Nov 14 2018
The convenience of online residential advertising platforms has driven growth in the Residential Real Estate Advertising industry over the past five years, despite a current downturn in the residential property market. Industry revenue is forecast to grow at an annualised 5.4% over the next five years. The industry’s leading player, REA Group, controls a large proportion of the industry. The company is anticipated to continue growing due to its market dominance and overseas expansions.
The Australian residential property market has been cooling down, particularly in major cities. The national housing turnover rate has fallen to its lowest level in five years. In Melbourne and Sydney, housing turnover is at a 20-year low. This spring also saw auction clearance rates dip below 50.0% for the third month this year. In addition, this September’s preliminary auction clearance rate reached a new low of 48.2%.
Despite the slowing residential property turnover rate, Australia’ largest residential advertising platform, REA Group, continues to record strong growth in the volume of paid advertisements. Revenue from the company’s website, realestate.com.au, has strongly grown in the most recent quarter. REA Group has achieved a market share of 51.0%, strengthening the company’s dominant position in the industry. As the leading industry player, REA Group has the ability to regularly increase its prices due to its strong brand power. Even under difficult market conditions, property sellers may find it necessary to invest more in advertising on realestate.com.au, which has enabled REA Group to consistently deliver strong revenue and returns for its shareholders. The company grew 20.9% in 2017-18, and the return on shareholders’ funds has increased from 25.6% to 26.9%. REA Group’s online business model is one of the most profitable in the industry, and therefore generates higher returns.
As the largest industry player, REA Group faces structural barriers to growth in the Australian market. This means the company is actively looking for opportunities to expand overseas. The company’s high profit margins have allowed it to fund acquisitions of similar companies in developing markets. Currently, REA Group has interests in foreign firms such as India-based PropTiger and Malaysia-based iProperty Group. The company also has interests in myfun.com, an Australian owned real estate advertiser targeting Chinese markets. Over the long term, REA Group is anticipated to continue strongly growing due to its investments in similar property sites based in Asia, Europe and the US.
The Residential Real Estate Advertising industry is still in the growth phase of its life cycle. The convenience of online platforms will continue to attract customers to listing websites such as realestate.com.au. However, due to the industry’s high market share concentration, REA Group will likely struggle to grow its market share domestically. Overseas expansion has become the only option to maintain its strong growth.
Companies mentioned in this report:
REA Group Ltd
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