Australia's hot property market underpins McGrath's latest bullish guidance

Real estate services company McGrath (ASX:MEA) has just announced an upbeat guidance on its full year FY21 results.

The company said that its full year EBITDA is now anticipated to be in the range of $16.51 million to $17.51 million, a huge increase from the $3.7 million from the prior year.

This comes on the back of a strong first half, in which it reported an underlying half-year EBITDA of $6.6 million, compared to $1.6 million for the prior year’s period.

The company has seen a strong revival from the Covid bear market, selling $7.6 billion worth of properties in the first half, compared to $5.9 billion in last year’s half.

Strong property market

McGrath said that it has also seen a range of positive indicators in the residential property market, which makes its outlook bullish.

For example, in the March quarter, national home values rose 5.8 per cent – the highest quarterly growth rate since October 2003.

Over the last 12 months, national sales volumes have also increased by 12.6 per cent, which was supported by a 48.8 per cent increase in new borrower commitments.

“The combination of improving business and consumer sentiment, record low interest rates and lower stock levels in the market, has driven strong price growth in recent months,” says newly appointed McGrath CEO Eddie Law.

According to McGrath, residential real estate remains the biggest component of wealth in Australia, making up on average 56 per cent of a household’s wealth.

The national value of Australia’s residential real estate stands at $7.4 trillion, compared to just $2.9 trillion in superannuation.

Against this background, McGrath says that it is positioned for a long term growth as consumer sentiment improves, and migration levels increasing to previous levels after a vaccine rollout.

Around 70 per cent of McGrath’s revenue comes from property sales, and 20 per cent from property management services. The company has recently divested its stake in it mortrgage business, Oxygen, to 45 per cent, as it looks to use the cash to expand its services elsewhere.

The McGrath share price has risen by 250 per cent over the last 12 months. However, it’s still got a long way to reach its 2015 IPO price of $2.10.