Property market’s spring selling season subdued due to inflation, interest rate concerns

Real-estate portals Domain and REA Group have both warned that surging inflation and rising interest rates have led to a slowdown in the residential property market, leading to a decline in activity in the normally busy Spring selling season.

At its annual general meeting on Wednesday, Domain told shareholders that it expected earnings to fall this financial year with market conditions were trending below expectations, particular in inner-city areas.

Domain boss Jason Pellegrino says the property market is increasingly volatile.Credit:Jessica Hromas

“The rapid pace of interest rate increases has impacted on market sentiment and listing
volumes, with a noticeable deterioration since September, depressing the usual seasonal quarter two
uplift,” Pellegrino said.

The company said it now expects earnings (before interest, tax, depreciation and amortisation) to fall slightly this year, triggering a 3 per cent fall in its share price in mid-morning trading to $3.10.

Meanwhile, shares in News Corp controlled REA Group were also lower by about 3 per cent after it said listings volumes were down 8 per cent in October, usually one of the strongest months of the year.

Domain Group is majority controlled by Nine Entertainment Co, the owner of The Sydney Morning Herald and The Age.

Domain said at its annual results in August that costs would be in the range of $275-$280 million for fiscal year 2023. These costs, which are now under review, will be skewed to the first half. The company said total revenue for the first quarter was up 23 per cent year-on-year and 13 per cent, excluding acquisitions. Pellegrino said the company would focus on its marketplace strategy – which involves expanding services for clients, renters and buyers – as sentiment weakens.

“While we remain committed to longer-term margin expansion, as a result of the more
challenging market environment, we anticipate FY23 EBITDA margins will see a low single
digit percentage point reduction versus FY22 on an ongoing cost basis,” he said.

REA said revenue for the three months ending September 30 climbed 16 per cent to $305 million and EBITDA grew by 7 per cent to $169 million.

But chief executive Owen Wilson said the “heat” had come out of the Australian property market because of interest rate rises. However, the company expects unemployment rates, high household savings and migration will continue to fuel demand. Shares were down 3.2 per cent to $115.40 each in early morning trading.

“REA is well positioned in this environment, and we will continue to invest in the growth of our platforms and adjacent businesses to further increase the value we provide to our customers and consumers,” Wilson said.

UBS analyst Tom Beadle said the soft market outlook would lead to a downgrade to consensus estimates.

“Domain’s 1Q trading was strong, and the company continues to execute on elements of its business in its control,” Beadle said in a note. “Domain did not quantify the magnitude of the deterioration in market conditions, but we note that REA Group this morning separately reported an 8 per cent decline in listing volumes in October.”

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