Biggest drop in Aussie property in 18 yrs

(SYDNEY) Capital values in the Australian property market plumbed 18-year lows in the year to end-June 2009, as increasing numbers of fund managers bit the bullet and marked down assets, property research firm IPD said.

The IPD and the Australian Property Council index showed capital values for all property sectors fell 13.3 per cent in the period.

This was the largest fall in asset values since the trough of the property crash in 1991, property research firm IPD said.

‘There is a clear move by the industry towards stronger governance and reporting, with many more organisations now valuing all of their assets each quarter,’ Adrian Harrington, non-executive chairman of IPD Australia’s Board, said in a statement on Tuesday.

About 80 per cent of the 1,100 assets in the IPD database were revalued in June, up from about 60 per cent in June 2007 and June 2008. – Reuters

Source: Business Times, 20 Aug 2009

How Aussies deflated the housing boom

(SYDNEY) Policymakers daunted by the idea of puncturing asset bubbles in coming years can learn from Australia’s central bank, one of the very few to have deflated a housing boom without turning it into a crash.

As the world cleans up after the US housing debacle, central bankers are already fretting over how to tackle the next bubble, which may not be too far off as super-easy monetary policies worldwide leave financial markets flush with cash.

Up until a year ago, many central bankers believed bubbles can’t be spotted or tempered. But the Reserve Bank of Australia (RBA) challenged that view when it leaned against Australia’s housing boom in 2002 by refusing to cut interest rates despite a world economic slowdown, opting instead to talk down the property market.

‘Other countries are looking at the Australian example as a very positive one, and there are some lessons to be learnt from that episode,’ said Brian Redican, an economist at Macquarie.

The bursting of the US housing bubble in 2007 after its unfettered rise brought the world economy and financial markets to their knees. In contrast, Australia’s housing market has been remarkably resilient, supporting consumer confidence and helping Australia become one of a rare breed of developed nations to dodge a recession.

‘Up until the crisis, it was received wisdom that central banks should probably target mostly inflation. That is now beginning to change very quickly,’ said Frederic Neumann, a regional economist at HSBC in Hong Kong.

At the heart of a long- standing debate about monetary policy is whether central banks should target asset prices alongside inflation. Conventional wisdom says central banks should care about asset prices only to the extent that they affect inflation.

This is because bubbles are hard to spot, and economists can’t agree on what counts as a bubble. Bubbles are usually defined as prices that have risen so far they deviate from economic fundamentals for an extended period. Yet, not all price rallies are unjustified.

‘It’s extremely difficult in reality to pin point,’ said Mr Neumann. ‘By the time you realise ‘Oh we have a bubble in our hands’, it runs so quickly it’s almost too late to stop.’

The RBA deftly avoided the problem by talking around it instead, highlighting the economic risks of the housing boom.

‘We should not get too hung up about trying to decide what is a ‘bubble’,’ Glenn Stevens, current RBA governor and then deputy governor, wrote in a paper in 2003. ‘It tends to promote the idea that if we can define something as not being a bubble, then we can forget about it.’

To build its case that property prices were getting out of hand, and unhappy that government data was not timely enough, the RBA took the unusual step of commissioning coverage on the housing market from private-sector firms.

It focused on ratios such as the ratio of income to home prices to gauge the amount of debt buyers took on, and the number of home loans taken out for investment housing.

Falling bank lending standards, rising innovation and competition among mortgage lenders also flagged market frenzy.

Lenders invented deposit bonds where they paid the first deposit for home buyers for a fee, and people competed in television shows to renovate and sell flats at a top price.

RBA officials attended property seminars to observe over-zealous salesmen, dubbed locally as ‘property spruikers’, who encouraged buyers to think home prices will never fall.

All that led the RBA to refrain from joining other central banks in cutting rates in 2002-2003.

Then RBA governor Ian Macfarlane went out of his way to talk would-be property buyers out of their investments. ‘I’m using a certain amount of moral suasion to try and get . . . to investors, to make them sit back and think again,’ he said in 2002.

The RBA was so forceful in talking down the housing market many suspected property prices dictated its monetary policy, which the RBA denied. The RBA’s efforts worked, with annual growth in house prices halving to about 9 per cent in June 2004, from over 19 per cent six months earlier. By March 2005, they were up just 0.1 per cent. — Reuters

Source: Business Times, 13 Aug 2009

Aussie home loan demand rises

(SYDNEY) Demand for Australian home loans climbed for the ninth straight month in June, adding to evidence that a strengthening housing market is driving a recovery and backing views that the central bank will start raising rates in coming months.

Government data yesterday showed that demand for home loans rose 1.1 per cent in June, slightly lower than market forecasts of a 1.8 per cent rise, but up over 25 per cent from a year earlier.

First-time home buyers continued to support the housing market, helped by 50-year-low mortgage rates and generous government handouts, although demand from them showed signs of waning.

‘This is a pretty good set of numbers and shows that the demand side of the housing market is pretty strong,’ said Adam Carr, senior economist at ICAP. ‘The data keeps expectations of a rate hike before the year end very much alive.’

Financial markets last week swung to price in a rate hike as soon as November after a surprisingly strong jobs report for July, which continued a run of robust data as large doses of monetary and fiscal stimulus kicked in.

Last week, the Reserve Bank of Australia (RBA) shifted away from its easing bias and raised its growth forecasts, making clear that rates could be expected to rise to normal levels over time.

The RBA’s cash rate is at a record low of 3 per cent, having been lowered by 425 basis points between September and April.

The bulk of those aggressive rate cuts have been passed on to borrowers and, along with generous handouts to first home buyers, the housing sector has supported activity in the Australian economy.

House prices jumped 4.2 per cent in the second quarter, a fact that has been highlighted by RBA governor Glenn Stevens.

Last month, Mr Stevens said that there was a danger of an asset price bubble developing if low mortgage rates led only to higher property prices and not to increased home building.

Yet the latest data gave an early sign of some cooling in demand.

The proportion of first-home buyers as a percentage of all dwellings finance slipped to 27 per cent in June from 28.5 per cent a month earlier.

‘This may suggest that the first-home buyer boom may have peaked,’ said Josh Williamson, analyst at Citi. ‘Some moderation in the growth of first-home owner demand would be welcomed by the RBA as pre-bubble like conditions were starting to develop.’

Also, there was a rise in demand for fixed rate loans.

They accounted for 8 per cent of the total in June, up from 6.2 per cent in May, as more borrowers locked in mortgage rates on speculation that official rates have already bottomed.

‘With most market economists, including ourselves, expecting the next move in the official cash rate to be up, more and more borrowers will be locking in home loan rates going forward,’ said Helen Kevans, economist at JP Morgan. — Reuters

Source: Business Times, 11 Aug 2009

Frasers’ Aussie home projects on show

‘The Sydney Collection’ exhibition on at St Regis Singapore this weekend

(SINGAPORE) Frasers Property Australia, an overseas arm of Frasers Centrepoint, is holding an exhibition of its Sydney residential projects here this weekend.

The Sydney Collection – comprising Lumiere Residences, Lorne Killara and Trio – is on show at the St Regis Singapore.

In addition, a panel of Australian property experts have been invited to give their views on the potential of the Australian market. The line-up includes Stanley Quek, Frasers Property Australia’s managing director, and Rory McLeod, a property analyst with Colliers International Research, Sydney. The third speaker, Carolyn Chudleigh, is a property lawyer and director of the Property Council of Australia, a body that represents developers.

Frasers Centrepoint chief executive Lim Ee Seng said the group hopes the positive buying sentiment in Singapore will spill over to its overseas projects.

‘Sydney, in particular, is currently enjoying a strong pick-up in its sales,’ he said. ‘Australia has long been a popular market for Singapore buyers, and this is a good opportunity to view some of Sydney’s best properties under the Frasers brand.’

Lumiere Residences is situated in Sydney’s historic mid-town. The project is 56 storeys high and comprises 456 apartments. Prices start at A$1.16 million (S$1.35 million).

Lorne Killara is in the heart of Sydney’s prestigious North Shore. The project is a boutique development of 36 apartments and four pavilion-style penthouses. Prices start at A$795,000.

Trio is in an established residential community in Sydney’s Inner West, near major universities and teaching hospitals. Prices at this project, which is yet to be completed, start at A$435,000.

Source: Business Times, 23 July 2009

The allure of Sydney and Melbourne

However current asking prices are still above palatable levels; market expected to bottom out in about a year at best

AUSTRALIA’S currently under-supplied housing market will see increasing demand in the coming 12 to 24 months, which is likely to result in residential price increases as owner occupiers enter the market, and investors attempt to realise asset growth and secure strong yields.

Residential price growth in most Australian capital cities has been strong for the best part of six years, with house and apartment prices holding up relatively well, albeit at a slower pace over the past 12 to 18 months. House and land ‘packages’ continue to dominate as the preferred housing type as has been the tradition in Australia, with large swathes of undeveloped land remaining around the main metropolitan regions set aside for development for future generations.

Higher density living, typically in CBD and inner suburban locations, has gained acceptance over the past 10 years in Australia. However, its uptake has fluctuated considerably as a result of market over-supply and price issues.

The provision of high-density projects in CBD locations has seen CBD populations grow from a virtually non-existent base to several thousand persons in a relatively short time.

House and land packages as investments are more likely to be attractive to those investors who want to hold assets for long periods, achieve consistent returns and potentially occupy the asset in the long term.

By buying ‘off the plan’ homes, investors can benefit from significant tax deductions and may lead to cash flow positive returns for those wanting to contribute minimally to holding a residential asset.
For example, display homes are often leased back by builders for several years at a fixed rate of return, often up to 2 per cent above lending rates. The combination of the current low cost of

borrowing (around 5.5 per cent in Australia), tax depreciation benefits and a high guaranteed return (for residential), makes this an attractive investment for many Australians and foreigners alike. For many foreigners, Singaporeans included, high-density apartments in inner city or CBD locations are the preferred investment type due to the familiarity of their built form.

High-density apartments developed in the CBDs of Melbourne and Sydney have historically had around 70 per cent of their sales to investors. In Perth and Brisbane, large-scale high-density residential apartments have predominately been developed in the past five years.

Irrespective of location, the early stages of this market activity has been dominated by off the plan sales. Relatively low initial prices and tax depreciation incentives make the relative scarcity and above average quality of new apartments appealing to investors. In many cases, early investors attempt to sell properties prior to settlement.

This potentially enables them to benefit from the price growth resulting from increased demand during the 18-month or so development timeframe, while only having to fund the initial deposit.
There are hundreds of completed apartments across Australia’s capital cities currently competing with new stock and projects being marketed for sale.

Purchaser demand is stalling. However, in light of continuing strong population growth and historically low interest rates, investors are beginning to find value in this type of property asset again.

Gross yields for CBD apartments are around 3 per cent to 4.5 per cent. However, the yields vary considerably with building age, location and cachet.

A significant additional cost for these types of premises are body corporate fees (building maintenance, security, facilities, insurance) which are typically around 1.5 per cent of the purchase price per annum. These fees are tax deductible. However, they can significantly limit the attractiveness of potential long-term capital growth due to the relatively high holding costs.

The truism that increased risk equates with increased return holds true for CBD apartments. Purchasing at a time of oversupply in the market may limit short-term price growth, whereas investing when prices have bottomed will provide an increased chance of capital growth in the longer term.

The geographic separation of the Australian capital cities is likely to result in demand improving at different times across the country.

For example, Sydney and Melbourne are expected to see demand improve in the coming 12 months as the lack of stock and government grants drives up house values in the middle and outer suburbs.

Demand for CBD properties is also expected to improve with the investment fundamentals proving attractive for many.

In both cities, vacancy rates are at historic lows with few new large- scale apartment projects expected to commence marketing or construction in the coming year. While globally the economic climate is uncertain, there are many investors who are satisfied that both locations are likely to experience improving demand in the medium term.

Pent-up demand is significant for CBD apartments in Melbourne and Sydney. However, the palatable price for the majority of apartments is below current asking prices.

It is expected that demand will rapidly return once sentiment and market evidence suggest that prices have bottomed, which in the current climate will be around 12 months at best.

Brisbane and Perth are historically a year or two behind the larger cities at different points in the property cycle.

The recent resources boom in each state has generated high demand for housing. The improvement in demand in each of these capitals has been considerable from very low bases.
Overzealous developers seeking to make the most of strong conditions has resulted in an oversupply of CBD apartments. Accordingly each market is still absorbing the significant apartment supply marketed and developed in the past two to three years.

This is resulting in current asking prices falling as investors attempt to sell assets in the weaker economic climate, often at below purchase price. Both markets are likely to observe falling asset values in CBD locations for several years, as prices are driven down by the over-construction and falling demand.

To conclude, the long-term investment fundamentals are quite solid for high density projects in Australia’s capital cities.

Past the current economic hurdles, pent-up demand is likely to see appropriately priced apartments sold quickly, and high construction costs are likely to limit the number of new projects commenced.

Short-term investment horizons of typically less than five years have the potential to realise limited asset growth.

However, with careful research and an understanding of the risk involved, this can be minimised.
Long-term investors are likely to see strong capital growth in their assets over a 10-year period. The long- term stability of Australia, along with its favourable lifestyle, is likely to see it continue to be on the radar of local and overseas investors for many years to come.

The writer is associate director, research, DTZ Australia

Source: Business Times, Property Supplement, 9 July 2009

The allure of Sydney and Melbourne

However current asking prices are still above palatable levels; market expected to bottom out in about a year at best

AUSTRALIA’S currently under-supplied housing market will see increasing demand in the coming 12 to 24 months, which is likely to result in residential price increases as owner occupiers enter the market, and investors attempt to realise asset growth and secure strong yields.

Residential price growth in most Australian capital cities has been strong for the best part of six years, with house and apartment prices holding up relatively well, albeit at a slower pace over the past 12 to 18 months. House and land ‘packages’ continue to dominate as the preferred housing type as has been the tradition in Australia, with large swathes of undeveloped land remaining around the main metropolitan regions set aside for development for future generations.

Higher density living, typically in CBD and inner suburban locations, has gained acceptance over the past 10 years in Australia. However, its uptake has fluctuated considerably as a result of market over-supply and price issues.

The provision of high-density projects in CBD locations has seen CBD populations grow from a virtually non-existent base to several thousand persons in a relatively short time.

House and land packages as investments are more likely to be attractive to those investors who want to hold assets for long periods, achieve consistent returns and potentially occupy the asset in the long term.

By buying ‘off the plan’ homes, investors can benefit from significant tax deductions and may lead to cash flow positive returns for those wanting to contribute minimally to holding a residential asset.
For example, display homes are often leased back by builders for several years at a fixed rate of return, often up to 2 per cent above lending rates. The combination of the current low cost of

borrowing (around 5.5 per cent in Australia), tax depreciation benefits and a high guaranteed return (for residential), makes this an attractive investment for many Australians and foreigners alike. For many foreigners, Singaporeans included, high-density apartments in inner city or CBD locations are the preferred investment type due to the familiarity of their built form.

High-density apartments developed in the CBDs of Melbourne and Sydney have historically had around 70 per cent of their sales to investors. In Perth and Brisbane, large-scale high-density residential apartments have predominately been developed in the past five years.

Irrespective of location, the early stages of this market activity has been dominated by off the plan sales. Relatively low initial prices and tax depreciation incentives make the relative scarcity and above average quality of new apartments appealing to investors. In many cases, early investors attempt to sell properties prior to settlement.

This potentially enables them to benefit from the price growth resulting from increased demand during the 18-month or so development timeframe, while only having to fund the initial deposit.
There are hundreds of completed apartments across Australia’s capital cities currently competing with new stock and projects being marketed for sale.

Purchaser demand is stalling. However, in light of continuing strong population growth and historically low interest rates, investors are beginning to find value in this type of property asset again.

Gross yields for CBD apartments are around 3 per cent to 4.5 per cent. However, the yields vary considerably with building age, location and cachet.

A significant additional cost for these types of premises are body corporate fees (building maintenance, security, facilities, insurance) which are typically around 1.5 per cent of the purchase price per annum. These fees are tax deductible. However, they can significantly limit the attractiveness of potential long-term capital growth due to the relatively high holding costs.

The truism that increased risk equates with increased return holds true for CBD apartments. Purchasing at a time of oversupply in the market may limit short-term price growth, whereas investing when prices have bottomed will provide an increased chance of capital growth in the longer term.

The geographic separation of the Australian capital cities is likely to result in demand improving at different times across the country.

For example, Sydney and Melbourne are expected to see demand improve in the coming 12 months as the lack of stock and government grants drives up house values in the middle and outer suburbs.

Demand for CBD properties is also expected to improve with the investment fundamentals proving attractive for many.

In both cities, vacancy rates are at historic lows with few new large- scale apartment projects expected to commence marketing or construction in the coming year. While globally the economic climate is uncertain, there are many investors who are satisfied that both locations are likely to experience improving demand in the medium term.

Pent-up demand is significant for CBD apartments in Melbourne and Sydney. However, the palatable price for the majority of apartments is below current asking prices.

It is expected that demand will rapidly return once sentiment and market evidence suggest that prices have bottomed, which in the current climate will be around 12 months at best.

Brisbane and Perth are historically a year or two behind the larger cities at different points in the property cycle.

The recent resources boom in each state has generated high demand for housing. The improvement in demand in each of these capitals has been considerable from very low bases.
Overzealous developers seeking to make the most of strong conditions has resulted in an oversupply of CBD apartments. Accordingly each market is still absorbing the significant apartment supply marketed and developed in the past two to three years.

This is resulting in current asking prices falling as investors attempt to sell assets in the weaker economic climate, often at below purchase price. Both markets are likely to observe falling asset values in CBD locations for several years, as prices are driven down by the over-construction and falling demand.

To conclude, the long-term investment fundamentals are quite solid for high density projects in Australia’s capital cities.

Past the current economic hurdles, pent-up demand is likely to see appropriately priced apartments sold quickly, and high construction costs are likely to limit the number of new projects commenced.

Short-term investment horizons of typically less than five years have the potential to realise limited asset growth.

However, with careful research and an understanding of the risk involved, this can be minimised.
Long-term investors are likely to see strong capital growth in their assets over a 10-year period. The long- term stability of Australia, along with its favourable lifestyle, is likely to see it continue to be on the radar of local and overseas investors for many years to come.

The writer is associate director, research, DTZ Australia

Source: Business Times, Property Supplement, 9 July 2009

NSW home sales soar

(SYDNEY) New South Wales Premier Nathan Rees revealed yesterday a record number of first home buyers in May showed there had never been a better time to enter the Australian property market.

About 7,300 first home buyers took advantage of government grants and stamp duty cuts, worth around A$178 million (S$207.9 million). It was the third record month in succession, with more than 21,000 first home buyers taking up the offers in that time, Mr Rees said.

‘We’re getting more young families into their first homes than ever before and helping them get on with establishing their lives,’ he said.

The biggest amount of grants, which are worth up to A$24,000 for those buying new homes, were handed out for properties bought in Sydney’s western suburbs.

Mr Rees noted the first home owner grants paid out in May were almost double those paid out in the same month last year. — Xinhua

Source: Business Times, 25 June 2009

Australian property returns sink to16-year low

(SYDNEY) Total returns for Australian property hit a 16-year low in the latest quarter as capital values continued to drop, property research firm IPD said yesterday.

Total returns, which include income and capital growth, for all property types tumbled to a negative 1.5 per cent for the 12 months to March, the worst performance since December 1993.

Annualised capital growth dropped to a minus 7.6 per cent, the fifth consecutive quarterly fall, compared with a positive 11.6 per cent return a year ago.

‘When comparing Australia with other countries, we certainly entered the downturn later but we are catching up faster,’ said Goran Ujdur, director of IPD Australia.

‘There is a sense that there are further value declines ahead, especially in the next major evaluation round, which is obviously at the end of financial year.’

Capital growth for Australian office buildings also shrank, posting a negative 8.1 per cent in the March quarter, compared with a positive 16.3 per cent a year ago.

Retail assets saw a smaller drop in total returns with a negative 0.8 per cent, but their capital growth logged a negative 6.9 per cent.

Mr Ujdur said that values of smaller neighbourhood shopping centres had overstretched and came down at a faster pace compared with major regional retail assets. — Reuters

Source: Business Times, 21 May 2009

Australian housing most affordable in seven years

(MELBOURNE) Static house prices and low interest rates have improved housing affordability for first- time buyers, to the best levels in seven years, a survey says.

The Housing Industry Association (HIA)-Commonwealth Bank of Australia housing affordability index for first home buyers rose 22.3 index points in the March quarter to 175.8 points.

‘This took housing affordability to levels not seen since 2002,’ the report said. ‘Further drops in interest rates and moderation in house prices in some regions drove continued improvement in housing affordability,’ it added.

Moreover, the index was 69.9 points higher than in Q1 2008 – an improvement of 66 per cent.
HIA CEO Chris Lamont told the Australian Associated Press that despite the current economic conditions, ‘there has never been a better time to enter home ownership’.

Mr Lamont said the boost to the first homeowner grant, when combined with significant builder discounts on housing and land packages, had increased the number of people entering the new home market.

‘The grant has been highly successful in creating and securing jobs in the residential construction sector,’ Mr Lamont said.

‘It is also assisting in boosting the supply of housing, which we know to be grossly short of the nation’s requirements,’ he added.
Among the state capital cities, housing affordability improved most in Sydney, Adelaide and Hobart. — Bernama

Source: Business Times, 19 May 2009

Lend Lease of Australia cuts profit forecast

(SYDNEY) Lend Lease Corp, Australia’s largest property developer, yesterday slashed its profit forecast, saying the global real estate slump has forced it to delay the sale of assets.

The company now expects A$300 million (S$334 million) in net operating profit for the fiscal year ending June 30, down 25 per cent from the top of its previous forecast of A$380 million to A$400 million.

‘Given current market conditions Lend Lease does not believe it is appropriate to sell certain assets’ including stakes in some projects in Britain, the company said in a statement.

Chief executive officer Steve McCann said there are signs the global property market is beginning to bottom.

‘Australia is in a better position than the UK and the US and is unlikely to get much worse,’ he said. — AP

Source: Business Times, 12 May 2009