Domain chief Jason Pellegrino says decline is worse than during Covid lockdowns and banking royal commission
A collapse in the number of new homes on the market, especially in Sydney and Melbourne, is outpacing even the shaky listing rates recorded during pandemic lockdowns, weighing on the profits of real estate companies.
The chief executive of property portal company Domain Group, Jason Pellegrino, said on Thursday that the scale of listings declines during the last three months of 2022 also eclipsed pullbacks recorded during the banking royal commission, which scrutinised lending practices in public hearings in 2018.
Domain reported a drop in net profit of almost 38.9% to $15.9m in the six months to December, weighed down by the lack of homes hitting the market.
“It is telling that the scale of the listings declines during the latest December quarter eclipsed both those events, with Sydney and Melbourne recording listings declines double the market average,” he said, referring to the banking inquiry and pandemic.
“Despite this challenging market environment, we remain optimistic about the longer-term prospects for the market with upsides from the return of immigration, encouraging auction clearance rates and the increasing attraction to investors of rising rental yields.”
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While revenue increased across the various business units of the listed company, which is 60% owned by media group Nine Entertainment, its residential division was down and business costs were up sharply, dragging down the overall result.
After an initial shock to markets in early 2020, buyers piled into properties as lending rates fell and the government stimulated the economy, leading to sharp price rises.
But a series of interest rate increases dating back to May last year, designed to tame inflation, shifted the property market into reverse, cutting prices and reducing the number of houses coming on to the market. Rents, however, have been rising.
The number of new listings are tracking at 22% lower than the five-year average, data from CoreLogic shows.
Sydney prices for dwellings – houses and apartments – shrank 12.1% last year, or more than double the 5.3% average national drop, while Melbourne prices slid by 8.1%.
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The trend is evident in other countries where interest rates are rising, with house prices falling and listings dropping across the UK.
Pellegrino said the business was prepped for demand to return.
“While this has been a very difficult period for listings, with a decline that was very sharp and very sudden, history has shown that we can be confident these listings have not disappeared,” he said.
“It’s only a matter of time for confidence to recover and support the inevitable bounce back in market listings.”
The Reserve Bank has flagged that rate hikes likely have further to run given inflation remains too high. There have now been nine consecutive rate increases.