Stockland profits slide 35%, with slower than normal response from cautious residential buyers to rate cuts

Australia’s biggest residential developer, Stockland, has reported a 35% drop in statutory profit to $487 million for the 2012 financial year to June 30.

Despite achieving record number of residential lot settlements for the year Stockland, suggests cautious buyers have not responded as they have in previous rate-cutting cycles.

The developer’s residential development arm settled a record 5,388 lots but still reported a 15% drop in full-year profits of $198 million, compared with $233 million in 2011, principally due to a fall in profit margins.

Stockland reported that profit margins had come under pressure due to the changing project mix and lower superlot settlements.

Stockland managing director Matthew Quinn, presenting his last full-year results before retiring next February, said rate cuts were not encouraging borrowing or stimulating the housing market.

Quinn described the housing market as the toughest since the late 1980s, when he joined the group.

He called the full year performance a “reasonable result in what continues to be a very challenging operating environment”.

Quinn noted that pre-GFC, a 2% interest rate cut had resulted in a 10% increase in housing credit growth but that post-GFC, the same interest rate cut had resulted in only 3% housing credit growth.

Furthermore, he said that in previous cycles  dwelling approvals picked up within three months of rate cuts, but in this cycle dwelling approvals had declined.

However, he said the overall housing market fundamentals remained strong, with strong population growth and an undersupplied housing market.

He noted the growing number of 25- to 34-year-olds – the peak household formation age group – and a low unemployment rate low at 5.2%. He also noted housing supply had been lower than underlying demand for some time, with undersupply estimates ranging from 130,000 to 240,000 homes.

Mark Hunter, head of Stockland’s residential business, said the developer was targeting corridors that had outperformed the market – the strongest being NSW.

Hunter expects the 2013 financial year to also be challenging.

Stockland will begin the new financial year with 1,561 deposits, about 700 fewer than last year.

But Hunter says there are signs the market is near the bottom but recovery is likely to be slow as consumers remain very cautious and lack urgency.

“We expect decline in first-home buyers with re-emergence of upgraders.

“WA is showing signs of recovery, but Queensland and Victoria are weak, with NSW improving but with low margins."