Australian Homebuilders Can’t Give Them Away: Mortgages

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Stockland (SGP), Australia’s biggest residential developer, is giving rebates and gift cards of as much as A$30,000 ($31,300) in Victoria, Queensland and New South Wales states. Devine Ltd. (DVN) is matching deposits in South Australia and taking over mortgage payments for as long as a year in Melbourne. Peet Ltd. (PPC) has been offering discounts of as much as A$50,000 in Western Australia, Queensland and Victoria.

Central bank interest rate cuts of 1.75 percentage points since November 2011 have failed to spur housing demand amid slowing job growth. New home sales in December were 6.6 percent below the level of a year earlier, and loan approvals to build or buy new homes the same month were 31 percent below an October 2009 peak.

“The discounts this time ’round are bigger than we’ve seen before because the response we’ve seen to rate cuts has been far more muted,” said Stuart Cartledge, managing director of Melbourne-based Phoenix Portfolios, part-owned by Cromwell Property Group. (CMW) “Affordability based on mortgage costs has improved, but people are worried about losing their jobs. House buyer confidence isn’t there.”

Negative Surprises

Developers, including Stockland and Peet, have said they’re facing the worst housing market conditions in 20 years and expect little change in 2013. Stockland, Mirvac Group (MGR) and Australand Property Group (ALZ) may report “negative earnings surprises” in the fiscal year ending in June, John Kim, Sydney- based head of Australian property research at CLSA Asia-Pacific Markets, said in a report Jan. 29. Kim expects Stockland’s shares to underperform peers, while he gives an outperform rating to Australand and Mirvac. Both benefit from non- residential revenue sources.

Sales of new homes fell to 5,875 in December, compared with 6,287 a year earlier, figures from the Housing Industry Association show. The number of loans to build or buy new homes fell to a seasonally adjusted 7,189 in November, from the previous high of 10,457 in October 2009, according to the Australian Bureau of Statistics.

Australian home-building approvals unexpectedly declined for the second time in three months in December. The number of permits granted to build or renovate houses and apartments fell 4.4 percent from November, the Bureau of Statistics said in Sydney yesterday.

Building approvals in December advanced 9.3 percent from a year earlier, yesterday’s report showed. That compares with economists’ forecast for a 14.9 percent rise year-over-year.

Housing companies’ shares are likely to have the worst performance of all property groups, Tony Sherlock, Sydney-based head of property research at Morningstar Australasia Pty, said in a telephone interview. “Pure play” residential groups such as Peet, Devine and Sunland Group Ltd. (SDG) will struggle, he said.