(SYDNEY) Total annualised returns for Australian property rose nearly six-fold in the second quarter from three months earlier, but future rises will likely be moderate, property research firm IPD said yesterday.

Total returns for all property types including income and capital, jumped to 5.9 per cent in the year to June from one per cent in the year to March, IPD said.

‘It came from a pull back in negative capital growth,’ said Anthony De Francesco, IPD managing director for Australia and New Zealand. ‘We will continue to see upswings but the pace will be moderate, in line with the general softening in the economy.’ He added that annualised capital returns, which hit minus 6.1 per cent in June last year, should return positive in the next quarter.

Office assets saw the biggest improvement with their total annualised returns rising to 5.1 per cent in June from minus 0.9 per cent in March. In the retail sector, total returns rose to 6.5 per cent from 2.9 per cent.

In March, total returns for Australian property turned positive for the first time in a year and a half, joining other outperforming countries such as the UK, Germany and South Korea.

The PCA/IPD index tracks the performance of 1,352 property investments, with a total capital value of US$101 billion. — Reuters

Source: Business Times, 26 Aug 2010

(PERTH) As cranes swing across Perth’s skyline, busily erecting towers of steel and glass, Australia’s most isolated state capital is reinventing itself as the gleaming face of a mining boom.

Static for a generation, new high-rises are now rapidly appearing across the cityscape, while the streets have had a cosmopolitan injection of hip shops, bars and restaurants, all built on rampant Asian demand for iron ore.

‘Perth hasn’t seen this level of development for over 20 years,’ Western Australia Property Council’s Damian Stone told AFP.

‘It’s dramatic, and reflects how the dynamic of the city itself has grown – we are now a world-class city and that has given us, for the first time in a long time, the confidence that we must play a decisive role in shaping our nation’s future.’

It’s a fact that has not been lost on Labor Prime Minister Julia Gillard or her conservative opponent Tony Abbott who have both campaigned in Perth, on Australia’s far-flung western coast, ahead of knife-edge Aug 21 elections. Mining, a key driver of Australia’s enviable growth, looms large over politics and indirectly prompted Ms Gillard’s axing of ex-leader Kevin Rudd in a June party coup, as a row over a new resources tax sapped his approval ratings.

Perth’s Lord Mayor Lisa Scaffidi believes that the city’s transformation, sparked by major resources companies massively expanding their presence in the city, had seen two decades of growth take place within four years.

‘Perth is now a significant city globally,’ she said.

It’s also, more than ever, a mining city. At the peak of the boom in 2007 – an unprecedented period of prosperity when the average wage hit A$75,000 (S$92,000) and 70 per cent of all leases in the city were mining-related.

Today, 20 per cent of office space is leased by four companies: mining giants BHP Billiton and Rio Tinto, and oil and gas producers Chevron and Woodside Petroleum, all major players in the vast state’s resources industry.

The jewel in the crown is BHP’s new 46-storey centre for its Australian operations, currently under construction in the middle of Perth’s business district.

The world’s largest iron ore miner will occupy 60,000 square metres of the tower, which is set to become Perth’s tallest building at 249 metres, when it is completed in 2012.

While BHP’s City Square is still being built, the confidence it inspired has already manifested itself in several major commercial and retail developments that have drawn luxury outlets long absent from central Perth.

Also at street level, there has been an explosion of small bars and classy eateries in the past two years.

Chef Wayne Willsher opened up his Oliver’s restaurant in the Northbridge entertainment precinct in 2008, little over a year after flying in from Essex, England on a skilled migration visa.

‘I came here for the lifestyle, it wasn’t anything to do with business,’ he said. ‘But there was a gap in the market for good restaurants with above average standards in Perth, which is probably why we’re succeeding.’

It’s not just Perth. The boom’s flow-on impact has touched every business in every corner of the state, Retail Traders’ Association executive director Wayne Spencer said.

‘West Australians are very conscious of the fact that the mining industry’s driving the state at the moment,’ he said. ‘No matter what your job is, it’s affected in some way by the mining industry.’

As Western Australia gears up for an intensification of the boom, built on Asian investment in iron ore and the massive Gorgon gas project off the north-west coast, there are fears that Perth’s evolution will seize up unless the national government takes its growth needs seriously.

Chamber of Commerce and Industry chief economist John Nicolau said that skills would be sucked north to the mining centres, creating labour shortfalls and crippling growth throughout the rest of the sparsely populated state, which accounts for about one-third of Australia’s landmass.

‘Essential services sectors like retail, hospitality, health, education will struggle to find people. You’re going to see retail outlets closing their doors, aged care facilities cutting back their services,’ he said.

Western Australia’s population increased by 400,000 people in the past decade – up to about 2.27 million people – but continuing to attract immigrants to the state will be a key part of filling the labour gap.

‘In the last decade, WA’s (Western Australia’s) share of national exports increased to 45 percent,’ he said. ‘WA is the economic epicentre of Australia, and it’s time for the decision-makers in Canberra to recognise that.’ – AFP

Source: Business Times, 12 Aug 2010

Move to diversify funding, spread out maturities to beef up balance sheets

(SYDNEY) Australian property borrowers are queuing up to sell bonds, seeking to diversify their funding and spread out maturities to strengthen their balance sheets after being scarred by the global financial crisis.

In addition, with stricter capital requirements due under Basel III, banks are expected to hike their lending rates to corporate borrowers, making bond markets a more attractive funding option.

Property firms will be hit even harder since they have less financial flexibility than other sectors due to stricter prudential requirements.

‘It’s a combination of banks wanting to reduce their exposure (to property) and when they have an exposure, to change the way they price that exposure,’ said Craig Parker, a credit analyst at S&P.

Mirvac Group, Dexus Property Group, Australand Property Group and Goodman Group have all recently signalled plans to sell bonds.

Property developer Mirvac, a regular borrower in the once vibrant Australian securitisation market, is currently looking to refinance debt, including a A$200 million (S$244.4 million) bond maturing in September, a company spokesman said.

The firm is considering all markets – including Australian dollar bonds, eurobonds, US private debt and bank loans, he said. The company has not made a decision and has not mandated banks, he added.

Mirvac, which sold earlier this year a A$150 million bond issue to refinance debt, is also a familiar borrower in the US traditional private placement, a popular source of funds for Australian firms keen on long-dated debt.

Mirvac is rated BBB by Standard & Poor’s.

Dexus Wholesale Property Fund, a unit of Dexus Property Group, signalled last week its intention to raise debt when it was assigned an A credit rating by S&P to allow the firm to access capital markets.

‘(The fund) intends to refinance its A$250 million bank facility, which matures in February 2011, in a timely manner and we are currently considering our options in this regard,’ Dexus fund manager Graham Pearson said in a statement yesterday.

The firm declined to give details such as timing, joint leads or type of debt Dexus is considering.

In July, Australand, a diversified property group owned by Singapore’s CapitaLand, flagged its intention to tap European investors with the establishment of a euro medium term note programme to improve access to longer-dated funding.

Australand is not publicly rated.

Moreover, Australia’s largest listed industrial property firm, Goodman Group also has plans to refinance debt.

In May, the real estate firm said it would look to replace large debt maturing in 2013 in the international bond markets.

Goodman’s BBB rating by S&P is on negative outlook because of high debt levels. This means the firm is in a state of heightened surveillance by the rating agency which is looking for debt reduction. — Reuters

Source: Business Times, 12 Aug 2010

Drop of 3.9% adds to signs that interest rate hikes by RBA cooling demand

(SYDNEY) Australian home-loan approvals fell in June, after gaining in May for the first time in eight months, adding to signs that the most aggressive round of interest-rate gains by the Group of 20 member is cooling demand for dwellings.

The number of loans granted to build or buy houses and apartments dropped 3.9 per cent to 46,420 from May, when they rose a revised 3 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 19 economists surveyed by Bloomberg News was for a 2 per cent drop in approvals.

Demand for home loans has slumped since October, when Reserve Bank of Australia governor Glenn Stevens began the first of six increases to the benchmark lending rate to prevent a property price bubble. Annual house price growth slowed in the second quarter, after surging almost 20 per cent in the 12 months through March 31, a report showed last week.

‘It is clear that the Australian housing market is subdued, and there is little to worry the RBA in reports like these,’ Annette Beacher, an economist at TD Securities Ltd in Singapore, said.

The total value of loans fell 1.9 per cent to A$20.7 billion (S$25.6 billion) in June, yesterday’s report showed.

The value of lending to owner-occupiers declined one per cent. The value of loans to investors who plan to rent or resell homes dropped 3.6 per cent.

Signs that Australia’s economic expansion isn’t stoking inflation and concern about potential fallout from Europe’s debt woes were among reasons that the central bank left the benchmark lending rate unchanged last week at 4.5 per cent for a third straight month.

Reports published last week showed home-building approvals and retail sales missed economists’ forecasts in June, and house-price gains decelerated in the second quarter.

‘This moderation in the established housing market is a welcome development and partly reflects the return of mortgage rates to around average levels,’ the central bank said in its quarterly monetary policy statement published last Friday.

Borrowing has tumbled since the start of the fourth quarter after the government began reducing A$21,000 grants to first- time buyers of newly built dwellings. Those grants were lowered in two steps to A$7,000 on Jan 1.

First-home buyers accounted for 16 per cent of dwellings that were financed in June, down from 16.2 per cent in May and 27.1 per cent a year earlier, the statistics bureau said yesterday.

Still, it remains ‘possible that the current cautiousness in spending by households may not persist, particularly if the unemployment rate continues to decline’, the Reserve Bank said last week.

Job advertisements in newspapers and on the Internet rose 1.3 per cent last month, a report by Australia & New Zealand Banking Group Ltd showed yesterday.

The nation’s unemployment rate probably held at 5.1 per cent last month, almost half the level of the US, a report will show this Thursday, analysts surveyed by Bloomberg said. The rate has fallen from 5.8 per cent nine months earlier as employers added more than 300,000 jobs. — Bloomberg

Source: Business Times, 10 Aug 2010

It sees residential projects driving earnings growth

CAPITALAND’S Australian unit Australand expects its residential development business to drive earnings growth over the next 18 months.

The group now gets about 80 per cent of its earnings before interest and taxes (Ebit) from recurrent income from its investment properties. Development accounts for the remaining 20 per cent.

Australand’s target is for development to contribute 30-40 per cent to Ebit eventually. This should happen as the group’s residential business picks up, said managing director Bob Johnston.

‘I think our residential business should return to normal levels (in the next 18 months),’ Mr Johnston said in a media interview. ‘Development earnings have been in a trough over the last 12 months but now they are coming back.’

The group aims to get a 12 per cent return on capital by 2012 for its development division. Right now, most developers in Australia get returns in the ‘high single digits’ for residential business, Mr Johnston said.

He is bullish as the cities in which Australand operates – Sydney, Melbourne, Brisbane and Perth – all have an under-supply of homes.

In particular, Mr Johnston is especially upbeat on the housing market in Melbourne. Home prices there have climbed 18-25 per cent over the past year and could increase another 5-10 per cent in the next 12 months, he said.

Australand returned to the black in the first half of 2010. Last week, it reported a net profit of A$72.2 million for the first six months of the year, against a net loss of A$268.8 million in the year-ago period.

The turnaround was helped by A$11.8 million of revaluation gains on investment property. A year back, Australand reported a A$235.3 million revaluation loss. There was also no half-time impairment of development assets this time around. Last year, Australand booked impairments of A$93 million.

Mr Johnston said that with the recovery in Australia’s office markets, the group should see revaluation gains on its investment properties over the next 12-18 months.

Source: Business Times, 6 Aug 2010

SINGAPORE-listed Hotel Grand Central has signed conditional agreements to buy an Australian hotel and its business for A$47 million (S$55.1 million).

The price for the Courtyard by Marriott Surfers Paradise, Queensland, works out to about A$116,000 per room. The freehold four-star hotel, which has 405 rooms, is located at the corner of Surfers Paradise Boulevard and Hanlan Street, Surfers Paradise. It forms part of Centro Surfers Paradise – the largest shopping centre in the district.

‘A comprehensive review of the hotel will be undertaken with a view to re-branding the property as Hotel Grand Chancellor, Surfers Paradise, upon settlement,’ Hotel Grand Central said yesterday in a statutory filing with Singapore Exchange.

The 31-storey hotel, which has a restaurant and two bars, five conference and meeting rooms, a gymnasium and pool, is being sold by Marriott Vacation Club, BT understands.

Jones Lang LaSalle Hotels brokered the transaction.

Hotel Grand Central said the purchase is subject to it being satisfied that the property is suitable for its requirements, following due diligence.

The acquisition, when completed, will expand the group’s portfolio of Australian hotels to eight. It already has properties in Brisbane, Adelaide, Melbourne and Tasmania.

Hotel Grand Central also owns four hotels in New Zealand and two in Singapore, at Kramat Lane in the Orchard Road area and Belilios Road in Little India.

It said that had the acquisition of Courtyard by Marriott Surfers Paradise taken place at the start of the financial year ended Dec 31, 2009, its earnings per share for the year would have been 7.64 cents, up from 7.47 cents pre-acquisition.

Source: Business Times, 7 Jul 2010

Investors here are increasingly moving to conservative asset classes, such as overseas properties in Australia, because of poorer risk appetite after the recent global financial crisis.

According to Westpac Private Bank, it has seen 18 percent of its Australia and New Zealand multi-currency home loans coming from Singapore in the past nine months, up 6 percentage points over the same period last year.

Online investment solutions provider Fundsupermart.com said prices of private residential properties in Singapore have moved up significantly in the past few months.

Market observers said this has prompted investors to look elsewhere, more specifically – Australia. Cities popular among Singaporeans include Melbourne, Perth and Sydney.

With an estimated 8,000 Singaporeans studying in Australia currently, Westpac Private Bank said many parents are also considering buying real estate Down Under.

Mr Sean Straton, Premium Client Group head at Westpac Banking, said: “Singaporeans have been looking for assistance in financing properties in Australia and New Zealand. And I think it just comes down to the heart of an asset class that Singaporeans feel comfortable with. And certainly after the crisis, they feel that there’s some level of security.”

Mortgage and home loan broker Mortgage Choice said across Australia, Melbourne properties are the most expensive.

Source: Today, 7 Jul 2010

FRASER and Neave (F&N) property arm Frasers Centrepoint has bought a residential site in Sydney, Australia, for A$82.5 million (S$97.8 million).

There are plans to turn the 13.7-hectare plot into a community comprising almost 800 homes, a childcare centre, sports facilities and other amenities.

The site is located in the suburbs on the border of Ryde and Putney, 12km north-west of Sydney’s central business district.

Frasers Centrepoint CEO Lim Ee Seng described the deal as ‘strategic’. It boosts the company’s land bank in Australasia to 9 million sq ft from around 8 million sq ft.

The project will also ‘strengthen the Frasers brand as we continue to make further inroads into Australasia’, he said. The company is planning and developing more than 5,800 homes in Australia and New Zealand.

The Sydney site is part of an 18-ha plot owned by Sydney’s Royal Rehabilitation Centre, which provides rehab services for people suffering temporary or permanent disability. Royal Rehab decided to sell part of the land to Frasers Centrepoint to fund a new rehabilitation, disability and research centre.

The New South Wales government has approved the concept plan for the site. The project will include houses, town houses and apartments. Roads, traffic calming devices and other infrastructure will also be built.

Frasers Centrepoint will set aside 2.3 ha of open space for community use. It will also join hands with Royal Rehab in a multi-million dollar project to develop publicly available community facilities such as a childcare centre, a meeting room and sports and recreation amenities.

Frasers Centrepoint’s Australasian unit will start preparing submissions to the authorities for infrastructure plans and the first stage of residential construction. Work on the public parks will start this year.

F&N shares lost six cents to close at $5.20 yesterday. In a note on Wednesday, CIMB analyst Donald Chua kept his ‘outperform’ call on the counter, citing successful overseas property sales as one of several possible price catalysts.

Source: Business Times, 26 Jun 2010

FRASER and Neave subsidiary Frasers Centrepoint has acquired a huge site in Sydney for A$82.5 million (S$99.3 million).

It bought the 13.7ha site from the Royal Rehabilitation Centre Sydney through Frasers Property Australia, it said in a statement yesterday.

The site is located 12km north-west of Sydney’s central business district.

The approved concept plan for the site allows for a 2.3ha open area for community space and the development of almost 800 homes, including houses, town houses and apartments.

Frasers Centrepoint will also have to build roads, traffic calming devices and other infrastructure.

Community facilities to be built on the site – such as sport and recreation facilities and a child- care centre – will be jointly developed by Frasers Property Australia and Royal Rehab.

Purchasing the site – with its gross saleable area estimated at 1 million sq ft – will increase the company’s land bank in Australasia from nearly 8million sq ft to 9 million sq ft, Frasers Centrepoint said.

The developer is currently planning and developing more than 5,800 homes in Australia and New Zealand.

Meanwhile, the hospitality arm of Frasers Centrepoint said it has opened its first serviced apartments in Kuala Lumpur.

Called Fraser Place Kuala Lumpur, it is the first of two to open in the Malaysian city. Located on Jalan Perak, it has 215 apartments.

The other property is on a site facing both Jalan Ampang and Jalan Sultan Ismail and will be completed in 2012.

Source: Straits Times, 26 Jun 2010

Supply jump seen easing push to up interest rates

(SYDNEY) Australian new home starts hit a six-year high last quarter, thanks to stimulus spending on public housing, while work in the pipeline suggests that the sector would help underpin the economy as a whole.

The lift in home supply could also take some heat out of house prices, a comfort to the Reserve Bank of Australia (RBA) which has been warning against a speculative bubble.

‘Having now posted three consecutive quarters of solid gains in starts, we are due for several quarters of robust completions results, which will support economic growth over the coming quarters,’ said Ben Jarman, an economist at JPMorgan.

Housing accounts for around a tenth of the economy and swings in activity can have a big impact, in part because the sector is very labour-intensive and new homes tend to be kitted out with new furniture.

Yesterday’s data showed builders started work on 42,399 new homes in the three months to March, a rise of 4.3 per cent from the previous quarter. The gain was modestly short of market forecasts, but followed an upwardly revised 16.8 per cent surge in the fourth quarter and a 10.9 per cent rise in the third.

Starts in the private-sector were roughly flat at 38,303, while those for public sector housing leaped 74 per cent as stimulus spending to counter the global credit crisis flowed through to construction.

In all, home starts were almost 35 per cent higher than in the first quarter of 2009, the fastest annual pace in eight years.

‘Overall, today’s data gives us more confidence that the housing sector should contribute to economic growth ahead,’ said George Tharenou, an economist at UBS.

The economy grew by 2.7 per cent in the first quarter, compared to the same period in 2009, and the central bank has forecast a pick-up to 3.25 per cent by year-end.

‘Near-term, building approvals suggest another solid rise for home starts this quarter,’ said Mr Tharenou. Approvals to build new homes surged 43 per cent between May and December last year, leaving a big pipeline of construction still to come.

Growth in approvals has levelled off in the past few months but they still remain 37 per cent above last year’s low.

Yet, analysts and policymakers still reckon that far fewer homes are being built than needed to meet demand as the country’s population is expanding at the fastest pace in five decades.

The shortage of homes is put at anything from 110,000 to 180,000 and has been projected to reach 300,000 by 2014 if building does not pick up substantially.

The dearth of supply over the last couple of years is one reason that home prices eased only slightly during the global financial crisis and speedily recovered afterwards.

House prices in the major cities climbed 20 per cent in the 12 months to March, leading the central bank to warn of the dangers of a speculative bubble.

Prices do seem to have cooled a little in the last couple of months, with the RBA pleased to note that auction clearance rates had fallen in May while demand for home loans had sagged.

Figures from property specialist Residex out yesterday showed that house prices nationally rose 0.6 per cent in May, compared to a 1.6 per cent jump in April and a 1.2 per cent increase in March.

‘There may be more slowing ahead,’ said Matthew Hassan, a senior economist at Westpac.

‘Swings in finance approvals have usually been a good gauge of demand and tend to impact with a lag of about six months, while the latest auction clearance rates suggest there was a significant softening in market activity in May to June.’

If house prices do moderate, it would be one less reason for the RBA to keep lifting interest rates later in the year. — Reuters

Source: Business Times, 17 Jun 2010