Property stocks punished on the sharemarket as the shock of the latest rate rise sinks in

The listed real estate sector’s recovery has taken a hit from the Reserve Bank’s unexpected increase of the official cash rate.

Property stocks tumbled on the sharemarket as investors fled residential exposure.

Property stocks tumbled on Tuesday afternoon after being slugged by the Reserve Bank’s surprise interest rate rise, as ­investors fled from residential ­exposures.

The once defensive sector went into a broad retreat as concerns about higher interest rates hit office and retail stocks, as well as funds managers, and the benchmark S&P/ASX 200 A-REIT index slipped by 2.23 per cent.

The pain was widespread. Diversified GPT lost almost 3 per cent and Charter Hall was off by just over 3.5 per cent. Dexus fell about 2.8 per cent. Retail property giants sank on concerns about consumer spending, with Scentre, down 2.43 per cent and Vicinity Centres off by almost 1 per cent.

Developer Mirvac, which downgraded its earnings last week, citing bad weather, was hit hard, falling 4.2 per cent after the central bank lifted interest rates by a further 25 basis points.

Other residential-exposed stocks also suffered, with Stockland, the country’s largest listed land developer, down by almost 3 per cent, losing 13c to close at $4.37. Global developer Lendlease, which is selling a stake in its local land estates business, fell by just 2c to $7.47.

The central bank’s surprise decision coincided with positive updates from key property companies. However, analysts are concerned about both their earnings outlook and the value of their portfolios.

Jefferies analyst Sholto Maconochie said the Dexus update showed resilience in a challenging market, with guidance for this financial year maintained, strong cash collection and occupancy increasing in both office and industrial from solid leasing.

He noted Dexus achieved first completion on buying the local Collimate Capital platform from AMP, increased development leasing and halved debt maturities next year.

“However, it is yet to complete several asset sales to help fund its development pipeline and keep gearing low,” he said.

Mirvac must also complete major asset sales to support the value of its commercial portfolio and trim gearing.

Vicinity Centres is pushing against the pressures of higher rates as its luxury shopping portfolio performs. It now expects funds from operations to be around the top end of its guidance range.

Portfolio retail sales remained strong, up 13 per cent year on year, with premium centres recording an impressive 20.3 per cent, Citi analysts said. They said the growth was indicative of the strength of both discretionary and non-discretionary demand.

But Vicinity cautioned that sales growth would moderate into this quarter as the higher cost of living starts to bite. The primary concern is housing markets.

The Agency Groupchief executive Geoff Lucas said the RBA decision to increase interest rates by 25 basis points necessary to contain inflation. “Unfortunately this increase is the increase we had to have, and while unpopular with borrowers, it hopefully deflates to some extent any irrational exuberance,” he said.

“We have had a second month of very strong housing data and in particular a resurgence in Sydney property prices which I believe has weighed heavily on the RBA board. The pause in interest rate increases last month created dramatically improved sentiment among buyers who believe that the current tightening cycle is over or coming to an end. This has been exacerbated by decade-low volumes of listings,” he said.