Can online property marketing keep growing?

Market insights

Chris Wu, Equity Analyst, Macquarie Investment Management
Tuesday 19 July 2016

Last year (to 30 June 2016), new property listings in Australia fell 6.0%. In this note we look at the role of online property marketing in the property process and why we believe online property marketing businesses like Realestate.com.au (REA) and Domain.com.au (FXJ) are well positioned to grow, despite falling transaction numbers.


Property marketing continues to shift online

Five years ago you could find a hundred pages of real estate ads in a Domain lift-out, but not today. Real estate advertising has seen a shift from print to online, with online now accounting for ~70% of the total property marketing budget. As the chart below explains, while total advertising spend on property marketing has remained relatively static over the last few years, the shift online continues.

Source: Company data


Under earning relative to agents?

When Australians sell property, they spend on average 2.0% of the property value on agent commissions and only 0.21% on online property marketing. Going forward, we believe there is opportunity for agent commissions to come under pressure (especially if online marketing agencies are able to broaden their product offerings) and for online property marketing to continue to take share.

Putting this into perspective, one basis point of commission (0.01%), diverted from agents to online property marketing, equates to a 0.5% decline in agent commissions but adds 4.7% growth to the online property marketing industry. Based on our analysis we think the opportunity is enormous.


Competition drives up premium listings

REA and Domain operate a duopoly in Australia but the top 10 real estate agencies only control 30% of the market for real estate services, according to McGrath in their recent prospectus. The fragmented agent market has driven up competition between agents. REA and Domain have positioned for this dynamic by segmenting paid listings with premium features. Features such as position, layout and size aim to increase competition in their listing portals. The push for premium has allowed REA and Domain to grow by moving their existing volume of listings to higher price points.


Investing in online property marketing

This year, the Macquarie Fundamental Equity Funds initiated a position in Fairfax Media (owner of Domain.com.au). Domain is Fairfax’s hidden gem with strong growth expected over the next three years. After stripping out its print business (essentially the rest of Fairfax) we believe Domain offers significant value relative to REA.


Summary

While property listings may continue to fall over the next three years, we expect online property marketing will continue to grow. The continued shift of print marketing to online and the increasing ability of the industry to take a larger share of vendor spend sees an enormous opportunity for those able to take it. Online property marketing is also supported by a mix shift of existing volumes into higher priced listings to help agents compete against each other.

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