Residential land sales reach highest level ever in last financial year
KYLAR LOUSSIKIAN THE AUSTRALIAN AUGUST 07, 2014 12:00AM
THE sale of new residential land reached its highest level ever in the last financial year, but it could be at its peak, according to an internal survey prepared for the home building industry.
The National Land Survey Program reports that in the last quarter of the year there were 4089 lot sales a month, significantly higher than the levels recorded at any point since the global financial crisis.The survey also warns that land stock ready for sale is at a record low.
The figures, compiled by research firm Research 4 by surveying growth locations around each capital city, also points to a widening affordability gap between Sydney and other capitals.
Adelaide was the most affordable city for the purchase of new land, with 65 per cent of all lots priced under $200,000, followed by Melbourne, southeastern Queensland, and Perth.
Affordability of new land in Sydney was substantially below other capitals, with only 7 per cent of land available for construction priced under $200,000.
Alan Soutar, the NSW and Victorian executive general manager of home-builder AV Jennings, said it would be difficult to find anything under $200,000 in areas closer to CBDs.
“Affordability is one of the key issues for us, and our ability to access a long-standing traditional marketplace is more restricted on the back of the cost of bringing on development of land,” he said. “The cost of building a house has stayed, over many years, in line with inflation, but the lack of affordability is being driven by the land component.” Mr Soutar said that two decades ago the land component of a house and land package was about 40 per cent of the cost. This had increased to 60 per cent, but this differed between cities.
Although the number of sub-$200,000 lots in Melbourne fell by 46 per cent in the last quarter, Victorian Planning Minister Matthew Guy said the state had a strategy to “put a lot of supply through” in growth corridors.
NSW Planning Minister Pru Goward said Sydney was building more new homes now “than at any time in the decade”.
“It’s nonsensical to simply compare the cost of land in Sydney with that of cities like Perth and Brisbane,” she said. “Naturally, incomes are higher in Sydney, reflecting the increased opportunity that comes with living in Australia’s global city.”
Weak office leasing market ‘to hit valuations’
THE AUSTRALIAN AUGUST 08, 2014 12:00AM
Sarah Danckert
Property Reporter
Melbourne
OFFICE landlords be warned — the weak leasing market is expected to start to crimp valuations over the coming years, despite the mammoth weight of capital being directed to the sector, according to analysts at brokerage CLSA.
The warning comes as figures from the Property Council of Australia show office vacancy rates have risen during the six months to July to 10.6 per cent nationwide.
Cromwell Property Group was likely to be hardest hit by the weak leasing market while Australia’s largest office landlord, Dexus Property Group, appeared to have avoided the brunt, CLSA’s John Kim and Sholto Maconochie said in a note to clients.
According to CLSA, the valuations of office towers are being supported by 20-year-high yields spreads and face rents that mask the incentives paid by landlords to keep tenants happy.
“While office valuations so far have been immune to the weak leasing market, we believe this is at risk over the next couple years,” the CLSA analysts said.
“With vacancy rates expected to peak in 2016, and incentives remaining high until then, we believe net face rents may come under pressure.”
According to CLSA, already some landlords, including Dexus, have been discussing leasing on “effective deals”, which points to lower incentives.
“But then this will have an impact on valuations,” the analysts added.
However, according to Colliers International agent Nick Rathgeber — who along with colleagues John Marasco, Leigh Melbourne and Savill’s Ian Hetherington are close to pulling off a $1 billion deal for CBUS Property — there is at least $30bn worth of capital looking to acquire Australian office assets.
Meanwhile, recent office transactions at 275 Kent Street and 52 Martin Place, both in the Sydney CBD, pointed to new benchmarks for office capitalisation rates, according to Colliers International head of valuations Dwight Hillier.
Apartment prices on way up
THE AUSTRALIAN AUGUST 09, 2014 12:00AM
Turi Condon
Property Editor
Sydney
THE wave of apartment developments is stoking land and building costs across the major capital cities, putting further pressure on apartment prices and seeding a potential boom-bust scenario in some markets.
Veteran developer David Devine is selling a Brisbane
site to a Chinese group for
$46 million, more than double the $22m he paid for the South Brisbane property in December.
While declining to comment on the sale of the former TAFE college, Mr Devine whose Metro Property Development has 1465 apartments in the pipeline and another 1000 planned, said land prices in Brisbane had risen 60 per cent in the past year on the back of strong demand from Asian developers.
“The result will be that apartment prices will increase,” Mr Devine said.
Former head of property for Macquarie Group Bill Moss said the rash of development would push up building costs and flow on to the price of apartments.
“It’s a classic building cycle. We don’t have inflation, sheer demand will send costs up.”
The cost pressures would take another year to build a head of steam, he said. But what could temper a potential boom-bust scenario was ongoing Asian, and particularly Chinese, investment in Australia’s residential market, Mr Moss said.
While offshore developers were contributing to the building boom, increasing demand from Chinese buyers could put a floor under the local apartment market, he said.
“One of the biggest risks will be if Chinese buyers walked away from their deposits.”
A report released yesterday by property advisory group Deep End Services and previewed by The Australian last month, estimated offshore-backed developers have 36,000 units either planned or under construction in Australia.
The consultants expect the
60 separate offshore, mostly Asian, companies would build an average of 6000 apartments a year in Australia between this year and 2018.
“As the projects become larger and take longer to build, we anticipate the number of completions is likely to rise substantially in 2016 before peaking in 2017,” Deep End
said.
Deloitte Capland Real Estate Advisory partner Damian Winterburn said less experienced developers were likely to see margins squeezed.
“Eighteen months ago the building pipeline was very soft, but now they (builders) are busy and looking at what business they will chase,” he said.
While Australian Bureau of Statistics figures showed a slight uplift of 0.3 per cent in construction work for the March quarter, the volume of construction was expected to fall in coming years, Mr Winterburn noted.
This would take pressure off the building trades as some moved from the commercial to the residential sector, he said.
Mr Devine sees a strong apartment market particularly in Brisbane for the next three to four years.
Crazy about property: the dangers of hard-sell seminars
PUBLISHED: 9 HOURS 58 MINUTES AGO | UPDATE: 9 HOURS 57 MINUTES AGO
DUNCAN HUGHES AND SAMANTHA HUTCHINSON
on a rainy Thursday evening a small but enthusiastic group of potential property investors meet on the first floor of an exclusive hotel in Melbourne’s bayside with sweeping views across the water to the city’s skyline.
They’re here to listen to the word of a new wave of property spruikers. Tech-savvy and able to pump their message through the internet, and via the ubiquitous YouTube, spruikers preach their message of turning clicks into gold bricks, drawing enthusiastic investors into dodgy developments.
They entice the willing into risky and highly geared property investments, under the guise of tapping into “untold wealth” opportunities. The investors are optimistic and trusting, keen to cash in on the buoyant housing market.
But they are often lumped with a dud property, their savings sucked dry.
It’s a scene being replicated at dozens of property investment seminars around the country.
“What’s happening now is 10 times worse then what happened during the last property boom a decade ago,” Neil Jenman, a consumer advocate who has counselled hundreds of victims during 15 years, says.
“This generation of spruikers saw that scores of spruikers got away with ripping hundreds of millions from thousands of victims last time and are fearless,” he says.
“It’s bigger, bolder and more brazen than ever,” says Neville Baker, a former policeman-turned-private detective who has spent seven years investigating spruikers for dozens of victims, including war veterans, widows, retirees and young families.
Veterans, such as John Fitzgerald, who has had running battles with consumer groups for years, have transformed themselves from town hall and soap box spruikers into sophisticated digital salesmen combining latest technologies with age-old tactics.
“Ten years ago Fitzgerald boasted that he could show anyone how to be a millionaire in six to 12 months,” Jenman says. “I’ll bet he can’t name one person for whom he has earned that sort of money other than himself.”
A confusing mish-mash of state regulations, administered by a range of fair-trading and consumer watchdogs that appear to lack any national co-ordination, make it easy for the unscrupulous to exploit anomalies and blindspots, according to consumer groups.
Some, such as the Western Australian Consumer Protection Office, have warned how spruikers routinely switch their operations from the east to west coast of Australia, carefully calibrating their profile to keep one step ahead of a crackdown.
Ten years ago, when turbo-charged spruikers like Henry Kaye were achieving cult status, national regulators raised the prospect of closing the loopholes, overhauling the laws and introducing a nationally co-ordinated system of regulation and policing.
ENTHUSIASM FOR REFORM EBBED
But reform enthusiasm ebbed with the demise of Kaye – whose National Investment Institute generated $45 million in an afternoon when 3000 devotees paid $15,000 each to hear him preach about property – and the onset of the Global Financial Crisis, which popped the investment bubble.
“The laws are a joke,” Jenman says. “The spruikers can effortlessly side-step state rules, confident that even if they are caught the punishment is like the light touch of a cabbage leaf before they set up shop again.”
The stakes are even higher, because some spruikers are closely aligned with real estate agents, developers and financial advisers who are tapping into superannuation savings using self-managed super funds, a $1.6 trillion pool of managed funds.
Reserve Bank of Australia figures reveal investors account for about 45 per cent of home loan approvals in NSW – a record and well above the previous peak in 2002-03.
Independent researchers, such as RP-Data, say Sydney house prices rose 1.5 per cent last month and are almost 15 per cent higher than a year earlier, a sign price growth may be accelerating.
Conservative commentators, such as banking giant HSBC’s chief economist Paul Bloxham, warn that property spruikers are the canary in the cage whose song, to the trained ear, is a siren that the property market could turn toxic for the foolish.
It is also a hot-house, a housing market that propagates property seminars for a new generation of suckers whose hope leads them to sacrifice their security for the soft sell, Jenman says.
Seminars and on-line presentations – which are normally curtain raisers for live events – follow a well-worn formula: free-to-attend forums to sell expensive mentoring and coaching programs; clubbish environments seducing invitees with a feeling of membership and exclusivity; downplaying of the risks and costs involved in property developments, and offers of secret advice to financial success.
Spruikers provide hints and teasers that entice participants to pay more for additional information, using manipulative and high-pressure strategies as part of a new-age discourse that is as much about goal setting and empowerment as it is about property investment.
Those who attend are counselled on the importance of being positive, and told to dismiss any hint of scepticism from friends as examples of “negativity” that needs to be weeded out of their life. They are also warned about the danger of procrastination, a mantra that neatly dovetails with a host of special rates and sign-on bonuses for those who take action and sign up on the day.
UP TO 10 PER CENT COMMISSION
“They claim to be wealth creators but they are sales people,” Baker says. “They are masquerading to the buyers that they are operating in their best interests when they are regularly receiving between 6.5 per cent and 10 per cent commission on property sales from real estate agents.”
A 6.5 per cent commission on an average property is between $30,000 and $50,000. Melbourne spruikers recently boasted about their close relationship – read commission incentives – with estate agents and regularly “recommend” three or four houses a week.
Some state caps on commission payments, such as 2.5 per cent in Queensland, are augmented by the spruikers being paid marketing and research fees, Baker said.
Direct investment in property, and associated financial arrangements, are generally not covered by financial services laws, triggering claims that the national security regulator, the Australian Securities and Investments Commission, fiddles as homes churn.
ASIC can nab them if they promote financial products – such as property investments structured as managed investments – under the Corporations Act.
ASIC recently warned investors to beware of “one stop shop” operations that package the recommendations, build and sell the properties.
But Baker says state and national regulators have neither the resources nor the stomach for long legal battles with spruikers.
“They really do not do much,” he says. “These spruikers have deep pockets and have repeatedly shown that they are happy to run up massive legal fees and tie up a prosecution in court for two or three years.
“The watchdogs are generally not that interested in that sort of commitment unless there is a big group of victims.”
Which is little comfort to the individuals who wanted to make a few bucks, but were left with nothing.
The Australian Financial Review
BY DUNCAN HUGHES
I think to many these are obvious bubble symptoms, and as usual as nobody knows when the bubble gonna pop, everybody thinks they wont be holding the baby when the music stops. My guess is it will pop when when US rates start edging up
Kudos to GG nonetheless for posting both side of the story even though he is bullish properties down under
Chinese developer Wanda launches $1.7bn Australian arm
ROSANNE BARRETT THE AUSTRALIAN AUGUST 12, 2014 3:59PM
ONE of China’s biggest developers will launch an Australian arm with $1.7 billion in capital to splash into the nation’s real estate market.
It will launch with a leading stake in the resurrection of a long-awaited Gold Coast high-rise complex.
In an announcement to the Hong Kong Stock Exchange today, the Wanda Group revealed it would form Wanda Australia, with funding up to $HK12.5 billion ($1.74 billion), to focus on real estate.
The Hong Kong listed property-development company, Wanda Commercial Properties and Wanda HK, would respectively contribute $HK7.5 billion and $HK5 billion to the new entity after assessing “the current real property market in Australia and expected acquisition and development costs for suitable real property projects”.
It will be financed through the company’s internal resources, debt and/or equity financing.
As previously reported in The Australian, Wanda Group is finalising its plans to enter the leisure and resort market on the Gold Coast through a joint venture with the Chinese Ridong Group’s $1 billion Jewel project.
The Dalian Wanda Group — headed by China’s richest man, Wang Jianlin — has embarked on an ambitious international expansion, buying the US’s biggest movie chain AMC Entertainment, Sunseeker yachts and two London high rises. It now has its sights set on Australia.
In a parallel announcement, Wanda announced a joint venture to develop the $1 billion Jewel apartment and hotel complex on the Gold Coast with a 55 per cent stake.
“It is intended that the Jewel Project Co will develop the Jewel Property into a mixed-use development consisting of residential units, commercial space, hotel units and parking spaces,” the announcement said.
Wanda’s Australian arm will provide initial capital of $88.5 million to the project and expects a total commitment of Wanda Australia Commercial’s capital commitment of $290 million.
The $1 billion Jewel project has approval for a triple-tower project on a 1.13 hectare site, including 110 metre of beachfront, in Surfers Paradise.
House prices rise 10pc on back of record investor demand
THE AUSTRALIAN AUGUST 13, 2014 12:00AM
Greg Brown
Property Reporter
Sydney
House price growth.
AUSTRALIAN homeowners enjoyed more than 10 per cent price growth in the year to June, with a record level of investor demand driving the Sydney market to price growth of 15.6 per cent.
Sydney prices increased by 3.1 per cent in the June quarter, while Melbourne prices increased by 1.3 per cent to finish the year 9.3 per cent higher.
Homes in Brisbane had June quarter prices rises of 1.8 per cent, while quarterly growth was more moderate in Adelaide (1 per cent), Canberra (0.8 per cent), Darwin (0.7 per cent) Hobart (0.3 per cent).
The Perth market is suffering due to the downturn in mining and was the only one to record a value decline over the June quarter (minus 0.2 per cent) to finish the year at a value increase of 3.6 per cent.
Australian Property Monitors senior economist Andrew Wilson said that the Sydney market was being driven by investors, which took up 58.5 per cent of the city’s home loan values in the month of June, at $5.1 billion.
“To give you some perspective, this is about 40 per cent higher than at the same stage last year,” Dr Wilson said.
“These buyers act highly speculatively and are encouraged by low interest rates and 20 per cent prices growth (in the last 18 months).”
But Dr Wilson said that price growth in the 2015 financial year would be half last year’s levels in Sydney and Melbourne, while Brisbane would fare better at price growth of about 7 per cent.
The Perth market will continue to struggle, he said.
Housing Industry Association economist Diwa Hopkins said that the June quarterly growth showed the market was slowing down, as it was about half the level of growth a year earlier.
“The signs are mounting that price growth is easing back to a more sustainable pace. Annual growth reached what looks to be a cyclic peak rate of 10.9 per cent in the March 2014 quarter.”
Ms Hopkins said that new home construction would improve.
“We expect starts to break through 180,000 in 2014, following nearly 170,000 last year. Continuing improvements in the supply of dwellings will be important in taking some of the momentum out of dwelling price pressures, and we may already be seeing early signs of this.”
There is no housing bubble: CBA
AAP AUGUST 13, 2014 2:30PM
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Australia's biggest lender does not believe the housing market is in bubble territory, despite soaring prices in some areas.
The Commonwealth Bank, which has unveiled a massive $8.68 billion cash profit, says the housing market isn't showing the characteristics of a bubble.
"Factors that typically characterise a house price bubble, such as rapid credit growth, an easing in lending standards and expectations of rapidly rising prices, are either not evident or evident only to a limited extent in Australia," the bank said in an investor presentation.
It said the influx of investors in the market was a "rational response" to low interest rates, with the Reserve Bank of Australia's cash rate stuck at 2.5 per cent for more than a year.
It said most of the recent price increases had occurred in Sydney, where prices had until now been stagnant since 2004, and in Perth, which was experiencing strong population growth. Gains in other cities and regional areas had been more restrained, it said.
Recent figures from the Australian Bureau of Statistics show Sydney house prices rose 15.6 per cent in the year to June, while Melbourne prices were up 9.3 per cent.
The Commonwealth also said a lack of new housing supply meant a significant fall in prices was unlikely.
The bank's statements follow a recent report by HSBC chief economist Paul Bloxham, who said the Reserve Bank would need to lift interest rates in 2015 to prevent a housing bubble from developing.
Chinese homebuyers seek wealth protection, migration options: report
RICK WALLACE AND SARAH DANCKERT THE AUSTRALIAN AUGUST 14, 2014 12:00AM
Sarah Danckert
Property Reporter
Melbourne
Foreign investment in real estate.
Foreign investment in real estate. Source: TheAustralian
WEALTHY Chinese investors spiriting money out of their home country to plunge into Australian property are motivated by the chance to secure future migration options and to put assets beyond reach of Chinese authorities, a report says.
Broker CLSA says Australia ranks second only to Canada as the preferred place for wealthy Chinese wanting to migrate.
Predicting a continuing flood of money from China, the report extrapolates emigration survey findings to suggest that as many as 10 million of the 70 million Chinese in the top income bracket would be willing to migrate to Australia if allowed.
“A key reason (for buying here) is increasing emigration options, by having property in the preferred destination country,’’ says The Magic Dragon: Chinese Investment and Oz Housing report.
“Diversifying investment portfolios is another important motive. This is perhaps a euphemism for getting capital out of China as a mechanism for wealthy Chinese to mitigate the perceived economic and political risk of living in, and having wealth tied up in, the People’s Republic of China.”
CLSA’s Andrew Johnston said many professionals, business owners and senior government officials were looking to migrate and buy property in Australia and that trend would continue.
Chinese investors typically wanted to buy property in suburbs close to existing Chinese communities and prestige schools and universities, the report said. These included Hurstville and Rhodes in Sydney, Box Hill and Clayton in Melbourne, Sunnybank and McGregor in Brisbane, Ashford and the CBD in Adelaide, and Crawley and Wilson in Perth.
That many of these areas are low-rise suburbs where Australian homebuyers are struggling to get a toehold in the overheated market will increase pressure on regulators to prevent the accompanying surge in illegal Chinese investment in established homes. Australian law bars foreigners buying established homes in all but the narrowest circumstances but, as The Australian has revealed, this is hardly policed by the Foreign Investment Review Board.
There were “a number of mechanisms that are used to avoid FIRB restrictions” on buying established homes, the report said. “One of the avoidance mechanisms is to use Australian friends or relatives to purchase established property. This is almost impossible to track, and likely impossible to prosecute.”
A parliamentary committee examining foreign investment in real estate is poised to recommend tough new penalties for breaches, and upfront fees for foreign investment applications to help fund the FIRB to enforce the rules.
Rosy months ahead for borrowers
THE AUSTRALIAN AUGUST 15, 2014 12:00AM
Michael Bennet
Reporter
Sydney
COMMONWEALTH Bank has signalled borrowers are in for at least another good six months of mortgage deals, as the best funding conditions since before the global financial crisis keeps competition strong.
After posting the group’s record annual $8.7 billion cash profit this week, CBA chief Ian Narev told The Australian a “wash of liquidity” had pushed down what the banks pay for funding from offshore wholesale debt markets to “historic lows”.
The keener pricing has also flowed through to lower deposit rates, the bank’s biggest source of funding. For the six months to June 30, CBA’s net interest margin held flat at 2.14 per cent as the hit from hot mortgage competition was offset by better funding conditions.
“I doubt the competition part of it (for mortgages) will change and I hope the funding cost part of it doesn’t (too),” Mr Narev said when asked on the outlook for margins and funding.
“It’s a competitive market (and the) better funding conditions are going to the customer.”
Bendigo and Adelaide chief Mike Hirst this week described the intense competition in the $1.3 trillion mortgage market as a “race to the bottom”, saying some banks were “running pretty fast”.
Mr Hirst flagged term deposit rates may fall further if the Reserve Bank cut rates again and mortgage competition remained intense.
“If there were to be more pressure applied on the asset side you’d expect to see term deposit rates respond,” he said.
While several analysts expressed concern about CBA’s slower second half revenue growth and potential capital headwinds from the financial system inquiry, UBS’s Jonathan Mott said the bank showed “financial flexibility while maintaining underlying momentum”.
He noted that CBA in the past two years grew pre-provision profits the second strongest globally behind Britain’s Lloyds Bank.
Macquarie analyst Mike Wiblin added that CBA’s future looked “robust”, benefiting from easing funding costs, strengthening credit growth and healthy capital generation.
But CIMB analyst John Buonaccorsi said CBA was most exposed to negative outcomes from the inquiry and that its tier one capital ratio of 9.3 per cent could fall as low as 7.52 per cent after paying its second half dividend and gearing of its wealth arm is phased out.
CBA shares yesterday ended 6c higher at $81.02.