Property developer Stockland says the market for housing is at its weakest level in 20 years because consumers lack confidence.
Stockland on Wednesday posted a net profit of $487 million for the year to June 30, a 35.5 per cent drop from $754.6 million in the previous 12 months.
The company said the profit fall was due mainly to the effect of low interest rates and the high Australian dollar on its hedging activities.
Underlying profit, which takes out the impact of unrealised gains and losses on financial instruments, was $676.1 million, down seven per cent on the prior year.
Stockland's profits from housing fell 15 per cent to $198 million.
Stockland securities fell 17 cents, or 4.99 per cent, to $3.24 on Wednesday.
Stockland managing director Matthew Quinn said the new housing market remained soft and the state of the residential market was a major uncertainty in the company's outlook.
"I've been in the market since 1988, and I think this is arguably the most difficult housing market I've seen probably in the last 20 years," he said.
Despite a low unemployment rate and favourable interest rates, Stockland was at the mercy of cautious consumers.
Mr Quinn said three things affected a consumer's decision to buy a house: job security, interest rates and the price of the house.
Despite unemployment being low, concern over job security was increasing as reports of job losses appeared in the media.
Current interest rates were favourable, but recent cuts to interest rates had not encouraged consumers into the housing market, unlike interest rate cuts prior to the global financial crisis.
"But probably the thing that is hanging most over the market most at the moment is house prices and where house prices are moving," Mr Quinn said.
Mr Quinn said people would hold back from the market if they thought that house prices would fall because they feared they would end up losing money if prices kept going down.
But people would come back into the market as prices stabilised and started to lift, because then their fear became: if I don't buy now, the price is going to go up, and I'm going to lose out.
Mr Quinn said there were recent signs of a rise in house prices in Perth, but in the eastern states, where the majority of Stockland's business is located, prices remained subdued.
Mr Quinn said the 2012/2013 financial year would be challenging for Stockland, with earnings affected by no more contributions from exited operations in the United Kingdom and apartments; lower rents from office buildings because a number had been sold recently; and no replacement income yet from shopping centre operations, which were undergoing reinvestment.
Furthermore, returns from new residential community projects would not flow until 2014 and 2015.
"However, we see a much brighter picture in (fiscal) 2014, not just because of market recovery, which we do anticipate by then, but principally because of the new projects that are coming on line and the additional earnings that will provide us," Mr Quinn said.
Stockland expected to maintain its distribution in 2012/13 at 24 cents per security, notwithstanding any lower earnings.