Australia’s home loan approvals rise in December

Increased lending shows economy is weathering higher interest rates

(SYDNEY) Australia’s home loan approvals unexpectedly rose in December to a six-month high as jobs growth and wage gains underpinned demand for property.

The number of loans granted to people to build or buy houses or apartments climbed 0.1 per cent to 65,645 from November, the Bureau of Statistics said here yesterday. The median forecast of 21 economists surveyed by Bloomberg News was for a one per cent decline.

Increased lending adds to evidence that the A$1 trillion (S$1.3 trillion) economy is weathering higher interest rates and slowing economic growth in the US, Europe and Japan. The central bank said yesterday that it may need to increase borrowing costs further to curb the nation’s fastest inflation in 16 years.

‘The housing market will remain tight, putting upward pressure on prices and rents,’ said Craig James, Sydney-based chief equities economist at Commonwealth Bank of Australia, the nation’s largest mortgage lender. ‘The central bank is talking tough on the economy about inflation and the need to lift interest rates.’

The Australian dollar traded at 90.18 US cents at 4.38 pm here from 89.75 US cents before the lending report and central bank comments were released. The yield on the five-year government bond rose 10 basis points, or 0.10 percentage point, to 6.6 per cent.

Australia’s economy is in its 17th year of expansion, which is underpinning growth in employment and stoking borrowing demand. The jobless rate is at the lowest in more than three decades as retailers including Harvey Norman Holding Ltd and miners such as Rio Tinto Group hire more workers to expand.

‘Demand for finance has so far proved resilient to the Reserve Bank’s interest rate rises,’ said Bill Evans, chief economist at Westpac Banking Corp here. ‘We still expect rate increases to have some damping impact, particularly with the additional hike in February.’

Reserve Bank of Australia governor Glenn Stevens raised the benchmark interest rate by a quarter point to an 11- year high of 7 per cent last week, adding to increases in August and November.

The bank will raise the rate to 7.25 per cent by June, according to 13 of 24 economists surveyed by Bloomberg last week.

About 90 per cent of mortgages are taken out on a so-called floating rate, which is tied to the central bank’s rate.

A 25-basis-point rate increase adds about A$42 a month to the average A$250,000 home loan, according to the Housing Industry Association.

Westpac boosted its interest rate on home loans by 25 basis points following the central bank’s latest adjustment and Commonwealth Bank of Australia raised its main rate by 30 basis points. National Australia Bank Ltd added 29 basis points.

Australia’s five largest lenders also raised rates by between 10 and 20 basis points in January to recoup funding costs that have been driven up by the global credit squeeze.

Housing affordability in Australia dropped to the lowest level on record in the third quarter, according to an index compiled by Commonwealth Bank and the Housing Industry Association. Mortgage repayments accounted for almost 32 per cent of the average first-home buyer’s income.

There are signs that builders are scaling back projects, with a report last week showing that growth in the construction industry slowed in January.

The total value of lending fell 0.6 per cent to A$22.1 billion in December.

Lending to owner- occupiers rose 0.5 per cent to A$15.6 billion in December, yesterday’s report showed. The value of lending to investors who plan to rent or resell homes declined 3 per cent to A$6.58 billion.

Loans to build new houses slipped 2.1 per cent to A$4.68 billion from November, yesterday’s report showed. The number of loans to buy newly built dwellings declined 3.8 per cent.

 

Source: Bloomberg (Business Times 12 Feb 08)

Aussie property still looking up?

THE US sub-prime mortgage problem may have put a dampener on property stocks worldwide, including Singapore. But there appears to be at least one bright spot on the planet, if ANZ Bank is to be believed.

Said the bank in a recent report on its outlook for the Australian property market: ‘Property returns have accelerated, underpinned by buoyant economic growth and tightening market fundamentals. Despite a meltdown in US sub-prime mortgages and a crisis in global credit markets, the economic outlook remains supportive.’

While it warns that rising interest rates and a ‘marked jump in risk aversion’ have raised the risks facing the property sector, it still thinks that by 2010 there will be a serious housing shortage.

‘A dramatic tightening of the housing market will force already soaring house prices and rents sharply higher. By 2010, we project a record housing shortage of nearly 200,000 homes which risks becoming an intractable imbalance as renters and first-home buyers become collateral damage in the Reserve Bank’s ongoing war on inflation,’ it said.

It also noted that in risk-adjusted terms, residential property has delivered ‘vastly superior’ returns in comparison to all other broad asset classes.

These will be sweet words to Singapore-linked Australian developers like AV Jennings, which is 42 per cent owned by SC Global, and Australand Property Group, the Australian property arm of local property giant CapitaLand. Others who will be heartened by such talk include smaller players like shipping tycoon CK Ow’s Stamford Land and Chua Thian Poh’s Ho Bee Investments, which is now trying to make inroads Down Under.

The ANZ report also pointed out that total returns over the year to last September were 20 per cent in offices, 15.5 per cent in retail, 13 per cent in industrial and 14.3 per cent in residential property.

‘Yields have continued to firm and tightening availability is forcing both rents and capital values higher.

Solid investment returns have underpinned a rebound in construction activity which has jumped to record levels, bolstered by a remarkable 24 per cent increase in engineering construction, a 7.8 per cent lift in non-residential building and a surprise 4.8 per cent rise in residential activity,’ said its analyst Paul Braddick.

He thinks that the property sector will be underpinned by Australia’s buoyant economy, which in turn now depends more on Asia’s growth than America’s. ‘Asian growth has effectively decoupled from the US and the outlook for China in particular remains very strong,’ Mr Braddick says.

While some households are being adversely impacted by rising interest rates, Mr Braddick claims that rising debt servicing costs have been more than offset by solid income gains.

He said houses were no different from bananas in that when there is a shortage, prices are likely to rise.

‘However, unlike bananas, the necessary rebound in housing supply will be far more difficult to achieve and house prices are therefore unlikely to fall.’

According to ANZ, the tightness is being felt in all sectors of the property market and across the country.

Despite some recent developments, including a contract to build 600 homes in Auckland worth some NZ $300 million (S$337 million), AV Jennings shares have been near a 52-week low at around A$0.90 apiece. Australand’s shares have been thinly traded and languish at around A$2.30. Perhaps the ANZ report should bring some cheer to their shareholders.

 

Source: Business Times 5 Feb 08

ART buying another property in Australia

ASCOTT Residence Trust (ART) is acquiring an 84-unit serviced residence in Australia for a total purchase price of A$28.5 million (S$35.6 million).

In a statement released yesterday, ART said the acquisition is yield-accretive at an estimated annualised property yield of 6.1 per cent in the forecast year 2008.

The freehold property, currently known as Chifley On The Terrace, is located along the prime St Georges Terrace in Perth’s central business district. ART said the acquisition will be funded by borrowings, which will bring its gearing to 34.5 per cent. Upon completion of the acquisition, the property will be rebranded Somerset St Georges Terrace, Perth and will be managed by Ascott International Management (Australia).

Chong Kee Hiong, CEO of ART manager Ascott Residence Trust Management Ltd, said: ‘Perth is an attractive market as there is high potential for organic growth.’ St Georges Terrace’s location makes it attractive to corporate travellers visiting the city, he added.

Citing Deloitte’s HotelBenchmark Survey, ART said Perth was the best-performing Australian city in 2007, with average room rates growing at 15 per cent in the first nine months of that year to reach A$159 and occupancy averaging 84 per cent.

Mr Chong added: ‘In view of the limited supply of good-quality accommodation in Perth currently and in the next few years, we anticipate that room rates in the city will continue to grow.’

Comprising 84 studios and one-bedroom apartments, the Perth property enjoys an average occupancy level of about 90 per cent and provides facilities such as daily housekeeping services, a bar and restaurant, function rooms and car parking.

Upon completion of its latest acquisition, ART’s total portfolio value will stand at $1.37 billion, comprising 3,550 units in 37 properties in 11 cities across seven countries.

Its assets in Australia will make up 4 per cent of the total portfolio value, an increase from one per cent before the acquisition. ART’s other property in Australia is Somerset Gordon Heights in Melbourne’s central business district.

 

Source: Business Times 22 Jan 08

Surprise 0.7% fall in Aussie home loans

11-year-high interest rates hit borrowing for second straight month in Oct

(SYDNEY) Australia’s home loan approvals unexpectedly fell for a second month in October as interest rates at an 11-year high discouraged borrowing.

The number of loans granted to build or buy houses and apartments fell 0.7 per cent to 62,509 from September, when they slipped a revised 2 per cent, the Bureau of Statistics said yesterday. The median estimate of 21 economists surveyed by Bloomberg News was for a one per cent increase.

Australia’s central bank raised the benchmark interest rate by a quarter point last month, following a similar increase in August, to contain inflation. Higher lending rates, coupled with rising property prices, have pushed housing affordability to a record low, curbing demand for real estate.

‘The housing market appears to be feeling the pinch from higher rates,’ said Matthew Johnson, senior economist at ICAP Australia in Sydney. ‘Given that the November increase has not yet been covered by the survey, I expect to see further weakness, possibly extending into 2008.’

The Australian dollar rose to 87.77 US cents yesterday in Sydney from 87.57 cents immediately before the report.

The yield on the benchmark 10-year government bond rose four basis points to 6.16 per cent.

The total value of lending rose 1.7 per cent to A$22.1 billion (S$28 billion) in October.

The Reserve Bank of Australia increased the overnight cash rate target to 6.75 per cent, the highest since 1996, in November. Fourteen of 25 economists surveyed by Bloomberg News last week say the bank will raise the rate again by March 2008.

Yesterday’s report ‘adds to the uncertainty over a further hike’ early next year, said Su-Lin Ong, fixed-income strategist at RBC Capital Markets in Sydney. ‘This is the first back-to-back monthly decline in 12 months,’ and echoes declines that followed three rate increases last year.

About 90 per cent of mortgages are taken out on a so-called floating rate, which is tied to the central bank’s benchmark.

November’s rate increase added about A$42 a month to the average A$250,000 home loan, according to the Housing Industry Association.

An expansion in Australia’s construction industry slowed in November, according to a report published last week by the Australian Industry Group and Housing Industry Association.

‘There are definite signs that continued upward pressure on interest rates, higher construction costs and capacity constraints are weighing on growth,’ said Tony Pensabene, associate director of economics and research at the Australian Industry Group.

Housing affordability dropped to the lowest level on record in the third quarter, according to an index compiled last month by Commonwealth Bank and the Housing Industry Association. Almost one-third of the average first-home buyer’s income is spent on mortgage repayments.

Lending to owner-occupiers rose 1.1 per cent to A$15.2 billion. The value of lending to investors who plan to rent or resell homes gained 2.9 per cent to A$6.94 billion.

Still, there are signs an increase in building work has spurred Australia’s economy in recent months. Housing construction rose 1.4 per cent in the third quarter from the previous three months, when it declined 1.5 per cent, a report published by the government on Dec 5 showed. The increase contributed 0.1 percentage point in the quarter to gross domestic product, which rose one per cent.

The nation’s economy, now in its 16th straight year of expansion, is benefiting from rising Chinese demand for commodities that is prompting companies such as Rio Tinto Group to boost hiring.

Australia’s job-vacancy advertisements rose 0.7 per cent in November, according to an Australia & New Zealand Banking Group report released in Melbourne yesterday.

Yesterday’s home lending report ‘wasn’t as strong as banking industry figures had suggested, but was still resilient in the current circumstances given high interest rates and credit-market difficulties’, said Andrew Hanlan, senior economist at Westpac Banking Corp in Sydney.

Loans to build new houses rose 2.6 per cent in October from September, the report showed. The number of loans to buy newly built dwellings fell 9.4 per cent.

 

Source: Bloomberg (Business Times 11 Dec 07)

Stamford Land in A$220m Sydney project

Site in The Rocks will have apartment tower, terrace homes, retail units

SINGAPORE-LISTED Stamford Land, the hotel and property arm of shipping tycoon Ow Chio Kiat, is planning to build some of Australia’s most expensive homes on the site of two old demolished warehouses and a heritage building.

Mr Ow bought the 99-year leasehold site on Sydney’s The Rocks area fronting Gloucester Street and Cumberland Street for A$22 million in June 2004 and is developing a 30-storey building with 122 apartments, five luxury terraces and commercial and retail space, at a total cost of some A$220 million (S$279 million).

Even before the official launch, 55 per cent of the project is said to have been sold, at an average price of just over A$1,000 per square foot (psf).

The 427 square metre penthouse at The Stamford Residences and The Reynell Terraces is expected to fetch A$14 million, which, according to The Daily Telegraph, will beat the A$12 million paid for another apartment at The Bennelong. This would be just short of the record A$16.5 million paid for three adjoining apartments formerly owned by one of Australia’s richest men, John Symond, who founded lending giant Aussie Home Loans and who in 2004 had a fortune estimated at A$365 million.

The cheapest apartment, a 62 sq m one-bedroom unit, is expected to go for A$645,000, or about S$1,200 psf – high, but way below the $4,000 psf apartments at Singapore’s Orchard Turn are fetching.

A brochure for the project says: ‘This unique development will create history as the last grand residential tower permitted in The Rocks – Sydney’s first neighbourhood.’

According to The Daily Telegraph, The Stamford Residences is the final tower to be approved under the Sydney Cove Redevelopment Authority Planning Scheme. The scheme allowed for a single tower to be built in each of the six blocks south of the Cahill Expressway as a way to provide funding to upgrade other heritage buildings in The Rocks area.

In the past 25 years, the scheme has resulted in the Four Seasons Hotel, Grosvenor Tower, Quay West Apartments, the Shangri-la Hotel and the Cove Apartments.

The Telegraph quoted National Trust of Australia conservation director Graham Quint as saying: ‘We warm to the idea that this is the last large development of this scale and size. You wouldn’t want this encroaching further into the heart of The Rocks . . . This sort of thing is the trade-off to protect the rest of The Rocks . . . The area is becoming glitzier and glitzier but people and tourists don’t want to see something they can in their own country. You don’t want to lose all that character.’

Stamford Land, with a market capitalisation of about $500 million, owns seven of Australia’s best hotels and one in New Zealand. It has also gone into the development of high-end property in the two territories, having developed three luxury residential projects in Sydney – Stamford on Kent, 187 Kent, and Stamford Marque.

Besides The Rocks, it has two other residential projects – The Stamford Residences in Auckland and The Stamford Cosmopolitan in Double Bay – and an office tower in Perth under development.

Mr Ow, Stamford Land’s executive chairman, told BT: ‘Stamford will continue to make its residential developments synonymous with its five-star luxury hotel brand. We are committed to focus on the upmarket end of the housing market throughout the region.’

 

Source: Business Times 29 Nov 07

Australian building approvals rise in Sept

The number of approvals gained 6.8% to 13,710 from August

(SINGAPORE) Australia’s home-building approvals rose almost seven times as much as forecast in September as a housing shortage and rising rents encouraged investors to buy property.

The number of approvals to build or renovate houses and apartments gained 6.8 per cent from August to 13,710, the Bureau of Statistics said yesterday in Sydney. The median estimate of 23 economists surveyed by Bloomberg News was for a one per cent increase.

Australia’s lowest jobless rate in 33 years and rising wages are driving an economy that is expanding at the fastest annual pace in three years. Rents in Australia’s largest cities have climbed after a construction slowdown last year cut the supply of housing just as rising immigration spurred demand.

‘We still have quite a lot of investors going into the property market, as opposed to first-time buyers,’ Helen Kevans, an economist at JPMorgan Chase & Co, said in Sydney before the report was released. ‘They are less affected by the affordability crisis.’ The Australian dollar rose to 92.30 US cents at 11.35 am in Sydney from 92.08 US cents immediately before the report. The yield on the benchmark 10-year government bond was unchanged at 6.13 per cent.

Building approvals fell a revised 1.8 per cent in August. Approvals were 4.2 per cent higher in September than a year earlier, yesterday’s report showed.

Rental yields are rising amid ‘historically tight vacancy rates’, according to the Real Estate Institute. The cost of renting a two-bedroom apartment in Darwin rose as much as 36 per cent in the 12 months ended June, while vacancy rates have fallen below 1.5 per cent in Sydney, Melbourne and Adelaide, the institute said.

‘Rent increases offer the prospect of improved yields for investors, thus attracting more investors back into the housing market,’ Graham Joyce, president of the Real Estate Institute, said last month. Still, ‘first- home buyers will face even greater difficulty accumulating a deposit for a home purchase, with rents increasing’. Higher mortgage repayments, coupled with rising labour and material costs, pushed housing affordability to a record low in the third quarter.

The Reserve Bank of Australia raised its benchmark overnight cash rate target a quarter point to 6.5 per cent in August. That increased the average monthly payment on a mortgage to A$2,606 (S$3,480) last quarter, from A $2,506 in previous three months, according to the Commonwealth Bank of Australia and the Housing Industry Association.

The central bank will raise its key rate again on Nov 7 by another 25 basis points to 6.75 per cent, according to all 24 economists surveyed by Bloomberg News this week.

Approvals to build private houses rose 2.5 per cent to 9,041 in September, the biggest increase in a year,yesterday’s report showed. Approvals for apartments or renovations jumped 13.8 per cent to 4,091.

Boral Ltd, Australia’s biggest seller of building materials, this week forecast profit will decline for a fourth consecutive year because of the housing slowdown. Its building products unit derives about 80 per cent of sales from Australian home building.

‘Activity levels in New South Wales housing construction are the lowest they have been over the past 35 years and they are approximately 40 per cent below the levels of longer- term underlying demand,’ the company said in a statement. ‘The first quarter of this new financial year has seen some softening in Western Australia.’

 

Source: Bloomberg (Business Times 1 Nov 07)

Global property investment expected to fall

Mortgage defaults in US may prompt lenders to tighten credit, says JLL

(TOKYO) Global direct real estate investment may fall this year as concerns about defaults on US mortgages prompted lenders to tighten credit, said Jones Lang LaSalle Inc, the world’s second-largest commercial real estate broker.

Asia may be the only market to experience an increase in investment in the second half of this year, Jane Murray, Asia-Pacific head of research at Jones Lang LaSalle, said in Tokyo yesterday. Global direct property investment rose 41 per cent in 2006 to US$699 billion, advancing for a third-straight year.

‘The highly leveraged players who were very active earlier in the year are certainly sitting on the sidelines at the moment,’ Ms Murray said.

The four-year boom in real estate is threatened after the US housing slump raised concerns about the value of mortgages and bonds linked to those loans. Investors are finding it harder to borrow money when they want to fund property acquisitions.

Japan, Singapore, China and India are among the markets offering the best opportunities for investors, according to Jones Lang LaSalle research.

Grade A office rents in Japan have gained 80 per cent in the past three years and have more than doubled in Singapore, Ms Murray said. Grade A buildings are no more than 25 years old, with total leasable floor area of more than 10,000 square metres and more than 800 square metres a floor, according to Jones Lang LaSalle.

Japan features strong economic growth in a large market and is the only country where returns on office buildings exceed local interest rates, also known as a positive yield spread, Ms Murray said.

Morgan Stanley raised a record US$8 billion for a real estate investment fund in June. In April the firm agreed to buy 13 Japanese hotels from All Nippon Airways in the country’s biggest real estate deal.

Japan offers a positive yield spread of 1.56 per cent, compared with negative spreads in other major cities including London, Paris, Frankfurt and New York, said Takeshi Akagi, local director in Japan for Jones Lang LaSalle.

Investment in China rose 23 per cent in the first half of the year even after the government sought to curb property investment to cool gains in housing prices. India, where more than half the population is under the age of 25, doesn’t have enough offices, shops and houses to meet demand, Ms Murray said.

‘It will require major additions to the stock base across every sector over the coming years to accommodate its rapidly growing services sector and the increasing wealth of its population,’ Ms Murray said.

‘When the Indian government begins to deregulate investment for foreign players, we will see a flood of money pouring into that market.’

 

Source: Bloomberg (Business Times 25 Oct 07)

World’s wealthy still eyeing property

They are undeterred by the market turmoil triggered by the US sub-prime crisis

(GENEVA) The wealthy have lost none of their appetite for property despite the market turmoil triggered by the sale of risky sub-prime mortgages in the US, according to some of the world’s top private bankers.

Clients of wealth managers are, however, on the lookout for the next big areas of growth and want products that will enable them to reduce their exposure to any one property or market.

‘We’re seeing heavy levels of investment in property in Hong Kong (and) throughout Asia,’ said Peter Flavel, global head of private banking at Standard Chartered. ‘You can’t get office space in Singapore, you can’t get it in Dubai.’

Speaking at the Reuters Wealth Management Summit, Mr Flavel said there was a ‘group of Asians that love real estate’ and that their ardour showed no sign of fading. ‘They’d see the situation in America as specific to America and the situation in the UK as specific to the UK,’ he added.

Samir Raslan, head of Citibank’s wealth management operations in central and eastern Europe, Middle East and Africa, said his clients also remained alive to potential opportunities in world real estate markets.

‘We haven’t seen any change in our clients,’ he told the summit held at Reuters offices here.

Nicolas Cagi Nicolau, global head of structured product solutions at SG Private Banking, said demand so far in 2007 had been particularly strong.

In Ireland, where fortunes have been made on the back of the country’s decade-long property boom, a fast-cooling domestic market and recent global market turmoil may have had a short-term impact, but investors’ love of property is intact.

‘All that we may be seeing is that people are just waiting to see what may well happen either domestically or internationally, but the appetite for further investment is undoubtedly there,’ said Mark Cunningham, managing director of Bank of Ireland Private Banking.

He said his main problem was persuading Ireland’s growing ranks of self-made millionaires to diversify into assets other than real estate. ‘The first love has always been property and will continue to be property for a lot of these people.’ In Spain, which like Ireland is experiencing a rapid cooling in its property market, the wealthy remain committed to real estate, although not necessarily in their own country.

Daniel de Fernando, head of asset management and private banking at Spain’s BBVA , said a new product offering clients a chance to invest in the Mexican property market had proved particularly popular. ‘People are asking us for more ideas on that front,’ he said of a fund bought into by 60 people within two weeks of its launch at a minimum investment of 2.5 million euros (S$5.2 million) each.

In the Netherlands, property also continues to be popular, according to Bernard Coucke, deputy chief of private banking at ING Groep. ‘On the contrary, more and more programmes are being set up, not only in residential but also commercial. Why? Because, for instance in the Netherlands, demand is high . . . and I think it will continue to go up.’

For some rich investors, however, there is a growing belief that other assets can offer better returns.

‘I think that the appetite for real estate is decreasing a lot,’ Paolo Molesini, head of private banking at Italy’s Intesa Sanpaolo said of a country where up until now the wealthy have held about 70 per cent of their assets in property.

‘Property costs a lot and gives you a very, very low revenue . . . There is no equilibrium from the price of the asset and the earnings that you can get out of it.’ Mr Molesini said his clients were looking to invest in foreign property, particularly in Germany, eastern Europe and Paris.

 

Source: Reuters (Business Times 11 Oct 07)

Office sector booms Down Under

Regional centres like Canberra, Hobart, Perth and Brisbane have taken off

WHAT do the office markets of Perth, Brisbane, Canberra and Hobart have in common with Moscow, Warsaw, Barcelona, Tokyo and Singapore? They are all experiencing acute low office vacancy rates not seen since the beginning of the century and the momentum built up over the last few years does not seem to be slowing down.

While the major office markets of Sydney and Melbourne have seen a more subdued take-up of office space in their central business districts (CBDs), the real boom stories in Australia have come from the regional centres of Canberra, Hobart and especially Perth and Brisbane.

Office vacancy rates throughout Australian CBD’s now stands at 4.3 per cent according to the Property Council of Australia and 6.0 per cent in suburban office markets, but these figures mask the historic lows being experienced in the resource boom cities of Brisbane and Perth.

The rapid expansion of the Chinese and Indian economies has made Australia the place to go for natural resources and that means the states of Queensland and Western Australia are not able to get the coal, iron ore, lead and copper out of the ground fast enough or onto the ships quickly enough. This has led to a mass movement of people from around the world to work in the mines, processing plants and offices. Not withstanding the boom in the mineral sector, the wider Australian economy has had 16 years of continual growth.

With the prices of natural resources at historic highs, mining and engineering companies have been pouring investment into their facilities in order to capitalise on the boom and that has led to an increase in demand for office space in the cities closest to their assets. The vacancy rate in Perth is now below one per cent, which means that any new arrivals in the city looking for space are going to be disappointed.

Supply won’t improve soon

In Brisbane the picture is much the same with vacancies at 1.2 per cent in the CBD and space in the city fringe is going fast. The supply of office space for both cities is not going to improve any time soon as the next phase of construction will not deliver any new significant product until 2008/9. This low vacancy rate has had a subsequent effect on rents with CBD rents in Brisbane rising by about 70 per cent in 2007 alone.

While Sydney has lagged Perth and Brisbane in terms of take-up, all the major cities are on the same construction cycle. With financial services in particular driving the demand for space in Sydney, we could soon see vacancy rates down below 5 per cent within the next year, with much of the new stock coming onstream in the next year or so already precommitted. Current vacancy rates are at their lowest since July 2001. Melbourne has seen a much more modest increase in take-up figures and this is expected to plateau in the next few years as refurbished space starts to come back onto the market. As such, rental growth has been much more subdued with Perth and Brisbane both surpassing the levels seen in Melbourne and Sydney.

Canberra has seen vacancy levels drop due to the expansion in the governmental sector. Despite new buildings being added to the overall stock, the insatiable appetite has seen vacancy levels only 0.1 per cent above that of Brisbane.

Hobart has always had a small office sector and, as such, vacancy levels are traditionally lower than those in other Australian cities, and they have been below 4 per cent since January 2005.

There is no doubt that the landlords in Perth and Brisbane have waited a long time for this explosion in the office sector, and this may very well prove to be a once-in-a-lifetime opportunity. Investors are naturally very interested in these markets. However, sourcing opportunities are proving to be difficult as existing landlords cash in on the hot leasing market.

Australia has also benefited from an increase in immigration which has enabled the economy to continue on its positive upswing. Average gross domestic product (GDP) growth over the last 16 years has been approximately 3.7 per cent a year which, together with the quality of life factors, has made Queensland and Western Australia very attractive places to live and work.

 

Source: Business Times 11 Oct 07

WORLD HOUSING MARKETS – Bubble trouble

By Robert J. Shiller

THE future of the housing boom, together with the possible financial repercussions of a substantial price decline in the coming years, is a matter of mounting concern among governments around the world.

I learnt this first-hand while attending this year’s Jackson Hole Symposium in the remote wilderness of Wyoming where, ironically, there are almost no homes to buy. The howls of coyotes and bugling of elk rang out at night. But, by day, everyone was talking about real estate.

This conference has grown to be a major global event for government monetary policymakers, with governors or deputy governors of 34 central banks attending this year. Roughly two-thirds of these countries have had dramatic housing booms since 2000, most of which appear to be continuing, at least for the time being. But there was no consensus on the longer-run outlook for home prices.

Of all these countries, the United States appears to be the most likely to have reached the end of the cycle.

According to the Standard & Poor’s/Case-Shiller US National Home Price Index, US home prices rose 86 per cent in real, inflation-corrected, terms from 1996 to last year, but have since fallen 6.5 per cent – and the rate of decrease has been accelerating.

That looks like the beginning of the end of the boom, though, of course, one can never be sure. I presented a bearish long-run view, which many challenged, but no one obviously won the argument.

Nevertheless, an outside observer might have been struck by the weight given to the possibility that the decade-long boom might well suffer a real reversal, followed by serious declines.

Weaker standards

THERE seems to be a general recognition of substantial downside risk, as the current credit crisis seems to be related to the decline in US home prices that we have seen.

The boom, and the widespread conviction that home prices could only go higher, led to a weakening of lending standards. Mortgage lenders in the US seem to have believed that home buyers would not default, because rising prices would make keeping up with their payments very attractive.

Also, the boom resulted in some financial innovations, which may have been good ideas intrinsically, but which were sometimes applied too aggressively, given the risk of falling prices. Mortgage- backed securities were urged onto investors for whom they were too risky. As with homebuyers, all would be well, the reasoning went, on the premise that home prices continue to rise at a healthy pace.

At the Jackson Hole conference, Mr Paul McCulley of Pimco, the world’s largest bond fund, argued that in the past month or two we have been witnessing a run on what he calls the ’shadow banking system’, which consists of all the levered investment conduits, vehicles and structures that have sprung up along with the housing boom.

The shadow banking system, which is beyond the reach of regulators and deposit insurance, fed the boom in home prices by helping to provide more credit to buyers.

Bank runs occur when people, worried that their deposits will not be honoured, hastily withdraw their money, thereby creating the very bankruptcy that they feared. It is no coincidence that this new kind of bank run started in the US, which is the clearest example of falling home prices in the world today.

When home prices stop rising, recent homebuyers may lose the enthusiasm to continue paying their mortgages – and investors lose faith in mortgage-backed securities.

Loose policy

THE US Federal Reserve is sometimes blamed for the current mortgage crisis, because excessively loose monetary policy allegedly fuelled the price boom that preceded it. Indeed, the real (inflation-corrected) federal funds rate was negative for 31 months, from October 2002 to April 2005. The only precedent for this since 1950 was the 37-month period from September 1974 to September 1977, which launched the worst inflation the US had seen in the last century. What then helped produce a boom in consumer prices now contributed to a boom in home prices.

Loose monetary policy is not the whole story. The unusually low real funds rate came after the US housing boom was well under way. According to the Standard & Poor’s/Case-Shiller US National Home Price Index, home prices were already rising at almost 10 per cent a year in 2000 – when the Fed was raising the federal funds rate, which peaked at 6.5 per cent. The rapid rise thus appears to be mostly the result of speculative momentum before the interest-rate cuts.

Former Fed chairman Alan Greenspan recently said that he now believes speculative bubbles are important driving forces, but at the same time, the world’s monetary authorities cannot control bubbles. He is mostly right: The best thing that the monetary authorities could have done, given their other priorities and concerns, is to lean against the real estate bubble, not stop it from inflating.

Today’s fall in home prices is linked just as clearly with waning speculative enthusiasm among investors, which is likewise largely unrelated to monetary policy. The world’s monetary authorities will have trouble stopping this fall, and much of the attendant problems, just as they would have had stopping the ascent that preceded it.

The writer is professor of economics at Yale University and author of Irrational Exuberance And The New Financial Order: Risk In The 21st Century.

 

Source: The Straits Times 19 Sept 07

Aussie prime mortgage arrears decline on jobs

Higher interest rates are likely to affect arrears in third quarter, says Fitch

(HONG KONG) Delinquencies on Australian prime mortgages fell in the second quarter as unemployment declined to a 33-year low, according to Fitch Ratings.

Non-conforming home loans that were at least 30 days in arrears declined to 1.48 per cent of mortgages used to secure bonds, from 1.54 per cent in the first quarter, the credit assessor said yesterday.

‘Despite the disruption to international capital markets, increasing interest rates and contrary to press reports of local mortgage stress, Australian residential mortgage-backed securities continue to perform well,’ Sydney-based Ben McCarthy, head of Fitch’s Australian structured finance team, said in a statement.

Australian employers hired almost twice as many extra workers in August as economists had forecast after mining companies expanded to meet soaring demand for commodities for China and retailers opened new stores. The jobless rate was 4.3 per cent.

Fitch expects higher interest rates to affect arrears in the third quarter. The Reserve Bank of Australia raised the overnight cash rate target by 25 basis points on Aug 8 to an 11-year high of 6.5 per cent.

The ‘buoyant Australian property market has ensured that even those under stress have been able to avoid mortgage default through refinancing or sale’, Mr McCarthy said.

Delinquencies for so called ‘low-doc’ low-home loans which require less documents and income proof than standard mortgages increased to 4.54 per cent from 4.45 per cent. Borrowers in the loans, ‘being primarily self-employed borrowers, are more affected by shifts in the economy such as interest rate movements’, said Jason Hughes, a senior analyst at Fitch.

‘What we’ve seen is house prices go up,’ said David Verschoor, a Hong Kong-based trader of Australian credit default swaps at BNP Paribas SA. ‘When that’s the case, if someone can’t afford their house any more, they sell it.’

Moody’s Investors Service said on Aug 27 arrears on Australian home loans made to borrowers with poor credit histories rose to a record of 6.5 per cent in the second quarter.

The average household’s debt-to-income ratio has more than doubled to 158 per cent in the past decade, according to Moody’s. 

 

Source: Bloomberg (Business Times 11 Sept 07)

Aussie home-building approvals rise sharply

Unexpected increase attributed to rising employment, wages and immigration

(SYDNEY) Australia’s home-building approvals unexpectedly increased to a five-month high in July as rising employment, wages and immigration encouraged investment in property.

The number of approvals to build or renovate houses and apartments advanced 0.4 per cent from June to 12,980 the Bureau of Statistics said yesterday in Sydney.

The median estimate of 24 economists surveyed by Bloomberg News was for a 2 per cent drop.

Australia’s lowest jobless rate in 33 years and near-record consumer confidence is boosting an economy in its 16th year of expansion.

Property investors are returning to the market as rents increase after a construction slowdown last year cut the supply of housing just as rising immigration boosted demand.

‘The signs are there for a lift in construction activity in the next 12 months,’ said Michael Blythe, chief economist at Commonwealth Bank of Australia, the nation’s largest mortgage lender.

‘We will see that at some point, with vacancy rates low and rents high,’ he added.

The Australian dollar advanced to 82.26 US cents at 4.46pm in Sydney from 82.07 cents immediately before the report was released.

The yield on the benchmark 10-year government bond was unchanged at 5.94 per cent. The S&P/ASX 200 Index rose 0.3 per cent.

Building approvals surged a revised 6.9 per cent in June. Approvals were 7.5 per cent lower in July than a year earlier, yesterday’s report said.

Australia’s jobless rate has fallen to 4.3 per cent, the lowest since 1974, after employers hired 250,000 extra workers in the 12 months ended July 31.

The wage-price index gained 1.1 per cent in the second quarter, equalling the strongest increase since the series began in 1997.

‘There are several good reasons to expect residential construction will increase over the coming year,’ said John Edwards, chief economist at HSBC Bank Australia Ltd in Sydney.

‘Immigration is high; there have been substantial gains in employment and incomes,’ he added.

More than 3,450 people arrived in Australia every week in the year ended June 30, 2006, the Immigration Department reported last year.

In the subsequent six months to Dec 31, more than half the immigrants who arrived were either professionals or tradespeople, the department said in April.

Also encouraging property construction, rental vacancy rates have fallen to decade lows, and are less than 2 per cent in Australia’s six largest cities, according to the Real Estate Institute.

That has driven up rents by an average 10 per cent for a two-bedroom apartment, the institute said.

‘We’re really at the bottom of the Australian housing cycle,’ Rod Pearse, chief executive officer of Boral Ltd, said on Aug 15. ‘We’re in good position for when this market comes back.’

Boral, Australia’s biggest seller of building materials, posted a 21 per cent drop in second-half profit on waning demand for new homes and reduced sales in the United States.

Demand plunged in New South Wales, Australia’s most populous state.

‘New South Wales has been at the bottom of the league table,’ Mr Pearse said. ‘There will be a strong recovery in the next five years.’

Still, higher borrowing costs may stifle housing demand.

The Reserve Bank of Australia raised the overnight cash rate target a quarter percentage point to 6.5 per cent, the highest in almost 11 years, on Aug 8.

That followed increases in February, August and November 2006.

The four rate adjustments have added about A$160 (S$200) a month to repayments on the average home mortgage of A$250,000, according to the Housing Industry Association.

About 23 per cent of homeowners have had to cut spending to pay their mortgages, according to a survey of 2,500 consumers conducted in March by JPMorgan Chase & Co.

Home-building contributed just 0.1 percentage point to the first quarter’s economic growth rate of 1.6 per cent from the previous three months.

Australia’s economic expansion probably slowed to 0.6 per cent in the second quarter as residential construction declined and exports eased, according to a Bloomberg News survey of economists.

The growth report will be released today.

Approvals to build private houses rose 0.7 per cent to 8,646 in July. Approvals for apartments or renovations dropped 6.5 per cent to 3,726.

 

Source: Bloomberg (Business Times 4 Sept 07)

Aussie home loan group fails to refinance $8.2b debt

MELBOURNE – THE deepening crisis in credit markets threatens to ensnare more mortgage lenders.

Australian home loan group Rams said yesterday that it had failed to refinance A$6.17 billion (S$8.2 billion) in debt as fallout from a mortgage credit crunch in the United States starved the market of liquidity.

Shares of Rams, which now has 180 days to refinance the loans, tumbled 59 per cent on the Australian Stock Exchange, closing at 87 Australian cents compared with A$2.50 paid by investors at its listing just last month.

Rams has lost two-thirds of its market value this week.

Its woes helped trigger the biggest decline in Asian shares in a year as investors fled high-risk assets.

Global markets were already jittery after an analyst report overnight that the largest mortgage lender in the United States, Countrywide Financial Corp, could face bankruptcy should creditors force it to sell assets at depressed prices.

‘If enough financial pressure is placed on Countrywide or if the market loses confidence in its ability to function properly, then the model can break, leading to an effective insolvency,’ Merrill Lynch & Co analyst Kenneth Bruce wrote in a research note.

The report sent Countrywide shares sinking 13 per cent in US trading on Wednesday, their biggest one-day decline since the 1987 stock market crash. Countrywide’s shares have lost almost half their value this year.

The US stock market also buckled, with the Standard & Poor’s 500 Index falling 1.4 per cent, erasing all of this year’s gains.

In related news, an affiliate of leveraged buyout firm Kohlberg Kravis Roberts & Co said on Wednesday it will lose about US$40 million (S$60.2 million) from selling US$5.1 billion in residential mortgages and warned that an additional US$200 million hit could be coming.

Shares of KKR Financial Holdings plunged 31 per cent and one analyst said that a credit downgrade could force the company to liquidate in bankruptcy.

The problems added to the continued mortgage and credit turmoil that has cast doubt on whether Kohlberg Kravis would take part of its partnership public.

 

Source: The Straits Times 17 Aug 07

Lend Lease posts 59% gain in H2 profit

(SYDNEY) Lend Lease Corp, Australia’s biggest property developer, chalked up a 59 per cent increase in second-half profit as Asian and US building contracts bolstered revenue amid declining housing demand in the company’s home market.

Net operating income jumped to A$282.9 million (S$356.9 million) in the six months ended June 30, from A$177.6 million a year earlier. Sales rose 22 per cent to A$7.4 billion. Second-half numbers were calculated by deducting first-half earnings from full-year income the Sydney-based company reported yesterday.

Chief executive officer Greg Clarke is committed to about A$50 billion in construction projects spanning six continents, including deals with the US Air Force and the London 2012 Olympics. Lend Lease said last month it may boost borrowings to as much as 40 per cent of its assets to fund projects.

‘Net operating earnings exceeded market expectations despite the provision made in the UK construction operations during the first half and the tough residential market in Australia,’ Mr Clarke said in the statement.

Full year net operating income, which excludes property revaluations, rose 26 per cent to A$445.9 million. That beat the A$408.7 million average estimate compiled by Bloomberg from six analysts. Net income in the 12 months to June 30 increased to A$497.5 million, or A$1.243 a share, from A$415.2 million, or A$1.04, a year earlier.

Mr Clarke’s salary for the year rose 49 per cent to A$12.28 million, mostly through an increase in bonuses.

Lend Lease will pay a final dividend of 42 cents, compared with 31 cents a year earlier. It is paying out 77 cents for the year.

 

Source: Business Times 16 Aug 07

Sales of new Aussie homes up in April

Increase of 7.1% another sign of rebound in property market

(CANBERRA) Australian sales of newly built homes climbed to a one-year high in April, adding to signs of a rebound in the property market.

Sales of new homes advanced 7.1 per cent from the previous month to 8,776, the Housing Industry Association said in an e-mailed statement yesterday. Sales of detached houses climbed 7.2 per cent and apartment sales increased 6.5 per cent.

Jobs growth and rising incomes have stoked demand for housing, adding to signs of accelerating economic growth.

The economy expanded at the fastest pace in more than three years in the first quarter, the unemployment rate fell to a 33-year low in May and home-building approvals surged in April.

‘The April bounceback in sales is certainly very encouraging,’ said Harley Dale, chief economist at the association in Canberra. ‘Still, we want to see further gains in May and June before saying this is the beginning of a sustained recovery in housing.’

The Housing Industry Association represents the nation’s building companies. The series is compiled from a sample of the largest 100 residential builders in Australia and provides a leading indicator of housing. — Bloomberg

Source: Business Times 14 Jun 07