Stockland’s profit hit by poor performance in residential

Investors would do well to approach residential developers with caution.

Stockland Group (ASX: SGP) has announced results for the 2013 financial year. Highlights include:

  • Underlying profit down 27%, earnings per share down 24% to 22.4c
  • Solid performance was shown by commercial, industrial and retail segments. Discretionary retail showed marked weakness in last quarter.
  • Residential segment hit hard by previously flagged impairment write downs and more restrained growth assumptions.
  • NSW and WA buoyant, QLD and VIC remained quiet. Detached housing was very sluggish in both Queensland and Victoria.
  • Gearing levels a conservative 22.7%, net tangible assets per share down slightly at $3.50 and return on equity was a fairly miserable 6%.

Residential property remains a headache for many developers, which seems inconsistent with the repeated claim there is a significant housing shortage. In this Fool’s opinion, the blame lies with tax policy. Negatively geared residential investors have an advantage (to investors, interest payments are tax-deductible) when competing against genuine home buyers and often use this to blindly bid up properties to unrealistic levels, particularly in Sydney.

John McGrath, the founder of McGrath Real Estate, recently warned Sydney prices had the potential to quickly reach unjustifiable levels should current interest rates spur further indiscriminate buying.

Investors would do well to approach residential developers with caution.

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Motley Fool contributor Peter Andersen does not own shares in any company mentioned in this article

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