Stockland says deposit cancellations improve, expects WA to pick up

Diversified developer Stockland expects deposit cancellation rates to stay below the long-term average and further improve in WA.

The developer’s forecast came at its earnings announcement for the year ended June 30.

Stockland made a higher higher-than-expected profit on the back of a record number of settlements for new residential lots and strong performance on the eastern seaboard.

Full-year revenue from ordinary activities was $2,744 million, up 17.9 percent. 

Net profit after tax attributable to security holders rose 34.4% to $1.2 billion.

Stockland said cancellation rates of deposits paid at the exchange of a conditional contracts were well below the long-term average of 13 per cent.

"The eastern seaboard at the moment is below 10 per cent and trending lower in Victoria, NSW and Queensland over the last 12 months," Stockland's head of residential Andrew Whitson was quoted as saying by the The Australian Financial Review.

He said deposit cancellations in WA had dropped to 20 per cent from 28 to 30 per cent a year back.

In Victoria, deposit cancellations stayed flat over the year at a "historically low" 5 per cent, Whitson said.

Analysts displayed cautious optimism.

"While consensus forecasts are likely to be revised higher the market may begin to question if this is as good as it gets given strong residential volumes, expanding margins and 3 per cent comparable retail funds from operations growth," Citi analyst David Lloyd wrote. "We believe this could be premature."

However, Whitson was upbeat, saying Stockland's expansion into the urban infill market extended its reach beyond the core house and land market.

"Traditionally, being a greenfield community developer, we've only touched about 15 per cent of the market," he said.

"But the other 85 per cent we're starting to talk to now. Our infill developments give us the opportunities to set the business up for further growth."

The developer recently confirmed its acquisition of a 3.3 hectare waterfront site at Hope Island for $13.5 million.

Stockland expects operating profit margin to pick up to 17 per cent before settling at a level above 15 per cent. 

Whitson said the outlook for cancellations was strong with further improvements in WA.

The WA improvement reflected a stabilisation of the housing market there and and a slight rise in sales is expected over the next 12 months, he said.

Some analysts were cautious, however.

"Stockland have a more favourable view on Perth than our expectations with prices to stay flat and volumes improve," UBS analyst Grant McCasker said.

"What we're seeing in WA is a better outlook for the WA economy in the next 12 months," he said.