(Bloomberg) — Australia’s property stocks are trailing global peers by the most in 16 years, and analysts worry it may get worse as the prospect of more rate hikes and the unraveling of a suburban developer intensify scrutiny in the sector.
A gauge of Australia’s listed real estate shares has tumbled 15% this year, compared with a 7% gain for Bloomberg’s index of developed markets’ real estate stocks. That puts the sector on track for its worst year relative to global peers since 2010.
A hawkish Reserve Bank and weaker home sales are squeezing margins, slowing development and putting earnings at risk. Likely prospects of further rate hikes, property tax changes and a prolonged housing downturn add to the pressure, with the recent collapse of private developer Bathla Group underscoring the strain.
“It wasn’t a glorious 2026, and we don’t expect FY27 to be glorious,” said Yingqi Tan, an analyst at Morningstar Inc. Higher rates remain a major drag on commercial and residential property managers, with the firm forecasting a 5% decline in earnings in FY27, she said.
Australia’s central bank has delivered three straight rate hikes this year to curb inflation, with swaps fully pricing another rate increase in November and a roughly 90% chance of a further hike by mid-2027. The aggressive tightening is squeezing debt-dependent firms, with Dexus and BWP Property Group Ltd. flagging higher borrowing costs in their latest results.
There are pockets of opportunity amid the downturn. While Bathla’s collapse is unlikely to trigger contagion across listed developers given different operating models, the episode has reduced the pipeline of new homes, potentially creating an opportunity for larger listed developers such as Stockland and Mirvac Group to capture market share.
“Suddenly, you’ve had thousands of homes taken out of the market or slowed down, and someone’s got to step in and fill that,” said Romano Sala Tenna, a portfolio manager at Perth-based Katana Asset Management. His firm increased Stockland and Mirvac allocations after earnings.
Still, any gains are likely to be tempered by broader headwinds across the industry. Elevated borrowing and construction costs are set to weigh on earnings, while Bathla’s collapse has exposed risks among creditors. Shares of Centuria Bass parent Centuria Capital Group slid over 10% in late August after Bathla entered insolvency.
The fallout has highlighted how difficult the economics of residential development have become. Rising costs, weaker demand and falling house prices are making it harder for developers to make projects stack up, leaving less room for error.
“It is extremely difficult to build,” said Stephen Hayes, head of global property securities at First Sentier Investors. “Not too much needs to go wrong for developers to come under financial pressure.”
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