Property developer Stockland is confident the housing boom will continue for at least another two years.
Low interest rates, population increases and an undersupply of homes is fuelling strong growth, the company said after its net profit rose 55 per cent to $462 million in the six months to December 31.
Underlying profit climbed 8.5 per cent to $290 million, thanks to a 73 per cent rise in earnings from its residential business, chief executive Mark Steinert said.
Growth in all its businesses, with its residential division the standout performer following substantially increased sales amid low interest rates.
“We expect, particularly in the eastern seaboard, an elongated residential cycle expected to show reasonable levels of growth for at least the next couple of years,” Mr Steinert said.
“Even though the broader economy is quite mixed, the (housing) undersupply and population growth underpins the housing industry.”
When asked if he was concerned about the Commonwealth Bank’s warning that weak confidence is a “significant economic threat,” Mr Steinert said the outlook was good in the major cities.
“In Australia, the regions, particularly those exposed to mining, are experiencing low or no growth, while the metropolitan areas are experiencing strong growth,” he said.
The low Australian dollar was helping to boost other sectors of the economy, including tourism, the overseas’ student market and food production, he added.
The headwind was the mining investment wind-down and how it will affect jobs and people’s confidence in taking on a mortgage.
However, Mr Steinert rejected the notion that the housing market was overheating.
Instead, he said he expected, over time, the market would “moderate” from a high level.
He said parts of inner Melbourne and inner Sydney had “been very hot” but were still “relatively cheap” compared to house prices in similar cities around the world.
And this was partly driving overseas buyers.
More than 45 per cent of Stockland’s sales are from first home buyers, 20 per cent are investors (predominantly Australian) and the rest are people downsizing or upsizing.
The company said it’s on track to achieve the upper end of its earnings per share range in the full year, which has been tightened to a range of 6.75 to 7.5 per cent.
Mr Steinert said the company’s commercial property business was also a key driver of first half earnings, with operating profit growth of 4.7 per cent.
IG Markets market strategist Evan Lucas said the company’s result was strong.
“There guidance in terms of EPS is at the top end. The figures are positive. It all looks very good in the short term.”
LOW INTEREST RATES BOOST STOCKLAND’S PROFIT
* Half year net profit of $462m, up 55 pct, from $298m
* Revenue of $1.33b, up 33 per cent from $966.5m
* Fully-franked interim dividend of 12 cents, unchanged