Australia Property

Buyers upbeat despite RBA ‘mixed message’
THE AUSTRALIAN NOVEMBER 19, 2014 12:00AM

Turi Condon

Property Editor
Sydney
Over or undervalued.Over or undervalued. Source: TheAustralian < PrevNext >
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THE Reserve Bank is sending mixed messages about whether it will use regulatory levers to cool housing markets, says ratings agency Moody’s Analytics.

The agency said most housing markets in Australia were fairly valued.

“Several of the RBA’s top brass were publicly entertaining the idea (of banking regulations that would slow record investor activity) even as RBA governor Glenn Stevens dismissed it as a fad, creating confusion among bankers, analysts, and in the popular and financial press,” Moody’s wrote in a housing report released yesterday.

Any new rules were likely to be limited to investors, with the bank favouring more stringent stress tests for borrowers, it said.

Moody’s found housing prices in most states, apart from Victoria, were not overvalued in the current climate of low interest rates and stable rents and household income.

Sen Wang and Bei Zhu, who live in Sydney’s Hunters Hill, have put a deposit on an apartment in Crown Group’s Sydney by Crown CBD tower, to be launched on Saturday.

Ms Zhu believes Australian property values will continue to increase.

“Yes, I’ve observed history and there’s strong economic growth in Australia backing it. I don’t have a crystal ball, but I’m hoping values will continue to go up,” she said. She was unaware that regulators might take steps to cool investors’ appetite for property.

Moody’s said most states had enjoyed modest income growth, apart from Victoria, which was weak.

The rental market was mixed but moving up, Moody’s said, with June quarter rents in NSW up 7 per cent compared with rents a year ago.

Rents in South Australia had increased 4 per cent and income jumped 10 per cent in the June quarter, resulting in housing being undervalued, the agency said. However, it noted that growth in income was unlikely to continue, given unemployment in the state was 6.7 per cent.

Australia’s housing markets ranged from Victoria being overvaluedto Western Australia being undervalued.

Moody’s warned that the housing market had become dependent on low interest rates. If the cash rate increased to 4 per cent — it is now 2.5 per cent — house prices would be overvalued by 12.3 per cent nationally and between 3 per cent and 24 per cent on a state-by-state basis.

Financial Services Inquiry chairman and former Commonwealth Bank chief executive David Murray told a conference in Sydney yesterday there was some concern over the demand for real estate following record low interest rates.

“We’ve seen it in prices. APRA (Australian Prudential Regulation Authority) and the Reserve Bank have the tools to deal with that if they want to,” he told a ­finance and investment summit.

“Most people see this portrayed best in this search for yield by investors ... and that suggests that the easy monetary policy is having a certain side-effect.

“How that plays out depends on whether you can continue to get growth in the system or not, but that’s one of the continuing risks of the global financial crisis,” he said.

Additional Reporting: Kylar Loussikian

RBA's Stevens warns on house prices
AAP
NOVEMBER 18, 2014 8:15PM

Reserve Bank governor Glenn Stevens says he wants to make sure a housing price boom doesn't turn to a bust and stifle economic growth.

It should be possible to extend the current period of above average building activity for longer than the normal upswing, Mr Stevens said in a speech to the Committee for Economic Development of Australia in Melbourne on Tuesday.

"A high level of construction, maintained for a longer period of time, is vastly preferable to a very sharp boom and bust cycle," he said.

House prices have risen since 2011 and lending to households is rising, especially lending to housing investors, Mr Stevens said.

But these trends are not an immediate threat to the stability of the financial sector, and the resulting increase in housing supply is helpful, he said.


"So we don't just assume that all this is a terrible problem."

Even so, the pattern of price rises and lending growth "should prompt a reasonable observer to ask the question whether some people might be starting to get just a little overexcited", he said.

This was the background to the move by the RBA to work with other agencies, including the Australian Prudential Regulation Authority (APRA), to take a look at lending standards.

In early October, RBA assistant governor Malcolm Edey flagged an announcement by the end of this year about measures to rein in lending to housing investors.

Mr Stevens stressed that the mooted measures were not part of an attempt to restrain housing construction, but an attempt to stretch out the increased activity.

The measures would not be a return to the direct controls on lending of earlier years, when the price of credit was set too low, he said.

The current moderate growth in credit was evidence that interest rates were not too low at the moment, Mr Stevens said.

Low rates are "well warranted" on economic grounds, he said, with inflation under control and plenty of spare capacity in the economy.

"In such circumstances, monetary policy should be accommodative and, on present indications, is likely to be that way for some time yet," Mr Stevens said.

Economic growth had picked up outside the resources sector, where the investment boom is winding down, but it would be good to see some further strength, he said.

"There are sufficient spare labour resources such that we could probably enjoy a couple of years of non-mining sector growth somewhat above its trend rate before we needed to worry too much about serious inflation pressure," Mr Stevens said.

Surge forecast for Chinese investment, says Ernst and Young
THE AUSTRALIAN NOVEMBER 19, 2014 12:00AM

Rowan Callick

Asia Pacific Editor
Melbourne

CHINESE investment in Australian real estate — which is likely to intensify following the free-trade agreement — is taking a new course, according to Ernst and Young’s transaction services ­leader Ross Hamilton.

After investing $24 billion over the past seven years, he said, ­Chinese commercial buyers would now increase their investment to $8bn a year.

He told the Australia China Economic and Trade Forum in Canberra this week that at first Chinese tended to invest directly into developments, taking all the risk — “with mixed results”.

Then they began working more in 50-50 joint ventures.

The third stage, now becoming more prevalent, was applying passive equity, although branded with the Chinese partner’s name.

Investors were now “getting the due diligence right”.

Chinese investment was here to stay and would accelerate “dramatically” over the next five years, Mr Hamilton said. It brought with it a new distribution network too.

Luo Xiaohua, the managing ­director of Greenland Australia, said that “like other Asian investors, we find potential and business opportunities here”.

He said his company had already invested $2bn.

“We want to expand our developments. We are attracted by the competitiveness of your cities. You offer political stability and low risk, as well as high returns.”

From an investor’s perspective, “rental returns are quite high, with low vacancy rates. There are also many Chinese and Asian people seeking to live here”.

Liwei Sun, the deputy general manager of Chinese developer Wanda, said his company had chosen to develop its first five-star hotel in Australia, the $1bn Jewel Hotel on Queensland’s Gold Coast, through a joint venture.

Meriton boss Harry Triguboff welcomes RBA’s low-rate stance
THE AUSTRALIAN NOVEMBER 20, 2014 12:00AM

Kylar Loussikian

Journalist
Sydney
PROPERTY developers have welcomed indications from Reserve Bank of Australia governor Glenn Stevens that he expects interest rates to remain low for some time yet, with billionaire builder Harry Triguboff suggesting even lower rates would further stimulate the industry.

“If we look at our interest rates, they are higher than elsewhere (in the world), and that’s what keeps the dollar up as well. So it’ll be very helpful if we can drop the interest rates a little bit,” he said.

“It would help with the dollar as well; it would go down a little bit. It makes (mortgage) repayments easier.”

Mr Triguboff was responding to comments made by Mr Stevens in a speech on Tuesday night where he said he had no particular concern with household credit rising at its current annual rate of 6-7 per cent, although he suggested there was “contemplation” of lending curbs for “overexcited” investors.

Mr Triguboff, the founder of Meriton, one of Australia’s largest residential developers, said the record low rates had given the building industry room to succeed.

“What (Mr Stevens) said is very good because it gives confidence to people that there is no intention to raise interest rates,” he said. “And if it gives confidence to the purchaser, it gives confidence to me.”

Crown Group chief executive Iwan Sunito said any lift in interest rates would only stall the supply of new housing to the market.

“If interest rates rise many developers without strong branding or a loyal following would resort to a cheaper ­product to make it affordable and this will in time lead to the slums of the ­future, he said.

Saul Eslake, chief economist at Bank of America Merrill Lynch in Australia, noted he had long said interest rates would remain on hold until early 2016, and Mr Stevens’s speech was an indication he felt he had yet to get that message across.

“A majority of my peers still think rates are going to go up in the first half of next year,” Mr ­Eslake said.

Most missing the wealth halo of recent boom
THE AUSTRALIAN NOVEMBER 20, 2014 12:00AM

Turi Condon

Property Editor
Sydney
IF you live in a country or coastal town, or smaller capital city, then you probably missed the current housing boom. And if you live anywhere other than Sydney and Melbourne, you almost certainly missed out on the burst of double-digit price growth.

This week Reserve Bank governor Glenn Stevens flagged that interest rates would be low for some time to come.

Given the cash rate — and mortgage rates — are at depths not seen before, shouldn’t Brisbane, Perth, Darwin and other centres see housing prices starting to surge?

Softer economic conditions and the waning mining sector have weighed on these markets, which could skip a cycle if analysts’ predictions of a rise in interest rates mid to later next year come true.

Meanwhile, the froth is coming off the market with the pace of house price growth starting to ease.

In the last year Sydney’s housing prices rose 13 per cent, followed by Melbourne at nearly 9 per cent, but then it falls away with the other capitals recording price rises of less than 6 per cent, according to researcher RP Data.

The “Newtown boom” saw prices surge nearly 19 per cent in Sydney’s inner west, which along with Newtown includes suburbs such as Balmain and Leichhardt. Outer western Blacktown was also up nearly 19 per cent, as was the central northern band of suburbs — North Epping and Castle Hill — (up nearly 20 per cent), RP Data found. Sydney’s eastern suburbs trailed at a still healthy 7 per cent.

Melbourne followed a similar pattern, with outer Melbourne turning in 7 per cent price growth and middle ring suburbs like Doncaster and Glen Waverley recording 15.7 per cent rises.

But that is still better growth than Brisbane and Adelaide and far better than regional areas — away from capital cities, price growth was only 2.9 per cent for the year.

The RBA’s focus on Sydney and Melbourne has its roots in demographics. According to the latest (June 2013) Australian Bureau of Statistics figures, Melbourne has 4.2 million residents, or 18.1 per cent of Australia’s population and Sydney has 4.4 million, 18.9 per cent of the country’s 23.1 million people.

Whether you live in Sydney, Hobart or Tamworth, many Australians’ wealth is tied to homes. Ratings agency Moody’s yesterday released a report that found housing made up 55 per cent of Australian household wealth, double that of the US.

A sharp downturn in house prices would likely push the Australian economy into recession, Moody’s said. While this is unlikely, many areas may have to wait until the next property cycle to feel the wealth halo created in the nation’s two biggest cities.

Supply, not investors, behind high home prices: Mirvac
AAP NOVEMBER 20, 2014 9:31AM

Mirvac apartments in Brisbane. Source: Supplied
AUSTRALIA’S home price boom is being driven by a lack of properties rather than foreign investors, says apartment developer Mirvac.

Mirvac(MGR) chairman John Mulcahy says more than half of people buying apartments are investors, foreign and domestic, a historic high for the group.

But he did not believe Australia was experiencing a housing bubble and investor activity was being driven in part by record low interest rates.

“But the key driver of higher pricing is driven primarily by a lack of supply, particularly in Sydney,” he told shareholders at Mirvac’s annual general meeting.

Chief executive Susan Lloyd-Hurwitz said Mirvac had sold almost 2500 residential property lots last financial year and was on track to settle 2200 in 2014/15.

“Taking advantage of the positive residential market conditions, we are accelerating releases to over 2700 lots in FY15, driven by our Sydney and apartment exposures,” she said.

She said Mirvac was continuing to restock its residential portfolio and would focus on medium- and high-density urban developments.

Mirvac would accelerate releases and push price when appropriate.

Ms Lloyd-Hurwitz maintained Mirvac’s previous operating earnings guidance of 12 to 12.3 cents per stapled security for this financial year.

She said Mirvac has set a return on invested capital target of 12 per cent by fiscal 2017 for its development business.


The group was aiming to divest around $200 million to $400 million worth of assets in the current financial year, so as to redeploy capital within the company.

Mirvac noted continued demand from foreign investors, particularly for apartment projects located in major cities, saying offshore buyers comprised 11 per cent of all settlements in fiscal 2014.

AAP, Business Spectator

What $10m buys you in Toorak, Mosman Park, Hawthorne, Noosa and the Gold Coast
THE AUSTRALIAN NOVEMBER 22, 2014 12:00AM

Lisa Allen

Property & Tourism Reporter
Sydney
Gail Havig
Gail Havig outside “Lochiel”, Brisbane. $10m invariably buys impeccable heritage in Brisbane. Picture Lyndon Mechielsen Source: News Corp Australia
SEVEN opulent homes in Sydney and three luxury properties in Melbourne made the list of the 10 most expensive house sales this year.

Topping the list was a $37 million waterfront mansion in Sydney’s Point Piper, offloaded by a property developer who had originally wanted $50m. Coming in at 10th on the list was a mansion in Toorak — arguably Melbourne’s most elite suburb — which sold for $15m.

But what about the next tier down? What will $10 million get you for a house or apartment in the major capital cities in an overheated property market?

As always with real estate, things are complicated.

“For $10m in Sydney you would get a cheeky steal,” says architect Kevin Fitzgerald, chief executive officer of global design firm HBO+EMTB.

“You would get a lot more on the North Shore of Sydney than you would in the Eastern Suburbs. But in the Eastern Suburbs you would get a damn good house with views.”

Start of sidebar. Skip to end of sidebar.

GALLERYWhat $10m buys in Australia
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Property developer Fabrizio Perilli, chief executive of Toga development and construction, disagrees.

Perilli says $10m buys a penthouse-style apartment on the waterfront or in the Sydney CBD on a high floor, covering more than 250sq m and close to amenities.

But $10m for a house in Sydney would see you out in the suburban sticks forced to drive to public transport and shopping.

But it differs from city to city. Adelaide agent Rick Harcourt says there is nothing for sale in Adelaide worth $10m. The highest price paid for a house was four years ago when a couple paid more than $7m for an 1880s house in Medindie. That record is yet to be smashed.

Prices are not yet topping the $10m mark in Darwin or Hobart either.

But in Perth, the Gold Coast and Byron Bay sales at the $10m mark are well established.

RP Data senior research analyst Cameron Kusher says there are more properties selling in Melbourne and Perth for around the $10m mark than since before the financial crisis.

“If you are looking at that ultra top end you are talking about Toorak, South Yarra, Brighton in Melbourne,” Kusher says.

“In NSW, there are more opportunities in Point Piper, Vaucluse, Bellevue Hill and Mosman at that level. Really any of those areas in Sydney have the ability to reach those high prices. The higher priced stock will generally be located in Sydney particularly the harbour front.”

But Kusher says there’s still the odd sale above $10m in Perth, where the housing market is slowing quite rapidly.

“The properties that sell for $10m are in Peppermint Grove, Dalkeith and Nedlands, properties on the river also tend to go for $10m plus,” he says.

“You occasionally get sales above $10m on the Gold Coast in Albatross Avenue, but they are generally few and far between.”

MELBOURNE

MOST $10 million Melbourne houses won’t have a world-beating view of the city, but they make up for it by being perched on huge blocks of land a short distance from the heart of the central business district.

Leafy eastern suburbs of Toorak, Brighton and Kew host the lion’s share of Melbourne’s $10m homes, while the odd penthouse in the CBD will also make the cut.

One $10m Toorak home, at 15 Linlithgow Road, is being sold by its Hong Kong-based owners who first bought the property to house their children while they studied in Australia. On a 1926sq m land parcel, the 1930s-built grand residence includes five bedrooms, four bathrooms and a study.

Outdoors it has a swimming pool, a tennis court and an entertaining area. It is about 20 minutes’ drive from the CBD.

Sotheby’s International Realty selling agent Phillip French said Melbourne mansions rarely offer Sydney-like beach or harbour views. French says that a $10m home would usually yield a block of more than 1000sq m.

“Generally it comes down to the land size which brings the price up. The land parcels are large and the home size is large. They will generally have pools and tennis courts as well,” French says.

“Some do have views but it’s more about the lifestyle: the home itself, the street and how picturesque it is with the tree-lined streets.” - Greg Brown

PERTH

A SLUGGISH Perth mansion market since the global financial crisis means $10 million can get you much more than it used to.

A home in Perth’s affluent Mosman Park, at 10 Hill Terrace, was recently bought by a local for about $10m. The house is on a 1639sq m block right on Swan River in the city’s west. The newly built three-level property has five bedrooms, five bathrooms, three powder rooms, a study and a gym. It also has a resort-style outdoor pool.

Prominent Perth mansion seller William Porteous said the home would have sold for about $15m before the GFC. “(Houses at this price are) selling but it’s slow and everything is selling a lot below vendors’ expectations,” Porteous says. “The oil and gas (sector) is booming and Perth is a bright area to buy but it’s probably another 12 months before people realise it.”

In another recent $10m sale in Mosman Park, a local buyer bought a “derelict” home on the river, at 35 Saunders Street, and plans to knock it down and build a new one. Porteous says that the value was in the location: more than 1200sq m of land fronting the Swan River and the city. Homes in the $10m range have highly sought after river and city views. — Greg Brown

MELBOURNE

MOST $10 million Melbourne houses won’t have a world-beating view of the city, but they make up for it by being perched on huge blocks of land a short distance from the heart of the central business district.

Leafy eastern suburbs of Toorak, Brighton and Kew host the lion’s share of Melbourne’s $10m homes, while the odd penthouse in the CBD will also make the cut.

One $10m Toorak home, at 15 Linlithgow Road, is being sold by its Hong Kong-based owners who first bought the property to house their children while they studied in Australia. On a 1926sq m land parcel, the 1930s-built grand residence includes five bedrooms, four bathrooms and a study.

Outdoors it has a swimming pool, a tennis court and an entertaining area. It is about 20 minutes’ drive from the CBD.

Sotheby’s International Realty selling agent Phillip French said Melbourne mansions rarely offer Sydney-like beach or harbour views. French says that a $10m home would usually yield a block of more than 1000sq m.

“Generally it comes down to the land size which brings the price up. The land parcels are large and the home size is large. They will generally have pools and tennis courts as well,” French says.

“Some do have views but it’s more about the lifestyle: the home itself, the street and how picturesque it is with the tree-lined streets.” - Greg Brown

BRISBANE

TEN million of your hard-earned cash will buy you one of Brisbane’s best properties including a large residence with significant land holdings and city and river views, or a sky-high penthouse in a brand new apartment block.

Veteran agent Patrick Dixon says the $10m mark is about the high-water of sales in the Queensland capital housing market, a bargain compared to a home of equivalent stature in Sydney at $40m or Melbourne at $30m.

The city’s property industry is abuzz with Gina Rinehart’s soon-to-settle purchase of the $14m-plus riverfront mansion across five lots in the eastern suburb of Hawthorne. Brisbane’s only on-market $10m-plus transaction was the sprawling 5500sq m residence of the Anglican archbishop in Ascot for $11.2m in 2007. Other sales were to businesswoman Lorna Jane Clarkson, for a $10.3m Hamilton stately five-bedroom home, and the $10.35m sale of a Paddington heritage home on 6000sq m in 2009.

Ten million will buy you a Brisbane inner city, well-maintained historic residence with at least five bedrooms, an equal number of bathrooms and all the mod-cons. A pool will be a given, as will impeccable grounds and, often, a tennis court.

Agent Gail Havig has the impressive Lochiel on her books. The seven-bedroom, five-bathroom colonial has more than 2200sq m of manicured lawns overlooking the city on Hamilton Hill. “It’s rare for a colonial with so much land still available and with the stunning and city views,” she says.

Dixon is also overseeing bids for the 4.5ha White Waltam estate, understood to be owned by Terry Peabody, that offers three homes, two tennis courts and grounds described as akin to Augusta golf course. One could also buy the penthouse of the proposed Skytower high-rise for about $15m, complete with glass walls, incredible views across Moreton Bay and your choice of fitout. — Rosanne Barrett

SUNSHINE COAST

IN the Sunshine Coast celebrity playground of Noosa, $10 million buys a magnificent modern waterfront estate in a prestige position, or a significant beachside land holding with uninterrupted views.

Multi-million dollar properties on the Sunshine Coast are always in short supply because of the local council’s development cap. The upheaval following the GFC added to the shortage with few owners choosing to sell their luxury properties.

In Noosa, two adjacent absolute beachfront apartments in the Sandpiper complex off the main thoroughfare, Hastings Street, sold for $14m last year.

The strip is the home of ultra-luxury apartment blocks, where owners look over popular Main Beach.

Noosa agent Tom Offermann says the prestige market guarantees water frontage and impressive views. “People pay a premium for a front-row position and for the guarantee that for as long as they own it people will always get that ocean view without looking over other roofs,” he says.

From the modern five-bedroom, four-bathroom, waterfront home on Webb Road at Sunshine Beach, for sale for $9.5m, one can walk from the front garden on to the sand and it’s just 100m to the patrolled beach. — Rosanne Barrett

GOLD COAST

TEN million dollars on the Gold Coast will buy a beachfront house on a double block or a modern house on the river on Paradise Waters or the Isle Capri, McGrath Estate Agents prestige property specialist, James Ledgerwood says.

Or it would buy you the best penthouse on the Gold Coast at either Main Beach, Southport, Surfers Paradise or Broadbeach. It would be a modern, contemporary penthouse with a new fit out.

The Gold Coast reached a crescendo of high-priced property sales just before the GFC when businessman Charlie Caltabiano was preparing to pay $16.85m for the penthouse atop the Soul Tower.

Simultaneously property developer Tony Smith was building a $60m beach house on Hedges Avenue. The Caltabiano deal did not proceed and the penthouse, which has never been occupied, will be auctioned through McGrath Estate Agents next year.

After getting caught in a financial crash, Smith sold the Gold Coast land and moved to Bali where he has carved a career as a hotelier and developer.

A modern riverfront home at 117 Commodore Drive, Paradise Waters (pictured above) is expected to fetch at least $7.5m, according to agent James Ledgerwood. — Lisa Allen

SYDNEY

PERHAPS hotelier and resident of the wealthy Sydney suburb of Vaucluse, Jerry Schwartz, puts its best: “$10 million would buy a pretty nice house in Sydney, but not water frontage, it would be a good size house in Sydney’s Eastern Suburbs,’’ he says.

Sydney-based architect Kevin Fitzgerald agrees: “If you were in the Eastern Suburbs you would get a damn good house with views.”

Fabrizio Perilli of Toga Development and Construction argues that if you have $10m to spend in Sydney you would be better buying an apartment, because at that price it will have luxury high-end finishes, amazing views and it will be close to good amenities.

“People these days want to be connected and be able to walk to good amenities be they great restaurants, cafes, work and transport if they wish,” Perilli says.

Fitzgerald notes homes in the $10m range are not selling strongly in Sydney, unless it’s the odd trophy home in the east.

Ray White Double Bay agent Donna Mauthner is expecting at least $9.5m for this beauty (pictured above) at 51 Fitzwilliam Road, Vaucluse, in Sydney’s Eastern Suburbs when it is auctioned on December 4. The Parsley Bay waterfront is easily accessible from this lifestyle property, which features bespoke internal finishes. — Lisa Allen

Coca-Cola shows bubbles barely matter for seasoned investor
ROGER MONTGOMERY THE AUSTRALIAN NOVEMBER 22, 2014 12:00AM

I’LL wager you never thought Coca-Cola had anything to do with property investing. Well, kick back and read on as I demonstrate how Coke can make you a more sensible property investor.

The story of an owner of Coca-Cola shares at the time of its IPO in 1919 is a useful allegory for thinking about how to invest successfully in any asset class. In 1919 Coca-Cola came to the stockmarket at $US40 per share. A year later Coca-Cola shares were trading at $US19.50 — the result of losses stemming from rising sugar prices and a perpetual contract Coca-Cola had with its bottlers to supply syrup for a fixed $US1 a gallon. The only reason the shares traded at $US19 was because investors were selling from the fear of losing even more money.

But what would have happened if your grandparents or great-grandparents had bought a single share in Coca-Cola in 1919 at $US40 and held on through the subsequent decline to $US19.50 in 1920, then on through the great crash of 1929, the subsequent depression of the 1930s, World War II, a baby boom, dozens of other wars, skirmishes and nuclear missile crises, an oil crisis. Not to mention the Cold War assassinations, the fall of the Berlin Wall, yuppies, innumerable recessions, booms, busts and scandals, as well as a war in Vietnam, two in Iraq and then ... the global financial crisis?

Think of all the newspaper articles advising you about what to do with your shares through all of this! If, however, your relatives had kept that single share in the family, taken the splits and reinvested all their dividends, they would have accumulated 126,321 shares on January 8, 2010, and their investment would have a market value of $US6,966,603.15.

And in the nearly five years since, there have been another 14 dividends paid and another two-for-one split. As of August 2014, that original $US40 investment is now worth $US11.7 million — a compounded return of just over 14 per cent a year.

So how does this relate to property? Well there’s a lot of concern about prices being in a bubble just now (which they might be). Low interest rates have propelled demand for investment property loans to 10 per cent higher annual rate in the most recent quarter, suggesting prices could head even higher in the near term.

Eventually there will be a rate rise and this will first hit those crazy people who have borrowed significant amounts of money on “interest only” and with high loan-to-value ratios. These loans could be Australia’s answer to the US subprime loans of the GFC. And how far could prices fall?

It may surprise many that prices for Australian homes have previously fallen 10 per cent or more three times in the past 35 years. Those living in Mosman, on Sydney’s north shore, and other hard-hit suburbs around the nation will know that prices fell a great deal more than that during the GFC.

Rates will eventually rise and if they rise sufficiently, it won’t be necessary for people to lose their jobs for prices to fall. The marginal buyer will simply pull their bid and anyone on the brink may be forced by their bank to exit while keeping their job to pay the bank back.

US Federal Reserve officials are already warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates.

But should you be worried? Perhaps, yes, if you are heavily leveraged. But think about this: In the next 40 years our population will be 20 million greater than it is today. In 2006 there were 2.6 people per household, which means in the next 40 years we might need 7.7 million new homes. Australia is on track to build just 143,800 homes this year. That’s down significantly from 2003, when we built 168,580 homes. Recessions, higher interest rates and a slowing China will produce lumpy new housing volume, while the population steadily rises. Think about the Coca-Cola story and you will have some insights into how and when to buy property.

Roger Montgomery is the founder of Montgomery Asset Management.

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Foreign property buyers spared extra stamp duty
PUBLISHED: 7 HOURS 40 MINUTES AGO | UPDATE: 4 HOURS 25 MINUTES AGO

Foreign property buyers spared extra stamp duty
The stamp duty issue will not be included in any formal recommendation by the parliamentary committee when it publishes its long-awaited report on Thursday. Photo: Daniel Munoz
JACOB GREBER Economics correspondent
KEY POINTS

The prospect of extra taxes could have killed off the market for foreign buyers.
A review will look into using taxes or fees to limit the impact on house prices.
A proposal to hit foreign property ­buyers with extra stamp duty has been quietly dumped by a parliamentary committee looking into fixing a ­housing affordability crisis.

Modelling by the Parliamentary Budget Office and a review of ­housing markets in the US, Canada, Hong Kong and Singapore the charge would be self-defeating.

Rather than boosting revenue for government, the prospect of additional taxes would be more likely to kill off the market for foreign buyers.

The issue of whether to use taxes or fees to limit the impact of foreign buyers on house prices – particularly for existing houses and apartments – would be better considered as part of a broader review, such as the pending tax white paper.

The stamp duty issue will not be included in any formal recommendation by the parliamentary committee when it publishes its long-awaited report on Thursday, but will form part of the wider analysis.

The review is expected to be scathing about the role of the Foreign ­Investment Review Board (FIRB) in monitoring and punishing temporary residents who fail to sell properties when they leave Australia.

NO DIVESTMENTS SINCE 2008
FIRB – which has been publicly criticised for a lack of leadership by committee chair Kelly O’Dwyer – has revealed that not a single foreign buyer has been forced to sell a property since 2008, when the former government scrapped screening rules for temporary residents. In the five years prior to 2008, some 17 divestments were ordered, according to information given to the committee by FIRB.

The committee’s report will call on the government to introduce tough penalties on foreign buyers who break the law and benefit from windfall gains. This will include a sliding scale linked to the value of the property in question, rather than the current $85,000 fine, which is regarded by some buyers as a “cost of doing ­business” in Australia.

The housing affordability inquiry was initiated by Treasurer Joe Hockey in March and was originally slated to report by October 10, a date that was postponed because the committee requested time for extra research.

EXTREME SENSITIVITY
The delay was also because of extreme sensitivity about whether any of its findings would disrupt talks with China, which signed a trade agreement with Australia on Monday.

The committee has considered more than 100 submissions on what is often a very emotive and politically-charged topic.

Community concerns have escalated over fears Chinese buyers seeking an offshore haven for their savings have targeted Australian property and made it less affordable for local buyers.

Much of the debate has been obscured by a lack of clear data on whether the fears are well founded.

One of the committee’s most ­important recommendations will be on the establishment of a single database of property purchases across states and territories, and linking that information to customs data.

The Australian Financial Review

BY JACOB GREBER
Jacob covers economics from our Sydney and Canberra newsrooms.

@jacobgreber

(21-11-2014, 10:31 PM)greengiraffe Wrote: Coca-Cola shows bubbles barely matter for seasoned investor
ROGER MONTGOMERY THE AUSTRALIAN NOVEMBER 22, 2014 12:00AM

I’LL wager you never thought Coca-Cola had anything to do with property investing. Well, kick back and read on as I demonstrate how Coke can make you a more sensible property investor.

The story of an owner of Coca-Cola shares at the time of its IPO in 1919 is a useful allegory for thinking about how to invest successfully in any asset class. In 1919 Coca-Cola came to the stockmarket at $US40 per share. A year later Coca-Cola shares were trading at $US19.50 — the result of losses stemming from rising sugar prices and a perpetual contract Coca-Cola had with its bottlers to supply syrup for a fixed $US1 a gallon. The only reason the shares traded at $US19 was because investors were selling from the fear of losing even more money.

But what would have happened if your grandparents or great-grandparents had bought a single share in Coca-Cola in 1919 at $US40 and held on through the subsequent decline to $US19.50 in 1920, then on through the great crash of 1929, the subsequent depression of the 1930s, World War II, a baby boom, dozens of other wars, skirmishes and nuclear missile crises, an oil crisis. Not to mention the Cold War assassinations, the fall of the Berlin Wall, yuppies, innumerable recessions, booms, busts and scandals, as well as a war in Vietnam, two in Iraq and then ... the global financial crisis?

Think of all the newspaper articles advising you about what to do with your shares through all of this! If, however, your relatives had kept that single share in the family, taken the splits and reinvested all their dividends, they would have accumulated 126,321 shares on January 8, 2010, and their investment would have a market value of $US6,966,603.15.

And in the nearly five years since, there have been another 14 dividends paid and another two-for-one split. As of August 2014, that original $US40 investment is now worth $US11.7 million — a compounded return of just over 14 per cent a year.

So how does this relate to property? Well there’s a lot of concern about prices being in a bubble just now (which they might be). Low interest rates have propelled demand for investment property loans to 10 per cent higher annual rate in the most recent quarter, suggesting prices could head even higher in the near term.

Eventually there will be a rate rise and this will first hit those crazy people who have borrowed significant amounts of money on “interest only” and with high loan-to-value ratios. These loans could be Australia’s answer to the US subprime loans of the GFC. And how far could prices fall?

It may surprise many that prices for Australian homes have previously fallen 10 per cent or more three times in the past 35 years. Those living in Mosman, on Sydney’s north shore, and other hard-hit suburbs around the nation will know that prices fell a great deal more than that during the GFC.

Rates will eventually rise and if they rise sufficiently, it won’t be necessary for people to lose their jobs for prices to fall. The marginal buyer will simply pull their bid and anyone on the brink may be forced by their bank to exit while keeping their job to pay the bank back.

US Federal Reserve officials are already warning investors and foreign central bankers to brace for market turbulence as the Fed prepares to raise short-term interest rates.

But should you be worried? Perhaps, yes, if you are heavily leveraged. But think about this: In the next 40 years our population will be 20 million greater than it is today. In 2006 there were 2.6 people per household, which means in the next 40 years we might need 7.7 million new homes. Australia is on track to build just 143,800 homes this year. That’s down significantly from 2003, when we built 168,580 homes. Recessions, higher interest rates and a slowing China will produce lumpy new housing volume, while the population steadily rises. Think about the Coca-Cola story and you will have some insights into how and when to buy property.

Roger Montgomery is the founder of Montgomery Asset Management.

Wow fantastic article

Only because I can copy and paste & change the heading to
1) benefit of compound returns
2) benefit of old age especially 95 years old
3) benefit of investing in emerging markets
4) benefit of investing in growth stock
5) stocks for the long run (with credit to permabull Jeremy Siegal)

and it will make sense to the academic

(18-11-2014, 08:47 AM)specuvestor Wrote: OTOH I'm sure Aussie real estate prices will be higher than now in a century's time. But i doubt it will be comfort to those that will go through the coming correction and are highly leveraged. Nothing new under the sun as it happened to countries the size of Australia but newcomers will have to learn the cycle over again.

http://www.valuebuddies.com/thread-5501-...#pid100696