Developers re-enter house market after spell out in the cold

Residential developers have returned from the wilderness after suffering in comparison to the traditional office, retail and industrial real estate investment trusts.

This has led to a round of upgrades from brokers for the main REITS in the housing sector, Mirvac, Stockland, Lend Lease and Australand.

The trigger is lower interest rates, first home owners' grants and a general rise in house prices, albeit from a low base, particularly in Melbourne.

Shifting demographics in New South Wales, where a higher proportion of Asian-based buyers are in the market for inner-city and fringe apartments, has also put a firm base under residential projects.

Last week Stockland's largest ever residential development in NSW, Willowdale at Denham Court, was officially opened by the Minister for Planning and Infrastructure, Brad Hazzard.

The chief executive of Stockland, Mark Steinert, said the development was aimed at first home buyers, upgraders and investors.

Willowdale is a 350-hectare development that will ultimately comprise more than 3000 homes, neighbourhood shops, 25 acres of parks and playgrounds and a proposed school.

"In Sydney's south-west, we're now seeing a once-in-a-generation infrastructure development program, which has been thoughtfully and strategically mapped out to coincide with the rezoning and release of new residential land," added Mr Steinert.

He said "early land sales have been very encouraging."

Mirvac is undertaking the Harold Park project in Glebe, which has been in high demand, while Lend Lease has had an overwhelmingly strong response to the Barangaroo South apartments.

Analysts at JPMorgan have declared that residential was the best performing real estate asset class in the first half of 2013 and would likely continue the trend in the second half.

"Rate cuts are having an impact, driving investor demand," the analysts said. "We believe it is still early stages of the recovery and we see strong earning per security growth for the residential developers even before allowing any material operating improvements," the analysts said.

The analysts said house prices were growing in Sydney, Perth and Melbourne and had stabilised in south-east Queensland.

"The Reserve Bank of Australia has pointed to 7 per cent average price growth across Australia from a May 2012 trough ... A material improvement in investor sentiment towards residential, along with a strong pick-up this year in self-managed super funds and foreign (Chinese) buying, is likely to lead to further price growth as developers (and lenders) respond relatively slowly," the analysts said.