Australand, Capitaland’s Australian unit, expects its residential development business to drive earnings growth in the next 18 months.
Currently, Australand gets 80 percent of its earnings before interest and taxes (Ebit) from recurrent income attributed to its investment properties, while the remaining 20 percent comes from its development segment.
Australand eventually aims for development to throw in 30 percent to 40 percent to Ebit. Mr. Bob Johnston, managing director of Australand, said that this should happen as the company’s residential business recovers.
“I think our residential business should return to normal levels (in the next 18 months),” said Mr. Johnston. “Development earnings have been in a trough over the last 12 months but now they are coming back.”
Australand aims to get a 12 percent capital return for its development segment by 2012. Presently, most Australian developers get returns in the “high single digits” for residential business, he said.
Mr. Johnston is optimistic on the cities where the group operates, including Brisbane, Melbourne, Perth and Sydney. All these cities have an under-supply of homes.
Specifically, Mr. Johnston is bullish on the housing market in Melbourne, wherein home prices have increased 18 to 25 percent over the past year and could possibly increase a further 5 to 10 percent in the coming years.