THE property group Stockland has warned that profits might slump by 10 per cent this year as it struggles with sales in the "worst new housing market" in more than 20 years.
The company is facing a "deep cyclical low" and tough conditions in Victoria where its most profitable residential estates are located, the managing director, Matthew Quinn, told Stockland's annual general meeting yesterday.
"Profit in our residential business is expected to be around $50 million lower this year than last year, with potential downside of a further $30 million if conditions in Victoria don't improve," Mr Quinn said.
Sales in the state had halved and aggressive discounting was required to clear stock, he said.
The company's woes follow yesterday's release of Bureau of Statistics figures showing the value of private residential building work fell to a 10-year low of $10.47 billion in the June quarter.
As spending on residential building slows, engineering construction is still powering along at historic highs of $22.45 billion, the figures show.
Over the past four years Stockland refocused on its residential, retail and retirement business, all of which are affected by today's cautious consumers.
Its net profit of $487 million for 2011-12 was down 35.5 per cent from the previous year.
Home buyers were still focused on paying off debt, Mr Quinn said.
"We started the year with around 700 fewer contracts on hand than the previous year, reflecting the sluggish market in full-year 2012, and so far we are not seeing any improvement," he said.
But the company's 41 shopping centres, which are valued at more than $5 billion, were making above industry average returns and would deliver future growth, Mr Quinn said.
Profit margins were likely to improve in 2013-14, although it would take "two to three years of good volume and price growth to restore our margins back to historical levels", he said.
The company chairman, Graham Bradley, told shareholders that the search for a replacement for Mr Quinn, who leaves the company early next year, was "progressing well".
Stockland's shares yesterday fell 13?, or 3.7 per cent, to close at $3.42.
Other property companies, including Mirvac, GPT and Australand, also fell marginally.