Australia | 11:15 AM
The property market downturn suggests dark clouds ahead for REA Group, but can the online classifieds leader once again prove resilient?
- REA Group’s first quarter was strong, but headwinds suggest caution from here
- Second quarter sees accelerating fall in listings
- REA sees itself a winner from AI
- A number of risks have potential to further depress listing volumes
By Greg Peel
Property markets have always been subject to up and down cycles and 2026 marks the latest down-cycle, following May budget changes to capital gains and negative gearing on top of five RBA rate hikes since the previous low, reduction in net migration and an AUSTRAC money laundering crackdown keeping bad actors out of the Australian market.
The present down-cycle has elicited stark warnings from the doomsayers, just as every house price shock in recent decades has done, following RBA hike cycles, APRA tightening of property lending restrictions, financial crises, or pandemics.
The typical call is for house price falls of -10-20%. They never happen.
Recent nightly news footage of property auctions drawing no bids, yet still large crowds of non-bidders, suggest it will only take one prospective buyer to blink at a lower price and the bottom will be in, as has always been the case.
Of course, there's always a chance this time could be different.
For now, REA Group’s ((REA)) first half FY27 result has reflected the current subdued environment.
The Numbers
REA’s investor day, held late last month, focused on the company’s medium term aspirations (more on those later) along with key first quarter financial metrics confirmed at last week’s result release.
The local market leader reported better than expected first quarter earnings (ex-associates) of 12% year on year on 8% revenue growth (11% including M&A) with only 2% group cost growth (9% including M&A).
Flagship Australian Residential revenues were up 10% year on year. The highlight of the result was higher than forecast 14% “controllable buy-yield” growth”, referring to revenue per property listing sold per agent.
This number is nonetheless tempered by a geographical mix headwind of -6%, taking yield growth down to 8%, along with 3% in deferred revenues.
Geo-mix saw year on year property listings falling -16% in the dominant Sydney/Melbourne markets compared to 17% growth in Brisbane/Perth/ Adelaide.
Overall volumes fell -2% year on year.
10% revenue growth in the key Australian market was also bolstered by a price rise for REA’s Premier-plus product, growth in add-ons and increased depth penetration.
Penetration refers to the number of listings bumped up by agents to REA’s higher exposure, higher cost options such as Premier-plus.
Guidance
The company’s investor day saw only a minor change to the initial FY27 guidance provided for the first time in August, with an outlook for listings volume of flat-to-down low single digits being downgraded to down low single digits -- all other guidance items remained unchanged.
The result release saw cost guidance unchanged at mid-single digits (ex M&A) for Australia and at the group level, with operational margin expansion targeted.
Cost control in the first quarter was a highlight. However, Morgans notes REA has historically phased its spending and expects cost growth to trend toward guidance in coming periods.
October volumes point to a softer trajectory across the remainder of 2026, although Morgans notes that volumes have historically returned once vendors gain confidence on rate cycle peaks and stability (one buyer blinks).
Year on year listings declined by only -2% in the first quarter but headwinds built over the period, including successive rate rises and the May budget changes.
To that end, REA reported the second quarter began with a -13% decline for listings in the month of October (-8% on a like-for-like basis), which represents a sharp acceleration in listings declines which Bell Potter notes sequentially get harder to cycle moving through the full year.
Bell Potter joins other brokers in anticipating a slight moderation in the full-year Buy yield from first quarter levels, noting prior period investment in price during July/August 2025 has since rolled off and noting a reiteration in FY27 guidance for low double digit yield increase.
Group operating costs are also implied to accelerate in the final three quarters.
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