Australia Real Estate: Rates peaking, budget tailwinds. Time to buy Australian Residential Developers. SGP/MGR upgrade to Buy

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Australia Real Estate: Rates peaking, budget tailwinds. Time to buy Australian Residential Developers. SGP/MGR upgrade to Buy

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28 Jun 2026 15:00:05 ET │ 30 pages

Australia Real Estate

Rates peaking, budget tailwinds. Time to buy Australian Residential

Developers. SGP/MGR upgrade to Buy

Australian Real estate

CITI'S TAKE

Suraj Nebhani, CFA AC

Australian residential REITs have sold off 23–33% since October 2025, +61-2-8225-4829

pricing in a tough housing cycle driven by 75bps of RBA rate hikes (with one suraj.nebhani@citi.com

more likely) and once-in-a-generation budget changes to negative gearing

and CGT. While near-term headwinds are real — falling auction clearance Howard Penny

rates, 15–20% drops in loan applications, and price declines in Sydney and +61-2-8225-4819

Melbourne — we believe the stocks have overshot. Construction cost fears howard.penny@citi.com

have proven more benign than expected (1–3% escalation better than

worst-case fears), and the 2026–27 budget changes are a structural Akshit Batra

positive for new housing developers as investor capital migrates from +912242775184

established to new dwellings. SGP and MGR are now trading at trough PE akshit.batra@citi.com

multiples consistent with prior housing downturns. We upgrade SGP/MGR

to Buy, preferring SGP. A recovery in demand is expected in CY2027 as rates

stabilise and budget-driven investor mix shifts accelerate.

Rate cycle nearing peak, but near-term pain persists — The RBA held rates at

4.35% in June, with Citi economists forecasting one final hike to 4.6% in November

2026, before cuts begin in 2H CY2027. Auction clearance rates have fallen below

50% and financing commitment volumes are down 15–20%, signalling near-term

weakness in developer sales through 2H CY2026.