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Mirvac says housing headed for lower prices and volume growth

Mirvac, one of the country's biggest residential developers, has said the housing sector is at the mature end of the housing cycle and is heading into a phase of lower prices and volume growth.

The chief executive Susan Lloyd-Hurwitz said the underlying fundamentals for the residential market remain strong in Sydney and Melbourne and there remains a ''fundamental undersupply''.

''It is welcoming to see the market come back to a more normalised activity,'' Ms Lloyd-Hurwitz said.

''Our rate of defaults are less than two per cent and while there has been a slowdown in demand from overseas buyers, we still see strong demand.''

Ms Llyod-Hurwirtz said to help alleviate housing affordability pressures, Mirvac was reviewing the emerging ''built to rent'' sector.

It involves developers investing in apartment blocks that are exclusively for rent as the long-term rental market grows.


The aim is to provide affordable living for people on mid-range wages with the developer being the landlord.

''It is early days and we see it as an attractive asset class, but we will be very patient entering the sector, but it is on the agenda,'' she said.

For the half year, Mirvac reported a fall to $465 million due to property revaluation gains and the timing of residential settlements.

The first-half profit for the same time last year was $508 million. There is always a skew in residential settlements to the second half of the financial year.

The group reaffirmed its operating earnings per security for the full year of between 15.3¢ and 15.6¢, equal to growth of 6 to 8 per cent.

Mirvac announced plans for an on-market buyback program for up to 2.6 per cent of its register as part of its capital allocation strategy.

An interim dividend of 5¢ will be paid on February 28.

Mirvac is a diversified real estate investment trust that generates revenue from investments in office towers, shopping centres, warehouses and funds management, as well as the housing sector.

Its industrial, office and retail operations all performed well in the past six months.

Ms Lloyd-Hurwitz said the group is in discussions with the City of Sydney about the redevelopment of the Harbourside shopping centre in Sydney's Darling Harbour.

Mirvac has a higher weighting to the NSW apartment and mixed-use communities market.

Ms Lloyd-Hurwitz said the results were in line with guidance provided at the 2017 results, which was for 6-8 per cent earnings growth.

''We remain confident in our ability to deliver operating earnings growth of between 6 per cent and 8 per cent in the 2018 financial year,'' Ms Lloyd-Hurwitz said.

“Although sales activity has moderated to more normalised levels in Sydney and Melbourne, we are still seeing constant demand for well-located, quality product, particularly in our master-planned communities.''

“A number of our forward-looking projects in Sydney are also set to benefit from new transport infrastructure, and our ability to buy at the right time has ensured we can release about 13,000 lots over the next four years.''

It comes after broking firm UBS downgraded the stock last week, saying the weakening residential sector would have an impact on the group.

Ms Lloyd-Hurwitz said while conditions in the retail sector remained challenging, the group's urban focus, along with a high exposure to health, tourism and education markets and a focus on experience-based retailers,  ensured the portfolio remained relevant and resilient.

“The strategic positioning of our portfolio is reflected in the strong metrics we’ve maintained in the first half of the year; our specialty sales growth of 5.2 per cent, for example, is well ahead of our peers,'' she said.

Morgan Stanley analysts believe the Mirvac share price will fall relative to the industry over the next 60 days.

''Mirvac's large second-half skew on residential settlements may limit its ability to tighten its guidance range from the 6-8 per cent currently,'' they said.

JP Morgan's analyst Richard Jones believes there is material intangible value in Mirvac's $1.6 billion residential business, which has $2.9 billion in pre-sales and more than 50 per cent of lots with 25 per cent-plus expected margins.

Mr Jones said the strong office markets and accretive developments should deliver consistent profits and net tangible assets growth out to 2021.