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

(SYDNEY) Foreign investment in Australia’s office market climbed to a record high in the past 12 months as the economy’s resilience continued to draw investors seeking growth, property firm CBRE said yesterday.

In the 12 months to June, major office sales totalled A$2.4 billion (S$2.8 billion) of which 70 per cent was spent by offshore investors, CBRE said.

‘International investors are coming to Australia with firm mandates approved and the equity to spend. They are confident about our real estate and see exceptionally good growth prospects,’ CBRE regional director Rob Sewell said in a statement. ‘If the assets fit the brief, they come to the table and bid.’

Around 49 per cent of buyers were from Asia with South Korean investors accounting for 28 per cent, due in part to the South Korean National Pension Service’s purchase of Sydney’s Aurora Place for A$685 million, CBRE said.

German investors accounted for about 15 per cent of the buys and Swiss players represented 5 per cent.

Australia’s economy remained resilient with its jobless rate at 5.4 per cent, compared with 9.7 per cent in the United States and around 10 per cent for Europe.

CBRE said yields on the office buildings purchased by offshore investors ranged from 7.5 per cent to 8 per cent, and they were likely to continue to dominate the market in the second half of the year. — Reuters

Source: Business Times, 10 Jun 2010

Interest rate increases cool demand from first-time buyers

(SYDNEY) Australian home loan approvals fell in April for a seventh straight month, adding to evidence that the Group of 20′s most aggressive round of interest rate increases has cooled demand among first-time buyers.

The number of loans granted to build or buy houses and apartments slipped 1.8 per cent to 47,669 from March, when they declined a revised 2.9 per cent, the statistics bureau said in Sydney yesterday. The median estimate of 20 economists surveyed by Bloomberg News was for a 2 per cent drop.

Plunging housing finance approvals may cool the nation’s property market, which surged 20 per cent in the 12 months through March 31.

Yesterday’s report may also prompt central bank governor Glenn Stevens to keep the benchmark interest rate unchanged in July for a second month after boosting the rate six times between October and May. He described monetary policy last week as ‘appropriate for the near term’.

‘Housing finance demand has moderated considerably,’ Bill Evans, chief economist at Westpac Banking Corp in Sydney, said ahead of yesterday’s report. ‘Finance to first home buyers has retreated sharply,’ he added.

Borrowing has tumbled since the start of the fourth quarter after Prime Minister Kevin Rudd’s government began reducing A$21,000 (S$24,425) 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 16.3 per cent of dwellings that were financed in April, up from 15.9 per cent in March and compared to 28.1 per cent in April 2009, the statistics bureau said yesterday.

Mr Stevens and his board increased Australia’s overnight cash rate target by 150 basis points between October and last month to 4.5 per cent.

The increases have led to signs of cooling Australia’s economy, which skirted last year’s global recession, stoked by government stimulus spending and a rebound in the property market. Gross domestic product growth slowed to 0.5 per cent in the first quarter from the previous three months, when it jumped 1.1 per cent, a report showed last week. A report published yesterday by Westpac Banking Corp showed consumer confidence fell in June for a third straight month.

The total value of home loans rose 0.8 per cent to A$21.7 billion in April, yesterday’s report showed.

The value of lending to owner-occupiers advanced 0.6 per cent. The value of loans to investors gained 1.3 per cent. — Bloomberg

Source: Business Times, 10 Jun 2010

(SYDNEY) A slowdown in Australia’s population growth, as long-term visitors leaving outnumber those arriving, could ease pressure on rental markets and lead to a ‘relatively benign interest rate environment’, BIS Shrapnel senior economist Jason Anderson said.

Population growth will slow to about 1.5 per cent in the 2011 fiscal year and to 1.3 per cent in 2012, on the exit of visitors holding student and business visas of about four years, Sydney-based Mr Anderson said in an emailed statement. Those visa holders arrived over the past three years, he said.

‘Overall, a few years of weakening population growth will have some mixed effects on the economy,’ Mr Anderson said. ‘It will lead to more moderate growth in household spending, at a time when the income gains from the commodity cycle will already be boosting national income.’

The nation’s population increased 2.1 per cent in the year to September 2009, the fastest expansion since the mid-1960s and three quarters of a percentage point quicker than the average for the past 20 years, according to the Reserve Bank of Australia.

Net migration jumped 34 per cent from a year earlier, statistics bureau data show, as a labour shortage and low unemployment pushed up the number of people coming on long-term visitor visas.

Moderate employment growth as population growth slows will result in less inflationary pressures and only two rate increases in 2011, Mr Anderson said. — Bloomberg

Source: Business Times, 18 May 2010

(SYDNEY) Australian demand for loans to buy houses sank to nine-year lows in March, providing further evidence that rising interest rates and a roll back in government cash handouts were hurting the mood of home buyers.

The slackening demand adds to the case for the Reserve Bank of Australia (RBA) to refrain from tightening policy for a while, having already lifted rates in six of its last seven policy meetings.

‘The odds are that the RBA stays on the sidelines for a couple of months,’ said Su-Lin Ong, an analyst at RBC Capital.

‘The combination of higher mortgage rates, a paring back of the first home owners grant at the start of this year, and further strength in house prices in the first quarter is clearly having a marked impact upon the appetite for borrowing.’

The number of home loans taken out in March fell 3.4 per cent to 48,620, seasonally adjusted, the lowest since March 2001.

Notably, demand for loans to build new homes also dropped a hefty 7.3 per cent, the biggest fall in nearly eight years, suggesting that construction activity could cool next year after booming this year.

If indeed fewer homes are to be built next year, property prices may climb even higher, an outcome that could unsettle the RBA. For as it is, Australian home prices are among the least affordable in the world due to a chronic shortage in housing.

Analysts say that demand for home loans usually flag the growth in approvals for constructing new homes by three to six months.

‘The RBA will not want to see a marked slowing in construction given the already established shortfall. This would simply put further pressure on house prices,’ Ms Ong said.

The market was steady on the data, with the Australian dollar little changed at US$0.8939. Interbank futures showed investors were only fully priced for rates to rise to 4.75 per cent by November, from 4.5 per cent now.

Yesterday’s data showed investment demand was the only resilient part of the market for home loans, with a 3.0 per cent rise in March after seasonal adjustments. That boded well for the rental market as it suggested more houses were available.

Yet, Julene Lee, an economist at Westpac, said that it is crucial to differentiate whether investors were buying existing housing stock or if they were looking to invest in new homes.

‘Certainly there is the need for further additions to the housing stock given pent-up demand and strong population growth,’ Ms Lee said.

The RBA has warned repeatedly that a shortage in housing may push up home prices. Prices have already recovered to record highs by most measures, even as the rest of the world is only starting to emerge from the financial crisis.

A private report showed that Australian house prices grew a sizzling 16.2 per cent in the first quarter, their fastest pace in six years.

The run-up in home prices was one reason the RBA has lifted rates by an aggressive 150 basis points since October to cool property demand.

But it is also well aware that higher borrowing costs are a double-edged sword since they crimp the construction of new homes, which is just what the market needs. — Reuters

Source: Business Times, 13 May 2010