Sydney real-estate agent Poh Ling Ee remembers the young couple who came to her hoping she could help them buy their first home for a reasonable price.

But with a buying frenzy making Australian homes among the world’s least affordable, Ms Poh said her advice was to take the next home they liked and not quibble too much about the cost.

“You just pay whatever you have to pay to get it before auction,” she said.

In Australia’s largest cities of Sydney and Melbourne, the growth in property prices has been enough to ensure many prospective home owners are priced out of the market before they make their first tentative bid.

A house which cost A$700,000 ($845,600) a year ago now sells for A$800,000 as housing supply fails to keep up with the demands of an increasing population, Ms Poh said.

“Also, there’s been a lot of foreign buyers,” she says, citing the case of a Chinese man who paid A$750,000 cash for a two-bedroom home. “They outbid everyone.”

Australia boasts some of the least affordable housing in the world, according to the United States-based Demographia survey, which found houses in Sydney, Melbourne and Adelaide are less affordable than in London and New York.

Australia’s central bank, which has lifted interest rates six times since October, is keeping its eye on the market.

“Over the past 15 months, capital city housing prices have risen by an average of around 1.0 per cent a month, to be 15 per cent above their trough in late 2008,” the Reserve Bank of Australia said on Friday.

The bank noted that the supply of new housing is not keeping up with demand, while the rise also reflected improved economic growth.

Analysts expect the situation to worsen in Sydney, Australia’s largest city.

The Australian Bureau of Statistics said last week that homes in Sydney have risen 21 per cent over the year to March, and those in Melbourne rocketed 28 per cent.

Perhaps the best sign of the frenzied buying is the sale of a four-bedroom terrace house in Sydney’s trendy Annandale, which fetched A$1.3 million in December 2008 but auctioned for more than A$1.8 million last month.

Source: Today, 10 May 2010

Interest rate hikes fail to dampen housing demand

(SYDNEY) Australian homebuilding approvals rose in March at the fastest pace since 2002, a sign that housing demand hasn’t been dampened by the central bank’s world-leading round of interest-rate increases.

The number of permits granted to build or renovate houses and apartments gained 15.3 per cent from February, when they dropped a revised 2.7 per cent, the Bureau of Statistics said in Sydney yesterday.

The median estimate of 22 economists surveyed by Bloomberg News was for a 0.8 per cent gain.

The Reserve Bank of Australia boosted the benchmark lending rate on Tuesday for the sixth time in seven meetings, pushing borrowing costs to what Governor Glenn Stevens described as ‘average’ levels.

The moves are partly aimed at preventing a property bubble after housing prices surged 20 per cent in the 12 months through March.

Yesterday’s report is ‘encouraging and a good leading indicator for employment, particularly for workers in the construction industry,’ said Michael Turner, an economist at 4Cast Ltd in Sydney, whose prediction of a 6 per cent gain in approvals was the closest of the analysts surveyed by Bloomberg.

Still, home-building approval figures are ‘highly volatile,’ Mr Turner said. ‘You’d imagine there have been one or two large projects’ approved in New South Wales and Victoria, Australia’s most populous states.

The Australian dollar rose to 91.02 US cents at 12.12 pm in Sydney from 90.89 cents just before the report was released. The two-year government bond yield was unchanged at 4.90 per cent.

Approvals fell more than 8 per cent in the first two months of this year after Prime Minister Kevin Rudd reduced grants on Jan 1 to first-time buyers of new homes to A$7,000 (S$8,800) from as much as A$21,000.

Home-loan approvals declined in February for a fifth straight month, dropping 1.8 per cent to 50,287 from January, a report showed on April 12.

Rising house prices, inflation and a forecast mining boom triggered by surging Chinese demand for Australian exports of iron ore and coal, were among reasons Governor Stevens increased the overnight cash rate target on Tuesday by a quarter point to 4.5 per cent.

Policy makers have moved the benchmark rate by 1.5 percentage points from a half-century low of 3 per cent in early October, adding about A$3,600 a year to repayments on an average A$300,000 mortgage.

Mr Stevens said on Tuesday that the bank’s increases represent a ’significant adjustment’, a signal that policy makers may refrain from moving again next month, according to all 24 economists surveyed by Bloomberg News after the decision.

Approvals to build private houses rose 0.5 per cent to 9,779 in March from February.

Approvals for apartments and renovations advanced 59.9 per cent to 4,558.

Australia’s services industry also expanded in April for the first time in five months, according to an index published yesterday by Commonwealth Bank of Australia and the Australian Industry Group.

The gauge gained 3.4 points to 52.3 from March. — Bloomberg

Source: Business Times, 6 May 2010

Economists expect quarter point rate hike at central bank meeting today

(SYDNEY) Australian house prices rose more than estimates in the three months through March, increasing the likelihood of the central bank boosting borrowing costs today.

An index measuring the weighted average of prices for established houses in the eight capital cities climbed 4.8 per cent from the previous three months, the Australian Bureau of Statistics said in Sydney yesterday. The median estimate of 18 economists surveyed by Bloomberg News was for a 3 per cent gain.

House prices surged 20 per cent in the 12 months to March 31, a key reason central bank governor Glenn Stevens is forecast by 18 of 24 economists surveyed by Bloomberg News to raise the benchmark lending rate today by a quarter percentage point to 4.5 per cent, the sixth increase in seven meetings.

Reports published earlier yesterday showed manufacturing growth accelerated in April to the fastest pace in almost eight years, and a gauge of annual inflation accelerated in April to near the top of the central bank’s target range.

The Reserve Bank of Australia aims to keep inflation between 2 per cent and 3 per cent on average.

‘While this pace of growth may ease in the future, strong auction clearance rates and resilient demand from potential home buyers amid relatively weak supply is likely to push prices’ higher, Paul Brennan, an economist at Citigroup Inc in Sydney, said ahead of yesterday’s report.

Prices rose the most in Melbourne, gaining 6.7 per cent, followed by a 5.4 per cent advance in Canberra and a 5.3 per cent increase in Sydney, yesterday’s report showed.

Demand for homes surged in 2009 after the government tripled in late 2008 payments to first-time buyers of new dwellings to A$21,000 (S$26,600), and doubled the grant to A$14,000 for existing homes.

Those payments were reduced on Jan 1 to their original A$7,000.

The government last month also moved to tighten rules on foreign investment in real estate and introduced penalties to enforce the changes to ensure pressure isn’t placed on housing availability for citizens.

Temporary residents will require approval from the Foreign Investment Review Board to buy property, and will have to sell when leaving the country, Assistant Treasurer Nick Sherry said on April 24.

It ensures ‘working families are not being priced out of their own family homes,’ said Prime Minister Kevin Rudd, who faces an election this year.

Growth in dwelling prices may slow in the coming months as the central bank extends its world-leading series of interest rate moves.

Traders are betting there is a 58 per cent chance of a quarter-point increase in the overnight cash rate target today, according to Bloomberg calculations based on interbank futures on the Sydney Futures Exchange. — Bloomberg

Source: Business Times, 4 May 2010

Australian property trusts have improved their standing over the past year after cutting debt and repairing their balance sheets, according to a Standard & Poor’s report.

‘This time last year, few Australian corporates were having as tough a time as A-Reits,’ Craig Parker, an analyst at the credit rating company, said. ‘Since then, rated A-Reits have recapitalised themselves with new equity and aggressively reduced expensive debt.’

Many have also cut development projects, sold off non-core assets and raised capital, Mr Parker said.

Australian property trusts largely completed writedowns in the six months ended Dec 31, after the 16 members of the S&P/ASX 200 A-Reit Index reported combined losses of A$19.5 billion (S$24.9 billion), and lowered revaluations of A$21.7 billion in the year to June 30, according to data compiled by Bloomberg. The A-Reit index has climbed 62 per cent since its trough in March 2009.

The equity raisings undertaken by most property trusts in 2009 have reduced the amount of short-term debt needed to be refinanced in 2010 and 2011 to about A$7.7 billion from A$12.6 billion, S&P said. A-Reits now owe about A$35.3 billion in total, a A$10.2 billion drop from before the capital raisings, S&P said.

‘The equity raised has been used to repay expensive debt and better position the A-Reit sector to cope with much higher debt costs,’ Mr Parker said.

Stabilisation of asset values in the first half of this year, combined with an economic recovery in Australia, will keep retail and industrial property markets steady, according to S&P. Offices, though still needing incentives to attract tenants, will have moderate declines in real rents, it said.

Rising interest rates are ‘of concern’, even though most trusts do hedge to protect against the impact of higher borrowing costs, Mr Parker said. ‘While we believe the sector has sufficient latitude in their covenant headroom limits, any further deterioration as a consequence of a sharp spike in interest costs would be of concern,’ he said.

Source: Business Times, 22 Apr 2010

LOCAL companies Thakral Holdings and Stamford Land Corporation remained among the top 10 hotel owners in Australia last year, as the economic downturn forced some other major players to pare their holdings, a report shows.

According to Jones Lang LaSalle Hotels (JLLH), further changes may be afoot this year, as hotel owners continue to take advantage of strong demand from domestic and offshore private investors.

‘It is likely that investment will be dominated by private investors and select owner-operators for the short to medium term until managed funds return to the market,’ said JLLH’s managing director for investments (Asia) Mike Batchelor.

Investors last year were largely high net worth individuals from Asia, who have invested $900 million in hotels in Australia over the past two years, he said.

Another trend occurring in Asia is a shift in hotel ownership, going by the increasing number of intra-regional hotel transactions, Mr Batchelor said, pointing to recent purchases of Swissotel Merchant Court in Singapore and Niseko Village in Japan by Malaysian companies TA Enterprise Bhd and YTL Hotels respectively.

Thakral retained third place in the top 10 list of hotel owners in Australia, with eight properties offering some 2,600 rooms, at end-December last year. Stamford Land retained its eighth place with seven hotels offering about 1,770 rooms.

Except for Thakral and Stamford Land, the other players in the top 10 list are from Australia.

Heading the list is Tourism Asset Holdings, which owns 43 properties that account for some 6,560 rooms.

And while other companies were either holding back on acquisitions or selling properties to cut debt or dispose of non-core assets, Amalgamated Holdings Group rose two places to seventh in the top 10 by acquiring three hotels.

GPT Group, which had made the top 10 for eight straight years, is nowhere to be seen in the latest list after it divested the Four Points by Sheraton Sydney and 10 assets within its Voyages Hotels & Resort portfolio last year.

Source: Business Times, 14 Apr 2010

Australian home prices rose a further 1.4 per cent in February to reach fresh record highs, according to one industry measure, underlining why policy makers are concerned about speculative froth in the market.

The Data-Rismark Hedonic Australian Home Value Index rose by 1.4 per cent in February on top of an upwardly revised 2 per cent in January. Home prices are up 12.7 per cent on February last year, the fastest pace in 25 months. This series is based on the largest property database in Australia and is well regarded by analysts.

Data-Rismark calculated the median capital city house price across Australia at an all-time peak of A$548,413 (S$705,423), with the median apartment valued at A$450,619.

Just this week, Reserve Bank of Australia (RBA) governor Glenn Stevens warned against speculation in the property market that was pushing up prices. The revival in prices is one reason the central bank lifted interest rates by 100 basis points since October.

Source: Business Times, 1 Apr 2010

(SINGAPORE) Stamford Land Corporation could be selling its Grade A office tower in Perth’s central business district for at least A$140 million (S$179 million).

According to The West Australian, the 13-storey Dynons Plaza at Hay Street is under construction and Stamford Land is ‘gearing up to place the asset on the market’.

Industry sources told the Australian paper that the building has a value of A$130-140 million. Chevron will be leasing the entire place – which has 13,000 square metres of office space – when it is ready in the next few weeks.

‘It is a new building, a quality long-term lease, so those sorts of assets are attractive to the market,’ said Colliers International director of investment sales Ian Mickle to The West Australian.

BT understands that Stamford Land is expecting offers of more than A$140 million. This could reap a considerable profit for the company given that the total cost of buying, holding and developing the land could have come up to some A$80-90 million.

Dynons Plaza is located next to Woodside Plaza, which serves as the headquarters for another energy firm Woodside Petroleum.

The Dynons Plaza site is part of a bigger parcel which Stamford Land bought for A$20 million in 1996. The company has sold the other parts of the land.

The West Australian reported that Stamford Land had originally planned to build a five-star hotel at the Hay Street site, but it later constructed an office block when there was no business case for a hotel.

The change seems to be working in Stamford Land’s favour. BT understands that Chevron’s lease for Dynons Plaza lasts for ten years, and its rents are set to escalate every year. Despite this, Stamford Land is said to be selling the site to focus on its core business of running luxury hotels.

Stamford owns and operates Stamford Hotels in Australia and New Zealand. The Singapore-listed counter gained 1.5 cents to close at 47.5 cents yesterday.

Source: Business Times, 30 Mar 2010

The nation avoided the recession that hit most developed countries, says DANIEL BOMAN

AUSTRALIAN residential property prices have been quick to return to growth after the global financial crisis, underpinned by a strong economy and increasing population growth.

Australian capital cities recorded an average of 5.2 per cent growth in dwelling prices over the fourth quarter of 2009, a strong improvement on the 1.3 per cent decrease in the corresponding quarter a year ago.

Over the past year, figures from the Australian Bureau of Statistics show house price growth has equated to 13.6 per cent, a strong result that has been buoyed by a strong recovery in consumer confidence and consistently strong economic growth.

Due to its diversified economy, stable political climate and secure banking system, Australia was able to avoid the recession experienced in most of the developed world during 2008/09.

Over the last 12 months Australia’s GDP grew by 2.7 per cent, well above the averages of the G7 countries at -0.9 per cent, the European Union at -2.3 per cent and the US at 0.1 per cent. Economic growth is forecast to continue, with Oxford Economics predicting a further 2.7 per cent growth for 2010 and 4 per cent for 2011.

The strong economic performance is attracting an increasing number of foreign migrants to the country, with a net total of 285,300 persons moving to Australia during the year ended June 2009, up from 213,600 the previous year. Coupled with a strong natural increase of 157,800, the demand for Australian property continues to be underpinned by a need for new dwellings to meet a rising population.

The increase in residential property prices is occurring in all major capital cities in Australia, with the largest city, Sydney, recording price growth of 12.8 per cent over the past year.

The city of Melbourne, located to the south of Sydney recorded the largest increase last year, returning 19.7 per cent, while Brisbane to the north recorded 10.9 per cent.

In the west, Perth recorded 11.5 per cent growth, largely underpinned by the strong performance of the mining sector which comprises a large proportion of the city’s economy.

Due to the lack of bank finance created by the global crisis, the construction of new dwellings has not kept pace with Australia’s strong population growth.

During the year ended June 2009, Australia’s population increased by 443,100 persons. With an average household size of 2.6 persons per dwelling this creates an indicative demand for an additional 170,000 dwellings.

Yet during the same period, only 131,300 new dwellings commenced construction, creating an indicative shortage of 39,000 dwellings. This is expected to place further upward pressure on prices and rents.

On a closing note, it is interesting to note a changing demand in dwelling types by Australian buyers and renters.

In the past, new development has usually taken the form of house-and-land packages located on the outer fringes of major cities, but now development is increasingly focused on inner city apartment developments and smaller lot housing.

In our view, this change is a response to a growing shortage of land in the outer suburbs driving up prices, coupled with a desire of many people to live closer to their workplace and to the inner city restaurants, bars and shopping.

Changing demographics have also increased the proportion of people seeking to rent a property rather than to own, creating opportunities for investors to own low-maintenance inner city units.

Daniel Boman is research manager at DTZ Australia

Source: Business Times, 25 Mar 2010

Vacancy rates for Australian offices are likely to rise further on new supply and should peak by the fourth quarter this year, setting the stage for recovery in 2011, research firm Jones Lang LaSalle said yesterday.

Yields on office properties peaked at 7.78 per cent in Q3 2009 with values falling 25 per cent from their peak in December 2007, but completion of new buildings will continue to push up vacancy rates, the research firm said.

‘There was a fairly large supply pipeline that was under construction before the financial crisis hit,’ said David Rees, regional director and head of research for Jones Lang LaSalle (JLL).

‘Although we are saying this is sort of the bottom of the cycle, we are not saying it’s going to be a big bounce back in 2010. It’s more of a ‘U’ rather than a ‘V’.’

An average office vacancy rate for central business districts (CBD) of major Australian cities is expected to peak at around 9.6 per cent in the October-December quarter this year, up from 8 per cent in the fourth quarter last year. The Sydney and Melbourne CBDs, both concentrated with finance and insurance companies, will likely be the first markets to recover, Mr Rees said.

‘Banks and brokers are back in hiring again, so demand for space is rising. And secondly, both of those markets have quite limited supply construction pipeline. So they don’t have a big overhanging space.’

Office rental growth will likely start to pick up in 2011, and Mr Rees expects a high single-digit to low double-digit growth over the next 2-3 years.

Meanwhile, the retail sector is on the mend with yields on regional malls peaking at 6.6 per cent in Q4 last year. But Mr Rees said rising interest rates and the withdrawal of the government’s fiscal stimulus measures will likely put a damper on consumer spending and limit rental growth for retail properties.

Source: Business Times, 23 Mar 2010

They must change to cope with population growth and climate change or face social unrest and urban decay

Australia circa 2050, population 35 million, climate change induced rising sea levels have flooded the Gold Coast resort region, apartment blocks are now used to grow food and people commute in monorail pods above the sea.

In another city, Australians live on floating island pods with apartments both below and above sea level, the population has shifted from land to the sea because of the sky-rocketing value of disappearing arable land.

Climate change has also forced many Australians to move inland and create new cities in the outback, relying on solar power to exist in the inhospitable interior.

These are just a few urban scenarios by some of Australia’s leading architects shortlisted for ‘Ideas for Australian Cities 2050+’ to be staged at this year’s Venice Architecture Biennale.

While these images may sound like science fiction, many architects and demographers say that Australian cities must radically transform to cope with the pressures of population growth and climate change or face social unrest and urban decay.

‘If we don’t get this right . . . all hell breaks loose, or our cities break down, there’s not enough water, there’s not enough power,’ said one of Australia’s leading demographers, Bernard Salt.

Australia survived the global financial crisis, due largely to China buying its resources; and while resource exports will continue to bolster its economy for decades, future prosperity may be threatened by a growing, ageing population, according to an Australian government report released in February. The report said that Australia’s population was set to rise by 60 per cent to 35 million by 2050, mainly through migration, yet cities are already groaning under the present population.

‘One of the major frontier issues for Australia over the next decade will be the future of our cities,’ said Heather Ridout, chief executive of the Australian Industry Group, which is calling for major infrastructure investment in cities. Among the beneficiaries of such development would be property firms such as Lend Lease, Stockland and Mirvac Group, building material groups Boral Ltd and CSR, Australia’s top engineering contractor Leighton Holding Ltd, and the country’s biggest private hospital operator, Ramsay Health.

But demographers warn that Australian cities need to not only expand infrastructure, but ensure that future residents have equal access to city facilities. Racial riots at Sydney’s Cronulla beach in 2005 and a series of attacks on Indian students in the past year are signs of growing social tension in Australian cities, said demographers.

‘If we have a rising population, we need to make sure that we have appropriate infrastructure, so that we don’t lose the social cohesion that we take for granted,’ said Larissa Brown from the Centre for Sustainable Leadership. ‘We need affordable access to housing, to transport, to health care.’

While Australia is double the size of Europe, three-quarters of the country is sparsely populated countryside or harsh outback, leaving the bulk of the population to inhabit a thin strip down the south-east coast. In fact, around 50 per cent of the population live in the three largest cities – Sydney, Melbourne and Brisbane – on a combined land area that is about the size of Brunei or Trinidad & Tobago.

‘We’re at risk of seeing increasingly dysfunctional cities . . . we’re starting to see sort of fragmentation and breakdown of the transport systems and increasing frustration for the residents of those cities trying to get around,’ said Jago Dodson, urban researcher at Griffth University.

A State of Cities 2010 report released in March said that Australia’s major cities contribute neary 80 per cent of gross domestic product (GDP), but warned that worsening urban congestion would have a serious negative impact on economic growth if not addressed.

The Bureau of Infrastructure, Transport and Regional Economics estimates the cost of road congestion for the Australian cities was about A$9.4 billion (S$12 billion) for 2005. Left unchecked, this is projected to rise to A$20 billion by 2020.

‘Urban congestion contributes to traffic delays, increased greenhouse gas emissions, higher vehicle running costs and more accidents,’ said Infrastructure Minister Anthony Albanese. ‘It is a tragedy that many parents spend more time travelling to and from work, than at home with their kids. Relieve urban congestion and we improve our quality of life as well as our productivity,’ he added.

In February, a 10-year, A$50 billion transport blueprint was announced for Sydney which will see a new heavy rail network, 1,000 new buses and possibly a fast train linking Sydney with the port city of Newcastle, to its north. Sydney, Australia’s biggest city, is gridlocked daily, forcing a motorist who travels 22 km a day to spend three days stuck in traffic each year.

Private transport currently accounts for about 90 per cent of urban journeys in Australia. Transurban Group, which operates the nation’s major tollways, believes that car usage will continue to rise, despite a move to public transport.

‘Despite concern about climate change, road use in our cities is predicted to grow significantly in the next 20 to 30 years,’ said Transurban in a 2009 sustainability report. ‘New road projects will increasingly be part of integrated transport solutions for entire cities or transport corridors.’

But the company warned that future road projects will cost more to build and develop due to climate change, with Australia’s government seeking to introduce a carbon emissions trading scheme and pre-approval analysis of climate impacts of new projects.

Prime Minister Kevin Rudd’s government plans to invest A$36 billion in transport infrastructure in the next five years. Improving efficiency in energy and transport infrastructure could increase GDP by nearly 2 per cent, or the equivalent of A$75 billion, said Australia’s Productivity Commission.

Australia has one of the world’s highest home ownership rates, but the generational dream of a suburban home and garden looks set to be shattered. Over the next few decades, more Australians will be living in high- density housing, what some demographers call the ‘Manhattanisation’ of cities.

A new Sydney urban plan released in February calls for 700,000 new dwellings by 2036, with 70 per cent of development to occur within existing suburbs and only 30 per cent in new suburbs. If Sydney does not consolidate, the city would need to expand 1.5 times in size to accommodate its growing population and would run out of available land within 30 years, said the New South Wales (NSW) state government plan.

Demographer Mr Salt questions whether Australians will give up the Neighbours dream, citing the worldwide TV hit about life in a suburban Australian street. ‘Neighbours … is absolutely integral to the Australian psyche,’ said Mr Salt, a partner at KPMG.

Whether Sydney adopts a Manhattan or low-rise European urban plan, a rising population will put more pressure on housing stock. Australia already has one of the most expensive house prices in the world, and housing affordability is falling.

The Commonwealth Bank’s CommSec forecasts that housing prices, which rose 12 per cent in 2009, will rise by 8-10 per cent in 2010 due to a rising population and a lack of stock.

‘For investors, rising rents and home prices is an attractive combination,’ said CommSec’s chief economist James Craig. Leightons forecasts annual growth in residential construction of 6 per cent till to 2014. Mirvac, one of the country’s top apartment construction firms, also forecasts growth, citing A$759 million worth of exchanged contracts, focusing on large-scale projects which are transforming old industrial sites in Sydney.

Australia has an inhospitable interior forcing more than a quarter of its 20 million people to live in the south-east corner, where the two biggest cities and jobs are located. The projected population increase will impact heavily on Australia’s fragile environment, and require urban planning to ensure that future cities are environmentally sustainable.

Australians have the biggest houses in the worlds, nicknamed McMansions, and demographers said that homes may need to be retro-fitted with water tanks and solar panels to make cities more sustainable and reduce their environmental footprint.

Between 1998 and 2004 Sydney’s environmental footprint grew from 6.67 to 7.21 ha per person, but some Australians warn that there is a limit to the country’s population carrying capacity. ‘A bigger Australia doesn’t mean deeper soils, it doesn’t mean larger river flows, it doesn’t mean more rainfall. We’re only bigger in one sense – the increase in the total number of humans crammed into the narrow coastal strip,’ said Bob Carr, former New South Wales state premier.

Source: Business Times, 16 Mar 2010