Stockland says housing to come back but price rises will be capped by affordability

Positive fundamentals in the housing market will see volumes come back in Sydney and beaten down Victoria will stage a recovery, according to the nation’s largest residential developer.

Stockland managing director and chief executive Tarun Gupta. Picture: Jane Dempster

Property developer Stockland is expecting housing market fundamentals to remain positive with a volume recovery expected even as affordability headwinds are tipped to limit price growth in the gateway market of Sydney.

The company, Australia’s largest residential developer, reported a $245m first-half profit and said it expected Victoria to rebound after a period of underperformance, due to its relative affordability and demand from first-home buyers.

Stockland also expects that housing sales volumes in Queensland and Western Australia to remain around current levels, and indicated that it was pushing deeper into land lease estates and apartments. It also said it would undertake more logistics projects, after securing major institutional backers.

Stockland said it expected to generate funds from operations per security of between 33c and 34c on a post-tax basis, with a larger second-half skew than in the previous financial year. It said the distribution per security was expected to be about 75 per cent of post-tax FFO.

“The first-half result is in line with our expectations, and we are reaffirming our full-year guidance. In the past six months we’ve progressed our strategic priorities, and we now have multiple drivers of sustainable growth across our business,” CEO Tarun Gupta said.

Stockland has also expanded its residential business into new areas and is the preferred proponent, alongside consortium partners, to develop 3000 apartments at the Waterloo renewal project in Sydney.

In a busy half, the housing division came to the fore, and a Stockland venture bought 12 housing estates from Lendlease and flagged more opportunities in the area.

Mr Gupta said buying the Lendlease estates restocked the company’s pipeline “at a favourable point in the residential cycle and positions us to accelerate production”.

Stockland’s Halcyon Dales development in Queensland.

The company indicated that it would also look to undertake more data centre projects, in keeping with strong demand from users as the AI revolution takes hold, and with many in the property sector looking to follow the lead of the giant Goodman Group.

Stockland has secured power and zoning for its data centre development in Sydney, and it is exploring more opportunities across the logistics pipeline.

“Building on our experience in the delivery of a 32MW data centre at Macquarie Park Stage 1, we are pleased to have secured power and zoning for more than 100MW additional data centre capacity at MPark and are exploring further data centre opportunities across our pipeline,” Mr Gupta said.

Stockland expects to benefit from more housing sales, partly as interest rates fall but also as it brings more product to market.

The first-half result was a jump on the $102m profit in the first half last year, but the company was hit by a 5.6 per cent fall in funds from operations. Stockland had FFO per security of 10.5c. The half-year distribution per security was kept at 8c.

Citi said Stockland’s result was underpinned by strong contributions from the logistics portfolio and higher land lease settlements, offset by reduced earnings after some shopping centres were sold, and a skew to housing sales in the second half.

Citi analysts said FFO per share of 10.5c was about 7 per cent below market consensus as Stockland was hit by weaker residential margins in the first half.

But it said the guidance was maintained with strong sales expected in this half. “The stock may open weaker on the earnings miss,” Citi said. Stockland shares fell 20c to $5.17 on Wednesday.