Australia is entering a housing ‘super cycle’, Qualitas says

One project Qualitas financed during the period was Devitt Property Group’s $300 million Muse luxury apartment project on Melbourne’s St Kilda Road.

In contrast to a normal cyclical upturn, the next four years would be marked by a necessary period of catch-up after years of undersupply, as sale prices of new apartments rose the necessary 15-20 per cent to make projects viable, Schwartz said.

“A supercycle is coming,” he told The Australian Financial Review. “If we’re only producing 25,000 apartments compared with annual demand of 75,000 … it means you need to catch up. It’s that catch-up creating the potential for a supercycle.”

Investors shared the optimism, pushing Qualitas shares up 21¢, or 8.5 per cent, to $2.68. It was a boost for the company that started life as a listed company at $2.50 a share three years ago but which has not seen its shares rise in line with the doubling of funds under management in that same time.

But a big hurdle is the capacity of the Australian construction industry to produce more homes. Over the four quarters to September – the latest available official figures – housing starts of new apartments, townhouses and semi-detached homes totalled 59,728.

Australia can produce more – at its peak of the last development boom in the March quarter of 2016, the sector clocked 116,861 starts, more than the 114,570 detached house starts in the same period – but hitting an annual 75,000-apartment run rate for the four years Qualitas said was needed to overcome the shortfall was a tough ask, Schwartz said.

Sydney and Brisbane were the hardest cities to get projects going, he said.

“It’s much harder to get contractors to undertake the job on an acceptable basis because of labour shortages,” he said.

“We still need more players in the construction industry if we’re going to achieve the volumes and competition the industry needs.”

That will also limit the ability of Qualitas to boost the deployment of capital.

The company said it financed 10 per cent of all apartment commencements last financial year and had access to capital – from institutional investors who had shed any former concerns about an Australian housing bubble – to maintain that market share.

“If you believe we’re at the start of a supercycle – and Qualitas doesn’t have capital constraints – you could take the view that future deployment is going to be very healthy,” Schwartz said.

Such a lending rate would equate to $10 billion a year in residential deployment – up from $3.5 billion in FY24 – but only if capacity constraints could be overcome, he said.

“It’s going to need some structural change in order to achieve those types of deployment lending goals,” he said.

Global interest in commercial real estate was also picking up as investors took the view that the devaluation cycle of commercial assets had reached the bottom and this meant Qualitas was likely to increase the proportion of equity investment in its funds under management, Schwartz said.

At the end of December, Qualitas had $7.5 billion invested in credit funds and $1.7 billion in equity funds.

The company said funds management revenue rose 19 per cent to $30.8 million in the six months to December, funds management earnings before interest, taxes, depreciation, and amortisation jumped 30 per cent to $24 million and statutory net profit after tax was also up 30 per cent to $16.3 million.