Australia Property

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Pitch to foreigners locks out locals before ‘for sale’ sign goes up

RICK WALLACE AND SCOTT MURDOCH THE AUSTRALIAN JUNE 12, 2014 12:00AM

Scott Murdoch

China Correspondent
Beijing

Sydney Luxury Property website. Source: TheAustralian
AUSTRALIAN real estate is being marketed and sold exclusively to foreign investors — including Chinese millionaires — with local buyers not even aware the properties in question are up for sale.

More than 100 real estate firms have sprung up in mainland China, exclusively selling Australian real estate — both fixed and off-the-plan — directly to wealthy Chinese investors, bypassing Australian buyers.

At the upper end of the fixed-home market, prestige Sydney property agency Simeon Manners — which says it has sold more than $100 million of Sydney property to “China’s most astute buyers and investors” — operates a sales site that cannot be accessed from within Australia.

Director Mark Manners said many of the listings on the site — sydneyluxuryproperty.com — could only be accessed from a foreign IP address and were private or off-market listings placed on behalf of owners who wanted a discreet sale to a foreign purchaser.

Simeon Manners is just one of a swag of firms offering Australian fixed housing to foreign buyers. Under Foreign Investment Review Board restrictions, the agents are not breaking the law but the buyers potentially are.

Adelaide firm DG Real Estate’s Simon Hou said his firm sold many properties — including a $4.2m mansion in the upmarket suburb of Unley — to wealthy mainland Chinese investors and had not had the FIRB reject an ­approval in recent years.

It is estimated that Chinese buyers spent $5.9 billion on Australian real estate last year, in a market worth $270bn.

The head of China-based online property portal juwai.com, Andrew Taylor, told The Australian there were Australian developers “who have been marketing properties exclusively in China and Asia for years”.

“There are vendors who don’t really want to put their home on the market but have a magic number that they would be willing to sell at (who) often put their homes online without listing them in Australia,” he said.

“That way they have exposure to the Chinese buyer without having to put up a sign board and do open-for-inspections.”

Juwai is a marketing site only, and is not directly involved in the sale of properties.

The latest revelation of regulatory failure in Australia’s foreign-investment regime comes as federal Labor MP Kelvin Thomson has labelled the FIRB “naive” and unwilling to prevent illegal foreign investment in established homes, even though it is pricing young Australians out of housing.

Mr Thomson’s comments came after The Australian revealed that the FIRB had not prosecuted a single foreign investor since 2010, despite a surge in offshore investment into Australian established property, which is unlawful in all but a narrow range of circumstances.

Australia allows foreign investment in off-the-plan housing to boost supply but, aside from temporary residents, foreigners cannot buy established houses. Temporary residents are obliged to sell houses when they leave, but there is no evidence that this is occurring or being enforced.

The latest loophole on foreign-only sales was exposed in a recent parliamentary committee hearing in which FIRB officials admitted there were no requirements for developments of less than 100 units to be offered to local buyers, effectively allowing offshore-only sales channels to develop.

Juwai has calculated that Chinese investors accounted for $1 out of every $46 spent on real estate in Australia last year.

Mr Taylor said the China-only sales route was “especially common with vendors who may have overcapitalised with renovations or want more than the current market value”.

Mr Thomson said unlawful foreign investment in fixed housing was driving up prices at all levels, not just the top end. It was pricing young Australians out of home ownership and tougher penalties and enforcement were needed.

“I believe the FIRB is naive, under-resourced and doesn’t actually regard it as its mission to maintain Australian ownership of Australian real estate,’’ he said. “Young Australians who can’t afford to buy houses are the silent victims of its neglect and indifference.”

Family First’s Victorian director Ashley Fenn also expressed concerns about the revelations, saying foreign investors “ignore the laws in place as they have become aware there is no real monitoring of foreign investment and there is no significant consequence for breaching the laws”.

The chairwoman of the economics committee conducting the inquiry, Liberal MP Kelly O’Dwyer, probed FIRB officials on the enforcement failings during the recent committee hearing, telling The Australian yesterday, “ if you can’t enforce (the rules) you have to wonder whether people are going to follow them”.

She said the committee would consider “if people are intending to do the wrong thing, and people do the wrong thing, are the penalties strict enough?”.

The FIRB was last night yet to respond to questions put to it by The Australian.

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Chinese billionaire Wang Jianlin ready to make a splash
ROSANNE BARRETT THE AUSTRALIAN JUNE 12, 2014 12:00AM

CHINESE billionaire developer Wang Jianlin has met Queensland and Australian authorities before a series of proposed multi-million-dollar property deals in southeast Queensland.

The chairman of Dalian Wanda Group visited the Gold Coast for two days last week and also met federal Trade Minister Andrew Robb in Canberra for investment talks.

Representatives for the group — a $US62.8 billion ($66.86bn) company with interests in commercial property, hotels, tourism and shopping centres, according to its website — have visited the Gold Coast twice this month. China’s largest property owner, it has plans to be the world’s biggest hotel chain in five years under its Wanda Hotels & Resorts arm.

Since developing scores of Wanda Plaza Malls in China, the company has set its sights on international acquisitions.

In 2012 it bought US cinema chain AMC for $2.6bn including debt and last year bought Sunseeker yachts in England, with plans for two high-rise towers in London. It has also been actively buying luxury hotels in Europe. Gold Coast-based internat­ional agent Roland Evans, director of Canford Property Group, is working with Mr Wang.

He said the Wanda Group was potentially looking at both hotel and commercial sites on the Gold Coast, Brisbane and possibly Sydney.

“They are doing that with some major acquisitions internationally,” he said.

“They’re now viewing Australia as their next destination.”

He said Wanda Group was not seeking to enter joint ventures with any proponents currently seeking to develop casino resorts in Queensland.

Mr Evans said government officials were “watching closely” but were supportive of the confidential arrangements.

“This will be a multitude of investments,” he said.

Separately, Chinese groups are also scouring the market for commercial properties in ­Sydney.

Invesco helped China’s sovereign wealth fund, China Investment Corporation, buy a $305m complex in Sydney last year.

Foreign investment into Australian residential real estate is currently being scrutinised by a parliamentary inquiry.

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Vendors cash in as global investors circle towers
GREG BROWN THE AUSTRALIAN JUNE 12, 2014 12:00AM

OFFICE landlords are looking to cash in on the surge of offshore ­capital into local markets, with about $200 million worth of office towers to hit the market, taking office property on the sales block to almost $2 billion.

US real estate investment firm Hines Global REIT is selling its first Australian office building in South Brisbane for about $100m and Melbourne’s Laidlaw family is offering the Transport Accident Commission building in Geelong for sale with hopes of $90m to $95m.

Charter Hall Group joint ­managing director David ­Harrison said many owners were looking at making the most of the high prices being offered for premium office towers.

Australian investment property was still good value for offshore buyers, he said.

“Vendors hope to take advantage of the pricing that exists in the market, but equally the reason that you’ve got such a competitive landscape is that both initial yields and discount rates are still attractive compared to other countries,” Mr Harrison said.

“I think Australia is going to go through yield synchronisation so that the spread of yield to debt falls to levels that are similar to the UK and the US.”

Investa head of capital transactions, commercial development and leasing Michael Cook said Australia was catching up with the tightening in global yields that occurred when the markets started recovering from the global financial crisis.

“Australia was late to that party and we are just catching up,” Mr Cook said.

“The fundamentals (such as vacancy rates) are still relatively unsupportive of the tight yields but the weight of money is ­creating an environment where there is competition for good ­assets.”

Sydney has more than $1bn worth of office property on the market, with Queensland Investment Corporation, Dexus ­Property Group and GIC Real ­Estate among the groups looking to cash in.

The Lend Lease Core Plus Fund is selling a portfolio of six ­office buildings in Brisbane, Sydney and Melbourne through Colliers International and JLL.

JLL head of office investments Rob Sewell said many sovereign wealth funds were looking to increase their investment in ­Australia and were willing to be bullish on price.

“I see yields tightening over the next couple of years on ­premium office stock and staying that way for some time to come,” Mr Sewell said.

Savills associate director of capital transactions Ben Azar said offshore investors compared ­potential purchases with other global opportunities, rather than domestic ones.

He said this could lead to similar yields around the world.

Interest in development opportunities is heating up the most. Asian giants Far East Organisation, Hiap Hoe, Greenland Holding Group and Roxy Pacific Holdings have paid strong prices on CBD office buildings in the past two years with an eye to ­residential conversion.

AMP Capital Wholesale ­Office Fund manager Nick ­McGrath said demand from developers ­underpinned its decision to put its 338 Pitt Street building on the market. The strength of the investment market had also encouraged AMP to sell other properties. “At this point of the cycle the best use (of 338 Pitt Street) is a residential conversion rather than continuing to hold the building as an income-producing office asset,” Mr McGrath said.

In Brisbane, Investa Property Group and Seymour Group are both selling towers with conversion potential, while Cromwell Property Group has flagged doing the same with two of its Brisbane office buildings.

In the latest listings, Hines appointed CBRE to sell its fully leased South Brisbane building. It was purchased in 2012 for $88.1m.

In Melbourne, the Laidlaw family, which amassed its fortune through the founding of clothing brand Hard Yakka, has appointed JLL to sell the 15,000sq m Transport Accident Commission building in Geelong.

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Our housing costs are out of whack, says IMF
THE AUSTRALIAN JUNE 12, 2014 4:00AM

David Uren

Economics Editor
Canberra

House prices to income ratios. Source: TheAustralian
HOUSING is less affordable in Australia than in any other country except Belgium, the International Monetary Fund says, warning that rising prices might point to an unsustainable boom.

The IMF is stepping up its analysis of housing markets around the world, having concluded that property booms and busts were implicated in two-thirds of the past 50 banking crises. “The era of benign neglect of housing booms is over,” deputy managing director Min Zhu said.

House prices, rents and incomes should, in theory, all move in tandem.

On this basis, the Australian real estate market is one of the most exposed in the world.

The ratio of prices to individual incomes is one-third more than its long-term average, the IMF estimates.

Canadian house prices are similarly inflated, while prices in Belgium are almost 50 per cent higher, relative to incomes, than average.

“In the long run, the price of houses cannot stray too far from people’s ability to afford them,” the IMF says. If ratios between house prices and rent get too far out of line, people will switch between buying and renting, eventually bringing the two into balance, it notes.

Presently, the ratio between house prices and rents is 50 per cent more than the long-term average in Australia.

Such indicators provide only a broad indication of housing market valuations, with issues such as credit growth, household indebtedness and the nature of housing finance in a country also having an effect.

The fund says there is no single indicator for when a housing market is set for a fall but if a range of indicators, such as credit growth and housing affordability, are all pointing to an overheated market, authorities should take action.

The IMF argues for regulatory intervention to slow house price booms, such as demanding that banks hold more capital against any housing loans, or imposing limits on how much people can borrow against the value of their house or their income.

The Reserve Bank has been sceptical about these strategies, arguing that regulation has limited effectiveness. If interest rates are too low, people will find ways to borrow excessively.

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Chinese property agents up fivefold
SCOTT MURDOCH AND RICK WALLACE THE AUSTRALIAN JUNE 13, 2014 12:00AM


THE number of Chinese property agents marketing and selling Australian homes to wealthy mainland buyers has increased at least fivefold over the past five years, as investors take advantage of Australia’s tax regime, banking laws and future economic prospects.

Chinese investors spent $5.9 billion last year buying residential property in Australia, in a market worth almost $270bn.

The Australian revealed this week that many overseas investors, including Chinese buyers, were skirting Foreign Investment Review Board guidelines that were designed to ensure local buyers were not locked out of the Australian market.

Under the current regulations, foreign investors are not allowed to buy existing houses and purchases should be contained to off-the-plan developments, in an attempt to add to the nation’s total housing stock.

The FIRB has failed to prosecute any buyer for breaching those rules, as both local and international agents reported unprecedented demand for existing properties from foreign investors.

A federal parliamentary committee established to examine the property purchase loopholes has heard that buyers are using law firms or children studying in Australia to buy luxury properties.

In Shanghai, ausproperty.cn founder Frank Hu said Chinese buyers were becomingly increasingly interested in Australia because of the current tax laws and the fact that banks required just a 10 per cent deposit.

Most commercial Chinese banks demand deposit payments worth at least 30 per cent of the property’s value.

Mr Hu’s website advertises and sells only Australian-based high-end properties.

“In 2009, there were only around 20 property agents for Australian properties based in China, but now there are already over 100 agents,” he said.

Mr Hu said Chinese property developers also looked to Australia because of the availability of land and high rates of return, compared with building in China.

“Some Chinese real estate companies are going to Australia to develop projects because it is comparatively easier to get land — the investment is not as big as it would have to be in China,” he said. “In Australia, you get the land, build a simple house and you can make a fortune.”

Apex Investment Alliance Shanghai branch manager Kevin Chen said Chinese investors were keen to capitalise on Australia’s economic growth prospects.

It was revealed this week that a growing number of high-end property vendors were not placing their properties for sale in Australia and were direct­ly marketing them to wealthy overseas, primarily Asian, buyers.

A property expo, Sydney Harbour Luxury Property Exhibition, is due to be held in Shanghai next weekend.

The Australian asked the FIRB a series of questions about the failure of regulations.

In a statement, it said “concerns are raised periodically in ­relation to the possible impact of foreign investment on the Australian housing market”.

As the issue was being reviewed by a parliamentary commit­tee, it would be premature to comment, it added.

The committee is due to report in October.

Additional reporting: Wang Yuanyuan

[BlueKelah]

Hope they can put a stop to the speculation so I can buy my house down under!

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So many Sing/Msian and Chinese developers heading to Australia for piecemeal developments. Makes me seriously wonder why market is negative over FCL's bid for Australand that has a proven track record and much bigger portfolio...

Deals for a slew of urban high-rises
KYLAR LOUSSIKIAN THE AUSTRALIAN JUNE 14, 2014 12:00AM

SINGAPORE and Malaysian developers have swooped on apartment and hotel projects along the eastern seaboard with an end value approaching $1 billion as the high-rise boom rolls on.

Singapore-listed Fragrance Group struck a deal to purchase the 24-storey 555 Collins Street building in Melbourne that it plans to convert to a landmark mixed-use development.

Fragrance Group purchased the building from property developer Harry Stamoulis for $78 million after the failure of an earlier attempt, in a partnership with Daniel Grollo’s Grocon, to redevelop the site.

Fragrance entered the Australian market last month with the purchase of a Hobart development. The Melbourne project is on a much larger scale.

Malaysian developers have also shown an interest in Sydney, with the listed Eco World announcing this week it will join with locally based Dyldam to develop 300 units on a 4775sq m site in Church Street, Parramatta, in the city’s west. Dyldam is already involved with a number of other residential developments in the Parramatta CBD.

In Queensland, three Singapore firms new to Australian residential development registered a joint local subsidiary on Thursday night.

KSH Holdings, Heeton Holdings and Lian Beng Group are significant developers in Singapore, Malaysia and China. Their new Australian subsidiary, Wickham 186, is 15 per cent-owned by KSH, 55 per cent-owned by Heeton and 30 per cent-owned by Lian Beng.

The Weekend Australian understands the company has been set up for a proposed development fronting Wickham Street in Brisbane’s inner-city Fortitude Valley.

That project could see three towers built on vacant land, with two residential towers — one 30-storey tower with 187 units and another 23 storeys with 137 units — and a third 25-storey hotel building.

Plans for the Fortitude Valley proposal were submitted by Marvel Investments but will be jointly developed by the Singapore companies and Perth firms Twin Ocean Property and Sunfire Asset.

Ralph Nunis, director of Sunfire, confirmed the company had been in talks with a Singapore firm with a view of bringing them on as an equity partner.

Southeast Asian capital could be heading back to the Australian market for new projects, according to property researcher Kevin Stanley.

“(Chinese developers) represent a relatively recent addition and it’s interesting that a number of new developments could represent a fresh wave from Singapore and Malaysia,” he said.

“Offshore developers are still trying to tap into a buoyant market in Australia, in terms of house prices, but they need to be careful to buy at a level which will still make good returns feasible.

“The pressure is certainly on as site values start to rise.”

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IMF right: housing situation appalling
CALLAM PICKERING BUSINESS SPECTATOR JUNE 14, 2014 12:00AM

WAS the International Monetary Fund right to question Australia’s housing market? Or does it simply not get that Australian property is different?

Unfortunately, it has a point. Our major banks, the government and the Reserve Bank of Australia have a lot to answer for.

The reality is that we are not different. Sure, our cities have some unique characteristics but our differences don’t explain why we pay so much more for housing.

Sydney dwelling prices are about 50 per cent higher than pric­es in New York, despite New York being home to more accumulated wealth than anywhere else. A more amusing example, sourced from Lindsay David’s Australia: Boom to Bust and independently verified, is that the med­ian price in Mildura, a town on the Victoria/NSW border with a population of about 30,000 people, is broadly similar to house prices in Chicago — the third-biggest city in the US.

The IMF was right to highlight that housing has become increasingly costly over the past few decade, and as a share of income is approaching its highest level in history.

It doesn’t have to be this way. The current predicament — high prices and elevated indebtedness — is completely intentional. The fault lies with our major banks, the RBA and government policies.

Housing cannot climb to such great heights unless the banks allow it. The rapid rise in house prices over the past 30 years partly reflects banking deregulation but also loose lending standards from the major banks.

We shake our heads at the US over its lending practices leading up to the global financial crisis, but banks in Australia routinely lend two or three times as much to couples who need help from their parents simply to make the deposit.

Banks have gone all-in on mortgages and face massive losses in the case of a prolonged housing slump. But a shortsighted approach, which emphasises near-term profitability as opposed to sound investment, encourages the major banks to continue pushing billions into our property sector.

As if poor lending standards weren’t enough, the government weighs in with a variety of policies that promote speculation at the expense of home ownership. Negative gearing and capital gains concessions make housing an increasingly attractive investment. While the first-home buyer grant creates the illusion of affordability for young Australians, in reality it simply redistributes funds towards the wealthy.

State governments help to keep prices high by limiting the land released for development. High house prices lead to more stamp duty and that is a major source of state revenue.

The RBA’s main fault is one of inactivity. It lowered rates in order to stimulate the non-mining sector, but so far credit growth has been concentrated in housing. The RBA has a range of tools to slow the housing market and encourage banks to redirect credit towards the business sector but has instead decided to do nothing.

Many home owners, to their credit, have taken a cautious approach to mortgage repayments. The aggregate mortgage buffer — a measure of balances in mortgage offset and redraw facilities — sits at almost 15 per cent of outstanding loan balances or about two years’ worth of total scheduled repayments at current interest rates.

However, it is also important to recognise that these balances are likely to be held by households who have been paying down their mortgages for a lengthy period of time. There is limited offset and redraw facilities for households that have taken on considerable debt recently; that group remains vulnerable to loss of income.

Australians need to change the way they view property; we shouldn’t be proud of paying $1 million for a dump in Sydney. Nor should we have to.

The only thing “different’’ about Australian housing is the loose lending standards and poor policies that underwrite it.

If we were wise, we wouldn’t discount foreign commentators’ comments. Instead, we’d take their advice on board and lobby our state and federal governments and the RBA to finally do something about housing affordability.

BUSINESS SPECTATOR

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Sydney has least loss-making sales

Michael Bleby
334 words
17 Jun 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Sydney is leading the national housing pick-up by having the smallest ­proportion of dwellings sold at below their previous purchase price, according to the latest figures from RP Data.

It may not be surprising in the light of reports that the NSW capital's housing market is going gangbusters, but a new report shows that just 3 per cent of transactions were loss-making resales in the March quarter, down from 6.9 per cent a year ago. This was the lowest level since December 2003.

In Melbourne, the 7.4 per cent figure was down from 9.3 per cent a year ago, but up from 6.1 per cent in December.

While the proportions varied by city, there was a reduction from a year ago in Perth, Darwin, Brisbane, Adelaide and Hobart, marking an improvement nationally in capital city resales to 6.5 per cent from 9.4 per cent.

Only ­Canberra showed a year-on-year ­deterioration, up to 7.1 per cent from 6.2 per cent.

An improvement was also clear in regional markets, as residential properties in agricultural areas performed better. The overall regional figure fell to 16 per cent from 18.2 per cent a year ago.

The hardest-hit areas are lifestyle regions such as Queensland's Wide Bay, where the 30.6 per cent of loss-making resales in the Bundaberg-Hervey Bay region was the country's biggest. "These areas continue to show the largest proportion of loss-making resales, particularly within the unit markets as opposed to detached housing markets," RP Data research analyst Cameron Kusher said.

In the three months to March, 9.8 per cent of Australia's 64,518 residential property resales recorded a loss from their previous purchase price.While slightly up from the 9.7 per cent of the December quarter, it was lower than the 12.4 per cent recorded over the same period a year ago.


Fairfax Media Management Pty Limited

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CEOs say equity key to heated real estate market
PUBLISHED: 3 HOURS 55 MINUTES AGO | UPDATE: 3 HOURS 47 MINUTES AGO

MATTHEW CRANSTON

The chief executives of three of ­Australia’s largest real estate groups, Stockland, QIC Real Estate and ISPT, predict that the country’s heated prime real estate market will run longer than ever before because of the strength in equity as opposed to cheap debt.

ISPT’s Daryl Browning said banks were throwing debt at potential investments in an attempt to compete with the massive inflows of equity, especially from offshore pension funds.

“The banks will see a decent-sized asset in the newspaper, ring you up and ask you ‘are you going to bid for it and can we fund you?’” Mr Browning said at a Property Council of Australia event in Brisbane.

“There is a lot of equity and a lot of debt but I think a lot of people can still remember 2007,” he said.

Capitalisation rates for building around the country have tightened as major offshore pension funds outbid locals for core office and retail assets.

QIC Global Real Estate’s managing director Steven Leigh said the equity flooding in would direct pricing and keep values stable.

“You have to remember these are equity investments. In the past when we have seen the frothy asset pricing, it is usually fuelled by leverage and highly geared parties.”

He said that high gearing was not the case this time and suggested that the patient equity that was driving prices would “hold through the cycle”.

“We also think the fundamentals will repair and come up and match the pricing.”

In Brisbane, where vacancy rates are at record highs, buildings have been snapped up for cap rates of 6 per cent. In Sydney some assets look as if they may sell at 5.5 per cent.

Stockland chief executive Mark Steinert, whose bid for the $2.6 billion Australand Property Group has just been topped, warned of the inherent cyclical nature of commercial real estate.

“The equity will be key, but don’t get me wrong, there will be a cycle and there will be a crash again, you can count on it – that’s what humans do – they get ­carried away,” Mr Steinert said. ­However, he said the growth in ­Australia was much better compared with the rest of the world and the weight of money was astonishing.

“We are talking trillions, not hundreds of millions or billions,” he said. Mr Steinert was cautious about the level of appetite for M&A in the sector.

“It’s not going as hard as the direct market and that is because the offshore funds have a mandate that says they should not proactively drive market M&A for different reasons.”

“So that means you will have less players in that space but wherever you see a vehicle that trades inefficiently it will absolutely get taken out.”