Inflation figures build case for rate pause

InflationNewly-released figures reveal that the inflation rate is within the Reserve Bank of Australia’s comfort zone, which could mean interest rates remain on hold for another month.

The September 2010 quarter Consumer Price Index for the housing group increased 2.3% compared to all other groups, which increased 0.7%. These figures increased 5.2% and 2.8% respectively over the 12-month period. The housing group is up from the 0.6% level of the previous quarter.

Substantial increases in the price of utilities contributed to the annual inflation increase in housing.

“The CPI inflation rate is well within Reserve Bank’s target zone of 2-3 per cent which should send a very clear message;  that rates need not be increased next week,” said David Airey, president of the Real Estate Institute of Australia.

Airey added that the index for house purchases increased 3.2 per cent for the year, with rents increasing 4.3 per cent for the year.

“REIA’s Deposit Power Housing Affordability Report has shown a dramatic worsening in housing affordability, with the average Australian now putting nearly 35 per cent of their income towards loan repayments,” he continued.

“Increasing rates next week will only cause greater mortgage stress for home owners and will further flatten demand in the property sector,” he said.

Source: www.yourmortgage.com.au

Tags: economy, finance, inflation, marketing, news, property, real estate, research

Centro Said to Seek Buyers for A$4 Billion of Australia Assets

CentroCentro Properties Group, the Australian shopping-mall owner that ceded control to creditors in 2008, is seeking buyers for more than A$4 billion ($3.9 billion) of assets, said a person with knowledge of the matter.

Centro has set a Dec. 25 deadline for indicative bids for more than 40 properties, including the Galleria in Perth and The Glen in Melbourne, said the person, who declined to be identified because the plans aren’t public. Prospective buyers will be given access to financial information on the assets in the next few weeks, the person said.

Centro, which manages an A$18.6 billion collection of 712 shopping centers in Australia, New Zealand and the U.S., said in July it was in talks with lenders about debt due next year. The company had A$18.4 billion of debt as of June 30, company filings show, as the value of its properties fell and debt costs soared following a A$9 billion buying spree in 2006 and 2007.

“They’re still overleveraged, and there will be a lot more transactions over time, I would suspect,” said Kui Ng, Sydney- based head of property at Access Capital Advisers, which has more than A$12 billion under management globally.

Andrew Scannell, a spokesman for Centro in Melbourne, declined to comment. The Australian Financial Review reported Centro’s plans earlier today.

Goodman Buying

Australia’s 16 listed property trusts reported combined losses of A$19.5 billion and writedowns of A$21.7 billion in the year to June 30, 2009, after their strategy of borrowing to fund overseas investments backfired when property values tumbled and borrowing costs spiked during the credit crunch. Goodman Group today said it is offering A$1.47 billion to buy ING Industrial Fund, as Netherlands-based parent ING Group NV seeks to divest its real estate unit.

Centro shares jumped 6.5 percent, the most in five weeks, to close at 16.5 Australian cents in Sydney.

Former Chief Executive Officer Andrew Scott borrowed to accumulate malls, about 600 in the U.S. alone, then spun off the centers into more than 30 syndicates, three wholesale funds, two unlisted property funds and one listed property fund, which Centro then managed for a fee.

This structure makes a potential sale difficult and “quite complicated,” Ng said.

Centro in August reported a narrower fiscal full-year loss after writedowns on its properties shrank. The shortfall was A$652.7 million in the 12 months ended June 30, compared with a loss of A$3.5 billion a year earlier. Centro wrote down A$487.9 million on its properties, down from A$2.7 billion a year earlier.

It has lost more than A$6 billion in market value in the past three years.

The company said in July it had extended and refinanced $2.7 billion U.S. loans and started discussions with creditors on potential restructuring options.

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Philip Lagerkranser at lagerkranser@bloomberg.net

Tags: investment, news, property, real estate, research, shopping centres

Australia Landlords Switch Off Lights as They Face Energy Efficiency Rules

EnergyAustralia’s biggest office landlords are switching off lights and installing more efficient air conditioners ahead of rules demanding reporting of energy use in the nation with the developed world’s second-highest greenhouse gas emissions per person.

The largest property managers are ahead of legislation which comes into effect Nov. 1 requiring owners to reveal office buildings’ energy efficiency to tenants and buyers, according to Simon Wild, Sydney-based principal at sustainable design consultants Cundall. Cundall worked with the U.K. Green Building Council on a study of the nation’s sustainability rating tool, the results of which were released in August.

“The industry, particularly the tier one landlords, have been disclosing for a long time,” Wild said. “Australian companies are very much market-driven about how they can attract the big players in town to reside within their buildings.”

GPT Group, Australia’s second-biggest diversified property trust by market value, cut its buildings’ greenhouse gas emissions by 28 percent between 2005 and 2009 by installing more efficient air conditioners and recycling more waste. Morgan Stanley-backed Investa Property Group’s 21-story Ark building in North Sydney can generate electricity, recycle rainwater and recharge electric cars.

Australia boasts some of the most environmentally friendly real-estate groups in the world, a survey of global companies by Netherlands-based Maastricht University found this year. Sydney- based GPT heads the Dow Jones Sustainability Index’s 21-company real-estate leader list, a third of whose members are Australian, more than any other country.

Energy Efficiency

Australia had the second-highest carbon dioxide emissions per capita among developed nations, according to 2008 figures from the International Energy Agency, the latest data available from the group. Only Luxembourg’s emissions were higher.

The legislation requires owners of office buildings leasing or selling more than 2,000 square meters (21,528 square feet) to reveal their day-to-day energy efficiency on the five-star National Australian Built Environment Rating System. Companies pay A$770 ($752) for a rating to New South Wales state’s Department of Environment, Climate Change and Water, which administers the program nationally, and about A$3,000 for an assessor to review documents including the previous year’s bills, said Yma ten Hoedt, the department’s principal program manager.

The rules will affect 10 percent of office buildings nationally every year, DECCW estimates. Companies must also disclose tenanted areas’ lighting systems’ performance and provide a statement on buildings’ efficiency from Nov. 1, 2011.

Smaller owners, who may not have ratings or necessary documents, will be most affected, said Rebecca Pearce, Sydney- based head of sustainability at CB Richard Ellis Group Inc., the world’s largest commercial property broker.

Tenants

Government agencies, which occupy about a third of offices nationally, will require buildings they lease or own to have a minimum 4.5 star energy rating by next year. The national average is 2.5 stars, with the biggest landlords targeting 4.5 over the next two to four years.

“To have a building vacant because it’s not efficient or rated so tenants don’t want to go into it, we don’t even want to go there,” said Rowan Griffin, head of sustainability at Colonial First State, the asset management arm of Commonwealth Bank of Australia. Colonial manages 34 office properties, valued at about A$4 billion.

Almost 300 tenants occupying about 1.5 million square meters, have committed to the CitySwitch Green Office program, including accounting firm PricewaterhouseCoopers LLP, property broker DTZ, and Commonwealth Bank of Australia, the country’s biggest bank, pledging to achieve at least a four-star tenancy rating.

Improving Performance

PricewaterhouseCoopers has spent A$800,000 replacing light switches in its Sydney office with sensors, according to the CitySwitch website. DTZ is saving A$3,500 a year on the energy bill at its Sydney headquarters by introducing steps such as installing shared printers and setting computing equipment to turn off automatically, the website said.

A one-star efficiency gain means A$2 to A$4 in annual savings per square meter, a Citi Investment Research study in January found. For a 10,000-square-meter office building, that equates to savings of as much as A$40,000 a year.

A University of California, Berkeley, study found buildings rated under a U.S. plan similar to the system used in the incoming Australian rules commanded rents of about 3.5 percent more than comparable properties, and sale prices rose as much as 16 percent. A similar Australian study is expected to be completed in the second quarter of 2011.

Building Management

Companies reach up to four stars by better timing lights and equipment use, installing more efficient systems during upgrades, and better training staff, said Craig Roussac, general manager for sustainability, safety and environment at Investa. The company improved one of its building’s performance by 1.5 stars more than expected by adjusting the way it was run by its manager, he said.

“You can have an efficient car, but you can be driving it with the handbrake on and completely stuff things up,” Roussac said. “Conversely, you can have someone who’s passionate and skilled, and see an increase in returns.”

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net.

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net.

Tags: energy, landlords, marketing, property, real estate, rentals

Gold Coast property glitter stripped

Gold CoastTHE median price of homes and units on the Gold Coast dropped more in the September quarter than those in any of the nation’s capital cities, new figures show.

On the Coast, the median house price dropped 4.8 per cent to $470,000 while the median unit price dived 9.1 per cent to $350,000.

The figures which were released as part of Australian Property Monitor’s quarterly report were ascertained using a stratified median methodology, which takes into account the composition of different areas and price bands.

The drop in unit prices on the Gold Coast dwarfs the figures in capital cities, with Darwin recording a drop of 5.6 per cent and Brisbane a drop of 2.8 per cent — its biggest since 2001.

The Coast’s 4.1 per cent drop in median house prices is also significantly bigger than the other capitals: Darwin and Brisbane were again the closest with drops of 1.9 per cent and 1.7 per cent respectively.

Despite the disappointing figures, Gold Coast property owners have been urged not to panic, with Real Estate Institute of Queensland Gold Coast zone chairman John Newlands saying several factors would conspire to help prices recover next year.

“The marketplace at the moment is at a stage where buyers are very cautious and unless they can buy right, they won’t buy at all,” he said.

“As things start to pick up in areas like tourism and the building industry, people will become more confident.

“There are other factors like population growth and a lack of available land opportunities on the Gold Coast, which should push prices back up.”

But APM head of research Yvonne Chan said while median prices would remain steady in the short term, property owners should brace for more bad news in 2011.

“The trend in the short term is it will remain unchanged but we will possibly witness further falls next year,” she said.

Ms Chan said the dramatic drop in median prices on the Coast could be attributed to several factors.

“Over the last few years, there has been continued growth in house prices on the Gold Coast, so with the change in economic conditions and with multiple rate rises, it has become more affordable,” she said.

There was some good news for local vendors.

“When we look at the sales, it shows there is a very high level of activity in certain areas,” said Ms Chan.

“Many suburbs have recorded healthy capital growth in the past 12 months.

“Places like Coomera, Hope Island and Benowa have had very strong sales and have achieved about a 10 per cent growth in median house prices in the past 12 months.

“In units, Mermaid Beach, Coolangatta and Main Beach … have also recorded a 10 per cent growth.”

Story by Henry Tuttiett www.goldcoast.com.au

Tags: economy, finance, housing, housing prices, property, real estate, research

Westpac enters simmering housing bubble debate

westpac_1Australia’s second biggest home lender has joined the biggest in arguing there is no housing bubble.

With international investors looking at Australia’s housing market as one of the few among developed economies not to experience significant price falls, Westpac has joined the Commonwealth Bank in trying to allay their concerns.

In arguing against the possibility of a house price collapse, Westpac’s report concedes that Australia’s housing market is expensive historically and relative to other nations, something the CBA presentation attempted to deny by a creative use of figures (as I explained in a previous report).

Westpac does suggest (as did CBA) that certain widely-used international figures by Demographia overstate the ratio of house prices to income (a commonly used measure of affordability), but even the more conservative RP Data figures Westpac cites would place Australia as a whole on the cusp of being what Demographia describes as “severely unaffordable”.

Cities such as Sydney and Melbourne would still be well into severely unaffordable territory whatever measure you used, no matter how conservative.

Instead, Westpac’s chief economist Bill Evans says the woeful shortage of new housing construction means that Australians are likely to continue having to pay too much for a place to live compared with people in other countries, keeping house prices stable.

“[There is] an imbalance between the demand for housing, which is associated with strong population growth, and the supply of housing,” he said.

“And basically the growth in new housing supply hasn’t changed much for quite a few years, so we expect that imbalance to widen further.”

The bank’s figures (sourced from the ABS) show that Australia’s new dwelling production dropped from 120,000 a year in the 1990s to about 105,000 a year in the 2000s, despite annual population growth rising from 210,000 to 305,000 over the same period.

It says that has left a shortage of around 200,000 dwellings.

While construction of new homes has fallen short of demand, the ability of many households to pay more to compete for the dwellings that are there has increased.

This is firstly because there was a structural shift in the economy towards lower inflation and therefore interest rates (also assisted by competition from non-bank lenders) and, secondly, because there are more two income households.

But both of these factors present other problems and risks.

The structural decline in interest rates looks like it is in rapid reverse, with the official cash rate heading up and banks looking to recoup the higher cost of funding now that financial markets are again requiring a risk premium for money lent.

Add to that the absence (as independent entities) of most of the major non-bank lenders that existed before the financial crisis, and it is not hard to conclude that there is a structural shift back towards mortgage lending rates being consistently higher than they were pre-crisis.

The second factor of increasing reliance on two income households to pay higher housing costs presents several obvious problems.

Bill Evans succinctly summarises the first:

“If we look at say a single income [household] attempting to purchase a house in Sydney with little equity then it’s quite unaffordable, but what we find is it’s very much the dual incomes that tend to purchase the detached homes and the single incomes tend to purchase the apartments.”

The message – if you want to buy anything other than a shoebox in Sydney or Melbourne, go out and find a partner (or sibling, parent, cousin or friend) quickly. This is a message several of my friends have already heeded.

Another problem is that Australians are working more (two people instead of one in a household) just to pay more for housing.

It is a zero sum game for everyone – except the banks that get to make bigger loans with larger interest bills, the real estate agents who get fatter commissions, and property investors who might get some capital gains the Federal Government taxes at a discount rate to those of us who actually work for a living.

The reliance on two incomes just to meet the bills also increases the vulnerability of households to rising unemployment – if you are using the majority of both incomes to pay the mortgage and bills, what do you do if one person loses their job for three months?

The over-pricing of Australia’s housing is further indicated by the emerging trend back towards bigger households, as people stay at home longer and share houses are no longer confined predominantly to uni students.

Westpac reports (from ABS figures) that the number of ‘children’ over the age of 35 still living in the family home nearly trebled from 65,000 in 1996 to 187,000 in 2006.

The bank says this has left a larger pool of potential first home buyers who are ready to step in at the first sign of falling prices and lower interest rates (as happened during the global financial crisis, assisted by federal and state government incentives).

Bill Evans cites this response to the financial crisis as further evidence that Australian house prices are unlikely to collapse like those in the US, UK or New Zealand.

“Bubbles are things that emerge quickly and burst. If this level of high prices has existed since 2003, and given that the Australian economy has been subject to some extreme shocks during that period, if it was a bubble it would have burst by now,” he told me.

He may be right about the absence of what he defines as a bubble, but that does not mean Australian homes are reasonably valued.

It seems clear that the problem of falling house prices is only being averted through the worse problem of housing shortages that are forcing many people into living arrangements they are uncomfortable with, and some people into homelessness.

Bill Evans could only agree when I suggested that Australia is caught in a Catch-22, where genuine moves to increase housing supply will undermine the exorbitant values existing home owners have put on their properties.

Given the major banks have such a big stake in house prices remaining stable or increasing, it makes one wonder whether the lack of loans to developers is only about increased risks after the financial crisis, or if there is a secondary benefit to them of restricting extra supply.

Either way, every indication is that Australia’s housing market is far from healthy, both for those investing in it and for those of us who just want an affordable place to live.

For owner-occupiers, there is a desperate need to get out of the mentality that rising house prices are good – if the value of your house rises because of a general rise in prices, so too will the cost of the next house you need to buy to live in.

For investors, there is a need to seriously re-evaluate what kind of returns are coming from the investment.

The Reserve Bank looks to be aiming for a few years of house price stagnation to allow incomes to catch up a bit, and Bill Evans expects that to happen.

He could only laugh when I suggested that prospective property investors might be better off lending their money to the bank (through a deposit) for it to lend out to someone else to buy a house.

If the Federal Government did not subsidise housing investment so heavily, the decision would be a no brainer.

Michael Janda is the ABC’s online business reporter.

Tags: banks, business, economy, finance, housing, news, property, real estate, research

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