Housing slowdown hits Mirvac as rate rises crunch market

The developer is sticking to its earnings guidance in the face of rising global interest rates and persistent wet weather, despite the housing slowdown.

The housing slowdown has struck property developer Mirvac, with its home sales in the September quarter running at less than half the levels of last year.

The developer sold just 415 lots in the three months to September 20, well down on 902 lots it sold at the same time last year.

The slowdown is in line with rival housing developer Stockland, which also had lower sales in its housing estates as lower consumer sentiment weighed on its operations. While big developers are suffering, the pain is also widespread across households, with credit rating agency Moody’s warning mortgage delinquency rates are set to rise over the next year due to interest rate increases, cost-of-living strains and falling property prices.

Moody’s said falling house prices would increase the risk of delinquencies and defaults because of a weakening market, making it harder for borrowers in trouble to sell their properties at a high enough price to repay their debt.

But conditions are holding, with delinquency rates falling in all states and territories except the Northern Territory over the year to May and the proportion of Australian residential mortgages more than 30 days in arrears falling to 1.2 per cent in May this year from 1.61 per cent in May 2021.

In the September quarter, house prices declined 6.1 per cent in Sydney, 3.7 per cent in Melbourne and 4.1 per cent on average across Australia.

Oxford Economics, an international forecaster, is predicting the Reserve Bank will lift the cash rate to 3.1 per cent by year-end, which would push the average new mortgage rate close to 6 per cent and cause a 25 to 30 per cent deterioration in borrowing power for home buyers, compared to the corresponding quarter last year.

Mirvac sold just 415 lots in the September quarter, sharply down from the 902 lots sold a year earlier.

The firm’s baseline expectation for a nationwide all-dwelling peak-to-trough fall is now 11.5 per cent, up from 7 per cent previously. This could be conservative, with an internal assessment by the Reserve Bank warning that home prices could drop by 20 per cent from the peak in just over two years if pessimism takes hold.

Mirvac says it has built up a substantial bank of $1.7bn worth of pre-sales at its projects, against $1.3bn in the same quarter last year. Defaults, however, are holding within expectations.

“Across residential, sales activity has slowed from its peak 18 months ago, particularly in master-planned communities, and weather is impacting our planned production timelines,” Mirvac chief executive Susan Lloyd-Hurwitz said. “Underlying medium-term fundamentals remain solid, with restricted future supply, an ongoing acceleration of overseas migration and a continued flight to quality, led by owner-occupier buyers,” she added.

Mirvac said its development pipeline remained strong, supported by projects timed to capitalise on deeply undersupplied markets in 2023-24. Market vacancy across the east coast residential market has fallen to around 1.5 per cent, and new apartment starts are at lowest levels seen since 2012.

The company said that with the recent increase of permanent migration caps, there was an acceleration in population growth at the same time its pipeline was completing, and market supply was restricted.

The departing chief executive pointed to the company’s success in picking an office fund out of the AMP empire and its units projects starting.

“We have had an active start to fiscal 2023, integrating the $8bn AMP Wholesale Office Fund, successfully launching the first of six planned apartment launches in fiscal 2023 at Isle Waterfront Newstead, Brisbane, with 40 per cent pre-sales achieved, and making strong initial progress on our $1.3bn asset sales program, with the exchange for sale of both Allendale Square, Perth and 189 Grey St, Brisbane,” she said.

The housing slowdown has struck property developer Mirvac, led by Susan Lloyd-Hurwitz, as interest rates bite.

The company has also won strong bids on 60 Margaret St and MetCentre in the Sydney CBD, which it and US private equity house Blackstone have on the market for about $900m.

Mirvac confirmed it was seeking investors for its build-to-rent strategy, on which investment bank Jarden and real estate agency CBRE are advising. It may also seek partners for its logistics assets.

The company said it was well-positioned despite economic turbulence. “With an uncertain economic environment and tenants, and capital becoming increasingly selective, our modern, sustainable portfolio characteristics and robust balance sheet position us well to manage through the cycle. Industrial and residential market vacancy rates now sit below 2 per cent, occupancy has lifted in our prime office portfolio, while retail sales are back now above pre-Covid levels at most of our assets,” Ms Lloyd-Hurwitz said.

The company warned that wet weather was affecting project delivery timelines, but it kept guidance for more than 2500 lot settlements this financial year.

Mirvac called out interest rates, persistent wet weather and labour shortages as particular pressures but it reaffirmed its 2023 financial year operating earnings per security guidance of at least 15.5c, and distribution guidance of at least 10.5c.

Mirvac shares added 4c, or 2 per cent, to close at $2. Stockland rose 3 per cent to $3.48.