Australian house pricing is falling, with CoreLogic reporting Sydney dwelling values have dropped by 6.1% this financial year with Melbourne dwelling values down 3.4%.
A weakening in the housing market was to be expected as the finance sector recalibrated to tighter lending practices with regulatory changes in the wind after the protracted Banking Royal Commission is finalised.
But what does this softening mean for the likes of international property and infrastructure group Lendlease Group (ASX: LLC)?
Is its ability to leverage off a strong infrastructure market and successful international expansion enough to weather a downturn in the overall residential market on home soil?
Lendlease shares remain strong, hitting a five-year high in mid-August and sitting around 3.3% above its price point at this time last year.
Other property development groups such as Stockland Corporation Ltd (ASX: SGP) and Mirvac Group (ASX: MGR) are trailing behind in terms of share price performance and valuation, with Stockland in particular likely more exposed to a housing market downturn given its plans to up its presence in the high-density residential market.
Lendlease revealed a 5% increase in NPAT to $792.8 million on the release of its FY18 results in late August, with funds under management (FUM) rising by 15% to $30 billion and its development pipeline increasing 44% to $71 billion.
Lendlease is expected to grow its EPS by 12% over the next three years off the back of its $500 million share buyback as it progressively rolls out its development pipeline and continues to grow its FUM by a forecast 9% a year until FY23.
With these figures in mind, it makes sense that Goldman Sachs added Lendlease to its conviction list recently, with the broker hinting its strong run might have another 20% upside to realise in the medium term.
Lendlease has businesses better spanned across industries and geographies than its peers, and it’s this level of diversification that keeps it better shielded from uncertainties and risk factors in the wider market, in my opinion.
Although its construction division has lagged, Lendlease will continue to benefit from increased spending on public infrastructure globally, although it needs to pay close attention to the bottom line and avoid overspending on budgets and ensure development projects remain in scope.
Although there won’t be calm waters for any company in the property sphere going forward, if anyone has a good grasp on how to remain afloat during tough times, I think it’s Lendlease. Its ability to secure development pipeline and its eye for capitalising on strategic opportunities seem unmatched in the sector and although I wouldn’t buy in at this point, I would hold if I was already a shareholder.
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Motley Fool contributor Carin Pickworth has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.