Funding pressure triggers pricing review
By George Lekakis
Herald Sun
June 11, 2009 12:00am
COMMONWEALTH Bank has refused to rule out the prospect of a mortgage rate rise ahead of next month's Reserve Bank board meeting.
Banking analysts are suggesting the country's largest home lender is poised to increase its standard variable rate home loan by as much as 10 basis points this month because its funding costs are continuing to rise.
Such a move would be controversial because CBA and the other major banks have not passed on the full benefit of recent official rate cuts by the Reserve Bank.
While Members Equity has the lowest rate among the banks at 5.39 per cent, CBA has the lowest offer among the majors at 5.64 per cent.
That is 0.1 per cent cheaper than the next best rate of 5.74 per cent that is being marketed by NAB.
ANZ and Westpac are each marketing variable home loans at 5.81 per cent, while Bendigo is the industry laggard with an offer of 5.9 per cent.
CBA spokesman Bryan Fitzgerald confirmed that the bank was reviewing the pricing on its standard variable loan but would not comment on whether the rate would be increased this week.
"Our rates are always under review and our long-term cost of funding our home loans is continuing to increase," he said.
"There is also competitive pressure coming from the term deposit market which is adding to our costs."
CBA chief executive Ralph Norris signalled in February that CBA would not necessarily follow the Reserve's official rate moves in setting its mortgage rates.
Since January 2008 CBA has held on to 0.82 per cent of the net official rate reduction by the RBA.
"Our margins have been reduced since the beginning of the credit crisis, below the level we regard as acceptable," Mr Norris said in February. "That's why we have indicated we may not be able to pass on future rate cuts in their entirety."
While the major banks have reduced short-term deposit rates this year, the pricing on two-year and three-year deposit products has risen from an average of 3.5 per cent in March to above 5 per cent in the past two weeks.
The improved term-deposit offers was triggered by Suncorp and Bendigo Bank which had not been able to make effective use of the Federal Government's funding guarantee because they had to pay higher fees than the majors under the scheme.
The funding pressures on the CBA group have been magnified by the recent acquisition of the Bankwest franchise which has emerged as a price leader in four- and five-year term deposits
Recession fears recede
Chris Zappone
June 2, 2009
Australia's economic prospects have brightened with surprisingly strong trade and building approvals figures suggesting a recession may yet be avoided.International trade data released today showed the country's deficit narrowed dramatically in the first quarter, while approvals for new homes surged in April.
The figures come just hours before the Reserve Bank's monthly announcement on interest rates, and on a day the share market hit a new high for 2009. While unemployment is still expected to rise over the coming year, recent indications at home and abroad suggest the worst of the slump may not be far off. ''There are legitimate questions that can be raised as to whether we're even in a recession,'' said ICAP economist Adam Carr. ''It's genuinely a line-ball call whether we get a positive number or not'' in the first quarter GDP.
The trade numbers, which showed the smallest deficit in seven years were not only better than expected, they also imply a boost of 2.2 percentage points to the March quarter national accounts - a major counterweight to other factors slowing the economy.
Gross domestic product shrank in the final three months of 2008 and economists prior to today had been tipping another negative result in the March quarter. Those forecasts, implying Australia had tipped into recession for the first time in 17 years, may now be reviewed ahead of tomorrow's official release of GDP figures.
On the trade front, the March quarter current account deficit shrank to $4.6 billion from $6.5 billion in the previous quarter. Economists had expected a deficit of $5.4 billion for the March quarter. ''The current account deficit has narrowed quite a bit more than I anticipated,'' said RBC Capital Markets senior economist Su-Lin Ong. Import volumes fell 7 per cent, "reflecting the impact of weaker domestic demand and the higher cost of imports,'' according to Westpac economics.
The result was in part influenced by a weaker Aussie dollar making imports pricier, Westpac said. Export volumes rose 2.7 per cent in the quarter, over the same period. TD Securities economist Annette Beacher saw signs of trouble in the collapse in imports, predicting that they signal ``a business sector in distress''. "Look at the recent data flow for the March quarter,'' she said. It has shown company profits down 7.2 per cent, engineering investment has fallen 6.1 per cent and non-residential construction is down 6.3 per cent.
"This is not a one-quarter correction - it is only the beginning of the impact of the global recession on the terms of trade, and hence the business (and export) sector.'' The Australian dollar strengthened on the news, trading recently at about 81 cents. Stocks also added to their advance, with benchmark indices hitting their highest levels since mid-November.
Building approvals
Approvals for new homes, meanwhile, rose in April as home buyers seized on low interest rates and cash grants aimed at bolstering growth. Permits for new home building increased 5.1%, seasonally adjusted, in April from a 3.5 per cent rise in March, according to the Australian Bureau of Statistics.
In the year to April, building approvals fell 16.1 per cent. It is the third consecutive month of gains. The market had forecast a 2 per cent increase in April building approvals, according to Bloomberg. It was unclear then whether the Rudd government would extend its more generous first-home buyers grant beyond June 30 in the May budget, which may have caused a further spurt of interest house hunting to beat the deadline.
''We're clearly seeing signs of policy traction,'' said RBC's Ms Ong. ''The sector is being helped by generational low interest rates, higher affordability, and the First Home Owners grant boost.'' The RBA is expected to leave its key interest rate unchanged at 3 per cent, its lowest in almost half a century, when the board announces its decision later today. In last month's federal budget, Treasurer Wayne Swan extended the increased grant until September 30, after which it is to be scaled back to pre-October 2008 levels.
The grant was trebled to $21,000 for first homebuyers purchasing a new property as part of the Government's first stimulus package. After September 30 it will be reduced to $14,000 until December 31, before returning to its original $7000. The grant was also increased for purchases of established homes, but to a lesser degree. Approvals for private sector homes rose 7.2 per cent in April to 8014 units, but other private sector dwellings - such as apartments and townhouses - fell 1.4 per cent to 2987 units.
czappone@fairfax.com.au
Sales recovery in Perth
Melynda Dillon
Australian Property Review | |
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The latest research from Cityscope regarding sales in Perth’s major commercial centres shows the market picking up. |
Sales over the three months to May 2009 totalled over $95 million, which was up from the last quarter of $39.7 million, but down from the quarter before of $237 million.
The latest data raises the 12 month total to over $685 million, significantly below the $1366.7 million recorded for the same time the year before.
Recent standout sales in Perth include:
> St Georges Centre, 81 St Georges Terrace, Perth (sold for $38 million to Aviling Pty Ltd) - a 14-level building with lower ground and basement car parking, ground floor retail and upper level offices; developed by AFT in 1987 and refurbished in 2005/06. A typical upper floor is around 1,159 sqm, with a total net lettable area of 11,860 sqm.
> 31 Ventnor Avenue, West Perth (sold for $13.9 million to Pebble Beach Holdings Pty Ltd; agent, CB Richard Ellis) - formerly Bartholomew House, a 4-storey office building above lower ground level parking for 52 cars; fully refurbished in 2006. A typical upper floor is 575 sqm with total net lettable area 1928 sqm.
> 1178 Hay Street, West Perth (sold for $10 million to 1174 Hay St Pty Ltd, a subsidiary of Diploma Construction (WA) Pty Ltd; agent, Blackburne Property Group) - a 4-storey building with an additional lower ground floor to the rear, plus a rear yard used for parking for 69 vehicles. The building was opened for the CWA in 1968 and formerly known as CWA House. It is the site of the proposed Eleven78 development, comprising 35 apartments and 33 office suites. Developer will be Diploma Property.
> Unit 111, 12-14 St Georges Terrace, Perth (sold for $8.1 million to Lastol Pty Ltd) – a 12-storey office building formerly known The Grosvenor. A typical upper floor is 1200 sqm with total net lettable area 12,643 sqm and a height of 45 metres. Unit 111 is a 128 sqm office on the ninth floor; it has a 15 sqm car park in the basement and a unit entitlement of 1.24%.
> Devon House, 729 Hay Street, Perth (sold for $4.6 million to Hoang Properties Pty Ltd) – a 6-storey, sandstone-coloured building, constructed in 1938 in art deco style. Architect, William T Leighton. Net lettable area 394 sqm.
Cityscope covers 28 Central Business Districts nationally covering every building within the commercial areas.
Details on each property include building descriptions, tenants, full ownership details, development detail and sale history.
International News
China's Real Estate Market Showing Signs of Recovery
Published on:
Thursday, June 11, 2009
Written by:
Property Wire
China's real estate market showed signs of recovery in May — with help from the government's $585 billion stimulus plan, and a record number of loans. Prices showed a month-on-month increase of 0.6% in May, and private investment is growing rapidly. For more on China's housing market, see the following article from Property Wire.
Property sales in China are growing amid optimistic signs that the world's third-largest economy is recovering, according to official figures.
Real estate sales increased 45.3% to 1 trillion yuan ($146 billion) in the first five months of 2009 from a year earlier and property investment growth rose to 6.8%, the National Bureau of Statistics data shows.
Analysts agree that Premier Wen Jiabao's 4 trillion yuan ($585 billion) stimulus package, record loans and stronger investment are all working and promoting economic growth.
'As developers run down inventory rapidly they will soon start to buy land and increase spending again,' said Frank Gong, chief China economist and strategist at JPMorgan Chase in Hong Kong.
'Property investment, which accounts for 10% of China's GDP and is a trigger for growth in related sectors, will become a strong driving force in China's recovery,' he added.
'Stronger than expected property investment growth means that fixed-asset investment growth in May could surprise on the upside and that investment growth in 2009 may also be stronger than most people expect,' said Sun Mingchun, chief China economist at Nomura Holdings.
Property and development companies are benefiting from the revival in real estate. They include China Vanke, the nation's biggest listed developer, which said that sales in May rose 20% from a year earlier.
As part of the stimulus plan, the government has pledged to build 5.2 million low-rent properties over the next three years and subsidize housing for 7.5 million poor urban families by 2011.
Last month China lowered the amount of funds developers have to put up for property projects to spur construction after cutting transaction costs for property investors last year.
Land sales in Beijing in May exceeded the total amount sold in the first four months of the year, according to the city's land reserve centre. Property sales by value doubled in Beijing, surged 68.5% in eastern Zhejiang province and climbed 61.9% in Shanghai during the five-month period from a year earlier, the statistics bureau confirmed.
Prices are also bottoming out. Property prices dropped 0.6% last month in 70 Chinese cities from a year earlier, the smallest decline in five months. Prices jumped 0.6% month-on-month in May, the bureau added.
Tokyo is the world's most expensive office market
Realcommerical.com.au
New research has found that Tokyo is the most expensive place in the world to have office space and Perth has the second fastest growing occupancy costs, according to the latest Global Office Occupancy Costs survey by CB Richard Ellis. |
The CBRE Global Research and Consulting survey tracks the world’s most expensive office markets as well as those with the fastest growing occupancy costs. The bi-annual survey covers 173 markets around the world.
The latest report reveals that Tokyo’s Inner Central District has supplanted London’s West End as the world’s most expensive office market. Marseilles in France had the fastest growing occupancy costs over the period (+30.4%) followed by Perth (+20.2%).
However, CBRE Executive Director, Global Research and Consulting, Kevin Stanley, said all of the growth in Perth had occurred in 2008. While Perth was the most expensive market in this region - and 30th in the international rankings - office rents were now falling and could decrease by 50% in this cycle, having grown by around 120% in the last cycle.
Overall, the report highlights that financial centres have been the most significantly affected by declining occupier demand and, as one would expect, registered the most material decreases in office rents. In many cases, major global office markets have seen occupancy costs fall by 20% or more over the last 12 months. Across the 173 markets as a whole, office occupancy costs fell 2.8% over the 12 month period ending March 31, 2009 (on an un-weighted average basis) compared with an increase of 8.0% in the 12 month period ending September 30, 2008. Singapore had the largest year over year decrease in occupancy costs with a drop of 34%.
Some markets did record increases in costs over the last 12 months but these markets—such as Charlotte (U.S.), Marseille (France) and Perth (Australia)—are very much the exception rather than the rule. Generally, these increases are either due to exceptional local market conditions, such as the completion of a top quality new building in a market where none was available previously, or simply that occupancy costs remain above the level of a year ago, despite the fact they are now falling. Such situations illustrate the uneven way in which the economic downturn is affecting different markets around the globe, according to the report.
“The great global recession has clearly taken its toll on the world’s office markets, particularly those with significant concentrations of financial industry employers,” said Dr. Raymond Torto, CBRE’s Global Chief Economist. ”The most expensive office markets, as measured in US dollars, are considerably less expensive than a year ago and occupiers are now in a strong position to procure prime space at attractive costs. For instance, a year ago office space in London’s West end was nearly $300 per sq. ft., while today that space goes for $172 per sq. ft.”
Pacific
Mr Stanley said the survey highlighted that while rents were starting to fall in most markets around the world, the Pacific Region had been relatively late to join the trend.
“This provides some hope the “down-time” may be shorter here than elsewhere, as a globalised economic upswing is forecast from 2010,” Mr Stanley said.
The report also reveals that the region’s smaller office markets have moved up the rankings of city’s with the fastest growing occupancy costs, while the bigger markets have suffered earlier and recorded larger rent falls so far in this cycle. Smaller markets to climb the rankings include Adelaide (+6.7%), Christchurch (+11.4%) and Wellington (+3.9%)
“The smaller office markets rarely have fast growing rents and don’t tend to fall as far either,” Mr Stanley said.
“There are a number of reasons for this; tenants may be less exposed to global influences, reducing the risk of the creation of sub-lease vacancy, plus there is less chance of significant over-building.”
Even the largest falls recorded in the Pacific Region have so far been well below those recorded elsewhere in the world. While Brisbane occupancy costs fell by 19.8% over the period, occupancy costs fell by 34.3% in Singapore and by 31.5% in New York Midtown.
In regard to the most expensive cities, Mr Stanley said occupancy costs in the Pacific Region had always been low by global standards and were now falling relative to the rest of the world. With the exception of Christchurch, all Australian and New Zealand markets fell in the rankings of the world’s most expensive markets, with Perth being the only city to make the Top 50 list (coming in at 30th in the rankings).
Sydney fell out of the Top 50 list, dropping from 46th position to 64th spot. Brisbane was the next highest city in the rankings at 81, with Christchurch maintaining its 168th position on the list - just five from last place.
Asia
Tokyo (Inner Central) was the world’s most expensive market with an occupancy cost of $183 per sq. ft. Hong Kong (CBD) was the fourth most expensive global market with occupancy costs of $150 per sq. ft. Tokyo (Outer Central) and Mumbai were the other two Asian markets in the top 10 most expensive cities roster.
Singapore, while experiencing the largest drop in occupancy costs, was not alone among Asia-Pacific financial centres in seeing a sharp decline. Hong Kong, Tokyo and Mumbai posted large drops in office occupancy costs.
Europe
London’s West End was the world’s second most expensive office market at $172 per sq. ft. and Moscow was a close third with occupancy costs at $170 per sq. ft. Dubai, Paris, the City of London and Dublin all were in the top ten most expensive markets.
Twelve cities in the region posted doubled digit declines in office cost. Moscow had the sharpest decline in the region followed closely by Oslo (Norway), while occupancy costs in London’s West End, previously the most expensive market in our report, fell 20%. In addition to Marseille, Durban (South Africa) was among the world’s top five markets with occupancy cost growing by 18% during the past 12 months.
Americas
The most expensive office location in the Americas is still New York’s Midtown with occupancy costs of $68 per sq. ft. However, that market’s occupancy costs declined 32%--the second steepest decline in the global survey. While occupancy costs in New York’s Midtown are high for North America, it ranked just 21st globally. Boston’s suburban market posted a decrease of nearly 30%, putting that market in fourth position in the top decreases chart in the report.
São Paulo (Brazil) posted the Latin American region’s highest occupancy costs at $57 per sq. ft. and is ranked 33rd globally. Latin America has held up better than the rest of the world with only three cities posting small negative growth rates, the worst being Mexico City with a 5.6 percent decrease. Nine markets in North America posted double digit declines.
Top 10 most expensive markets
In US$ per sq. ft. per annum | US$/SF/annum |
1. Tokyo, (Inner Central) | 183.62 |
2. London (West End) | 172.62 |
3. Moscow | 170.24 |
4. Hong Kong (CBD) | 150.42 |
5. Tokyo (Outer Central | 149.58 |
6. Mumbai | 131.04 |
7. Dubai | 122.52 |
8. Paris | 114.89 |
9. London (City) | 103.50 |
10. Dublin | 93.56 |
Top five decreases
| % change |
1. Singapore | -34.4 |
2. New York (Midtown) | -31.5 |
3. Hong Kong (CBD) | -29.9 |
4. Boston (suburban) | -29.7 |
5. Hong Kong (Citywide) | -28.5 |
Top five increases
| % change |
1. Marseille | 30.4 |
2. Perth | 22.2 |
3. Santo Domingo | 21.7 |
4. Durban | 18.2 |
5. Charlotte | 14.2 |