Australian property prices are rising strongly and show no signs of abating, analysts said yesterday, after weekly sales in one state hit a record A$1.03 billion (S$1.3 billion).

The Real Estate Institute of Victoria said last week saw ‘the largest dollar volume of transactions ever recorded’ amid growing confidence in the economy as people took advantage of low interest rates.

‘We’ve seen more physical sales in a week period, but never have they passed the billion dollar mark,’ research manager Robert Larocca told AFP.

‘So that’s partly a sign of how strong the market is and it’s also a sign that people are spending more than they have in the past.’

Mr Larocca said that the surge in sales was the result of historically low interest rates following the global financial crisis and the growing population in Melbourne, Australia’s second largest city, outstripping available housing.

‘People are confident, they are confident because the economy is going much better than they expected it to,’ he added.

David Airey, president of the Real Estate Institute of Australia (REIA), said that Melbourne was one of the country’s strongest markets, but noted that Australian property prices were in general very strong and rising.

‘The property market in all Australian capital cities has had a rapid recovery from mid-2009 on, and noticeably in Melbourne and Sydney with property prices rising quite significantly over that six month period,’ he said.

‘I think that will be reflected again this quarter with further growth in all capital cities.’

Mr Airey said that Australians felt property was a safe investment, with median house prices rising by 18.5 per cent in Melbourne and around the country by more than 12 per cent in 2009.

Source: Business Times, 2 Mar 2010

LaSalle Investment Management, a division of the world’s second largest commercial real estate brokerage, plans to partner with Australian developers and take on more risk to invest in the nation’s property market.

The unit of US-based Jones Lang LaSalle Inc is actively seeking tie-ups in Australia to increase its investments in the office and logistics space, and may announce a deal in the first half of this year, Asia-Pacific chief investment officer Ian Mackie told reporters in Sydney on Tuesday.

‘We’re in discussions with a variety of developers,’ Mr Mackie said, without naming the companies. ‘We’re in the act of pursuing, considering, negotiating deals.’

The partnerships would aid LaSalle’s plans to increase its exposure to Australia’s commercial property market through its US$3 billion Asia Opportunity Fund III, Mr Mackie said. LaSalle, which manages some US$40 billion in real estate investments globally, expects more growth opportunities in this part of the world, particularly in prime office properties in city centres, the company said.

Australia’s lack of distressed and value properties means that LaSalle would have to move towards riskier projects to take advantage of growth and obtain the ‘mid- to high teen’ returns suitable for its opportunities fund, Mackie said.

The company will take on more risk in spending some of the remaining US$2 billion in the opportunity fund to invest in Australia, he said. LaSalle expects effective rental growth of up to 7 per cent annually for commercial properties in Australia.

‘In some countries, such as Japan, we can buy standing assets and make the sort of returns that are appealing to an opportunity fund,’ Mr Mackie said. ‘We’re under no illusion that we can do that in Australia. So we’d expect to go further out on the risk curve and become involved in development projects.’

Source: Business Times, 11 Feb 2010

Drop due to higher mortgage rates and cuts in first-home buyer grants

Australian home-loan approvals fell in December after central bank Governor Glenn Stevens raised borrowing costs for a record third month.

The number of loans granted to build or buy houses and apartments dropped 5.5 per cent to 55,632 from November, when they declined a revised 6.1 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 18 economists surveyed by Bloomberg was for a 5 per cent decline.

Mr Stevens unexpectedly left the benchmark interest rate unchanged last week at 3.75 per cent, saying information about the impact of his three previous increases is still limited. Consumer confidence fell this month, a report published yesterday by Westpac Banking Group showed.

‘The drop in demand for housing finance will owe much to higher mortgage rates and the phasing out of the expanded first-home buyer grants,’ Stephen Walters, an economist at JPMorgan Chase & Co in Sydney, said ahead of yesterday’s report.

Demand for home loans surged in the first half of 2009 after Prime Minister Kevin Rudd tripled grants to first-time buyers of new homes to A$21,000 (S$26,000), and the central bank cut borrowing costs to a half-century low of 3 per cent in April.

The government partially reduced those grants last quarter, before returning them to their original level of A$7,000 at the start of this year.

First-home buyers accounted for 21 per cent of dwellings that were financed in December, down from 22.1 per cent in November and a record 25.8 per cent in May, the statistics bureau said yesterday.

Mr Stevens and his board increased Australia’s benchmark lending rate three times from October to December as a rebound in exports to China by companies including BHP Billiton Ltd helped fuel the biggest four-month surge in hiring in more than three years.

Employers added 135,700 jobs between September and the end of 2009, driving down the unemployment rate in December to an eight-month low of 5.5 per cent.

Employers hired another 15,000 workers last month, according to the median estimate of 21 economists surveyed by Bloomberg News. The employment report will be published today.

Still, Mr Stevens said on Feb 2 that as information about the impact of the bank’s previous interest-rate increases ‘is still limited, the board judged it appropriate to hold a steady setting of monetary policy for the time being’.

Investors are betting there is a 24 per cent chance of a quarter percentage point increase in the overnight cash rate target at the central bank’s next meeting on March 2, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange at 8.33am.

Last year’s interest rate increases added about A$150 to monthly repayments on an average A$300,000 home loan.

An index of consumer confidence dropped 2.6 per cent in February, Westpac said yesterday, citing a survey.

The value of loans to people building their own homes fell 4.7 per cent in December, yesterday’s report said. The total value of loans dropped 2.8 per cent to A$21.9 billion.

The value of loans to investors who plan to rent or resell homes advanced 1.9 per cent.

Source: Business Times, 11 Feb 2010

Revaluation losses, writedowns push company into red

CAPITALAND unit Australand yesterday reported a net loss of A$298.2 million (S$368.1 million) for 2009 as it was hit by revaluation losses on its investment properties as well as writedowns of development and joint venture assets.

In 2008, the Australian developer’s net profit – net earnings attributable to stapled-security holders – slid 85 per cent to A$40.2 million.

Australand achieved a net operating profit after tax of A$120.2 million in 2009, but sank into the red after revaluation losses of A$249.4 million and writedowns of A$148.4 million. The company also saw non-recurring finance costs of A$20.7 million.

Looking ahead, Australand said that operating profit in 2010 will be similar to that achieved in 2009. It added that investment property earnings are expected to grow steadily, mainly from embedded rental growth.

Australand also said that market evidence indicates that investment property valuations are either at or near trough levels in the cycle.

‘Property valuations now appear to be stabilising with revaluation losses of A$14 million in the second half across the A$2 billion portfolio,’ said Australand managing director Bob Johnston.

‘Despite the large statutory loss for the full year, the majority of which was recorded in the first half, the operating profit demonstrates the resilience of the group’s high quality investment portfolio.’

In 2009, Australand’s earnings before interest and taxes (Ebit) from its investment properties grew to A$154 million from A$136 million in 2008. However, Ebit from the residential segment fell sharply to A$68 million from A$117 million.

‘Margins for the residential division remained under pressure during the year as the division continued to trade through impaired and non-core inventory,’ Mr Johnston said.

Looking ahead, the company unveiled a host of new strategies for growth – including a fresh target to get 60-70 per cent of group Ebit from recurrent earnings. It also intends to improve the development divisions’ return on average capital employed to at least 12 per cent over the next three years and recycle underperforming capital in the development divisions to drive earnings growth.

Finally, the company’s gearing will be maintained within a target range of 25-35 per cent, Australand said. The company’s gearing fell to 25 per cent at end-2009, from 36 per cent at the end of 2008.

‘With a strengthened balance sheet, the group is well-positioned to take advantage of the improving economic conditions in the commercial, industrial and residential markets,’ Mr Johnston said.

The company is paying a full year distribution of 5 Australian cents per security. Australand will continue to distribute 80-90 per cent of realised operating trust income.

The company also announced that it intends to seek approval at the annual general meeting in April to undertake a five into one consolidation of the group’s stapled securities.

Source: Business Times, 10 Feb 2010

Rising interest rates will trigger defaults on Australian home loans and commercial mortgages, causing deterioration in the quality of assets underpinning mortgage-backed bonds, according to Fitch Ratings.

Three straight interest rate rises last year and further increases expected in 2010 may cause Fitch’s Dinkum Index, which measures delinquency rates on prime home loans, to climb to as much as 1.5 per cent this year from 1.21 per cent at Sept 30, the London-based risk assessor said in a report yesterday.

‘The improvement in Australia’s structured finance asset performance, which was experienced during 2009, thanks to historically low interest rates and a resilient economy, is unlikely to continue during 2010,’ David Carroll, a director in Fitch’s Australian structured finance team, said in the report. ‘Rates will continue to rise during 2010 and structured finance arrears are likely to trend up,’ he said in an interview.

Central bank governor Glenn Stevens unexpectedly kept the overnight cash rate target at 3.75 per cent on Tuesday, opting to support the economy’s acceleration and stem inflation later. Borrowing for home buying fell to a five-year low last month, according to Australian Finance Group. Colonial First State, Australia’s biggest asset manager, froze an A$850 million (S$1.06 billion) mortgage income fund to withdrawals on Jan 14 after signs that some commercial property loans may sour.

Australian household debt remains a concern, with the ratio of household debt to disposable income standing at 156 per cent as of June 2009, Fitch said.

The increase in delinquencies isn’t expected to be severe enough to affect the ratings of mortgage-backed bonds, according to Mr Carroll. Australian Finance Group says that it accounts for more than 10 per cent of the nation’s mortgage market. The group arranged A$1.55 billion of mortgages in January, 19 per cent less than a year earlier and the lowest level for any month since 2005.

Source: Business Times, 4 Feb 2010

K-REIT Asia has bought a 50 per cent stake in an office building in Brisbane, Australia, its first acquisition outside Singapore.

It paid Charter Hall Opportunity Fund No 4 A$166 million (S$206.5 million) for the stake in the Grade A commercial building, the same as its appraised value.

The seller has also signed an income support agreement until 2012 that will top up the difference between actual cashflows and a guaranteed net cashflow of A$12.8 million a year.

The building at 275 George Street was completed in April last year and comprises 40,317 sq m of office space over 30 floors plus 1,431 sq m of retail space. K-Reit said it was 99.4 per cent leased and two Australian corporations, Telstra and Queensland Gas, have 10-year leases.

Ng Hsueh Ling, chief executive of K-Reit Asia Management, said the acquisition will add 10 per cent to K-Reit Asia’s asset size, or from $2.1 billion to $2.3 billion. The building is expected to be immediately yield accretive and has a weighted average lease expiry (WALE) of 9.4 years. This will extend the WALE of K-Reit’s present portfolio to 5.9 years from 5.2 years.

K-Reit said the purchase will be funded entirely by proceeds from its recent rights issue, which will improve aggregate leverage from 27.7 per cent as at Dec 31 to 25.2 per cent after the deal is completed this quarter.

K-Reit recently reported distributable income for the fourth quarter increased 11.4 per cent to $19.4 million. For the full year, distributable income to unitholders increased 21.1 per cent to $70.5 million. It said then it was considering buying a stake in Marina Bay Financial Centre from parent Keppel Land.

Source: Business Times, 1 Feb 2010

Australian commercial property sales to overseas buyers are set to increase by about a quarter this year as international investors are lured by the nation’s economic growth, according to Kevin Stanley, head of research at CB Richard Ellis, the world’s largest real estate broker.

Overseas buyers will spend about A$2 billion (S$2.6 billion) on Australian commercial real estate this year, up from about A$1.6 billion last year, he said.

The South Korean National Pension Fund’s purchase of the Aurora Place Office Tower in Sydney for A$685 million on Dec 30, the biggest deal in two years, shows overseas buyers continue to see strong prospects for the Australian market, Mr Stanley said in a telephone interview.

The Australian economy skirted the global recession last year and is forecast by the central bank to strengthen this year.

Overseas investors bought almost a third of all commercial properties sold in Australia last year, six times the long-term annual average, according to yet-to-be published research by Mr Stanley.

In the second half of last year, offshore buyers spent about A$1.1 billion on Australian commercial real estate, up from about A$550 million in the second half of 2008, Mr Stanley said.

Overseas investors looking for a steady and growing income stream will also be drawn by a strong rental market and long lease terms, Mr Stanley said.

Vacancies in rental office properties in Australia’s capital city centres, now at 7.7 per cent, will peak at 11 per cent this year, according to JP Morgan Securities Australia Ltd, below the 1993 peak of almost 21 per cent.

UK commercial property vacancies rose to 12.6 per cent in the year ended Oct 31 from a year ago, with falling rents and the possibility of loan defaults threatening the market, the Bank of England said in its Dec 18 Financial Stability Report.

Retail vacancies in the US will reach a record 12.9 per cent this year, and the vacancy rate for the office market, at 16.1 per cent at the end of the third quarter, will peak at 18.6 per cent this year, CBRE said on Nov 11.

Increases in the Australian dollar, higher interest rates and competition from local buyers may slow the level of growth of overseas investments this year to a more sustainable 20 per cent of all buyers, said Mr Stanley.

The Reserve Bank of Australia raised its benchmark lending rate three times in the last quarter to 3.75 per cent, after cutting it to a historical low of 3 per cent in April.

The Australian dollar, after gaining 27 per cent against the US dollar and 25 per cent against the euro last year, will reach parity with the US currency this year, some forecasters say.

Source: Business Times, 12 Jan 2010

Approvals to build new homes in Australia jumped a surprisingly strong 5.9 per cent in November, further evidence of a construction boom that will increasingly foster growth.

But yesterday’s data failed to sway market expectations which remain evenly split over whether the Reserve Bank of Australia (RBA) would raise rates again next month, with investors awaiting key job and inflation data due later this month.

Approvals for apartment blocks, a typically volatile sector that suffered during the crisis when funding dried up, led the way in November with a whopping 32 per cent jump.

That lifted total building approvals by a third from November last year, the biggest rise in 71/2 years.

‘Construction activity will be very buoyant in 2010, ensuring solid activity levels for firms in building material, construction and engineering sectors,’ said Craig James, an economist at the Commonwealth Bank.

Activity in non-residential approvals was equally impressive, with the value of work up 53 per cent during the month thanks largely to generous government stimulus spending on schools.

The overall strong report eclipsed a 1.9 per cent dip in approvals for new private houses, marking a pause after an 11-month rally.

Analysts at Commonwealth Bank say the construction boom could last two to three years and add 2-3 percentage points to economic growth.

This is without accounting for sizeable additional expenditure incurred by house buyers furnishing their new homes.

Indeed, the buoyant property market prompted the RBA to say last year it would be ‘disturbing’ if low mortgage rates led only to higher home prices, which are already at record highs, and not more home building.

It has since raised rates for all three months between October and December, becoming the first of G20 central banks to tighten policy.

Interbank futures are priced for a 50-50 chance of a 25-basis-point rate rise when the RBA next meet on Feb 2.

The RBA stunned investors last month when it said rates at 3.75 per cent were in a ‘normal’ range, cooling views it was on an aggressive tightening campaign.

Yet, some analysts still see the RBA tightening this year, with elevated house prices supporting spending.

Consumers are certainly jovial, judging from the data.

Sales of new vehicles rose to the highest level for any December on record, with demand boosted by tax breaks.

Unemployment is expected to have peaked at 5.8 per cent, with the job market forecast to recover this year. A survey yesterday showed employment picked up in the services sector even though growth in the industry halted in December.

Fundamentals back the case for higher home prices.

Immigration is at a record and the population is growing at its fastest in 40 years. These come at a time when house supply is tight, with construction languishing below historical averages.

Source: Business Times, 7 Jan 2010

Some fear rising interest rates and inflated prices, among other things, may lead to crash

AS prospective home buyers in Australia look for the best time to jump into the market, many of the nation’s top housing analysts have forecast modest residential price growth of about 5 or 6 per cent in 2010, the Australian Associate Press reports.

Some of Australia’s leading economists believe demand for homes will stay strong as investors and upgraders pick up the slack from first home buyers.

But a small group of doomsayers is convinced a combination of rising interest rates, the winding up of the first home owners’ grant boost and over-inflated prices could lay the foundations for a crash.

However, Australia is emerging from the global financial crisis with strong population growth, the lowest interest rates in decades and a rosier jobs outlook.

Most economists, industry heads and real estate agents see the sun continuing to shine on residential property this year.

Annual established house prices in Australia grew 6.2 per cent to September 2009, the latest Australian Bureau of Statistics data show.

Housing Industry Association chief economist Harley Dale said Australia would experience significant 20 to 25 per cent growth in new housing stock through to mid-2011.

He also supports predictions of about 5 to 6 per cent growth in established homes next year.

Source: Business Times, 2 Jan 2010

Central bank chief raises interest rate for 3rd straight mth

Australian home loan approvals fell in October after central bank governor Glenn Stevens became the first Group of 20 policymaker to increase borrowing costs since the height of the global financial crisis.

The number of loans granted to build or buy houses and apartments dropped 1.4 per cent to 63,865 from September, when they gained a revised 3.3 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 21 economists surveyed by Bloomberg was for a 2 per cent decline.

Approvals may slide further after Mr Stevens boosted the benchmark interest rate last week for an unprecedented third straight month and the government reduced grants to first-time buyers from as much as A$21,000 (S$27,000) in October. Consumer confidence fell this month, a separate report showed yesterday.

‘Homebuyer numbers will continue to retreat from recent highs and this will weigh on overall approval numbers.’ Alex Joiner, an economist at Australia & New Zealand Banking Group Ltd in Melbourne, said ahead of yesterday’s report.

First-home buyers accounted for 26 per cent of dwellings that were financed in October, down from 26.1 per cent in September, the statistics bureau said yesterday.

Mr Stevens and his board increased Australia’s benchmark lending rate last week by a quarter point to 3.75 per cent, as rising business confidence, a surge in house prices and higher exports to China from companies including BHP Billiton Ltd, drive a ‘new upswing’ in the economy forecast by the central bank to last several years.

‘At the beginning of the year, I would not have expected the economy to be looking as good as it does’ now, Mr Stevens said late on Tuesday in Sydney. ‘I thought things would turn out rather worse than they have. But who’s complaining? Not me.’

Investors are betting there is a 42 per cent chance of an interest rate increase at the central bank’s next meeting in February, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange late on Tuesday.

This year’s interest rate increases have added about A$150 to monthly repayments on an average A$300,000 home loan, and may prompt consumers to trim spending that surged in the first half of the year after Prime Minister Kevin Rudd’s government distributed more than A$20 billion in cash handouts to households.

An index of consumer confidence dropped 3.8 per cent this month, led by waning sentiment among households with mortgages, a report by Westpac Banking Corp showed yesterday.

Demand for mortgages surged in the first half of the year amid record purchases from first-time buyers after Treasurer Wayne Swan tripled to A$21,000 a grant to buyers of new homes, and doubled to A$14,000 payments for those purchasing existing dwellings. House prices have gained 10 per cent this year.

In May, Mr Swan extended the increases through to the end of September, when they were partially reduced. The payments will be cut to their original level of A$7,000 at the end of this year.

The total value of loans fell 1.4 per cent to A$23.3 billion, yesterday’s report showed.

Source: Business Times, 10 Dec 2009