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By Harje Ronngard 21/01/2016
Housing Market
One of the biggest investors into Australian assets is China. It’s not just infant formula that China is demanding. Newly rich Chinese are eager to increase their wealth by means of Australia property.
The Chinese government has been encouraging citizens to invest in stocks, bonds and real estate overseas. Why would they want citizens to invest overseas? It could be seen as an indirect way to control spending. Let me explain, too much spending is bad, as it creates inflation.
One way a country can reduce inflation is for the central bank to increase interest rates.
Now China doesn’t want to do this because it could reduce the growth of their economy. China wants to keep inflation high, but manageable.
Therefore the Chinese government have come up with an easier way to reduce inflation. They told Chinese citizens to invest overseas.
This was the government’s view early last year. My guess is that there were no drastic signs of the Chinese economy slowing, so no reason to encourage spending. There were concerns of an inflated housing market in China. Yet things seemed manageable, as China told citizens to focus stock market to create their fortunes. China also seemed to be handling the economic transition from an industrial one to a consumerist one.
Yet now China is forcing citizens to spend less abroad. The government has decided to limit capital leaving the country. And Chinese banks have responded, starting to block some foreign transactions.
Why has China done this? Because of economic turmoil. The situation in China isn’t as bad as some think. But economic growth is declining. The Shanghai Composite [SHA:000001] is dropping daily. Signs could be interpreted at unstable. Well unstable if you want to maintain 6%-7% GDP growth.
Will this affect our property market?
Australian property prices are higher than ever. The graph below shows the increase in property prices over 20 years.
Aus property Market Finch
Source: Finch rating
Its obvious Australian real state is increasing faster than the rest. This could be just one reason why Chinese investors like Australian real estate. They don’t have to wait a number of years to make reasonable returns.
But wont Aussie property underperform if Chinese investment is expected to decrease?
Developers can’t pass up a good investment
Chinese residential developer, Aqualand, will shortly begin a $1billion apartment pipeline. The company has already submitted plans for a residential complex, consist of nearly 12,000 units. And these are just the new projects.
Aqualand is already building 46 luxury units with Sydney waterfront views. And they aren’t the only ones.
Some of China’s richest government backed corporations are all in on Australian property.
Nerida Conisbee leads the research team at the international realtors Colliers. She believes ‘China now dominates in terms of investment into real estate.’ She also referred to Australian property returns being too good to pass up. ‘I think it just comes down to their investment metrics and perhaps the comparison of returns elsewhere’ she said.
And Australia real estate has had a major boost form Chinese investors in a relatively short period of time. China only committed $2.3 billion into Australia real estate as of 2010.
But today, Chinese invests as much as $12.4 billion into Australia’s property sector. That is more than double the amount invested into mining.
Why would developers look anywhere else than Australia. We have clean air and good schools. Chinese developers can’t pass up on such a good investment.
If you’re interested in investing in property it’s worth checking out Real Estate Investment Trusts (REITs) first.
REITs are companies that own income-producing real estate. The property held by these companies ranges from office apartments to residential homes. The advantage to REITs is you can buy into their property investments by buying their shares.
And because they are shares, they usually have liquidity. This is a huge advantage over physical property which doesn’t have immediate buyers and sellers. But not only are they liquid, REITs can also provide good returns.
Last year S&P/ASX 200 A-REIT [ASX:XPJ] increased 5.32% (blue line). In the same time the S&P/ASX 200 [ASX:XPJ] dropped 1.83% (red line). If we compare both, REITs is the clear winner. By holding REITs investors can exposed themselves to property risk. With this added exposure, an investor’s portfolio can be well diversified. And being diversified means offsetting risk, that which resides in the equity market. Keeping this in mind could help your portfolio returns in the long run.
PS: REITs can let investors enjoy the returns of the Australian property market without having to own property. REITs might be one thing that could boost your wealth for retirement. But you can’t rely on just one. According to Money Morning’s Publisher Kris Sayce, there are 5 things you can do to boost your retirement pot.
ASX XJO Google finance
Source: Google finance
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In Kris’s report he will tell you the most important determining factor relating to the size of your retirement pot. Kris will also show you how to ensure financial security in just five ways. To get your free copy today, click here.
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May 23 2016 at 12:43 PM
Updated May 23 2016 at 6:25 PM
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Property developers risk $100,000 loss per apartment as default risk builds
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The Secret Agent's Paul Osborne said developers who have settlements due in the next 18 months are worried.
The Secret Agent's Paul Osborne said developers who have settlements due in the next 18 months are worried. Jesse Marlow
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by Larry Schlesinger
As market conditions get tougher and tougher for high-rise developers, a new report warns they could lose more than $100,000 per apartment if a buyer defaults on their purchase.
The report, by buyer advocates Secret Agent, comes as Macquarie Bank tightened lending to high-rise apartment buyers across 120 post codes and follows the major banks' pullback from lending to foreign buyers amid concerns of an over-supply of apartments in places such as the Melbourne CBD and Docklands.
Default rates remain relatively low, typically between 1 and 5 per cent per project, but could rise as a record number of new apartments settle over the next two years.
Using the hypothetical example of a Chinese buyer who defaults on their $714,000 off-the-plan purchase of a typical two-bedroom Melbourne CBD apartment, Secret Agent calculated the loss at over $100,000, once professional fees and commissions had been paid and after the 10 per cent deposit had been recouped.
Impact of a default on a typical CBD apartment
Impact of a default on a typical CBD apartment
The main reason for this loss is the lower price the developer would get in the secondary market where the apartment would have to be re-sold. Secret Agent calculated that apartment values were 19 per cent lower in this market based on average sale over the past three months.
Increased anxiety
"The development space in inner Melbourne and Sydney is set to be severely challenged," Secret Agent director Paul Osborne said. "Conversations between Secret Agent and various developers over the past month have revealed their increasing anxiety about potential settlement issues.
"These developers, who have settlements due in the next 18 months, are worried that many of their apartments may not be able to settle due to the restrictions placed on foreign buyers by local banks. This is likely to have substantial implications."
Darkening the scenario further will be the new 7 per cent stamp duty levy imposed in Victoria on foreign buyers from July 1, adding tens of thousands of dollars to purchase prices.
But Andrew Leoncelli, head of residential projects at CBRE, called the modelling "doomsday at best".
"We have had practically no defaults from international buyers over the past 10 years. The international purchasers we deal with are very savvy and are targeting opportunities here for three key reasons: migration, capital preservation and education," Mr Leoncelli said.
"We would estimate that 90 per cent of the offshore buyers we deal with are well above middle-class and have significant means at their disposal."
Jamie Kay, a director at Melbourne-based project marketers Oliver Hume, said the industry needed to find ways to "reduce risk and reduce the scale of the peaks and troughs that we experience in a cyclical market".
"There should be the capacity to move deposits up and down in a wider band [above 10 per cent], as is already the case in Queensland," Mr Kay said.
Figures from market researchers CoreLogic show the number of new apartments due to settle over the next two years have hit record highs in Australia's capitals, raising the risk that some buyers will not make good on their purchases.
Read more: http://www.afr.com/real-estate/property-developers-risk-100000-loss-per-apartment-as-default-risk-builds-20160520-gozpaw#ixzz49XlzYgpv
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Building a new home the cheaper option in Sydney, Melbourne: analysis
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May 16, 2016
Jennifer Duke
House prices drop in most capital cities
Domain Group quarterly data points to softening property markets across the country.
•First-home buyers dreams dashed as Sydney land prices jump $100,000 in a year: UDIA
Homebuyers balking at the cost of a median priced house in Sydney and Melbourne could consider building a new home to save themselves thousands of dollars, an analysis of property costs shows.
Taking into account median prices, stamp duty, grants available and build costs analysis found the cost of building close to $360,000 cheaper in Sydney and about $200,000 cheaper in Melbourne, Finder.com.au money expert Bessie Hassan said.
Building a new home from scratch might be a way to save thousands of dollars on your first home.
Building a new home from scratch might be a way to save thousands of dollars on your first home. Photo: Louie Douvis
“Construction costs appear to be higher in Brisbane and Perth,” Ms Hassan said.
But buying new in Sydney and Melbourne may also offer a long-term financial incentive. “Buying a property also means you will pay less in maintenance expenses which may outweigh the ‘premium’ price tag that you may pay initially,” she said.
There’s just one significant obstacle.
While on paper the strategy appears to be cheaper, Wakelin Property Advisory associate director Jarrod McCabe warned home buyers and investors from becoming “too excited by this strategy”.
“The main reason to be wary of this approach is availability. It is very hard to find vacant land in established suburbs and you will most likely find yourself travelling towards our cities’ fringes in order to find any,” he said.
“Once you come closer to the city, land values are generally too high to make the economics work unless you’re an experienced builder [or] developer.”
Established properties are often located in areas with amenity, which is why they are more desirable and thus attract a premium, while new houses are typically not, he said.
Sydneysiders in particular will need to look much further from the CBD for vacant land options, WBP Property Group executive chairman Greville Pabst said.
Blocks of land in Sydney’s Box Hill, 45 kilometres from the CBD, are priced from $390,000 for 300 square metres.
“A buyer that is looking at a new development is likely to be pushed to the outer suburbs and they should ask themselves whether this aligns with their lifestyle,” Mr Pabst said.
And while comparatively it appears more affordable to buy a block of land and build, land also soared in value during the property boom.
Land blocks jumped $100,000 in the past 12 months in Sydney, the Urban Development Industry Australia’s (UDIA) 2016 State of the Land report found. In Melbourne, land prices increased by less than $10,000 over the same period.
“The biggest contributor to the lack of affordable housing in Australia is the tax on new housing and apartments, which necessitates a high selling price,” UDIA national president Michael Corcoran said.
“The most taxed product in Australia [other than cigarettes] is a new home or apartment, more than 40 per cent of the cost of a new dwelling is tax,” he said.
Pros and cons of building versus buying
Buying pros
– Renovation potential: You can customise the layout and aesthetics of the property to suit your lifestyle and personal tastes.
– Capital growth: The ability to build and upgrade an existing property can help you achieve capital growth through price appreciation over time.
– Negotiating power: Assuming that you purchase an existing property to renovate, this can give you better negotiating power when determining the sales price or settlement terms.
Buying cons
– Time and emotional investment: You shouldn’t underestimate the time and emotional investment required to finish a renovation project. Additionally, people often don’t account for the disruption factor.
Building pros
– Low maintenance: If you purchase a new property, you won’t need to fork out for ongoing repairs and maintenance costs.
– Government incentives: There are stamp duty concessions and grants available for first home owner grants when buying off the plan which could significantly reduce your upfront and ongoing costs.
Building cons
– Limited value-adding potential: There is little opportunity to add value to the property once you’ve purchased it so it may take longer to achieve capital growth.
– Greater market risk: New properties are generally the first to see price declines when the market softens, while established properties will either maintain their price value or experience a minimal adjustment.
Source: Bessie Hassan, Finder.com.au
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May 27 2016 at 11:45 PM
Updated May 27 2016 at 11:45 PM
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Risk and fear rise as failed apartment deals reach $5b
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The $3 billion Perth City Link project occupies a massive 13.5 hectare site.
The $3 billion Perth City Link project occupies a massive 13.5 hectare site. Supplied
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by Matthew Cranston
Almost $5 billion worth of failed residential development deals this week and a growing number of apartments being sold at a loss is raising the levels of risk and fear in the property industry.
Apartments in Melbourne are selling for as much as 24 per cent less than their owners paid for them.
And some of the country's biggest builders and residential developers are turning their backs on billions worth of contracts because the numbers no longer add up.
AFR Weekend can report that in Brisbane, where there are jitters about an apartment oversupply next quarter, the offshore backed PDS Australia's proposed $1 billion apartment project at 545 Queen Street is on tenterhooks. Knight Frank have been appointed to on-sell the property that PDS bought for $82 million last year from GPT's wholesale office fund.
Price reductions on Melbourne city apartments
Price reductions on Melbourne city apartments
This comes after developer Mirvac and Western Australia's Metropolitan Redevelopment Authority terminated an agreement on Tuesday for the $3 billion Perth City Link precinct, where there were expected to be 1200 dwellings built.
In Sydney on Monday, media-shy construction giant Brookfield Multiplex ditched its contract to build Sydney's tallest residential tower – the Greenland City Centre – being developed by China's largest state-backed real estate group, Greenland. The $700 million, 235-metre tower had seen almost all its apartments sold off the plan.
Industry sources said Brookfield had been through 97 iterations of how to make the project work before giving up.
One of the country's leading property planning experts Urbis's regional director Peter Hyland says the risk is starting to become more apparent.
"I think a lot of people are more cautious now and sensibly so," Mr Hyland said. "People are closely looking at who is carrying the risk. People are looking at how the market is slowing and they have to be prudent."
An artist's impression of Greenland City Centre. On Monday, construction giant Brookfield Multiplex ditched its contract ...
An artist's impression of Greenland City Centre. On Monday, construction giant Brookfield Multiplex ditched its contract with Greenland, China's largest state-backed real estate group.
And his view on major developers and construction companies pulling out of major residential projects?
"Brookfield clearly doesn't have to take on work if it doesn't need it."
Making construction projects profitable will be even harder after construction workers won a 5 per cent a year pay hike in this week in Victoria, well beyond the rate of inflation.
While there are varying analyses of the apartment supply and demand in each capital city, most point to an oversupply within the next two years. BIS Shrapnel said in March that Melbourne's oversupply would be significant, and in Brisbane it would be worse.
An artist's impression of the Jewel project at Broadbeach on the Gold Coast to be built by Brookfield Multiplex and ...
An artist's impression of the Jewel project at Broadbeach on the Gold Coast to be built by Brookfield Multiplex and developed by China's Dalian Wanda.
"It is an accident waiting to happen," BIS said.
In Sydney, respected valuers Opteon Property Group said parts of Sydney's booming apartment market face a price correction next year as they tip into oversupply.
As all this plays out you have weekly, if not daily, reports of lenders clamping down on the borrowing practices for apartments for both foreigners and domestic investors. Lender Firstmac announced on Friday that it was restricting lending for apartments and its chief executive Kim Cannon said: "It is quite obvious there is going to be a problem in the future."
That Mr Cannon is speaking like this is significant, because Firstmac is one of the more aggressive lenders in the market and has made a lot of money lending to people investing in apartments.
It follows Westpac ceasing to lend to all foreigners for apartment purchases and both ANZ Banking Group and Westpac discovering they had each approved "hundreds" of home loans backed by fraudulent Chinese income documents. Even AMP Bank placed apartments in more than 140 suburbs on a confidential black list because of growing concerns about oversupply.
The tighter lending, although offering a business opportunity to those lenders outside the big banks, could spook property developers, some of whom have already suffered 20 per cent losses as Perth's boom market went bust.
In December, Thai developer Minor International abandoned its plans to build two towers – a hotel plus apartments – on a portion of the site next to Perth Arena.
A key test over the next six months will be the Gold Coast.
There Dalian Wanda Group, owned by China's richest man Wang Jianlin, and its joint venture partner Ridong chose Brookfield Multiplex to build their first Australian project, the $1 billion Jewel resort on the Gold Coast. Reports of apartment sales there are steady with strong Chinese distribution channels relied upon to sell the apartments.
But Australia's big banks have largely stayed away from the Gold Coast this cycle and there could be a good reason why.
Read more: http://www.afr.com/real-estate/residential/5b-of-failed-residential-property-deals-mean-risk-is-rising-20160526-gp51bi#ixzz49vwUFEKe
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===========================================
Mirvac Group will no longer develop one of Perth's biggest mixed-use projects within the Perth City Link precinct, after failing to reach agreement with the state government's Metropolitan Redevelopment Authority.
The MRA said it had terminated the sales process for a master developer for eight lots at the $5.2 billion precinct, which encompasses 13.5 hectares of reclaimed land at the northern edge of Perth's central business district.
"Despite the best efforts of both parties, we were unable to reach a satisfactory agreement that is consistent with our initial expression of interest and delivering value for Western Australian taxpayers," said MRA chairman Richard Muirhead.
Mirvac became the sole preferred developer of the $3 billion project in January after losing joint-venture partner Leighton Properties. The two property giants were chosen as preferred developers in December 2013.
The huge site, created by the sinking of train and bus lines and demolition of the old Perth Entertainment Centre, is expected to accommodate around 1200 apartments surrounded by offices, shops and outdoor pedestrian areas.
"Mirvac worked collaboratively with the MRA over the past three years. However, changing market conditions and circumstances meant we could not agree on a path forward that met the requirements and objectives of both parties," said Mirvac's head of residential, John Carfi.
Weaker market
The decision not to proceed with the project may be chalked up as a win by Mirvac, which will no longer have to allocate capital to the weaker Perth market. Mirvac described conditions in the Perth office market as "challenging" in its most recent quarterly update.
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Real estate investment, development and investment management.
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In December, Thai developer Minor International abandoned plans to build two towers – a hotel plus apartments – on a portion of the site next to Perth Arena.
The MRA said it would seek expressions of interest "in the coming weeks" to temporarily activate the vacant site around the new Perth Busport, while an alternate sales strategy was developed. MRA CEO Kieran Kinsella anticipated the initial land release to go to market before the end of 2016.
"We are committed to ensuring that the Perth City Link project returns the highest of benefits to the community and will consider interim activation opportunities for the thousands of bus passengers, city workers and visitors to enjoy," Mr Kinsella said.
In February, construction commenced on Yagan Square, a new public space incorporating a fresh-food market and native gardens at the eastern end of the City Link site, next to Perth Railway Station.
Another part of City Link, Kings Square, is being developed by Leighton Properties with three office towers completed and a fourth under construction. DEXUS Property Group and its wholesale property fund owns three of the seven towers planned for the site.
Read more: http://www.afr.com/real-estate/commercial/development/mirvac-quits-3b-perth-city-link-development-project-20160524-gp2ebg#ixzz49w5lo1PM
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(Reporting by Dustin Volz and Susan Heavey; Editing by Eric Beech)
