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

CHIP Eng Seng Corporation has extended its footprint overseas with the purchase of a A$20.2 million (S$25.8 million) site in Melbourne.

The deal is considerable when it is seen against the property and construction firm’s net profit of $75.3 million for FY2009.

The land parcel is located at Mackenzie Street, in the eastern part of Melbourne’s central business district, and spans around 20,000 sq ft. Chip Eng Seng plans to build a 32-storey tower on the site, with 350 residential apartments and other amenities such as shops.

This site marks the company’s third development project in Australia. It had earlier completed a commercial building and a residential project in Adelaide.

‘With the stabilising world economy, we believe that this is an opportune time for us to expand our development property portfolio,’ said Chip Eng Seng executive chairman Lim Tiam Seng.

‘Melbourne represents a great opportunity as the city is currently experiencing a shortage in supply even as the population continues to increase.’

Chip Eng Seng does not expect the project in Melbourne to have any material impact on its net tangible assets and earnings per share for the current financial year ending Dec 31. It will be funding the site purchase using internal funds and bank borrowings.

As at end-2009, the company had cash and cash equivalents worth $76.1 million and a net debt to equity ratio of 0.15.

Mr Lim expects Chip Eng Seng’s cash position to strengthen further when its joint development projects, The Parc Condominium in the West Coast area and City Vista Residences near Cairnhill, receive their temporary occupation permits this year.

‘This puts us in an excellent position to pursue opportunities in Singapore and the region, as well as allow us to tender competitively for construction pro-jects,’ he said.

Chip Eng Seng’s most recent property launch was that of Oasis@Elias in Pasir Ris. The company has been bidding for land at state tenders in the last few months in a bid to top up its residential land bank.

The counter closed unchanged yesterday at 39 cents.

Source: Business Times, 16 Mar 2010

Biggest jump in 8 years comes after banks had forecast a 3% increase

Australian home loans fell the most in nearly eight years in January, hit by the scaling back of government grants to buyers and higher mortgage rates, suggesting past increases in interest rates were starting to bite.

The 7.9 per cent drop in mortgage commitments in January came as a complete surprise to analysts who had forecast a 2.0 per cent rise and broke a string of upbeat economic news, briefly knocking the Australian dollar lower.

It also contrasted markedly with a survey of consumers for March that showed confidence remained at very high levels even after the Reserve Bank of Australia (RBA) last week lifted its cash rate for the fourth time in five meetings.

Indeed, the scale of the fall in home loans went against what the banks themselves had experienced, and they hold around 90 per cent of the mortgage market. The top four banks had forecast a rise of 3 per cent in housing finance.

‘This is a very strange outcome,’ said Michael Workman at Commonwealth Bank. ‘It goes against what we and the other major banks had seen in our own numbers and against other indicators like housing credit.’

It would also have come as a surprise to the central bank which has been resolutely upbeat on the domestic economy.

Earlier yesterday, RBA assistant governor Philip Lowe predicted the economy would grow at, or above, average for the next couple of years and so support a strong labour market. His concerns about housing were that the country was not building enough new homes to meet the demands of a rapidly growing population, thus pushing prices higher.

Home prices have been rising steadily for months and one closely watched measure hit record highs in January.

The Australian dollar took a knock after the mortgage figures but bounced back to trade higher on the day on the view house prices would stay firm as housing supply struggles to keep up with demand from a fast-growing population.

After raising rates last week to 4 per cent, the RBA made it clear that further moves would be needed to keep inflation restrained. The market continues to price in around a one-in-three chance of a rise to 4.25 per cent in April and has fully priced in such a move by June.

There was little sign as yet that higher rates had dented household sentiment much. A survey of 1,200 consumers by Westpac showed its index of confidence actually edged up 0.2 per cent this month even after the latest increase in interest rates.

That left it 37 per cent up on March last year and well above historic averages. Key was the astounding performance of the labour market which generated 200,000 new jobs in the five months to January and drove the unemployment rate down to 5.3 per cent.

The February employment report is due today and expectations are for another healthy rise of 15,000.

Source: Business Times, 11 Mar 2010

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