Housing slowdown contributed to shortfall: McGrath

A trading update from McGrath noted that current market conditions will not allow the real estate business to reach a projected target for FY18.

“McGrath has completed the first four months of trading for FY18 and the company’s financial performance has fallen short of expectations at both the revenue and EBITDA levels,” the report said.

“In the absence of an improvement in market conditions or a major cost-out program, the board does not expect EBITDA for FY18 to reach $16.6 million.” 

The company cited several factors as causes of its negative outlook, making a notable reference to changes in the housing and lending markets.

“The underperformance is largely in company-owned sales and is influenced by several factors including continued lower volumes of listings in most markets we serve, lower agent numbers and a significant slowdown in the traditionally volatile project marketing segment.

“Government policy changes around foreign buyers and developers, coupled with tightened lending requirements, have particularly affected this segment.”

McGrath Real Estate plans to cut $5 million of annualised costs by enforcing a company restructure.

“Most of these savings will be achieved by restructuring the board, executive and leadership team, removing management associated with M&A and company-owned office expansion activities and non‐revenue-generating roles across the organisation.”

McGrath CEO Cameron Judson added that the company hopes to reduce losses by improving the profitability of its annuity businesses.

“Our aim has been to grow the relative contributions of each of our annuity businesses in property management, franchise and Oxygen and de‐risk the volatility of our earnings in project marketing and company-owned sales,” Mr Judson said.

Earlier this year, the Australian Prudential Regulation Authority (APRA) implemented changes to “reinforce solid residential mortgage lending” in what it dubbed as an “environment of heightened risks”.

[Related: Bouris sees ‘opportunities’ in APRA changes]