ASX real estate shares could be set to benefit as house and apartment prices around the country continue to rise.
National dwelling values rose by 0.6% in July, with the rate of growth holding firm relative to the prior two months, according to Cotality's latest Home Value Index.
This is the sixth straight month of gains, aligning with the first rate cut in February.
Cotality's research director, Tim Lawless pointed out the rise from mid-sized capitals.
While the Darwin trend doesn't have much influence on the headline numbers, the Top End capital has moved into a solid upswing, posting a 9.7% gain through the first seven months of the year.
The mid-sized capitals are also once again standing out, especially Perth, where the monthly pace of gains has accelerated to the fastest rate of growth since September last year.
Image source: Getty Images
What does this mean for investors?
While this marks good news for property investors and home owners, how do investors get exposure to these gains?
One option is to invest in real estate shares such as REA Group Ltd (ASX: REA) and Domain Holdings Australia Ltd (ASX: DHG).
Both companies operate leading online real estate platforms – realestate.com.au and domain.com.au, respectively.
Rising dwelling values typically translate into more property market activity, which boosts their core business in several ways.
Firstly, when house and apartment prices rise, more homeowners are incentivised to sell their properties to capitalise on higher prices.
This usually leads to a higher volume of listings, which in turn increases demand for premium listing services and advertising packages – a key revenue stream for REA and Domain.
Additionally, rising property values often reflect strong demand and buyer confidence, which drives more traffic to property platforms.
This higher engagement boosts value for advertisers (e.g., mortgage providers, home services), increasing ad revenues for both REA and DHG.
Finally, interest rates are expected to fall further which means borrowing becomes cheaper. This boosts buyer demand and can help increase property prices, which typically leads to more listings and greater activity on real estate platforms like REA and Domain.
What are brokers saying?
Broker Bell Potter seems optimistic about these real estate shares.
The broker has a price target of $261.00 on REA Group Ltd (ASX: REA) shares.
From yesterday's closing price of $237.98, this indicates an upside of almost 10%.
The broker currently believes Domain Holdings Australia Ltd (ASX: DHG) are trading close to fair value.
The broker's price target from earlier this year of $4.43 is just above its current share price of $4.41.
It's important to note Domain Holdings Australia (ASX: DHG) is currently under a trading halt on the ASX.
Back in February, US real estate company CoStar Group Inc (NASDAQ: CSGP) announced its intention to wholly acquire Domain, buying up almost 17% of Domain's shares on market.
Nearly 100% of eligible shareholders voted in favour of CoStar's $3 billion acquisition of Domain yesterday, with final court approval expected this week.
CoStar has proposed to buy all shares it does not own in Domain for $4.43 cash per share.
