BofA Securities moved REA Group down the brokerage spectrum to "neutral" from "buy" while lowering its 12-month price target to A$175, from a previous A$210. The decision reflects the bank's assessment that forthcoming Australian property tax reform will act as a headwind to housing turnover and new listings into fiscal 2027.
The tax measures, set to start on July 1, 2027, include the removal of negative gearing for investments in established homes and adjustments to capital gains tax treatment. BofA's analysts said these changes would encourage both investors and owner-occupiers to keep properties for longer, reducing the frequency of sales.
"The removal of negative gearing on established homes investments and CGT changes would extend holding periods for investors and owner-occupiers, pressuring REA’s volumes in FY27," the analysts said.
At the time of BofA's report, REA shares were trading at A$158.81, below the brokerage's revised target of A$175. BofA now forecasts a 3% decline in REA's new listings volumes for fiscal 2027, compared with consensus expectations of flat growth.
Those weaker volume assumptions feed through to BofA's profit forecasts. The brokerage projects REA's fiscal 2027 net profit at A$707 million, some 5% under the consensus estimate of A$745 million. For fiscal 2028, BofA's estimate is A$808 million, roughly 6.3% below the market expectation of A$862 million.
BofA highlights Sydney and Melbourne as primary drivers of the expected slowdown. Together, the two cities account for about 40% of Australia’s listings volume, and new listings in both were running 7% to 8% above their eight-year averages in fiscal 2026. That concentration matters because properties in these markets typically generate the highest average advertising yields on REA's platform, and a downturn there would create an "adverse geographic mix" that pressures blended advertising yields.
Reflecting this geographic headwind, BofA models residential buy yield growth of 10.5% in fiscal 2027, below the market's 12% expectation. Despite the softer yield outlook, the brokerage remains constructive on demand for REA's premium offerings, such as AMAX, Luxe and Pro, which it expects to underpin high single-digit pricing growth for those products.
BofA also cited auction clearance data from Cotality showing a deterioration in selling momentum during 2026. National auction clearance rates fell from 66% at the start of 2026 to about 50% by the end of May, while Sydney's clearance rate declined from 71% to 47% over the same interval.
The brokerage noted that vendors typically face upfront, non-refundable marketing expenses of roughly A$8,000 to A$10,000 per listing. Given those costs, the risk of an unsuccessful sale could deter discretionary sellers from listing properties, further reducing supply of new listings.
On valuation, BofA observed that REA shares trade at about 28 to 29 times forward earnings and around 17 times forward EV/EBITDA, levels close to the trough of historical valuations. The A$175 price target is derived from a sum-of-the-parts valuation and implies a fiscal 2027 price-to-earnings multiple of 32 times.
For REA's domestic advertising business, the brokerage applied a 17-times CY2027 EV/EBITDA multiple in its valuation work. BofA noted this multiple sits more than one standard deviation below the company's historical median valuation range of 23 to 24 times.
"While valuations are near trough levels, we see them as fair with limited re-rating potential amid housing weakness and ongoing AI-related concerns," BofA said.
Overall, BofA's adjustment to REA's rating and forecasts reflects an expectation that tax-driven changes to investor incentives will lengthen holding periods, reduce listing volumes and produce an adverse geographic mix that weighs on advertising yields and earnings in fiscal 2027 and beyond.