Some of the country’s property players are set to be burdened by buyers who are likely to fail in paying at settlement time due to dropping apartment and land prices, according to a report by The Sydney Morning Herald.
UBS’ recent outlook showed that Mirvac, Lendlease and Stockland are at an elevated risk of settlements falling over. This is a result of the firms’ exposure to projects sold at the 2017 peak of the property cycle.
“We see Mirvac as most at risk followed by Lendlease and Stockland,” analysts Grant McCasker and James Druce said.
Apartment sales make up a major portion of Mirvac’s earnings over the next three financial years. In 2020, close to a third of the group’s earnings will come from settlements in Sydney and Melbourne, where apartment prices are declining by 7% and 2%, respectively.
UBS found that Marrickville and Olympic Park in Sydney are the projects most at risk. These properties “appear already out of the money” given that Sydney’s apartment price index has fallen 5% since launch, according to the analysts. St. Leonards could also become a problem if values were to decrease to 5 to 10% more.
“We are less concerned about Lendlease's settlement risk given the price growth since the 2015-16 launch dates,” McCasker and Druce said.
Stockland, meanwhile, has minimal exposure to the apartment market but gets most of its earnings from land sales for new homes. With tightening credit, price drops, incentives and lower deposits, the number of struggling buyers might rise, and this could be an issue for the company.
Mirvac was the only firm among the three to comment on the forecast. ''We are monitoring the changing residential market conditions closely and it is important to remember that 'average' price changes mask significant differentiation between submarkets and housing type. We believe that our disciplined approach to restocking, our commitment to design excellence, a quality product, and customer care will continue to differentiate us from others in the market,'' said Stuart Penklis, Mirvac's head of residential.
