Fairfax shareholders have voted overwhelmingly to proceed with the separate float of the Domain website and publications, just a day after the first clear signs emerged that the Sydney property market is going into reverse.
Under the deal, Fairfax will keep 60% of the shares in the separate Domain company with current Fairfax shareholders getting one Domain share for every 10 Fairfax shares they hold. The new company is due to start trading on 16 November.
The argument in favour of the spinoff is that Fairfax has struggled over the years to get the markets to fully recognise the value of Domain while it was part of the publishing business which holds the the Age, the Sydney Morning Herald and the Australian Financial Review.
With a separate company that is a pure real estate advertising play, the company hopes it will be re-rated by the markets, in line with its competitor REA, which runs realestate.com.au.
Domain revenues were up 10% in the year to June 2017, delivering $320m to Fairfax.
But the question is whether the slowing property market will be good or bad for Domain.
Sydney home values continued to slide in October, with the nation’s biggest housing market recording its first quarterly fall since May 2016. Figures from property research firm CoreLogic released on Wednesday showed Sydney’s median dwelling value fell 0.5% in October, accelerating from a 0.1% fall in September.
Sydney’s auction clearance rate has also dramatically slowed to 65%, signalling that it is now shifting to a buyer’s market. Melbourne median house prices – the other big market that’s important to Domain – have continued to rise, up 0.5% in October.
But how the change in real estate markets will impact Domain is unclear.
“The metrics for real estate advertising are quite strange,” said Steve Allen, chief executive of Fusion Strategies, a media buying consultancy.
“In the short term, people are likely to rush proprties to market as they realise that the markets are past their peaks.
“I think in the next six to 12 months we will see more properties come onto the market and stay there longer. For Domain, that has to be a good thing.”
Citi’s analysts said in September that the slowing real estate market, with clearance rates as low as 45%, could be good news for online property sites because vendors will have to list their houses and apartments for longer.
Peter Cox, independent media analyst, said he believed the Domain float would be well received, partly because there just hadn’t been many deals in the market.
“People have been burnt in floats this year. I think this float will work because Domain has a proven track record and it has known revenues.”
• On 4 November 2017 this article was amended to correct the number of Domain shares Fairfax shareholders will receive.
