Headwinds hit property sector
Stockland's new chief executive, Mark Steinert, is expected to sweep the decks clear on Wednesday with a potential cut of up to $200 million in the value of projects, from land banks in Queensland and possibly Victoria.
The die was cast last week when Mirvac's new chief executive, Susan Lloyd-Hurwitz, slashed the book value of the company's housing and land-bank developments in Perth and Queensland by $273.2 million.
The trigger was a combination of falling house and apartment prices, and consequently sales volumes, not helped by the past two years of poor weather, particularly in the coastal areas of the Sunshine and Gold Coasts and western parts of Brisbane.
Property analysts at JPMorgan said they expected Stockland would make impairments as it was exposed to the Queensland market to a similar extent as Mirvac.
"We have stated $100 million to $200 million as a likely Stockland impairment (but this is really just a guess as disclosure from residential developers make this very hard to estimate)," the analysts said.
"If anything, following the Mirvac announcement, the risk is that the Stockland impairment will be a bit higher than we are expecting."
Stockland warned two months ago that earnings would not improve until next financial year.
Stockland's chief executive residential, Mark Hunter, said at the time that market uncertainty and a lack of consumer confidence were continuing to present challenging market conditions, particularly in the Victorian residential market.
The head of real estate research at Bank of America Merrill Lynch, Simon Garing, said Stockland faced similar risks to its residential business as Mirvac had confessed to last week.
"Overall, we think it is quite possible that Stockland will see some further impairments," he said.
Under previous chief executive Matthew Quinn, Stockland issued at least four downgrades over 18 months in earnings from its residential development business. The cuts were attributed to poor weather, pricing pressures and buyers not being enticed by falling interest rates.
To alleviate some of the pain, Stockland took an initiative to build smaller homes in its new projects.
Mirvac will report its half-year earnings on Thursday.
Frequently Asked Questions about this Article…
The article says the write-downs are being driven by a weak residential development market: falling house and apartment prices, lower sales volumes and two years of poor weather in coastal areas (Sunshine and Gold Coasts) and parts of Brisbane. Those conditions have forced developers to cut the book value of housing and land-bank projects.
Mirvac's new chief executive, Susan Lloyd-Hurwitz, slashed the book value of the company's housing and land-bank developments in Perth and Queensland by $273.2 million, according to the article.
Yes. The article reports analysts at JPMorgan expect Stockland could make impairments similar to Mirvac's exposure in Queensland. JPMorgan estimated a likely Stockland impairment of $100 million to $200 million, and cautioned the eventual figure could be higher after Mirvac's announcement.
The coastal areas of the Sunshine and Gold Coasts and western parts of Brisbane are singled out in the article. Poor weather over the past two years in those areas, combined with falling prices and weaker sales volumes, have reduced the value of development projects and pressured profits.
Stockland warned, as reported in the article, that earnings would not improve until the next financial year, citing market uncertainty and a lack of consumer confidence—particularly in the Victorian residential market.
Simon Garing, head of real estate research at Bank of America Merrill Lynch, said Stockland faces risks similar to those Mirvac disclosed, and it is quite possible Stockland could see further impairments in its residential business.
The article notes that Stockland has started building smaller homes in its new projects as an initiative to help alleviate some of the pain from weak market conditions.
Mirvac will report its half-year earnings on Thursday. That report matters because Mirvac's recent valuation cuts signalled the scale of pressure in the residential development market and could influence expectations for other listed developers, including whether more impairments are likely.
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