REA Group Limited (REA Group, ASX: REA) is a multinational digital advertising business specialising in property that is 61 percent owned by News Corp Australia, a subsidiary of News Corp. It operates Australia’s leading residential and commercial property websites, with its flagship site, realestate.com.au, being Australia’s number one property site. The Group also operates the data and insights business, PropTrack, and a leading mortgage broking business, Mortgage Choice. Internationally, REA holds a controlling interest in REA India and a 20 percent stake in Move Inc., operator of realtor.com in the US. It also has a stake in PropertyGuru Group, South-East Asia’s leading PropTech company which operates in Singapore, Malaysia, Thailand, Indonesia and Vietnam.
Australia’s largest mortgage broker
REA has agreed to acquire a 19.9 percent strategic stake in Athena Home Loans in a move that consolidates its position as Australia’s largest mortgage broker through its existing 100 percent ownership of Mortgage Choice. The proposed investment is for $62 million in cash and is subject to regulatory approval. Settlement is expected within 2 months.
Athena Home Loans (Athena) is a rapidly growing and innovative mortgage brokerage business that relies on digital technology to drive growth and market share. This makes Athena a sensible cultural fit with REA which also embraces digitisation to optimise productivity and capital efficiency.
REA already has a profitable strategic partnership with Athena through its arrangement where REA (under REA’s Mortgage Choice brand) distributes Athena’s innovative home loan products. In 2022 this partnership delivered $1.2 billion in loan settlements.
REA is taking 2 seats on Athena’s board. This implies that REA intends to help shape the strategic decision-making of Athena and suggests that REA will ultimately move to acquire at least a controlling stake or perhaps acquire 100 percent of Athena. A minority interest means that REA can only equity account for its existing stake rather than consolidate Athena’s earnings and assets on the REA balance sheet. A 19.9 percent equity stake is effectively “owning a piece of paper” and is not the same as owning a business. Athena’s existing shareholders include Resimac, Australian Super, Hostplus, Sunsuper and Macquarie Bank.
REA Group recognises that at least 70 percent of new residential home loans written in Australia are sourced through mortgage brokers and not directly by banks. One reason for this dominance by mortgage brokers is that Reserve Bank data reveals customers loyal to their lender are paying an average of 41 basis points more on their mortgage than new customers.
Looking ahead
REA’s growing presence in the residential mortgage origination market is consistent with its ‘capital light’ business model where the Group leverages its intellectual capital that uses innovative technology and relies on information and property data as its inventory. In other words, a world-class information bureau such as REA relies on people and not capital as its key strategic resource.
Mortgage broking is highly complementary to REA’s property information portal and any move to increase the Group’s presence in mortgage lending serves to consolidate its position as Australia’s leading property information portal. This is reflected in today’s 3 percent lift in REA’s share price on $20 million of stock turnover.
