** Analysts at Morningstar see improving outlook for Australian residential developers Mirvac Group MGR.AX and Stockland SGP.AX, citing moderating interest rates, a housing supply shortage and easing construction cost inflation

** Morningstar notes both cos reported higher residential sales in Q1 FY26 over pcp

** Says pressures from high construction costs and increasing subcontractor insolvencies are abating as inflation in material prices and wage growth have slowed, with fewer builders entering administration

** Expects Mirvac's residential gross margins to return to 18% in FY26, from 15% a year earlier

** Says Stockland, which saw a lesser impact from building insolvencies, is likely to maintain operating profit margins in the low-20s for its master-planned community projects

** Views upside as largely priced in for Mirvac, while finding Stockland as trading 30% above analysts' intrinsic assessment

(Reporting by Shruti Agarwal in Bengaluru)

((Shruti.Agarwal@thomsonreuters.com))