Australia housing to slow for 'couple of years', says Stockland

[MELBOURNE] Stockland, one of Australia's largest property developers, is optimistic about ramping up its residential focus even as it expects the country's housing market to enter a prolonged period of weakness.

House price increases of as much as 30 per cent last year can't be sustained given affordability issues in Sydney and Melbourne and a widely expected tightening cycle by the central bank, chief executive officer Tarun Gupta said on Bloomberg TV Wednesday (Feb 23). Still, the firm is seeing elevated demand as it services a cheaper end of the nation's housing market, he said.

"When the cycle starts to moderate, we start to change the mix of our product," said Gupta. "We are already starting to think about bringing smaller, more affordable lots to go through what will be a moderation over the next couple of years."

Commonwealth Bank of Australia, the nation's largest lender, expects house prices to fall 10 per cent next year, led by a 12 per cent drop in Sydney, as the central bank lifts the benchmark interest rate to 1.25 per cent from its current 0.10 per cent.

Stockland is shifting its business toward residential housing and apartments and reducing exposure to the aged care industry following a strategic overhaul in November. It announced the sale of its retirement living business to Swedish private equity firm EQT for A$987 million (S$960 million) on Wednesday, which included 58 retirement villages and 10 development projects.

While funds from its operations in the 6 months to Dec 31 fell 9.3 per cent from a year earlier, profit margins widened even as input costs rose, the company said in an earlier statement. Stockland's shares rose as much as 5 per cent in Sydney trading, the largest intraday gain in more than 2 months.

Underpinning Stockland's residential bias is the view Australia's government will have to increase immigration to fill a near-term skills shortage gap. Gupta said the lack of skilled workers is a "key constraint to economic growth", an issue he expects to be highlighted in the looming national election.

"We haven't had immigration for a couple of years and immigrants are big buyers of our product," he said. "We've got to have skills coming in, and we'll have to import those in the short term." BLOOMBERG