Mirvac Group expects to increase earnings by 10 to 14 per cent in the current financial year, saying the company’s strategy remains firmly focused on the Australian property market.

The real estate group says in the year to September 2010 it has experienced 3.5 per cent like-for-like portfolio income growth.

“The tough decisions we took during the last two years to simplify our business have successfully repositioned the group for earnings growth,” Mirvac chairman James MacKenzie told the company’s annual general meeting in Brisbane.

Shares in Mirvac were half a cent higher at $1.265.

Mirvac has forecast operating earnings of between 10.2 and 10.6 cents per stapled security in the current financial year.

“This is an increase of 10 to 14 per cent from the FY2010 results and is the highest expected growth in the Australian Real Estate Investment Trust sector,” Mr MacKenzie said.

“In line with our distribution policy, we expect to pay distributions in FY2011 of between eight and nine cents per stapled security.”

In addition, Mirvac had reduced costs by $25 million per year, he said.

Mr MacKenzie said Mirvac would continue to concentrate on the domestic market and wasn’t considering offshore real estate opportunities.

“Our strategy remains focused on our core strengths of delivering Australia’s pre-eminent residential developments, and managing and owning Australian investment grade properties,” he said.

The residential development market was expected to moderate to single digit growth in the current year, supported by underlying demand and limited supply.

The Queensland and West Australian markets were expected to pick up, while the impact of affordability was expected to slow growth in Melbourne.

Undersupply would continue to underpin prices in Sydney, where rents were expected to outperform the national average over the medium term, Mirvac said.

Story source: www.smh.com.au

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  Historically, houses have enjoyed a much more rapid appreciation in value than the growth recorded by units. There are a number of reasons for this more rapid level of growth: greater demand for houses, diminishing availability of development land, higher quality of stock and design available for houses rather than units and the greater Australian dream to own a house rather than a unit, among a number of other reasons.

Despite these factors, over the last five years units have recorded average annual value growth of 7.4% compared to 7.1% for houses. However, the results suggest that the superior performance of units compared to houses is quite a new phenomenon as over the last 10 years the average annual value growth of houses (9.9%) has well and truly outperformed units (8.0%).

The improvement in the capital growth performance of units in recent times is most likely due to affordability issues. Based on current capital city median prices, unit prices are recorded at $420,000 compared to houses at $495,000. Accordingly, units offer a much more affordable alternative housing option than houses.

Many unit developments, particularly newer units, are also in strategic locations and are where a large proportion of the market aspires to live but cannot afford to buy a detached home. In many cases, apartments provide a viable and relatively affordable option to buy into these markets. A good example of this is Bellevue Hill in Sydney. Bellevue Hill is one of the country’s most expensive housing markets with a median house price of $3.85 million, unit prices in the suburb are recorded at $620,000, -84% more affordable than a house.

The inner city and well established residential areas enjoy high demand for units because in most instances they are: well catered to by local amenity including shops and restaurants, well located close to working nodes and are serviced by existing public transport amenity which is often not available in outer suburbs of the capital cities.

Over the 12 months to June 2010, unit values have increased by 11.4% compared to growth of 10.2% for houses. On a month-to-month basis, annual value growth for units has been outstripping that of houses fairly consistently since April 2008.

Throughout the individual capital city markets, the growth in the value of units has outperformed houses within Sydney, Brisbane, Perth and Darwin over the last 12 months.

Throughout the capital city markets Hobart has the most affordable units with a median price of $254,250 and Sydney the most expensive with a median of $450,000.

When the differential between median house prices and unit prices is analysed you gain a greater insight into the performance of the market.

Darwin has the greatest differential between house and unit prices at $142,176 and the smallest differential is recorded in Adelaide ($67,252). Sydney, Brisbane and Darwin each recorded a differential in median price of at least $90,000 and these three cities each recorded a greater level of annual value growth for units rather than houses over the last 12 months. Perth also recorded a superior performance for units over the last year however, the price differential in that city is $75,000.

Although the popularity of units is increasing, since the onset of the Global Financial Crisis (GFC) many developers have found it much more difficult to obtain finance for higher density developments. This is due to the fact that the banks are becoming more risk adverse and the fact that a number of high profile higher density projects have either been cancelled or delayed. The latest building approvals data showed that over the year to June 2010 the number of approvals for private sector units has rebounded very strongly (57.7%) however, the monthly volume of approvals is still well below levels consistently recorded prior to the onset of the GFC, highlighting that finance for higher density product is difficult to obtain.

It’s undoubted that units have significant appeal for price sensitive purchasers due to the fact they can own in a popular location at a far lesser price compared with a detached home. For investors, units are appealing because in most instances the rental yields are much higher than they are for houses. Across the capital cities, the average gross rental yield for a unit is currently recorded at 4.8% and for houses yields are recorded at 4.0%. The superior rental return achieved by units can be attributed to the fact that units are typically located in areas that have high demand: close to major transport networks, employment nodes or retail centres.

Tim Lawless is the Director of Property Research at RP Data.

The Reserve Bank of Australia decided to leave interest rates on hold at 4.5% in June as they observe the impact that recent rate rises are having on the Australian economy. This is particularly important as Europe tries to deal with its sovereign debt issues. The RBA is paying most attention to the health of the global economy and how it may impact Australia.

For the year to March 2010, the Australian economy showed solid growth, expanding by 2.7%. This is significant when compared to the small 0.7% growth in the previous year. Economists predict a positive outlook with growth forecast to be around 3.5% for the coming year.

Property clearance rates in Melbourne have certainly eased in the past few months from the mid to high 80′s to 65% at present. Stock levels are at a record high for the time of the year. Despite this, our Street News subscribers have indicated that property sales and prices are still strong and that buyer levels at opens are still very good.

Leading industry forecaster, BIS Shrapnel, predicts a modest growth in the Melbourne market over the next three years. "Price performance will be patchy, although we expect the overall shortage of dwellings will prevent a fall in the median house price. On the other hand, price growth will remain very limited due to the rising interest rate pressuring affordability.

Our forecast is for Melbourne’s median house price to rise by a total of 11 per cent over the three year period to June 2013, or a modest 3.5 per cent per annum".

By Peter Sarmas, Managing Director, Street News