Stockland warns

Advertisement

Australia’s largest residential property developer, Stockland (SGP) “surprised” the market today with an update, announcing that:

“..a recent deteriotation in the residential market has impacted its Residential sales, and in addition, prolonged wet weather has results in the deferral of a number of settlements into next financial year. “

SGP has reduced its earnings guidance for FY12 to 2.5% lower than last year, with the majority of the downgrade (0.9 cents out of 1.4 cents) due to the lower sales.

This comes on the back of its HY12 profit declared just over a month ago, where it had an 8% cut in underlying profit of $350.8 million although this was mainly due to an realised $85 million loss in financial/currency hedging. But SGP had expected sales to improve in the second half of FY12, which obviously hasn’t materialised.

Advertisement

“Unfortunately the residential market has deteriorated since banks lifted interest rates independent of the RBA and March sales have been lower than expected. The revised guidance assumes sales will continue to be slow for the balance of the financial year.”

With the Bank of Queensland (BOQ) recently announcing a massive turnaround in profitability with a very small increase in loan arrears on its residential mortgage book (from 0.88% to 0.93%), which according to Fitch are on the rise across the RMBS (residential mortgage back securities) sector, it now seems apparent that even tiny adjustments to interest rates (measured in less than ten basis points or half a normal move by the RBA) are having the same deleterious effect on our property developers.

Solomon Lew’s call for drastically lower rates (50 to 75 basis points) to support the retail sector is echoed here for the call for lower rates to support the housing market as “affordability” deteriorates, according to managing director Matthew Quinn (emphasis added):

Advertisement

the (housing) recovery is likely to be slow unless we see a reduction in bank interest rates to improve affordability and buyer confidence.

The RBA remains stuck in the notion that the economy just has to adjust, with an ever easing cycle in interest rate cut unlikely to be forthcoming. A Bloomberg survey for interest rate directions had 16 of 26 economists expecting a 25bps rate cut in May with none expecting a rate cut in April; but 9 of 26 (nearly one third) expect no change in cash rates for the whole of 2012, with one of the nine actually expecting two rate hikes in the December quarter this year (probably the resident bull hawk).

Expect pressure on the RBA to cut to continue to mount from retailers and other ancillary industries attached to the housing market as the year progresses and confidence remains subdued.

Advertisement

Or Stockand could just make the lots smaller again – 200 square meters perhaps?


On the news, Stockland (SGP) share price is down nearly 4%, to just over $3 per share, a decline that has been in the making for sometime: