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Upside in a Property Downturn


Upside in a Property Downturn

Read the reports on the Australian housing market and it seems every main indicator has turned down: auction clearance rates, credit availability, and (the big one) home prices themselves. But there is one Aussie housing market statistic that is up: total home listings.

While homeowners are responding to a softer market with fewer new listings, the number of total listings is up significantly. Total listings include both newly-listed homes and those that remain listed when a sale is not achieved but a vendor persists with advertising his or her property for sale. The following chart shows that while new listings across the nation’s capital cities remain consistent with the experience of previous years, total listings are at their highest since this time in 2012.

Screen Shot 2018-08-01 at 2.25.26 pmSource: CoreLogic

Sydney, the nation’s largest home market, is the driving force behind the surge in total houses listed for sale in Australia. There are currently around 26,000 properties listed for sale in Sydney which is 22 per cent higher than last year and the most for sale (in a July) for 6 years.

Screen Shot 2018-08-01 at 2.26.09 pmSource: CoreLogic

While more homes available for sale may provide additional competition for those looking to sell, it does however bode well for a business that is rewarded by helping a growing number of vendors. A business like REA Group, which owns the realestate.com.au portal, makes money from selling listings on its site. All else equal, the more homes listed the better. And if they can command a higher price for an ad in an expensive market – like Sydney – then the more homes for sale in that market the better still.

Even if the local housing market is turning down on many measures, there are still some that point up, as long as you know where to find them.

The Montgomery Fund and Montgomery Global Funds own shares in REA. This article was prepared 01 August 2018 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade REA you should seek financial advice.


Christopher is a Portfolio Manager for the Montaka funds and the Montgomery Global funds. He joined MGIM at establishment in 2015.

This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.

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    • Hi Joseph, that of course depends on your inputs. We can derive a very high IV if we are bullish about listings in the near term. Conversely a slightly lower IV is derived if the expected high rates of growth in listings does not transpire.

  1. It Definitely is the prime player in the market, i was recently looking for an apartment to rent in Brisbane and had only used REA, we checked domain later and it still had listings up from May that had expired/been removed from REA. Looks like agents are maintaining their REA listings better (at least in the rental market)

  2. According to the marketindex.com.au website REA Group has a NTA of $0.35 per share and at a share price of $83.59 it’s trading at 239 times NTA. It’s future success “could” turn to dust if it’s Business model is challenged and disrupted – the higher REA lifts it’s prices the more vulnerable it becomes. What’s to stop say Facebook or similar sites entering that space and offering ads at a fraction of the REA price ?

    Would a rational investor purchase 100% of REA Group for $11.13 Billion when the underlying NTA value is only $46.6 Million? Would such an investment pass the sleep at night test?

  3. I suppose the question of the high P/E ratio and related future expectations of profits extends to whether these are based on the expectation of solid future growth of the company into new markets, or, whether it mostly relates to the idea that investors have an expectation that a housing crash will generate a lot more revenue. Not knowing much about the company I would be more confident about the later position.

    Also, there is the problem of tech relate stocks having a magical aura which spikes up the price

    • Thanks John. There is a lot more to investing than a ratio of price to current earnings. We look at what the current share price implies for the drivers of the business, and hold high quality companies when the expectations for the future built into the share price are too conservative.

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