ValueBuddies.com : Value Investing Forum - Singapore, Hong Kong, U.S.

Asian funds ready to buy into Australia
Nick Lenaghan
449 words
22 Jul 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
A new wave of offshore capital is headed for Australia's commercial and residential property markets after global managers raised fresh funds for their Asian real estate vehicles.

Private equity giant Blackstone has raised $US4.4 billion ($4.7 billion) for its first Asian real estate fund, well ahead of its initial $US4 billion target.

This month as well, LaSalle Investment Management announced it had raised $US1 billion in equity accumulated through its LaSalle Asia Opportunity Fund IV and two separate mandates since the start of 2014.

For its part, Blackstone revealed it had raised another $1 billion for its new Asia fund over the second quarter, in its results announcement last week.

It was through the Blackstone Real Estate Partners Asia fund that the US fund manager secured a $475 million half-stake in Mirvac's 275 Kent Street in April. The tie-up with Mirvac gave Blackstone call options over a portfolio of seven non-core assets for $391.4 million at a premium to book value.

Almost $US3.7 billion of Blackstone's Asia fund is still available for investment, according its results.

Meanwhile, the LaSalle opportunity fund will target Australia, along with China, Japan and South Korea. LaSalle raised $US485 million for that fund.

Two separate mandates – taking the Asia equity raising to $US1 billion – will invest into the Australian and Japanese markets. With leverage, LaSalle's Asian treasure chest has buying power for around $US 3 billion in assets.

By February this year, LaSalle's Australian exposure was around $1.5 billion, through its Australia Core Plus fund, Home Hubs Hills fund and its Asian opportunity fund.

The current LaSalle portfolio already includes a healthy residential component, with projects at Macquarie Park and Erskineville. Mark Gabbay, LaSalle's co-chief executive officer for Asia-Pacific, said retail and urban for-sale residential projects in Australia looked attractive for the fund manager.

About 10 per cent of the $1 billion in equity raised this year has been invested in Australia, mostly in residential development deals, Mr Gabbay said by phone from Hong Kong on Tuesday.

About 20 per cent to 25 per cent of the fund's equity is earmarked for the Australian market. "We are generally sticking to the main cities – Sydney, Melbourne, Brisbane. We may look at some stuff on the Gold Coast possibly," he said.

LaSalle's Australian targets include neighbourhood shopping centres, secondary office, bulky goods, residential development and student housing.

With gearing of 50 per cent, LaSalle could accumulate up to $500 million in property from the raising and will target assets in the $75 million to $200 million range.


Fairfax Media Management Pty Limited

Document AFNR000020140721ea7m0000n

Fixed home loans slashed to a record low
THE AUSTRALIAN JULY 24, 2014 12:00AM

Mitchell Bingemann

Reporter
Sydney
Adam Creighton

Economics Correspondent
Sydney

Advertised home loan rates. Source: TheAustralian
THREE of the nation’s biggest banks have slashed interest rates on their fixed rate mortgages to below 5 per cent for the first time in a move that will save home buyers thousands of dollars.

The nation’s biggest lender, the Commonwealth Bank, fending off calls for a royal commission into the behaviour of its financial planning arm in 2006, slashed its five-year fixed rate mortgage to 4.99 per cent yesterday.

It is the first time in the bank’s 103-year history that it has dropped interest rates on fixed five-year loans below the 5 per cent mark.

The CBA’s move triggered a domino effect among the other big banks, with Westpac and National Australia Bank matching the rate only hours later.

Only the ANZ was left dragging the chain on rates cuts, as it said it would review its 5.79 per cent five-year fixed rate in due course.

The mortgage rate cuts came the same day as inflation was revised up to an annual rate of 3 per cent — the top of the Reserve Bank’s target range — reducing the likelihood of further official interest rate cuts and pushing the dollar higher to US94.5c.

The rate-cut scramble is likely to be comfort for interest-burdened homeowners and buyers as new housing data obtained by The Australian showed a dramatic rise in median house prices.

New figures released today confirm house and apartment prices rose more than 10 per cent for the 12 months to June, with the median Sydney house hitting $811,837, a 17 per cent increase and the biggest since early 2003.

According to Ratecity, which tracks about 100 lenders, the average interest on variable loans is now 5.28 per cent versus 5.66 per cent for five-year fixed mortgages.

According to RBA data, the ­average three-year fixed home loan rate has fallen from a peak of 9.4 per cent in July 2008, before the global financial crisis, to 5.2 per cent in June.

Ratecity product director Peter Arnold said it was the first time that the big banks had moved rates under the 5 per cent mark for five-year fixed term loans.

“There has been plenty of ­action as low as 3.99 per cent on one- and two-year terms, but in the five-year category this is ­significantly longer,” he said.

“Commonwealth Bank has ­either decided it wants to defend or expand its dominant market position or the banks know something about the future direction of interest rates we don’t yet.”

For NAB, CBA or Westpac customers with an average, 25-year term, first homebuyer loan of around $300,000, the interest rate cuts will save $124 a month or $7440 over five years.

“But customers should remember that the longer the fixed term the greater the cost if variable rates fall further,” Mr Arnold said.

Despite being the first to pull the trigger, CBA head of its home loan business Clive van Horen, said the bank would not be dragged into price war on its other fixed-term loans.

“This is not about us getting into a tit for tat price war but … it’s a competitive market and we certainly wanted to be first to move,” he said.

“The yield curve has dropped a bit which in simple language means the funding costs have dropped in the longer term. So we want to pass some of that onto our customers.”

Price growth biggest in decade
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 24, 2014 12:00AM

AVERAGE Sydney house prices have broken through the $800,000 mark, growing at their fastest in more than a decade, ­according to figures to be ­released by Australian Property Monitors today.

Average house prices ended the financial year up 17 per cent in Sydney, at $811,837, up from $693,904. The median apartment price in Sydney hit $573,255, up 13.3 per cent.

Melbourne house prices ­recorded a 10.3 per cent increase, to $607,721, while Brisbane was up 6.9 per cent and Adelaide 5.8 per cent for the year.

Perth and Hobart house ­prices recorded strong annual ­increases of 5.1 and 6 per cent ­respectively.

APM economist Andrew Wilson said affordability had peaked in December, as the low interest rates “washed through the system”. A high proportion of investors, up to 57 per cent in NSW, were pushing up prices across the east coast, with first home buyers now representing just 4.5 per cent of the market, the lowest percentage to date.

This was in contrast to other states, according to Dr Wilson, who pointed out first home ­buyers represented about 20 per cent of the Perth market.

Dr Wilson said price growth would moderate to under 10 per cent in Sydney for this calendar year. But with wage growth below 3 per cent, the gap between incomes and house prices would continue to grow.

The figures coincide with the annual housing industry summit, which will hear affordability is worsening, with Housing Industry Association economist Harley Dale warning high taxes on new homes were exacerbating the problem.

These taxes — including stamp duty and GST not levied on existing homes — are highest in NSW, according to the HIA, as much as 44 per cent of the final price. They represent between 35 and 41 per cent in other capital cities.

Mr Dale there had been some debate over the impact of negative gearing, but it was his “strong view that the problem lay with other inefficient taxes”.

“Unless we boost the number of new homes built each year, ­intergenerational inequity generated by the inability to own a house will become more of a problem,” he said.

Build, build, build, says HIA
KYLAR LOUSSIKIAN THE AUSTRALIAN JULY 24, 2014 12:00AM

Demand for new housing. Source: TheAustralian
THE number of homes needed in the coming 30 years will make the present building boom look decidedly average, the Housing Industry Association’s chief economist will tell an industry summit today.

The average number of homes Australia has built in the past decade — about 158,000 a year — is far less than what is needed to house the growing and ageing population, according to Harley Dale.

Even the present rate, with 176,891 housing starts in the 12 months to March this year, will be the minimum annual average ­required between now and 2050.

Construction modelling firm BIS Shrapnel estimates there is ­already a national deficiency of 100,000 dwellings, although much of that will be eliminated in the next five years.

A high level of undersupply has resulted in residential building starts increasing 9 per cent in NSW for the year, although the number of starts in Western Australia has eased 5 per cent because of fading momentum.

Modelling undertaken by the HIA for its Building Better Cities Summit today shows an implied annual growth rate of 1.3 per cent until 2050 means roughly 188,000 homes will be needed each year. The Australian Bureau of Statistics put the population growth rate last year at 1.7 per cent.

At the highest rate of overseas migration the HIA modelled, an implied growth rate of 1.6 per cent, Australia could have a population of almost 42 million by 2050, ­requiring 207,445 houses to be built each year.

Mr Dale said that while the outlook was strong, it was important to start a conversation that focused not on why building could not go ahead but why building more homes was important.

“We tend to discuss housing from a negative perspective, in terms of what we can’t build or why we shouldn’t build here or there,” he said.

“But we have emerging intergenerational questions, with ­people in the years ahead concerned they may not have access to reasonable and affordable housing compared to previous generations.

“We’ve had a very low rate of building in the last decade or two, and we need to build on the current cycle, which is at its peak.”

But housing starts are likely to peak next year, reopening a gap between supply and demand.

Macquarie Securities forecasts housing starts to hit 183,000 this year before easing to 182,000 by the end of next year, reducing further to 169,000 starts by 2016, ­“reflecting the impact of expected rate rises on price growth”.

Mr Dale will tell the summit planning laws and delays, and a lack of readily available land, was constraining the supply of new housing.

He told The Australian the HIA believed a high level of taxation on new homes was further impeding affordability.

Figures in Mr Dale’s presentation show 44 per cent of the final price of a new house in NSW can be put down to some form of taxation, including land tax, stamp duty and GST applied on new housing but not existing property.

Demand is definitely strong but I hope they differentiates real and hot money demand... especially when we already have evidence Chinese money is streaming over legally or illegally through BOC, not that it is not obvious anecdotally. Not that difficult if policy makers really want to pop the party, question is the political will

I do hope Australia doesn't crashes her excellent 20 years track record in managing crisis

Prices in Perth are actually holding up quite well... at least in the suburbs I've been monitoring

Attached the recent price list of Port Coogee (just an empty plot of desert land) south of Perth. Not sure what the developer (Australand) do, just carve up the land into parcels and sell? Haha... seems like quite an easy job!

House prices fears are overdone: Moody's
DOW JONES NEWSWIRES - WITH A STAFF REPORTER JULY 24, 2014 6:30PM

Despite sharp gains in Australian house prices over the past year fanned by record-low interest rates, Moody's Analytics said that prices are overvalued in some states, but not across the country as a whole.

In a report released on Thursday, the firm said some hot spots were emerging, and that concern would grow if house prices in the nation's two largest cities -- Sydney and Melbourne -- showed a further acceleration.

Prices in Sydney have moved from slightly undervalued to slightly overvalued but remain close to fair value, according to the report, which says a problem may possibly be emerging more widely in the state of New South Wales.

Low interest rates drove house prices across Australia's capital cities up more than 10 per cent in the year through June 30, according to property-research group RP Data. Sydney and Melbourne are ahead of the pack, with gains driven largely by investment buying as opposed to people looking to move in.

The Reserve Bank has held interest rates steady since it cut them the benchmark rate to a record low of 2.5 per cent almost a year ago to cushion the economy against a slowdown in mining and to spur growth. Economists expect little if any change in the cash rate over the coming year.

Moody's said that considering current interest-rate levels, house prices across the board are mostly close to fair value -- damping concern, including within the central bank, that a housing bubble is in danger of forming that would risk weakening the fragile economy further down the track.

House prices in some other state capital cities had been undervalued in recent years, the firm said. "Australian house prices are still firmly valued at current interest rates, but worrying trends are emerging in a couple of states," the report said.

http://www.afr.com/p/business/property/m...V56S8jwEvL

Making sense of the tiny apartment trend
PUBLISHED: 26 JUL 2014 02:37:00 | UPDATED: 26 JUL 2014 04:57:22
print-font+fontReprints & permissions
Making sense of the tiny apartment trend
Neat suite . . . Annabelle Hickey says there’s room to entertain a few friends in her 49-square-metre Prahran apartment. Photo: Getty Images/Luis Ascui
LARRY SCHLESINGER
Annabelle Hickey knows about living in tight spaces: her one-bedroom apartment near Prahran train station in Melbourne is just 49 square metres.

She’s had to be creative with furnishings – the bathroom even has baskets for storage – but the cosy space hasn’t cluttered her sense of style. “I can entertain four or five people comfortably. I’ve had up to 10 friends over and then it’s a bit cramped,” says Miss Hickey, 25, an account co-ordinator at public relations firm Harvey Publicity.

“I’ve got a decent-sized kitchen, some storage space and a balcony – although that’s where the dog sleeps.”

Happy as she is, Hickey’s home would be too small under a proposal from the Office of the Victorian Government Architect (OVGA), which would set a minimum 50-square-metre size for units.

The Victorian Planning Minister Matthew Guy is considering the proposal, which sparked debate when revealed exclusively in The Australian Financial Review on Wednesday.

The City of Melbourne says apartments are shrinking and the quality of design is slipping as developers aim to maximise their profit and investors seek higher yields.

Developers and architects say mandatory minimum apartment sizes will reduce ­housing affordability and consign the less well-off to never being able to live in the inner city. With more and more Australians likely to opt for living in inner-city apartments, the debate has broad ramifications.

STANDARDS NEEDED
Tom Alves, a senior adviser in the OVGA, says standards are needed to ensure minimum requirements for building orientation, natural light, ventilation, lift-to-apartment ratios, communal areas plus a dozen other design aspects for better levels of amenity and more family-friendly environments.

“We need some prescriptive mandatory minimum standards,” says Alves, who heads the working group that has drafted the new rules.“We need to institute some change in the type of product being delivered. We are currently not setting ourselves up well for the future,” he says.

That future incorporates massive growth in the number of people living within five kilometres of the centres of Sydney, Melbourne and Brisbane for work, lifestyle and study.

Figures compiled by the City of Melbourne, a strong supporter of minimum apartment design standards in its Homes for People strategy paper, indicate that by 2013 the city’s resident population will reach 190,000, with 115,0000 homes, having already doubled to 116,000 people since 2001. Most of these new homes will be apartments, many of them studio and one-bedroom apartments, and some as small as 33 square metres.

WORLDWIDE PHENOMENON
Shrinking apartment sizes are a growing phenomenon in Sydney, Melbourne and Brisbane, but also in cities such as London, New York, Tokyo and San Francisco, where booming property prices have pushed larger homes and more spacious apartments further out of the reach of many who want to live closer to their place of work or study.

In the hip inner London borough of Islington, the local council recently pulled an apartment from the rental market, deeming it too small to be habitable. The studio – less than 20 square metres and barely able to fit a double bed and kitchen sink – was available to rent at £737 ($1330) a month. Astonishingly, or perhaps not, it was snapped up by a student within half a day of its listings. Apartments as small as 12 square metres have been modelled in Warsaw, and in San Francisco 20-square-metre apartments are now allowed.

These trends are creeping into Melbourne and Sydney where investors ­dominate.

Earlier this year, the Victorian Civil and Administrative Tribunal (VCAT) rejected an application for a 36-level apartment tower on La Trobe street featuring narrow apartments with no windows in the bedrooms, poor circulation in kitchens, inadequate storage space and poor access to natural light and air.

VICTORIA BORROWS FROM NSW
The minimum design standards proposed by the Victorian government architect are based heavily on NSW’s State Environmental Planning Policy 65 (SEPP 65), introduced by Bob Carr in 2002 after he drove past an apartment complex in Maroubra that he deemed disgustingly ugly.

Under review since November 2011, SEPP 65 includes minimum apartment sizes for one, two and three-bedroom units (but not for studios) and mandates that an architect design all high-rise projects.

The consensus seems to be that SEPP 65 has improved apartment design and amenity in Sydney, but with many adverse impacts, including increasing red tape, greater nimbyism among local councils, a longer planning process, more expensive apartments and worsening housing affordability.

The current median price of a Sydney apartment is $568,000, according to RP Data. In Melbourne it’s $468,000 and in Brisbane – undergoing its own apartment boom – just $370,000. And the gap is widening.

Earlier this month, a fire in a Sydney industrial estate uncovered Korean students living in shipping containers, paying $160 a week and sharing one portable toilet. That highlights the dangers inherent in design standards that can put proper housing out of reach of the most vulnerable.

In Brisbane, Queensland Premier Campbell Newman is happy to let the market self-regulate. “I certainly don’t have a view on us putting constraints on what people can actually build, and I guess I am confident that the industry will deliver product that people want to buy,” he told the Property Council of Australia on Thursday. “It’s amazing what you can do with great architecture and great design in terms of getting costs down. I believe in the market and the industry being able to deliver, and I am not generally supportive of regulation,” he said.

The City of Melbourne believes better design standards and affordability are interdependent – not a choice between the two.

But many disagree.

SIZE ISN’T EVERYTHING
Nigel Hobart, principal at architects Rothelowman, a firm that has designed close to 10,000 apartments in Melbourne, say size does not necessarily dictate amenity.

“A well-designed 40-square-metre apartment can have greater amenity than a poorly designed 60-square-metre one.”

Hobart doesn’t have a problem with the agenda of the Victorian government architect, but says the trick is to ensure sufficient flexibility in the standards that acknowledge a true amenity outcome.

“It’s a delicate and complex process,” he says. “Size in itself should only be a guideline, not a mandatory number.

“Good natural light, acoustic performance and ventilation are all important parts of amenity. But if people want to buy a south-facing apartment in the inner northern suburbs with city views, then why would we seek to limit that?” he asks.

Affordability is the other key issue. “People look at apartments getting smaller over time and think it’s developers being greedy. We work with developers every day. It’s not about that, but about providing a product that is affordable to the market. If we all did what we love to do and created only luscious things, they’d never get built.”

Simeon Goldenberg, a director at Icon Co which develops and builds apartments in Sydney and Melbourne, says that while the price point for Sydney apartments is “huge” compared with Melbourne, wages are “not too different”.

IMPACT ON FIRST-TIME BUYERS
“They make a much better apartment in Sydney. The only down side is they are a lot more unaffordable because they’re bigger.”

“Melbourne has planning peculiarities, but also smaller, more affordable stock,” he says.

Enforcing a code similar to SEPP 65 in Victoria, Goldenberg says, could create a situation similar to Sydney where the cost of the lowest bracket of housing, apartments, “is going to be quite high”.

This would undoubtedly impact on young first-time buyers such as Annabelle Hickey, who bought her Prahran apartment for under $450,000 with the help of her parents. Her home is north-facing, and has city views and natural light. She can live near her work, restaurants, bars and shops.

However in searching for her home Hickey has also seen the flip-side of the coin – poorly designed, dark apartments with very small bedrooms designed to maximise profit for developers and high yields for investors.

“I looked at a few two-bedroom apartments. The second bedroom was so small I wouldn’t feel comfortable renting it out.”

Stephen Albin, head of the NSW branch of the Urban Development Institute of Australia, says Victoria must learn the lessons of SEPP 65, which while improving building design, has also created “enormous amounts of confusion”.“If you’re going to implement design code in Victoria, it needs to be a guide not a set of rules, and it needs to be updated regularly,” Mr Albin says.

He says local Sydney councils have used SEPP 65 not as a guide, but as a rule of law. “We are seeing ridiculous minimum apartment sizes . . . They are using the code as a development control and are stifling innovation,” he says.

With Matthew Cranston and Ben Potter

The Australian Financial Review

^^^ sounds so familiar and as usual reasons galore until years later someone has to pick up the pieces of bad planning and lowered quality of living in Mickey Mouse units. Can't even say we don't have HK as 前车之鉴

Sometimes people's glaring self interest is so evident at expense of the bigger picture that it's actually distasteful

http://www.theage.com.au/business/the-ec...zw9y5.html

Negative gearing pumping house prices, but they're not overvalued yet
Date
July 24, 2014

Jonathan Shapiro
Email articlePrintReprints & permissions
Australian house prices aren't overvalued yet but there are ''worrying trends'' in some states, Moody's reports.
Australian house prices aren't overvalued yet but there are ''worrying trends'' in some states, Moody's reports.
House prices are not overvalued yet, but negative gearing tax breaks have added almost 9 per cent, or $44,000, to average prices, financial group Moody's Analytics has reported.

While properties are not overvalued, there are ''worrying trends'' that could come back to bite home buyers when interest rates rise, as rents and incomes have failed to keep pace with surging property prices, the report cautions.

Moody's compared house prices with long term valuations – taking into account rents, income and the costs associated with borrowing, including interest rates and other charges – to assess whether the 10 per cent year-on-year rise in house prices in Australia's eight largest cities means property prices were overvalued.

Its analysis shows that 18 months ago house prices in all states were undervalued.

But rising house prices, which have not been accompanied by rising incomes or rents, have now pushed property values in most states to "fair value".

The report said ''worrying trends'' are emerging in NSW and Victoria, as present home valuations are a function of record low interest rates, which will ''inevitably normalise'' and increase towards a rate more in line with historical trends.

When Moody's calculated the impact of rising interest rates, ''the story begins to change, with nationwide prices trending towards overvalued under normalised interest rates'', the report says.

The strong run up in NSW property prices meant valuations have moved to ''slightly overvalued'', it says.

Were it not for the recent surge in NSW rent costs, house prices there would have been even further overvalued.

Under "normalised" interest rates, the NSW market also looks overvalued.

Within individual states there was also variation between areas, as well as between house prices and apartment prices, the report found.

Outside NSW and Victoria, the trend towards the higher prices that lead to overvaluation was less pronounced, it found.

''Higher prices might not be a problem if matched with fundamentals,'' the report says. ''Rising incomes and rents or falling interest rates can increase the equilibrium value of housing.''

The Moody's report also explored the impact of negative gearing – the tax break that allows the difference between rental income and interest payments to be written off against taxable income.

The report said negative gearing costs the federal government about $4 billion in lost revenue a year and noted economists had labelled it "an unfair and unproductive distortion".

The impact of tax ''distortions'' such as negative gearing in encouraging investment and lending in the housing market was also raised recently in the interim report by the David Murray-led financial systems inquiry.

The Moody's analysis, which incorporates the impact of negative gearing in ''user cost'' estimates, says it adds about 9 per cent or $44,000 to present average house prices.

With low interest rates, the impact of the tax break has fallen from a 2008 peak of 15 per cent, ''yet even today's 9 per cent support is a substantial subsidy to the nation's homeowners'', the report says.