Tuesday, 27 March 2012

Real estate: Housing affordability worsening

Stockland has warned that housing affordability was worsening as the company trimmed its full-year earnings outlook after recent floods hit residential sales.

Prolonged wet weather, particularly in the Illawarra region of New South Wales, had resulted in the deferral of a number of settlements into next financial year, the company said in a statement today.

Managing director Matthew Quinn said housing affordability was "getting worse not better and we must be ahead of the game".

The downgrade, while not material in its amount, was made because the residential division was one of the largest in the group's "three R" strategy of residential, retirement and retail. Stockland was also undertaking a share buyback. Mr Quinn said that given Stockland was buying the shares, the group was possibly seen as having access to potentially market sensitive information under continuous disclosure laws.

The company's stock fell as much as 13 cents, or 4.1 per cent, to $3.01 in early trading, making Stockland the second-worst performer among the top 200.

The recent deterioration in the residential market had also affected sales, as had the banks' recent decision to lift interest rates independently of the Reserve Bank.
"National dwelling approvals are running well below historical trend, and we expect the residential market to find a floor in the next six to 12 months," Mr Quinn said.

"However, the recovery is likely to be slow unless we see a reduction in bank interest rates to improve affordability and buyer confidence."

Stockland now sees earnings per share this financial year coming in at 30.5 cents, 3.5 per cent lower than a year earlier. The company had been predicting an EPS this year of 31.6 cents.

Today's downgrade also came only 7 weeks after the group released its half year result in which Mr Quinn said while residential was tough he was confident that settlements would perform well in the second half to June 30.

"Deposits and leads are tracking well with both showing two quarters of consecutive growth – a trend that continued in January with deposits for the month higher than the average for the past twelve months,'' Mr Quinn said in February.

In response to a question on that remark at the half year results, Mr Quinn said: "We made the guidance call in February based on what we saw at the time and what we thought would happen and that hasn't eventuated so we're revising our guidance now".

Mr Quinn told analysts at a briefing that he would give a further update on May 1, but warned that banks were not offering financing to clients that had already satisfied Stockland's own requirements and that was an issue he would be tracking.

Morningstar's head of property research Tony Sherlock said that while he believed there was scope for further softness, "the bigger question is how long will this last, particularly given the RBA's reluctance to cut rates with inflation and unemployment both apparently in check".

"While the remaining parts of Stockland appear sound, we are not forecasting a material recovery in the residential division for at least 18 months," Mr Sherlock said.

In a morning note to clients Macquarie Equities said that the increase in mortgage rates in February had a negative impact on the residential market.

"This has been a key factor underpinning our ongoing caution on the performance of the residential developers," the note says.

"Stockland's revised guidance 'assumes sales will continue to be slow for the balance of the financial year' although we continue to highlight that soft market conditions can also adversely impact the results from the retirement business which, at this stage, Stockland have said is performing in line with expectations."

Source: http://www.theage.com.au/business/real-estate-housing-affordability-worsening-20120327-1vvn1.html

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