have a positive impact on the Company’s remaining portfolio of 14 office and lounge locations as the Company will be able to focus more on maximising occupancy in existing locations while cutting costs.
Underlying net loss before tax for the FY22 was $26.4m, which has shown an improvement compared to $33.8m loss in FY21. The share price of the company has increased by 50% from $0.20 per share in June to $0.30 per share in September. This can be observed as a recovery phase and the Company is expecting to move to profitability in 2023 as more businesses will return to office operations.
Commercial property rental is within a completely different realm to the residential property market, making Victory Offices worth considering for those who are keen to find alternative avenues to invest in property stock.
Clara is a Business Reporter for The Sentiment.
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