Australand: What property downturn?

RELATED QUOTES

SymbolPriceChange
ALZ.AX4.250.000
DVN.AX0.74+0.0100
MGR.AX1.77+0.0250
SGP.AX3.775+0.015

It seems some property developers are doing quite well, despite others claiming the building and construction market is facing the worst conditions in 20 years.

Property developer and investor, Australand Property Group (ALZ.AX) has reported an operating profit after tax of $142 million for the full 2012 year, a 5% rise over the previous year. Despite the generally cautious market sentiment, the residential division increased earnings by 16% and contracts on hand at year end were up 24%, which suggests 2013 will be a good year for the company. Australand appears quite upbeat about the year ahead.

On the other hand, we have Mirvac Group (MGR.AX) which is writing down the value of its projects by $273 million, after conducting a review of all its development projects. The majority of projects are in Queensland and represent 72% of the provision, while Western Australia represents 27% of the provision. The company noted that sales and price points have either deteriorated or not shown signs of improvement, Brisbane and Queensland apartment markets have seen price discounting, and that they see no real recovery in the short term.

The differences between the two developers couldn’t be starker. And that may have more to do with the different markets and states that they operate in. Australand has most of its projects in Victoria, and generally offers lower-priced property, while Mirvac is heavily exposed to Queensland apartment development, Western Australia, and the mid to high end apartment sector.

As we reported earlier this week, several property developers are being forced to offer buyers extra incentives to entice buyers, because of slow growth in the property sector, and a lack of buyer confidence. Stockland (SGP.AX) is offering rebates and gift cards of up to $30,000, while Devine Limited (DVN.AX) is matching deposits and temporarily taking over mortgage payments.

Foolish takeaway

The property sector and the companies within the sector can’t be viewed as all equal. Western Australia and the Northern Territory are experiencing growth thanks in a large part to the boom in resources and oil and gas projects, and a previous lack of available accommodation. Medium to high quality Victorian apartments and Queensland apartments both appear to have been over-developed, resulting in falling prices and profits. Relatively cheap, free-standing housing in booming states appear to be in high demand, hence the different results experienced by Mirvac and Australand.

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