Credit restrictions temper property market: Lend Lease

Caps on lending to investors and other recently introduced bank credit restrictions will temper the strength of the Australian residential property market, the head of property and construction giant Lend Lease has predicted. 

Lend Lease chief executive Steve McCann said the balance between demand and supply of new dwellings in Australia was coming into balance following a historic shortage of homes in many capital cities and this would also cool the market. 

“The Australian market remains strong although it is easy to see that we’re somewhere near the peak of the cycle,” McCann said as he announced the group’s 2015 financial results. 

“There have been a combination of factors that have fuelled this cycle including strong population growth, monetary easing driving strong investor demand, [Foreign Investment Review Board] restrictions directing increased foreign demand to apartments sold off the plan and a historic undersupply of new dwellings in many of our capital cities.”

While lending restrictions and greater supply would slow the market, Lend Lease had not yet seen any impact from those factors, McCann added. 

The group’s residential business reported a record 4262 settlements, up 24% compared with 2014. 

Residential pre-sales revenue was up 109% on the previous year to a record $5.2 billion. Some $4.7 billion of this amount was in pre-sales for apartments, which are the main focus for the group’s residential division. 

McCann said the business was looking for indicators, such as a slowing rate of pre-sales for new launches, to help it identify a turn in the market cycle. 

It has already introduced higher pre-sales thresholds for new projects, which have been lifted to 70% on some apartment developments, as well as flexible apartment designs and a mix of product pricing. 

Lend Lease, which also has significant construction and investment management businesses, reported an after-tax profit of $618.6 million. This was down considerably on the $822.9 million result the previous financial year, which had been boosted by a $485 million contribution from the sale of the Bluewater Shopping Centre in the UK.

The result represented earnings per stapled security of 106.8 cents. It paid a distribution of 27 cents per stapled security, 25% franked.