This should be the ideal time to be investing in property stocks with the end of the housing slump within reach and falling interest rates boosting the sector's dividend appeal.
But don't count on all property exposed stocks enjoying stronger FY20 earnings on the back of these tailwinds even though these ASX shares are among the best performers since the federal election last month when Labor failed in its bid to pull the handbrake on investments through negative gearing and capital gains tax changes.
The rally on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index since has pushed the Mirvac Group (ASX: MGR) share price, GPT Group (ASX: GPT) share price and Stockland Corporation Ltd (ASX: SGP) share price to (or near) 52-week highs.
No earnings rebound for Stockland
However, UBS is warning that the Stockland share price is at risk of tumbling as it's predicting a drop in the group's profit for the current financial year despite the anticipated rebound in the housing market and the return of property buyers who have been lured in from the cold by falling interest rates.
"Despite a sense of relief post the surprise LNP election win, APRA changes and rate cuts, there is still earnings uncertainty for SGP," said UBS.
"Rather than volume and margin, the focus for FY20/21 for residential earnings should be on profit per lot given a shift away from NSW (substantial embedded profit from historical acquisitions) and towards Victoria which has a lower price point and increased levels of profit share with land owners."
The broker pointed out that Stockland's volume in Victoria are down by a quarter and New South Wales is down by around 70%. This will have a big impact on Stockland's profitability.
"While margins remain robust, the end result is that the profit contribution from 1 lot in NSW is equivalent to 3-7 lots in Victoria depending on project," added UBS.
"We believe this is not understood by the market and provides material risk to FY20/21 earnings."
Prepare for two years of profit pain
The broker is predicting a profit slide for the next two financial years for Stockland and is urging investors to use the share price rally as a selling opportunity.
The silver lining is that UBS doesn't think Stockland will have to cut its dividend and the record low 10-year bond yield has prompted it to increase its price target to $4.00 from $3.85 per share.
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