The conglomerate Realogy Holdings Corp (NYSE:RLGY) is one stock play that figures well with the entry of more Chinese buyers in the U.S. real estate market. One of its subsidiaries holds the franchise for Sotheby’s International Realty, a former unit of the revered auctioneer, Sotheby’s, which has a strong network foundation in Hong Kong and China. It also holds other premium realty franchises such as Century 21 and Coldwell Banker.
Million-dollar cash purchases
A marketing VP of Sotheby’s International, Angela Wong, who is based in Los Angeles, revealed in the WSJ Live interview that sales transactions realized from Chinese buyers so far this year have grown by 15% from last year. Transactions range from $1.5 million up to $7–8 million, and 95% of the Chinese buyers pay in cash, the Sotheby’s executive added.
One impact of the acceleration of Chinese entry into the U.S. home market is further easing the downward pressure on prices exerted by distressed or foreclosed properties coming into the market. The analytics firm RealtyTrac estimated that close to 1.5 million U.S. properties are currently in one stage of foreclosure or another. The shadow inventory created by these distressed properties can dampen the present advance in home prices and discourage potential home sellers from listing their properties in the market.
Home supply at 11-year low
This isn’t happening yet, however, but only because of a rising demand complemented by foreign buyers, like the Chinese. Market supply also is currently estimated at its lowest level since Dec. 1999, an indication that the U.S. home market is further gathering steam.
Thus, online real estate marketplace Zillow Inc (NASDAQ:Z) and property search engine Trulia Inc (NYSE:TRLA) can also draw opportunities from the growing interest of Chinese property buyers on U.S. real estate, and its positive impact on the country’s home market. Trulia Inc (NYSE:TRLA) can reap additional rewards with strengthened coverage of the property market in the U.S. Zillow Inc (NASDAQ:Z), in Dec. 2012, acquired San Francisco startup HotPads, a map-based search site for rental and real estate. Zillow’s platform-building last year also included the acquisition of RentJuice and Buyfolio, an online shopping portal with mobile app.
What the top and bottom lines say
These acquisitions should provide better results for Zillow Inc (NASDAQ:Z), which posted a record $34.3 million in revenue for 4Q12, up 73% from a year earlier. Net income for the recent quarter amounted to $0.5 million, or $0.02 in basic diluted EPS, exceeding the consensus estimate of a $0.6 loss.
Trulia Inc (NYSE:TRLA), in its latest quarterly report, had $20.6 million in revenue, which was up 76.1% year-over-year, beating its 60% growth guidance. However, the company posted a net loss of $1.59 million for the period. Like Zillow Inc (NASDAQ:Z) it hopes to further grow its top line and reverse its loss through mobile apps and by broadening its platforms.
Realogy is an ultimate choice
An investment decision eventually winds up with a look at the bottom line. Trulia Inc (NYSE:TRLA) appears a scratch in favor of Zillow, whose shares set a new 52-week high of $55.09 on Mar. 18. At this valuation, stock analysts believe, however, that Zillow Inc (NASDAQ:Z) seems stretched.
As a final take, therefore, Realogy currently offers a better proposition as an equity that can draw optimum gains from the dynamics of a recovering U.S. home market. For one, it has established realty franchises like Sotheby’s that can deliver solid results from Chinese investors. For the 4Q12, Realogy grew its revenue by 30% to $1.2 billion and EBITDA by 60% to $167 million, propelled by a 35% increase in sales volume.
For 1Q13, Realogy expects a 14–16% increase in sales volume. Moving forward this year, the company’s free cash flow is also expected to improve substantially as a result of the company’s efforts to refinance and reduce debts, which would significantly lower interest expense.
The article Chinese Elixir Potent for U.S. Home Market originally appeared on Fool.com and is written by Arturo Cuevas.
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