We recently researched REA Group (ASX:REA) in The Dynamic Investor after the Company reported results for the three months to 31 March 2026 (3Q26).

Declining listing volumes, stalling yield growth and investors rotating away from growth stocks have impacted sentiment towards the shares. More recently, the uncertainty around the potential impact from rising interest rates and federal government tax changes have contributed to REA shares reaching 3-year lows.

Accordingly, we consider whether REA currently presents value.

About REA Group

REA Group is a leading operator of real estate marketplaces in Australia and India. In Australia the company operates under the realestate.com.au and realcommercial.com.au brands. In Australia REA is the market leader with 4x the amount of monthly traffic of its nearest competitor. REA owns 20% of the number two US property marketplace, realtor.com, in partnership with its major shareholder, News Corporation. It has also acquired Mortgage Choice within its Financial Services segment, which consists of commissions earned from mortgage broking.

 

Key Fundamental Drivers

Uncertainty over Volume Growth

At the 3Q26 result, REA reiterated FY26 listings guidance of -1-3% declines. Year-to-date volume growth is currently at the upper end of this guidance (i.e. -1%). There is some variability to the guidance for listing volumes, with the Company observing a softening of activity into May. This is due to buyers remaining cautious due to interest rate hikes and tax changes. These factors are likely to impact buyer demand, house price growth and time to sell.

Volume growth for FY27 is expected to improve (to flat), with potential upside risk from two factors: i) Rising interest rates could drive incremental listings to market from mortgage pressure and ii) Changes to Capital Gains Tax (CGT) and negative gearing. These changes could drive investors (who hold on to property longer vs home owners) to transact, driving short term boost to volumes.

The 2026-27 Australian Federal Budget announced significant changes to CGT and negative gearing that are expected to result in a “lock-in” effect. This likely reduces the turnover of established investment properties rather than causing an increase in new listings.

Investors, facing a higher tax burden on gains, may choose to hold onto their assets rather than sell in order to avoid the higher effective 30% minimum tax rate on gains. This has potential to slow property listing volumes.

Double-Digit Yield Growth Likely to Continue

REA has narrowed FY26 Australian residential new buy yield guidance to +13%, from +12-14%. This implies a moderation into the 4Q26 period, given that yield growth for FY26-to-date is tracking at 14%. The Company highlighted several headwinds to yield moving forward. Firstly, subscription price increases won’t repeat. Secondly, depth for the Audience Maximiser product is unlikely to repeat the FY26 step-change.

The Company remains confident in achieving double-digit buy yield growth in FY27. A key driver behind this expectation is that REA is continuing to incorporate AI products within the Australian residential listings business. This feature shifts customers towards new, higher yielding products.

However, achieving double-digit yield growth in FY27 is subject in the uptake / success of new product tiers and add-ons. Further, REA will be cycling strong FY26 depth growth (+6%) – which benefitted from new product launches (AMax, Luxe) – and geographic mix from strength in the key Sydney & Melbourne markets.

Minimal Competitive Threat

REA has a dominant market position with its main website – realeastate.com – generating 4x the average monthly visits than its nearest competitor, Domain. Domain’s new owner, CoStar, have outlined its intention to expand Domain’s market share, whilst also achieving “stronger, long-term profitability”.

REA have noted that to date, there hasn’t been a substantial change in the competitiveness of Domain, with REA audience data reaching new records.

Another potential competitive threat is from Google Search displaying sponsored Homes for Sale results in certain markets similar to Product Listings Ads. A potential negative implication for REA is fragmentation of vendor marketing budgets, with potentially reduced spend on portals.

However, social media is considered another marketing channel and could be an extension of the Audience Maximiser product that REA has. Also, a key challenge in offering this service in Australia is signing up real-estate agencies, who would either have to pay for the marketing, or pass the marketing costs onto the vendor. Regarding this potential threat, REA have not seen any moves towards off-platform transactions.

Balancing Cost Growth Against Revenue to Achieve Margin Expansion

REA reduced its group operating cost guidance for FY26 from low-mid single digit % growth to low single digit % growth. The reduction in cost growth reflects softer macro-economic conditions, with potential for higher cost growth in FY27 if revenue trends are stronger. To this end, REA is prioritising medium-term revenue growth rather than looking to reduce costs.

Growth in operating expenses in 1H26 was evident across most categories, including Employee costs, technology costs and marketing costs. However, the Company is balancing investment in technology with workforce efficiencies. This highlights the flexibility of REA’s cost base.

One factor which may negate the degree of operating leverage at a group level over the medium term is continued losses in REA India.

Fundamental View

REA shares are currently trading on a 1-year forward P/E multiple of multiple of ~27x. This is at the bottom end of the trading range over the last four years below the long-term average of ~38x. While the current multiple indicates value appeal, it is unappealing in the context of an EPS growth profile of +16% over FY26-28 on a CAGR basis.

Further, the uncertainty around listing volumes, moderating yield growth in FY27 and continued losses in REA India warrant a cautious view on the shares.

Charting View

On the previous two occasions that we looked at the REA chart in November and January for The Dynamic Investor, we noted that REA was at risk of trending lower. Since February it has traded sideways but weak price action suggests that it is just consolidating here before it starts trending lower again. A break above $180 would negate this view and could lead to a recovery in the stock. However, with the stock now struggling under $150, it would appear that REA is just about to commence a new downtrend. The next level of support is near $130.

 

Michael Gable is managing director of Fairmont Equities.

 

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