Stockland says interest rates key to further market improvement

Inquiries jumped to 4325 in the March quarter, from 2581 in the three months to December 31, it said.

But while sales volumes would stay at current levels in the near term, certainty over borrowing costs – and the languishing Victorian market, where housing values have fallen 0.2 per cent since the start of the year – were crucial for further improvement.

“Further improvement [is] dependent on the outlook for interest rates and the pace of market recovery in Victoria,” Stockland said.

The deteriorating outlook for inflation and interest rates – which prompted financial markets to change their tune and say the Reserve Bank of Australia’s next move could be up, rather than down – has cast a new cloud over a national housing market that was showing some signs of recovery.

A further interest rate rise – which could come as early as August, and be the first of as many as three, according to independent economist Warren Hogan – could throw out housing market expectations for many individual buyers, as well as the country’s largest developers.

Last week, Stockland’s Victoria-based rival in the land lease communities business, ASX-listed Lifestyle Communities, said a weak residential market was preventing its downsizing customers from selling their homes and moving into one of its manufactured housing estates.

Lifestyle Communities cut its outlook for full-year settlements to between 290 and 310, down from the 350 it predicted when releasing its half-year earnings in February.

Despite the caution, there was enough in Stockland’s third-quarter update to push the shares up 2.3 per cent on Monday, more than the 1.6 per cent increase of the 21-member S&P/ASX 200 A-REIT index.

Over the past 12 months, Stockland has shed half a per cent while the broader index has gained almost 14 per cent.

The company held the guidance it has had in place since August of full-year pretax earnings of 34.5¢-35.5¢ a share, as well as distribution per security within its targeted payout ratio of 75 per cent to 85 per cent of post-tax funds from operations (an industry measure of earnings).

Stockland narrowed its settlement guidance for the year to 5300-5500 homes, from the 5200-5600 range it announced in February, but cautioned that the outlook was subject to any material change in market conditions.

“[This range] provides further comfort around the settlement target and hopefully provides confidence to some investors who doubted this heading into the update,” Citi research analyst Suraj Nebhani said.

“Logistics and retail businesses continue to see strong growth, and we see upside to Stockland.”

The company’s industrial portfolio performed well over the period, with re-leasing spread between new and old leases widening to 42 per cent, from 39.6 per cent in the six months to December 31.

The company’s non-discretionary retail-based town centre assets enjoyed a 2 per cent year-on-year growth in comparable sales, while comparable specialty sales – measuring the same period a year earlier – rose 1.7 per cent.

Stockland also said its acquisition of 12 master-planned communities from rival Lendlease, in a $1.3 billion deal the two companies announced in December, was progressing through the regulatory processes with the Foreign Investment Review Board and the Australian Competition and Consumer Commission.

Improvements in the established housing market supported sales of homes at the company’s land lease communities business, which sells dwellings to downsizing over-55s who pay rent for the land their home sits on.

Stockland has launched five new projects this financial year.