The 24 month surge in the price of property in and around Sydney and Melbourne has prompted a surge in the share price of some ASX-listed property developers and builders, but others have been left behind, could now be the time to buy?
There’s plenty of money to be made in property development, but much of the skill comes from having an insight into where the next boom areas are likely to be. Much like the resources game, property prices are subject to the whims of supply and demand and consequently developers with operations outside of Sydney and Melbourne have been left behind.
An example of this is the outperformance of larger diversified developers Lend Lease Group (ASX: LLC) and Stockland Corporation Ltd (ASX: SGP), versus the smaller and concentrated Cedar Woods Properties Limited (ASX: CWP) and Finbar Group Limited (ASX: FRI).
East vs West
The problem with Cedar Woods and Finbar appears to be the group’s exposure to the slowing Western Australian economy. Lend Lease and Stockland meanwhile, have far greater exposure to the eastern coast, including Queensland on top of NSW and Victoria.
The difference in 2014 has been stark- a falling iron ore and oil price has seen house price growth slow dramatically in WA and Finbar and Cedar Wood’s share price plunge up to 25%.
Time to Buy?
Finbar is expected to grow profit this financial year, while Cedar Woods may see a small reduction. This could result in a reduction in Cedar Woods’ 5% dividend yield, however Finbar’s 7.7% yield should remain at or above the current level.
Catalysts going forward include the success or otherwise of a $120 million project in South Perth for Finbar, and a massive 980 lot development in Queensland’s Upper Kedron for Cedar Woods. The diversification into Queensland should be a good move going forward.
Risk-averse investors may be best off looking elsewhere but those that enjoy a riskier investment, certainly in some way linked to the strength of the Western Australia economy, could consider Cedar Woods and Finbar as an intriguing 2015 proposition.
High Risk; Big Rewards
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Motley Fool contributor Andrew Mudie does not own shares in any companies mentioned. You can find Andrew on Twitter @andrewmudie