(SYDNEY) Australian house price gains slowed for a third straight quarter from July to September as the central bank mulls a resumption in interest rate increases.

An index measuring the weighted average of prices for established houses in eight major cities climbed 0.1 per cent from the previous three months, the Australian Bureau of Statistics said in Sydney yesterday.

That was the smallest advance since the first quarter of 2009. Prices gained 11.5 per cent from a year earlier, the smallest annual rise in a year.

The data supports the view of the Reserve Bank of Australia (RBA), that the property market shows signs of cooling.

The RBA, which boosted its benchmark interest rate in six quarter-percentage-point steps from October 2009 to May, meets today in Sydney to discuss rate policy.

‘Rising interest rates have seen housing affordability deteriorate,’ said Paul Braddick, a senior economist at Australia & New Zealand Banking Group Ltd in Melbourne.

The median estimate of 16 economists in a Bloomberg News survey was for third-quarter prices to be unchanged from the previous three months, after a revised 2 per cent increase in April to June.

Prices slid in five of the eight cities, and Melbourne’s gain of 2.7 per cent was its smallest in six quarters, yesterday’s report showed. Prices fell 2.1 per cent in Brisbane, 1.4 per cent in Adelaide and Hobart, and 0.9 per cent in Sydney, the first drop in Australia’s biggest city since the first quarter of 2009.

Demand for homes surged after the government in late 2008 tripled payments to first-time buyers of new dwellings to A$21,000 (S$26,800), and doubled the grant to A$14,000 for existing homes. Those payments were reduced in January to their original A$7,000.

A jump in prices was among reasons central bank governor Glenn Stevens led Group of 20 members in raising the benchmark rate to 4.5 per cent from a half-century low of 3 per cent.

‘First homebuyer activity has returned to ‘normal’ levels and the strong Australian dollar has ‘reduced offshore demand’,’ Mr Braddick said.

Australia’s economic growth relative to weaker expansions in the US, Europe and elsewhere helped drive the local currency to parity with the US dollar on Oct 15 for the first time since it was floated in 1983.

Seventeen of 23 economists surveyed by Bloomberg News expect Mr Stevens and his board to leave the overnight cash rate target at 4.5 per cent, with the others predicting an increase to 4.75 per cent. The decision is scheduled for 2.30pm today in Sydney. — Bloomberg

Source: Business Times, 2 Nov 2010

Trusts Down Under moving to reduce bank exposures with longer-term debt

(SYDNEY) CFS Retail Property Trust, a real estate trust that invests in shopping centres, sold A$450 million (S$573 million) of bonds in the biggest domestic debt issue by an Australian property company in more than four years.

The trust priced A$160 million of floating-rate notes due in May 2014 to yield 160 basis points more than the bank bill swap rate, according to a statement from Australia & New Zealand Banking Group Ltd, which helped manage the sale with Commonwealth Bank of Australia.

It also priced A$290 million of fixed-rate notes due in May 2016 to yield 185 basis points more than the swap rate, the statement said.

‘Property trusts are trying to reduce their bank exposures and arrange longer-term debt, which is more likely to be obtained from the bond market,’ John Sorrell, who helps manage about A$14 billion of fixed-income assets as Sydney-based head of credit at Tyndall Investment Management Australia Ltd, said. ‘There’s still pent-up issuance demand, so the strong primary sales volume is set to continue.’

Most Australian real estate trusts have returned to profit after exiting money-losing overseas investments and raising capital following a period of surging debt costs and plunging property values. Reit balance sheets are now ‘historically strong’ after they raised more than A$18 billion of capital in 2008 and 2009, Moody’s Investors Service said in August.

CFS Retail’s sale is the biggest since GPT Group, the country’s third-largest property group by market value, sold A$700 million of fixed- and floating-rate bonds in March 2006, according to data compiled by Bloomberg. Australian real estate investment trusts have issued A$1.1 billion of domestic bonds this year, the data show.

Stockland, Australia’s biggest diversified property group that’s rated A- by Standard & Poor’s, one notch lower than CFS Retail, sold A$300 million of five-year notes in December. The 8.5 per cent bonds were priced to yield 270 basis points more than the benchmark swap rate, according to data compiled by Bloomberg.

CFS Retail, which reported net income of A$315 million in the year to June 30, said last month it’s planning to buy four shopping malls owned by Direct Factory Outlet in Australia. The trust will fund the purchase through a A$540 million share sale. The company will use funds from the bond sale to refinance debt. — Bloomberg

Source: Business Times, 21 Oct 2010

(SYDNEY) Australian house prices may rise by up to 20 per cent over the next three years, despite interest rates possibly reaching 9.1 per cent, but Melbourne will miss out on most of the price growth, according to a respected business forecaster cited by the Sydney Morning Herald.

A QBE Housing Outlook 2010-13 survey compiled by BIS Shrapnel forecasts house price growth of between 9 and 20 per cent in Australia’s capitals over the next three years, the result of a stronger economy and undersupply of housing.

Prices in Perth, Sydney and Adelaide are forecast to grow by up to 20 per cent and Brisbane and Hobart are expected to rise 15 and 13 per cent respectively. Melbourne, Darwin and Canberra will grow the least.

Strong growth in Melbourne house prices last year and early this year combined with a higher level of housing construction – more than in any other state – and worsening housing affordability would slow the city’s price growth over the next three years to 9 per cent, below that of all other capitals, the BIS report said.

The forecast follows concern voiced by some economists and international investors that Australia’s housing market is overpriced and may be verging on a property bubble.

Investment bank Goldman Sachs recently dismissed suggestions that Australia was experiencing a housing bubble, but said property prices were overvalued by as much as 35 per cent.

Last August, the national median house price dropped 0.2 per cent in seasonally adjusted terms to US$457,000, knocking US$8,000 off the median price for July.

But BIS Shrapnel said strengthening economic conditions and an undersupply of housing in most states should provide substantial upward pressure on house prices.

‘Economic growth is also forecast to continue to accelerate, fuelling employment and income growth,’ the report said. ‘Price growth is expected to generally peak in 2012-13 as economic growth also peaks.’

Demand for housing from first home buyers was not expected to improve until next year.

Australia’s housing market has so far proved more resilient than most other developed nations, partly because of population growth and commodity exports.

In the report, BIS Shrapnel forecasts that variable interest rates will peak at 9.1 per cent in 2013.

‘This will ultimately have a slowing effect on the economy and prices, although there may be one last gasp for price growth in some cities in 2012-13 where there is a large deficiency, or affordability is not strained,’ the report says.

Another report released on Tuesday shows mortgage stress is being felt most in the middle to outer suburbs, but there were fewer delinquencies – defined as failing to pay one or more mortgage payments – in Victoria than other states.

A survey by Moody’s Investor Services of residential mortgage-backed securities suggests that most areas in Melbourne have performed reasonably well in terms of loan arrears.

Source: Business Times, 14 Oct 2010

About 70% of transactions from office sector

(SYDNEY) Australian commercial property transactions are climbing as the country’s economic growth draws investors seeking income and capital growth, CB Richard Ellis Group Inc said.

About A$2.6 billion (S$3.3 billion) of properties changed hands in the third quarter, 75 per cent more than a year earlier, the world’s largest commercial real-estate broker said in an emailed statement yesterday.

Office properties accounted for about 70 per cent of the transactions, when on average they make up 50 per cent, it said.

‘This type of stock is ready to sell, with a large number of new office buildings featuring long leases and attractive depreciation benefits available for incoming investors,’ Kevin Stanley, executive director for global research and consulting at CBRE, said in the statement.

Investors are drawn by the ‘bright prospects for income and capital growth in the office sector’ driven by recent employment growth, he said.

Australian job growth exceeded forecasts in August, with employers adding 30,900 workers, sending the unemployment rate down to 5.1 per cent, the lowest since January 2009.

While the gain in property transactions hasn’t pushed rents up yet, the increase in vacancy rates in major markets has slowed, Mr Stanley said.

Industrial property deals accounted for 23 per cent of third-quarter sales, and retail for 7 per cent, CBRE said. Overseas investors purchased 42 per cent of the properties up for sale in the quarter and 36 per cent in the year to date, according to CBRE. On average they account for about 15 per cent. — Bloomberg

Source: Business Times, 30 Sep 2010

An increase in residential property prices has occurred in all major capital cities, reports DANIEL BOMAN

AUSTRALIAN residential property price growth has moderated over the past quarter, with the growth spurt of late 2009 being replaced in mid-2010 by stabilising prices.

The orderly slowing in price growth, partly achieved by disparaging words from the Reserve Bank of Australia, and three interest rate rises, has quelled fears that Australian housing may be becoming overpriced.

Australia’s capital cities recorded a weighted average of 3.1 per cent growth in established housing prices over the quarter ending June 2010, a reasonable decrease from the 4.8 per cent growth figure during the March 2010 quarter.

Over the past year, data from the Australian Bureau of Statistics show an 18.4 per cent increase in the weighted average established house price for Australia’s capital cities, a strong result that has been buoyed by a strong consumer confidence and an undersupply of housing created by a drop off in housing construction during the global financial crisis.

The increase in residential property prices has occurred in all major capital cities but has been concentrated in the south, with Melbourne recording the largest increase of 24 per cent over the last 12 months, followed by Sydney at 21 per cent, and Canberra at 20 per cent.

In the west, Perth recorded 13 per cent, and on the north-eastern coast Brisbane returned 9 per cent. The stronger growth in the southern cities can be attributed to their relatively poor performance during 2006/07, with the current high growth rates considered to be ‘catch up’ to the other centres of Perth and Brisbane.

While Australia’s diversified economy, stable political climate, and secure banking system allowed it to avoid a technical recession, worldwide funding shortages lead to a reduction in bank lending to residential developers.

As a result, housing construction failed to keep pace with Australia’s strong population growth.

Across the country only 139,000 dwellings commenced construction during 2009, despite an indicative need for an additional 166,000 dwellings due to a population increase of 432,000.

This undersupply has been most acute in New South Wales (undersupplied by 19,000 dwellings) and Queensland (undersupplied by 12,000 dwellings).

In some states the total number of houses constructed exceeded the supply by a small amount, such as South Australia (oversupplied by 3,000 dwellings).

Across the country the net total was an undersupply of 27,000 dwellings, providing the basis for the recorded price growth.

With the easing of the global financial crisis, the availability of funding has improved and housing construction has gained pace.

During the last quarter of 2009, dwelling commencements were slightly above the indicative requirement, partly filling the undersupply created in the earlier part of the year.

Looking forward, dwelling commencements are expected to continue improving, but it will take some time to meet this undersupply and providing resistance to price falls.

The writer is research manager, DTZ Australia

Source: Business Times, 23 Sep 2010

(SYDNEY) Office rents and capital values in Sydney are expected to grow more than 50 per cent by 2014 due to limited supply and solid employment, property firm CB Richard Ellis said yesterday. Sydney’s central business district (CBD) is expected to see the strongest growth among all the major cities in Australia, with gross effective rent seen rising 55 per cent and capital value going up 53 per cent by 2014, according to CBRE.

Gross effective rent includes incentives, which are expected to halve in the next five years and are likely to contribute to the solid growth, it added.

‘Sydney will lead the way, with strong net absorption in 2011 expected to see rents in the CBD surpass those in Perth which will restore Sydney to its position as the most expensive office market in the region,’ CBRE’s national director (office services) James Patterson said in a statement.

Mr Patterson also said that the Sydney office market may face some challenges when a A$6 billion (S$7.5 billion) waterfront office and residential development, the Barangaroo project, is completed. Lend Lease, which is leading the project, said that the first commercial building at Barangaroo South will be occupied by 2014.

Melbourne’s CBD also is expected to see healthy growth with gross effective rent climbing 45 per cent and capital value rising 51 per cent by 2014, the report said.

Between 2005 and last year, the Perth office market was the strongest performer due to a mining boom, recording nearly 80 per cent growth in capital value and 87 per cent jump in rent, CBRE said. — Reuters

Source: Business Times, 16 Sep 2010

(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