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REA Group Limited looks set to gain from housing expansion

This month saw good data come out for the property market, showing that building approvals are still on the rise, based on an Australian Bureau of Statistics report. Separately, the Australian Industry Group released its Performance of Construction Index (PCI), with housing construction for both units and houses still in an expansion phase.

The number one real estate listings website realestate.com.au, owned by REA Group Limited (ASX: REA), will benefit from the increased number of houses on the market and a rise in housing construction.

The majority of revenue was subscription revenue from real estate agencies. But revenue from listing depth (which property owners pay extra for to get more online viewings) increased by 49% in 2013, from $87 million to $130.5 million. This made it the largest revenue source for the year.

In 2013, total revenue was up 22% and NPAT climbed 26.4% to $109.8 million. If 2014 does have both a rising housing market and more housing construction, the combination could send a lot more business towards the website and to domain.com.au, another leader in internet listings, which is owned by Fairfax Media Limited (ASX: FXJ). Realestate.com.au receives about 2.5 times more viewer visits per month than its closest competitor, according to the company.

Fletcher Building Limited (Australia) (ASX: FBU), the building materials producer, is dual-listed in New Zealand, with revenue between New Zealand and Australia split at 42.7% to 45% respectively.

The rising real estate market is now starting to expand the demand for housing construction, which will underpin earnings growth. At its October annual meeting the company said its outlook for the Australian market may be flat in 2014, but already both building approvals and housing construction are showing expansion. The company is the market leader in the concrete product manufacturing industry, followed by James Hardie Industries plc (ASX: JHX) and CSR Limited (ASX: CSR), according to IBISWorld.

In 2013, NPAT before abnormals was up 11.2% to $283.9 million and analyst forecast consensus earnings are for earnings per share to go from $0.40c to about $0.69c by June 30, 2015. The company does have a past history of surprising to the downside, but that surprise has been decreasing each year as the property market firms up.

Foolish takeaway

Building materials and property related stocks will definitely be a strong theme for 2014. Investors can easily keep track of the industries and the players through sources such as the Australian Bureau of Statistics and the Australian Industry Group. A rising stock market is usually associated with a rising property market, since the gains made in stocks can be transferred over to real estate for diversification and further long-term growth.

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Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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