Residential developer AVJennings is deliberately slowing down pre-sales at a Melbourne housing estate, holding them back to sell into a rising market and capture better margins down the track.
The change in tack is a key ploy for any land developer, which must balance the benefit of de-risking a project earlier against gains to be made in a rising market.
A key element in the equation is the lag between a contract signing and then production of a land lot and its settlement.
The AVJennings strategy will have no impact on the current rate on production of lots, managing director Peter Summers said.
The listed developer booked a 19.1 per cent rise in revenue to $185.8 million in the 2018 first half. Net profit was up 9.5 per cent to $15.5 million.
At its Lyndarum North estate, the developer has already sold more than 300 lots but will now ease back on pre-sales.
"It doesn't impact production at all it's just in the timing of when we release those products to the market," Mr Summers told
The Australian Financial Review.
"If we release a stage tomorrow, even though we sign contracts, we can't settle them until the land is developed.
"So we would be selling in today's prices, it doesn't generate any cash, it doesn't generate any profit. All we're doing is giving away future margin."
Mr Summers said the project was already "de-risked' by the amount of signings already and it did not need to meet a threshold of pre-sales to secure lending.
" Why not release them in six months' time when the margin has gone up?"
With that tactic, combined with
a previously flagged shift in product mix in New South Wales toward to deliver more built homes rather than land lots alone, and a delay in Auckland project, AVJennings has revised its forecast contract signings for fiscal 2018 to between 1,450 and 1,550.
It had previously been aiming for 1900 to 2100 signings in 2018.The developer booked contract signings for 1843 lots in the 2017 financial year. It paid an interim dividend of 2¢.
The developer said the slowdown in contract signings was "highly unlikely" to impact on the full year results and unlikely to impact the fiscal 2019 results.
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