Housing market wrap: why UBS remains bullish on REA Group & Domain
We examine some of the key pieces of property market data from the April month, as well as why UBS continues to favour REA Group and Domain Holdings.
Australia’s housing market in focus
The outlook for Australia’s housing market – arguably one of the most important aspects of the country’s economy – remains divisive.
Interestingly, while the coronavirus (Covid-19) pandemic has effectively shut-down many important aspects of the property market, according to CoreLogic:
‘Australian housing values have not seen any evidence of a material decline in April, despite a sharp drop in market activity and a severe weakening in consumer sentiment.’
Interestingly, key cities such as Sydney saw dwelling prices increase 0.4% on a month-over-month basis, while Melbourne dwelling values declined 0.3% in April. Overall, according to the CoreLogic Home Value Index, national dwelling values remained stable in April, rising 0.3%.
Elsewhere, the deteoration in property market activity can be gleamed through the collapse in new listings during April. Dramatically, over the last month, CoreLogic found that:
‘The number of new listings being added to the market which was tracking 35% lower at the end of April relative to the same time a year ago and 43% below the five year average.’
Housing market: REA Group share price in focus
In an attempt to stimulate listing activity, Melbourne-based online real estate advertising giant REA Group (REA) – has launched two new promotions – covering May and June.
In a note released last week, UBS analysts described said REA’s first promotion – known as ‘pay on sale’ – will mean a vendor is only required to pay for the REA advertising once a property sale has been made.
That promotion will run from May to June.
The second promotion, described as half duration Premiere, will allow agents to buy 30 day Premiere ads at half-price. This promotion can be applied to up to 10% of an agent’s listings.
‘The 50% discount is rescinded if the ad extends beyond 30 days,’ analysts said.
The ‘half duration Premiere’ promotion will run only during May.
All up, UBS analysts contend that these promotions will ultimately have a negligible financial impact on the Group, but rather:
‘We think the primary reason REA is launching these promotions is to lift listing activity, not for potential yield gains.’
UBS remains bullish on REA Group, with a Buy rating and a 12-month price target of $100.00 per share on the property stock.
REA is set to report its third quarter results to the market this week.
Domain Holdings Australia share price
Interestingly, in that same note where UBS discusses REA’s latest promotions, the investment bank also provided an update on Domain Holdings (DHG), another popular, Australian-based real estate advertising company.
Providing a layer of subtlety to CoreLogic’s data that revealed listings plunged in April, UBS on Thursday wrote:
‘DHG has confirmed that new sale and rental listing volumes saw their first increase (+14% week-on-week) in the past 5 weeks (based on Domain internal data, and for Australia wide listings).’
As we noted at the start, CoreLogic revealed Australian property listings came in significantly lower for the April month. That data however, unlike Domain’s, is not broken down on a week-over-week basis. As such, while property listings overall fell sharply in April; according to UBS’s analysis of that data in addition to DHG’s internal data, the investment bank maintains that ‘new listing declines’ have likely began to stabilise.
Property and equity investors will both likely be keen to see such trends continue. The investment bank does however warn that listing volumes have the potential to worsen in the coming weeks.
The investment bank has a price target of $3.30 per share and a Buy rating on Domain, implying significant upside potential from current price levels.
How to trade REA Group & Domain: long and short
What do you make of these developments: do you see bullish or bearish opportunities? Whatever your view, you can trade the likes of REA Group and Domain – long or short – through IG’s easy-to-use trading platform.
For example, to buy (long) or sell (short) REA Group using CFDs, follow these easy steps:
- Create an IG Trading Account or log in to your existing account
- Enter ‘REA Group’ or ‘REA’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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