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While the financial services arm of REA grew its loan book in 1H23, it flagged that revenue and settlements have been impacted by slowing market activity.
REA Group, parent company of realestate.com.au and major brokerage Mortgage Choice, has released its financial results for the half-year ending 31 December 2022 (1H23).
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According to the financial results, the overall group made a net profit of $205 million in the half — down 9 per cent — while earnings before interest, tax, depreciation and amortisation (EBITA) were down 2 per cent to $359 million.
However, the financial services arm of the group (which includes Mortgage Choice) saw revenue decline 14 per cent, falling from $41 million in 1H22 to $35 million in 1H23.
Its loan book increased to $87.7 billion (up 3 per cent) in the half, however the results include a marked decline in both mortgage submissions and settlements.
The group attributed the drop to a softening property market as a result of rising interest rates, which had risen for six consecutive months over the half.
Indeed, its broking business submitted 17 per cent fewer loans in the first half of this financial year than last year, and settlements were down 11 per cent to $11.6 billion.
This was despite it welcoming 94 new brokers over the half, taking the total number of brokers in the group to 1,057.
Over 1H23, Mortgage Choice continued its integration of the Smartline brand (which subsumed under the Mortgage Choice brand in February 2022), with all brokers now on the same customer relationship management (CRM) platform. It is expected the integration will finalise by the end of this quarter.
Mortgage Choice brokers also started receiving leads generated from the property.com.au website over the half, which the group said was “an exciting milestone as [it takes] the initial steps towards monetisation”.
Noting the results, group chief executive officer of REA Group, Owen Wilson, told investors that the cooling property market had curbed the growth of the financial services arm and flagged revenues would likely remain “subdued” in the second half as the slower lending market drives down submissions (and therefore settlements).
He told investors on Friday (10 February): “The successive interest rate rises and reduced borrowing capacity for buyers have impacted the performance of financial services. New loan commitments and settlements have softened and the mortgage market is shifting to a significant wave of refinancing.”
He said that the group expected to see further price declines, adding that “sellers will need to meet buyers, who are adjusting to further reductions in borrower capacity”.
Mr Wilson revealed that this was already being reflected in January numbers, and are “likely to continue in the second half”.
“Despite these conditions, REA continued to deliver revenue and yield growth during the half,” the CEO continued.
“This performance underscores the strength of our products and audience, with customers increasingly relying on our premium products to maximise the impact of their campaigns,” Mr Wilson said.
However, the CEO suggested while the full effects of higher interest rates will take some time to become apparent and price declines are expected to continue, the group anticipated that a “stabilisation of the interest rate cycle [would] improve confidence and encourage increased activity” — which he forecast could be by “the middle of this year”.
“The significant rollover of fixed rate loans presents some opportunity to offset [current] market softness,” the group added.
Mr Wilson commented: “REA is focussed on delivering value to our customers at every point in the property cycle. We are continuing our investment in innovation and the growth of our product portfolio.
“The uncertainty caused by rising interest rates is likely to continue in the coming months but we do expect that when interest rates stabilise we will see increased activity in the property market. The Australian economy is strong, unemployment is low and immigration is increasing. Each of these underpin our property market.”
Looking forward, Mr Wilson revealed that REA would soon launch its ‘real estimates’ campaign, which highlights its automated valuation model (AVM), powered by PropTrack.
According to the CEO, this will not only help the group acquire and engage more property owners on its realestate.com.au platform, but also accelerate its membership growth and “stimulate the seller market”.
He suggested that the PropTrack AVM accuracy had been improving in recent months (up 33 per cent in 2022), which was also improving user ratings.
[Related: Top 25 Brokerages 2023: How Australia’s leading brokerages are setting new records]
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