Treasure Chest: Stockland Group

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FNArena's Treasure Chest reports on money making ideas from stockbrokers and other experts. Today's idea is Stockland Group.

By Danielle Ecuyer

FNArena’s Treasure Chest reports on money making ideas from stockbrokers and other experts.

Whose Idea Is It?

Citi

The subject: 

Stockland Group ((SGP)) and Mirvac Group ((MGR)).

Residential REIT share prices have fallen around -30% since last October following the RBA’s 75 basis point increase in the cash rate over three hikes, with another rate rise still a possibility.

Concerns over the outlook for the sector have been compounded by major Federal Budget changes to negative gearing and capital gains tax, which are expected to place further pressure on the housing market.

Citi believes the share prices of residential REITs Stockland and Mirvac are now discounting an historically severe housing downturn.

More info:

The RBA remains hawkish, yet REITs are rallying. What is the market seeing that the policy outlook isn’t?

Markets are forward-looking, with share prices often moving well before economic data or central bank policy catches up.

Few sectors are more sensitive to interest rates than Australian REITs, where borrowing costs directly influence earnings, valuations and investor demand.

Yet despite the RBA delivering three consecutive 25 basis point rate hikes in 2026 and maintaining a hawkish tone, investors have been quietly returning to the sector.

Over the past month, Australian REITs have gained 3.5%. While lagging the Healthcare, Consumer Staples and Consumer Discretionary sectors, each up more than 13%, the rally suggests investors may be looking beyond the current tightening cycle.

ANZ Bank believes the RBA’s June meeting minutes reinforce the Board’s hawkish bias, maintaining its expectation that the cash rate will remain at 4.35% over the next year while acknowledging the risk of another increase.

Yet, the minutes also acknowledged downside risks from a material weakening in the housing market.

IFM Investors’ chief economist Alex Joiner noted the Board’s recognition that softer housing could weigh on consumption, arguing policymakers are unlikely to tolerate a significant correction in dwelling prices.

Is all the bad news discounted in share prices?

Against this backdrop, Citi believes the outlook for listed property is improving, reiterating its positive view on both Stockland and Mirvac.

Since October 2025, Australian residential REIT share prices have sold off by between -23% and -33%.

For the Citi analyst, this indicates the market is discounting a challenging housing cycle due to the 75 basis points of RBA rate hikes, with the likelihood of one more, as well as the “once-in-a-generation” Federal Budget changes to negative gearing and capital gains tax.

The challenges have been evidenced by falling auction clearance rates, as well as banks like Westpac and CommBank identifying a decline in mortgage loan applications of -15% to -20%, alongside residential price declines in the major markets of Sydney, Melbourne and Canberra.

For Citi, the question has become: have the share prices of housing-exposed REITs, notably Stockland and Mirvac, now “overshot” on the downside, even when considering higher construction cost concerns?

The analyst answers with a definite ‘yes’ and believes construction cost rises will be more benign than feared and the Budget changes are a structural tailwind for new housing developers.

Investor funds and capital are expected to flow to new housing from existing dwellings, and shares in both Stockland and Mirvac are trading around trough-like price-earnings multiples that align with previous housing downturns.

Other brokers are more cautious to pull the trigger 

UBS offers a more cautious stance, highlighting it is “still too early for large-cap residential REITs”.

This broker points to preliminary auction clearance rates falling to 47% for the third week of June, implying a final rate of circa 42%.

These metrics indicate ongoing weakness in the housing sector, with clearance rates down around -10% month-on-month to their lowest level since April 20.

UBS acknowledges residential REITs are trading “inexpensively” at a 13x NTM P/E, or a circa two standard deviation discount to historical valuation averages (in layman’s terms, a lot), but asserts it is still too early to be “bullish”.

UBS points to inhouse economists expecting a circa -3% to -5% fall in house prices over the next year, which suggests investors should wait longer before considering long positions in large-cap residential REITs.

Maybe the December quarter might be a better time for timing the opportunity?

Historical trends show residential REIT share prices usually bottom out around -60%-70% of the way through the downturn, or when there are consecutive monthly improvements in clearance rates or house price expectations, hence the “it’s too early to get set” conclusion.

Morgan Stanley recently caught up with several REITs ahead of the August reporting season.

Stockland and Mirvac are due to report on August 19.

Stockland noted there have not been any signs of weakness since the Federal Budget. Albeit there has not been an “influx” of investors looking for new builds, neither has there been a collapse in overall sales.

Rate hikes and the Budget could impact FY27 residential settlements, the broker believes, noting Stockland has historically offset declines in this segment with land sell-downs, joint venture profits or non-residential items.

Morgan Stanley detailed three major sources of potential developer profits of up to $1bn from non-masterplanned residential-related projects between now and 2032 onwards, albeit these are unlikely to be realised until after FY27 and could be boosted by land sales.

Collectively, the $1bn could be sourced from data centres, Kogarah industrial and Waterloo apartments. These large-scale projects still require detailed planning, power and/or tenant commitments and are seen as supporting a very robust FY28 onwards pipeline.

As per previous housing cycle downturns, where residential prices have declined by more than -5%, Stockland’s pre-sales have fallen by -20% to -30% year-on-year.

Morgan Stanley rates Stockland Equal-weight with a $4.90 target price.

Citi has upgraded Stockland to Buy from Neutral with a target price of $5.10, up from $4.30. Stockland is preferred over Mirvac, which is also upgraded to Buy from Neutral with a higher target of $2 from $1.84.

UBS has a Neutral rating on Stockland with a $4.95 target price.

The FNArena consensus target price is $4.914, with non-daily monitored Jarden ascribing a Buy rating and a $5.60 target price.

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