The unit real estate market is beginning to show signs of normality in the Gold Coast area, with the glut of properties which listed in 2009-2010 having now been cleared. This development happens at the same time that the Sydney market has risen sharply over the past year, by as much as 15% for median house prices. Investors are turning their attention to QLD for better yields and lower prices.
Once property owners who have been waiting for an upturn in the property market feel it's time to list (or re-list after a failed first attempt), real estate listings portals will advertise more homes, generating revenue and earnings.
REA Group Limited (ASX: REA)
The operator of realestate.com.au, the biggest website for homes for sale, saw a healthy profit increase in 2013 when NPAT went from $86.7 million to $109.7 million.
It has a whopping 49 PE on its $40.89 share price, but a consensus of analyst forecasts has a projected median EPS rise from its 83.3 cents per share to 177 cps in FY 2015 full year results. Apart from subscription revenue, it is seeing a substantial rise in income associated with listing depth and media display, for which homeowners pay extra for special position and viewing.
Iproperty Group Ltd (ASX: IPP)
This $419 million company by market capitalisation provides online advertising and related services to real estate agencies and developers. Since July 2013, its share price has rocketed up from about $0.80 to $2.31, almost four times in half a year.
Based in Sydney, it operates in Malaysia, Hong Kong, Indonesia, Singapore, Philippines, India and Macau under its "iProperty.com" brand, working towards establishing itself as a premier property listings portal.
It hasn't turned a profit since 2007, but that hasn't dissuaded investors from buying into it. Early shareholders of REA Group had a similar experience as the company was growing in the early 2000s, so potential growth in the company at least warrants investors to follow it if it turns out to be anything like realestate.com.au.
Fairfax Media Limited (ASX: FXJ)
The owner of The Australian Financial Review and domain.com.au wants to take back market share, and it is selling off non-core businesses and beefing up its real estate listings prowess.
In December, it announced the sale of its Stayz hotel and accommodation bookings business for about $220 million, working out to be 16.8 times the business' FY 2013 EBITDA.
To add to its real estate related services, it then acquired Property Data Solutions (PDS), the property data and mapping services provider. Under its PriceFinder brand, it services real estate agencies, developers and investors, and had more than 5,000 subscribers.
The business will be linked up with Fairfax's existing Australian Property Monitors business, and be rebranded as APM PriceFinder. PDS has a strong presence in QLD and WA, adding to APM's current primary coverage in NSW and VIC.
Foolish takeaway
Good potential growth comes from being a main source of property listings and information. It can take time to establish a strong market presence, but then it can build upon itself in a positive feedback loop – people visit a particular site because it is seen as the site where everyone goes.
It does cost money to get the business to that position and growth may trump earnings payouts until it has enough critical mass to carry on by itself. You should be watching the business growth as well as the perception consumers have about a website and see how the two work in unison.
