Mirvac forecasts strong growth despite settlement delays

At Harold Park in Sydney, Mirvac said there was only one remaining lot to be settled across all completed stages. Mirvac recently opened the Tramsheds at Harold Park, Sydney. Photo: Cole Bennetts
Nanjing Night Net

The number of apartment buyers defaulting before settlement has risen above Mirvac’s historic average of 1 per cent following banks’ clampdown on lending to overseas investors.

But the diversified developer and fund manager said demand for its apartments remained strong and it had resold all defaulted lots marketed for sale.

“While we continue to experience settlement delays from foreign buyers, settlements overall are tracking in line with expectations, and we continue to carefully monitor and manage our settlement risk profile,” Mirvac chief executive Susan Lloyd-Hurwitz said in the group’s first-quarter results.

Mirvac said it had completed 667 settlements in the past three months, including more than 60 by overseas-based buyers.

Despite looming fears of an oversupply of apartments around the country, Mirvac reaffirmed its target of more than 3300 lot settlements in the 2017 financial year, with more than 65 per cent expected to settle in the second half.

It said it would achieve its targets of 8 to 11 per cent growth in operating earnings in the 2017 financial year, and a residential return of more than 15 per cent on invested capital.

Overall, it had 2840 of targeted lots pre-sold or settled, including 95 per cent of its top 10 projects. These included Moreton Bondi, 2 Unison Waterfront, Queensland and 3 Yarra’s Edge, Victoria.

At Harold Park in Sydney, there was only one remaining lot to be settled across all completed stages. Construction of the final stage, Precinct 5, was under way and it was 93 per cent pre-sold.

Ms Lloyd-Hurwitz​ said Mirvac had released more than 850 residential lots, with “solid sales across both apartments and master-planned community projects”.

There was an increase in pre-sales contracts to $3 billion, with 37 per cent expected to settle this financial year.

“The group remains on track to achieve a significant uplift in earnings within our residential business in FY17, underpinned by a high level of earnings visibility,” Ms Lloyd-Hurwitz said.

She said as at September 30, Mirvac had 89 per cent of expected residential earnings before interest and tax secured for the current financial year and and 59 per cent secured for the 2018 financial year.

“Our overweight [position] to Sydney and Melbourne, in addition to a balanced exposure to master-planned communities and apartment projects, means we are well-placed to capture demand for quality residential product,” Ms Lloyd-Hurwitz said.

“Our medium-term outlook remains robust, with a current pipeline that supports over 14,000 potential lot settlements over the next four years.” Mixed outlook

But there is a mixed outlook for the residential sector.

Sydney and Melbourne, where Mirvac is overweight, are in the grip of a construction boom, with Brisbane steady and Perth remaining weak.

The latest State of the States report from CommSec says NSW remains on top of the economic performance rankings but may experience a challenge from Victoria over the coming year. Overall construction work is providing solid momentum to the economy.

Victoria remains in second spot on the performance rankings. And given solid growth on a number of key indicators, the state is well positioned to consolidate or improve its position.

CommSec’s chief economist, Craig James, said Queensland was the second strongest state on dwelling starts and population growth was the fastest in 15 months. Both tourism and agricultural exports would provide momentum in coming months and higher coal prices were encouraging.

This was reinforced by the latest Rider Levett Bucknall Crane Index, which shows the residential sector continues to be the driving force in activity, with more than 81 per cent of all cranes sighted on new apartment developments around the country.

The RLB index shows that Sydney continues to be the driver of crane activity, with 46 per cent of all cranes (up from 44 per cent). Melbourne and Brisbane saw small losses in crane numbers as projects moved towards completion.

Mirvac’s other business of office, industrial and retail was also strong, with rents rising, vacancies steady and sales per square metre in the redeveloped malls, hitting about $10,000 a year.

Mirvac has plans to boost its retail segment with the redevelopment of the Harbourside shopping precinct in Sydney’s Darling Harbour, which is said to include an apartment tower. It also recently opened the Tramsheds at Harold Park, Sydney.

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