Affordable housing providers Ingenia Communities and Lifestyle Communities are defying the wider eastern coast residential market decline as they sell new homes to downsizing seniors in outer ring suburbs where prices continue to rise.
Morisset, Lake Conjola, Lara, Chelsea Heights and Ocean Grove may not have the cache of city-ring suburbs, but house prices in these outer suburban areas or coastal fringe areas continue to rise as first home buyers chase affordable family homes, Goldman Sachs analysts said.
“House prices in catchments where Ingenia’s communities are located are up 5 per cent on average, with most of them appreciating over the last 12 months,” analysts Michael Peet and Myron Xie wrote in a note to clients.
“The softness in Australian housing appears to be more prevalent at the top end of the market, with outer ring suburbs where residential land lease communities are based defying the broader trend. This is also the story for Lifestyle Communities, whose suburbs have vastly outperformed the Melbourne average.”
These suburbs are less affected by the credit crunch that has sent local and foreign investors fleeing the market and they offer a product that banks are still willing to finance. Land lease operators sell the homes they develop to buyers and charge rent for the land on which the dwelling sits.
House prices across the NSW, Queensland and Victorian suburbs where Ingenia’s 12-community portfolio is located have risen an average 4.9 per cent over the past year. In Victoria, the only state where Lifestyle Communities operates, prices across the suburbs constituting its 16 current and future communities are up 14.3 per cent, the Goldman Sachs analysis shows.
Sydney home prices fell 7.4 per cent over the year to October while in Melbourne they fell 4.7 per cent, CoreLogic figures show.
The companies are enjoying it.
“Last month, we had the best month of new sales that we’ve ever had, Ingenia chief executive Simon Owen told The Australian Financial Review on Wednesday.
“We took deposits or exchanged on 62 properties for the month. I expect the solid market conditions we’re experiencing to continue for the next one to two years.”
Ingenia’s catchment suburbs – and their clients – aren’t immune to wider market conditions, however. The company is sacrificing profit margin and working with builders to strip out costs – for example, by forgoing granite benchtops and using laminate – to keep sales ticking over.
“Over the last two to three years we would quite easily have been able to push through 10 per cent price growth year on year for the same housing product,” Mr Owen said. “Now that price growth is probably going to be between zero and 5 per cent.”
Mr Owen said Ingenia was also upping its marketing spend, one of a number of factors likely to trim its profit outlook. Even so, Goldman Sachs’ view on the stock remains positive.
“We still sit slightly above the top end of FY19E EBIT guidance (15-20 per cent growth) at 21.7 per cent growth,” the analysts wrote.
Lifestyle Communities agrees with the sentiment. “The outer burbs are not seeing downturns that inner suburbs are seeing,” managing director James Kelly said.
“A trend you’re seeing is first home buyers moving to buy more established products because they’ve been precluded from buying new properties in the outer burbs.”