AAP

British house prices are 5.4 per cent higher than last northern summer as property market activity intensifies, figures show.

Lender Halifax said prices rose 0.4 per cent in August, the seventh consecutive monthly increase, resulting in an average figure of £170,231 ($A292,568).

Prices in the three months to August were 5.4 per cent higher than in the same three months a year earlier, better than July's 4.6 per cent increase and the highest annual rate since June 2010. The annual rate has picked up from 1.1 per cent in March.

Halifax housing economist Martin Ellis said economic improvement and government schemes have helped boosted demand, although activity is still being held back by the squeeze on household budgets.

"Overall, house prices are expected to rise gradually over the remainder of the year," he said.

Halifax's report follows similar findings from building society Nationwide last week that the housing market revival is gathering pace.

Lenders, surveyors, estate agents and property websites have all been reporting a strong pick-up in activity following the launch of Funding for Lending, which has prompted a big improvement in mortgage availability and rates.

By a staff reporter

Pepper Australia Ptd Ltd and Cadence Capital Ltd have offered a sweetened takeover bid for RHG Ltd, after the target recommended a rival offer from the Resimac Syndicate.

In a statement to the Australian Securities Exchange, Pepper and Cadence said their counterproposal is worth 50.8 cents per share, higher than the Resimac Syndicate's offer of 49.5 cents per share.

Pepper's offer comprises 36 cents per share in cash and one share in Cadence for every 10 shares held in RHG.

Cadence said as the largest institutional shareholder of RHG, it does not support Resimac's offer as a consequence of the higher proposal.

Pepper CEO Patrick Tuttle said would welcome an opportunity to discuss the proposal with the RHG Board.

"While we are aware of the restrictions of the existing Scheme of Arrangement documentation between RHG and the Resimac Syndicate, we find it very surprising that we have not been invited to discuss any of our proposals to date with the RHG board," he said.

Pepper chairman Michael Culhane said the RHG board "appears to have been quite selective in how they have evaluated the Pepper scheme proposals to date".

The RHG board previously accepted the Resimac Syndicate's sweetened takeover offer, which valued the target at almost $153 million, offering cash consideration of 49.5 cents per share.

Vito Chiodo, the most senior property executive at Telstra Corporation Ltd, has departed the company after more than a decade, The Australian reports.

According to the newspaper, Mr Chiodo's exit comes after several months of negotiations over his future with the telco.

"I can confirm that Mr Chiodo is no longer a Telstra employee. We have nothing further to add," a spokesman told the newspaper,

Mr Chiodo made a short statement to The Australian, in which he noted the speculation over his recent leave of absence from Telstra, before saying it was the "right time" to pursue new challenges.

"I would like to take the opportunity to share with you that I recently took this leave to give me the opportunity to reflect on the many achievements of the last few years and the challenges ahead and, most importantly, to start thinking about what I want to achieve going forward," he said.

"This will give my team and Telstra the opportunity to move forward with a new leader for the next phase of its development."

AAP

Massachusetts Attorney-General Martha Coakley says Barclays Bank PLC has agreed to pay $US36.1 million ($39.5 million) to settle allegations it backed subprime home loans it knew were risky.

Coakley says the settlement filed in court on Monday includes more than $US25 million for reduction of principal and other relief for more than 450 subprime borrowers.

Those borrowers had loans securitised by Barclays in 2006 and 2007 with features such as "teaser" interest rates, high debt-to-income ratios and high loan-to-value ratios. Coakley said most are in Boston, Brockton, Lawrence, Lowell, Lynn, New Bedford, Springfield and Worcester.

The remaining settlement funds go to the state communities affected by loan foreclosures and non-profit organisations involved in foreclosure relief.

Barclays says it is pleased to resolve the matter.

Coakley has made similar settlements with other institutions in recent years.

AAP

The performance of the Australian housing sector will play a key role in any recovery in consumer spending and retail sales growth, an independent economic forecaster says.

Deloitte Access Economics believes the election of a majority government should allow for more certainty around political policy and improve general confidence.

This should see retail spending pick up in the September quarter, with a more sustainable improvement kicking into 2014/15.

Deloitte Access' quarterly retail report on Wednesday showed there was a promising start to 2013 before sales turned "tragic" by mid year, with overall weak growth.

This was likely due to a drift higher in the jobless rate and the marking down of economic growth prospects by both Treasury and the Reserve Bank of Australia.

Now a retail sales recovery may be on the way as house prices start to lift.

"When people are bidding up the price of housing they are also lifting their rate of retail spending," Deloitte Access partner David Rumbens said in the report.

"With housing affordability much improved from two years ago, this channel may form a powerful driver."

Home building is also lifting on the back of population growth and low interest rates.

The forecaster expects real, or inflation adjusted, retail sales to expand by 2.4 per cent in 2013/14, after 2.8 per cent growth in the previous financial year.

Then sales should grow by up to 3.6 per cent in 2014/15, helped again by low interest rates and a modest improvement in the jobs outlook.

Mr Rumbens expects low interest rates will especially benefit NSW, Victoria and the ACT in terms of spending lifts.

Australia's largest hotel owner, Tourism Asset Holdings Limited (TAHL), has been purchased by the Abu Dhabi Investment Authority for $800 million amid growing foreign investor interest in Australia's hotel sector, according to The Australian.

The possibility of a deal first surfaced in July when the Abu Dhabi fund was reportedly among several foreign suitors interested in the portfolio.

The lower Australian dollar and a shortage of rooms in major cities has helped fuel interest in the local hotel sector.

Among TAHL's major properties are Novotel and Ibis Darling Harbour in central Sydney, Novotel and Ibis at Sydney Olympic Park and Novotel Canberra.

French hotel chain Accor will continue to operate the portfolio, The Australian added.

“We chose to run a discreet, targeted sale process and we were very pleased with the response we received, which is a testament to the strength and performance of the underlying portfolio,” TAHL chief executive Matthew Eady said, according to The Australian.

Westfield Group and Westfield Retail Trust have sold their stakes in the $740 million Karrinyup Shopping Centre in Perth to the owner of the remaining two-thirds of the property, superannuation fund UniSuper, according to The Australian.

In what amounts to one of the largest shopping centre transactions of the year, Westfield has exited the property within days of having been cleared by the Australian Competition and Consumer Commission (ACCC) to take full control of the asset.

UniSuper paid about $246.6 million in the deal, The Australian reported.

The two Westfield funds each held 16.7 per cent stakes and the deal represents a premium of about 19 per cent to Westfield's book value for its non-managed interest in the centre, the newspaper added.

Besides being a leading shopping centre transaction, the deal is also expected to establish a new benchmark for shopping centre values.

In a deal with the ACCC, Westfield had said it would have sold its stake in another Perth centre, Innaloo, if it had taken full control of Karrinyup, to resolve any competition concerns.

The Innaloo stake sale would have been worth about $268 million and was to be sold to Charter Hall, though the transaction's status remains unclear.

The domestic property sector has been treated to two significant deals in the past 24 hours: one sees a Middle Eastern heavyweight paying big bucks for Australia's largest hotel owner, and the other effectively re-writes the book on shopping centre values. Elsewhere, Macquarie cuts back in Canada, while Freelancer.com considers a shift to Japan. And Jetstar runs into more trouble in Hong Kong.

Abu Dhabi Investment Authority, Tourism Asset Holdings, UniSuper, Westfield Group, Westfield Retail

Global investment giant Abu Dhabi InvestmentAuthority is said to be forking out $800 million for Australia's largest hotel owner, Tourism Asset Holdings.

The deal, reported in The Australian, will give the Middle Eastern group ownership of a portfolio of 31 properties, including Novotel and Ibis Darling Harbour in central Sydney, Novotel and Ibis at Sydney Olympic Park, and Novotel Canberra.

In fact, it's one of the largest leased property portfolios of its kind in the Asia Pacific.

The newspaper says the sale, handled by Macquarie Capital, was contested by a number of international pension funds, but local superannuation giants appeared to stay on the sidelines.

The property sector will also be pleased with another major deal involving Westfield Group and its sister fund Westfield Retail, which have sold out of the $740 million Karrinyup Shopping Centre in Perth.

The pair offloaded their combined 33.3 per cent holding to UniSuper, which already owned the remaining 66.6 per cent, for about $246.6 million.

The sale is especially important because it sets a new benchmark for shopping centre values, following a tense structured sale talks between the buyer and sellers.

The price effectively re-rates the value of "fortress malls" nationally and it represented a premium of approximately 19 per cent to Westfield's book value for its non-managed interest in the centre, according to The Australian. 

The newspaper says it's $117 million more than Westfield's December 2012 valuation of $623 million on the entire asset.

Interestingly, the Australian Competition and Consumer Commission also cleared Westfield to take full control of Karrinyup just last week, so long as they offloaded another Perth mall, Innaloo.

That centre was to be bought by Charter Hall, which is backed by Canadian pension fund PSD Investments, for about $268 million. There's no word on that status of that deal.

Macquarie Group, Richardson GMP

There are suggestions Macquarie Group may start cutting offshore units that are deemed unviable, as the investment bank sells its retail brokerage in Canada just three years after buying the business.

Macquarie has sold its Private Wealth Canada division to Richardson GMP for $C132 million ($137.6 million) — more than 30 per cent higher than the $C93.3 million Macquarie paid for the business in 2009.

The sale won't affect Macquarie's other businesses in Canada, including corporate advisory, commodities, currencies, fixed income, funds management and institutional equities, the company says.

The sale comes as analysts urge Macquarie to consider exiting more offshore businesses, raising concerns about the company's relatively small scale overseas and structurally soft market conditions, according to The Australian.

Freelancer.com, Recruit

Australian tech entrepreneur Matt Barrie could be in for a windfall, with reports he is on the verge of selling his popular start-up Freelancer.com for $US400 million ($432.5 million).

Recruit, a Japanese human resources firm and jobs site operator, is in talks to acquire the Sydney-based site, which matches companies with individual worriers on a non-contract basis, according to TechCrunch.

Freelancer.com, which is being advised by Morgan Stanley, boasts more 8 million users, and says it has generated $US1.25 billion of work for users in more than 230 countries since it launched in 2009.

TechCrunch understand Recruit approached Freelance.com, and that the $400 million offer is the second, higher offer that has been put on the table.

Barrie seems to be in a strong negotiating position, as Freelancer.com is understood to be a takeover target for a clutch of players looking to expand their online business, according to the Australian.

If the sale succeeds, Barrie stands to make more than $200 million from his 50 per cent stake in the company.

Cathay Pacific, Hong Kong Airlines, Hong Kong Express, Jetstar

Jetstar is facing growing resistance to its attempt to break into the Hong Kong market, with Hong Kong Airlines and its sister carrier, Hong Kong Express, lodging filings with authorities in the Asian city opposing the budget airline's panned services there, Fairfax reports.

The clash comes after Cathay Pacific attacked Jetstar's bid for regulatory approval, claiming Jetstar Hong Kong will be in violation of the city’s constitutional law because its principal place of business is in Australia. 

Cathay also called for a "fair exchange of value to Hong Kong" for access to the city's air-traffic rights.

For their part, HKA and HKE haven't detailed reasons for their opposition to JHK – a joint venture between Qantas, China Eastern and Shun Tak Holdings – according to Fairfax.

Fusion Retail Brands, Apparel Group

Fusion Retail Branks, formerly Colorado Group, will be taken to market as a pure-play footwear retailer after the company's private equity owners sold off its JAG clothing brand.

JAG will be sold to the Apparel Group, which also owns well-known fashion labels Sportscraft, Saba and Willow, in a deal subject to completion of due diligence, according to Fairfax.

The newspaper group says private equity duo Ice Canyon and Anchorage Capital are now taking bids for buyers of the remainder of Fusion, which still owns Diana Ferrari, Williams, Mathers and Colorado.

Wrapping Up

Meanwhile, Elders has inked a deal with its lenders to extend its loan facilities until the end of 2014.

Elders says the syndicated finance facilities have been structured to service the forecast requirements of the group and will include a mixture of term debt facilities worth up to $144 million, working capital and contingent facilities of up to $87 million and a debtor securitisation facility of up to $183 million.

Elsewhere, US agribusiness giant Archer Daniels Midland is unlikely to increase its contentious $3 billion bid for GrainCorp, despite the suitor's renewed lobbying effort, according to The Australian Financial Review.

The report comes after ADM grain group president Ian Pinner arrived in Australia to make a fresh push after the company laid low during the federal election campaign.

Finally, Drillsearch Energy and Santos are officially partners on the Western Cooper Wes Gas Project, after the duo completed mutual due diligence on the joint venture.

Santos has acquired a 60 per cent interest in the project and committed to fund a $100 million to $120 million program to accelerate wet gas commercialisation.

Drillsearch expects the partnership to deliver a material result.

AAP

Property group Charter Hall has agreed to buy two Westfield shopping centres in Perth's north-west for $255 million.

But the deal to acquire the Innaloo Shopping Centre and Shoppers Village, and the adjoining Innaloo Mega Centre, is conditional on the Westfield Group and Westfield Trust changing its ownership of the Karrinyup shopping centre, in Perth's north, before Christmas.

Charter Hall said that if Westfield takes up the option, the Innaloo properties would be held within a newly established unlisted wholesale trust.

The trust would be 85 per cent owned by an institutional partner and the remaining 15 per cent would be owned by the Charter Hall Group.

"The acquisition, if it proceeds, is expected to be marginally earnings accretive in fiscal 2014," Charter Hall said in a statement.

By a staff reporter

Pepper Australia Ptd Ltd and Cadence Capital Ltd sweetened takeover bid for RHG Ltd is not in the best interests of shareholders, according to rival bidder the Resimac syndicate.

In a statement to the Australian Securities Exchange earlier this week, Pepper and Cadence said their counterproposal is worth 50.8 cents per share, higher than the Resimac Syndicate's offer of 49.5 cents per share.

Pepper's offer comprises 36 cents per share in cash and one share in Cadence for every 10 shares held in RHG.

Cadence said as the largest institutional shareholder of RHG, it does not support Resimac's offer as a consequence of the higher proposal.

However, Resimac said the revised Pepper proposal was highly conditional and favoured Cadence on both terms and benefits.

"It fails to deliver better certain value than the alternative proposal from Resimac and Australian Mortgage Acquisition Company," Resimac said.

Resimac said it continued to believe its offer, as recommended by the RHG board, was superior.

Upon lobbing the revised proposal, Pepper chairman Michael Culhane said the RHG board "appears to have been quite selective in how they have evaluated the Pepper scheme proposals to date".

The RHG board previously accepted the Resimac Syndicate's sweetened takeover offer, which valued the target at almost $153 million, offering cash consideration of 49.5 cents per share.

By a staff reporter

Pepper Australia Pty Ltd has criticised rival Resimac Syndicate over "inaccurate statements" in its bid for RHG Ltd.

In a statement, Pepper CEO Patrick Tuttle said Resimac's announcement this week that its offer was in the best interests of shareholders contained "highly speculative and subjective" statements.

"It is preposterous to suggest that our cash and scrip offer is simply inferior by definition," Mr Tuttle said.

"We believe we have presented RHG's shareholders with a highly credible and straightforward proposition which values RHG at 51 cents per share based on yesterday's Cadence Capital Ltd closing price of $1.50.

"This compares to the lower all cash offer of 49.5 cents per share offered by the Resimac Syndicate."

With interest rates at record lows and house prices heading north again, talk has emerged of an impending bubble in house prices.

Investors seeking higher returns than they can get on cash or shares are stepping back into the property market.

Nationally, home prices are up 7 per cent since the market bottomed out in May last year, according to RP Data. This reflects strong growth in Sydney, which suffers from a supply shortage, and Perth where the end of the mining boom has more recently knocked some of the stuffing out of price growth.

Over the past year, home prices are up 7 per cent in Sydney and 9 per cent in Perth, but just 4 per cent in Melbourne, 2.5 per cent in Brisbane, half a per cent in Adelaide and down 1 per cent in Hobart.

But talk of a house price bubble is premature. RP Data’s research director, Tim Lawless, is certainly not entertaining talk of a bubble.

“While the recent surge in dwelling values has caused some renewed debate about an Australian housing bubble, it is important to remember that the average annual capital gain over the past decade has been just 4.3 per cent across the combined capital cities,” Lawless says.

In Melbourne, Brisbane, Adelaide, Darwin and Hobart, prices are still yet to regain their pre GFC highs.

Of all the things that keep Reserve Bank governor, Glenn Stevens, awake at night, rising house prices is not one of them.

In fact, higher house prices could help to buoy retail spending if it makes homeowners – which represent two out of three Australian households – feel richer as a result.

The banking regulator last week warned banks against relaxing their lending criteria in order to tempt new borrowers. But there seems little sign of that with annual growth in home loans at its lowest in 30 years.

While investors may be jumping into property in bigger numbers, the hurdle remains too high for many struggling would-be first home buyers.

It is true that now is a cheap time to borrow, with lenders such as UBank are advertising home loans for 4.48 per cent, which is well below the historical average of the past three decades of around 7.5 per cent.

Interest rates may be at record lows, but house prices have not fallen significantly. And saving a deposit for a first home is made even harder by lower interest rates on deposits.

As a result, the proportion of first homebuyers in the market fell to 7977 in July, down from 8760 the previous July. And that’s despite four separate interest rate cuts since then.

What is really needed to improve affordability is a pick-up in new home construction. But separate figures released last week show the number of new loans for construction fell 2.1 per cent in July.

For now, it is investors that are driving prices higher, keeping the pressure up on first home buyers.

Despite some concerns about an investor-fuelled bubble in houses, the Reserve Bank is likely to keep interest rates low for some time to come. Despite a pick-up in business and consumer confidence following last Saturday’s Coalition victory, the economy remains delicately poised. The end of the mining boom and a high Australian dollar are putting pressure on firms which are in turn not hiring as many workers. The national jobless rate has hit 5.8 per cent and is expected to head even further north.

And although higher house prices are lifting homeowner sentiment, the dollar is rising again – hitting a three-month high last week – acting as a drag on growth. The Reserve Bank may yet be forced to deliver another interest rate cut before Christmas, although much depends on what the dollar does from here.

For mortgage holders, that is doubly good news. Not only will servicing your loan be cheaper, house prices are likely to get further support from investors seeking a higher return than they can get on their deposits.

But for first homebuyers, getting a foothold in the property market is likely to remain as difficult as ever.

Jessica Irvine is News Corp Australia's economics editor. View more articles at www.jessicairvine.com.au.

By a staff reporter

Westfield Group has entered agreements to sell seven shopping centres in the United States for $US1.64 billion ($1.77 billion).

In a statement to the Australian Securities Exchange, the group said it would sell the malls to a Starwood Capital Group-controlled affiliate, which will own and manage the majority interest in the centres with Westfield retaining a 10 per cent common equity interest.

The transaction value is $US120 million below the book value of the assets at December 31, 2012 and in line with the book values at June 30 this year, Westfield said.

The transactions are expected to close in the fourth quarter of this year, after which Westfield will own and operate 40 shopping centres in the US.

By a staff reporter

The International Monetary Fund (IMF) has issued a report warning of the potential for global housing bubble, calling for toughened lending rules to prevent banks from contributing to a global version of the United States housing bubble.

In its “Key Aspects of Macroprudential Policy” report, the IMF called for a larger role for “macroprudential policies” that would address broader financial systems rather than focusing on the health of individual financial institutions.

“Policymakers learned the hard way [during the global financial crisis] that systemic risks could not be addressed through the traditional mix of macroeconomic policies and microprudential measures aimed at individual financial institutions,” IMF financial counsellor and director José Viñals said.

The report argued that policies and regulations focused on the health of individual firms could generate different responses from those designed to protect the broader financial system, such as in Europe where individual firm-focused policies called for the increase of bank capital ratios in crisis periods, while macroprudential policies would express concern that such measures would cause excessive deleveraging and damage to the broader economy.

The prospect of a fresh round of housing bubbles has sparked concerns in Australia, the United Kingdom, Canada and New Zealand, among other countries, where record-low interest rates have sparked sharp growth in household debt levels.

In Australia, a report published on Monday by Citigroup warned the property market's continued growth could handcuff the Reserve Bank of Australia's ability to address unemployment concerns, or a renewed strength in the local dollar.

“The scope to cut would be compromised if house prices continue to accelerate and precipitate a surge in leverage,” Citigroup economists Paul Brennan and John Williamson warned.

“We doubt that APRA and the RBA are ready to follow the Reserve Bank of New Zealand in announcing controls on LBRs or housing loans, but APRA has indicated a desire to apply tougher prudential standards on how banks assess lending risks.”

It’s a bit of a mixed bag for this morning’s Distillery, or should we say a cocktail rather than a straight scotch? Westfield’s latest asset sales lead us off, with the Lowy family executing a very deliberate plan to reshape the stock. Also, Australia’s self-managed superannuants are showing themselves to be more than capable of matching it with, and often outperforming, the big super funds.

Fairfax’s Adele Ferguson writes that Westfield’s latest sale of US shopping centre assets is part of a “grand plan” from the Lowy family to bump up return on equity and turn the company into a growth stock.

“It was a plan it began in earnest in December 2010 when it split the Westfield juggernaut into two listed entities: Westfield Retail Trust, a vanilla property trust that brings steady returns; and Westfield Group, a more active and diverse global business with a strong pipeline of shopping centre developments. Sales of the US property assets on Monday were completed at a 7 per cent discount to their book value at December 31. But, to put it into context, the productivity (sales per square foot) on the seven properties is 22 per cent below its US portfolio average.”

In other news, while it’s clear many self-managed superannuants get into the industry without knowing the risk they’re taking on, The Australian Financial Review’s Chanticleer columnist Tony Boyd says there’s plenty of evidence to suggest the majority of them get into it with the right attitude and aptitude.

“The latest SMSF asset allocation numbers published by the Australian Tax Office show that trustees are choosing to put their money in places not offered by many professional service providers. At a time when the bank-owned fund management companies, AMP and industry super funds have stuck with a vanilla selection of products, SMSF trustees have shown a penchant for being more adventurous. Some will say that investing in overseas residential property, collectables and using non-recourse lending is fraught with danger and going to lead to disaster. But the analysis of SMSFs by Rice Warner actuaries published on Monday by ASIC commissioner Peter Kell shows they have consistently outpeformed the professionally managed funds over the longer term.”

Also, The Australian’s John Durie reports from Indonesia on the country’s touchy financial markets amid speculation about the Federal Reserve’s next chairman, which of course could greatly influence the central bank’s money printing program.

“That is one reason Jakarta has openly supported the Bank of Indonesia's rapid increase in interest rates in the last few weeks, from 6.5 per cent to 7.25 per cent. On some calls, Indonesia is relatively well placed and that's certainly the message Finance Minister Chatib Basri was trying to drive home in interviews over the weekend, saying the nation's relatively low fiscal deficit of 2.4 per cent of GDP was manageable, but a record $US9.8 billion ($10.5bn) current account deficit needs work, as does inflation. Stability was his catchcry. Bank economists are winding back GDP forecasts, from as high as 6.5 per cent earlier in the year, to 6 per cent at best. Deteriorating economic fundamentals are one thing, but with the election season already started, political risks have raised more concerns among foreign investors at exactly the wrong time.”

Still in economics, the Herald Sun’s Terry McCrann points out that the immediate economic future of average Australians is being shaped just as significantly by the decisions of bureaucrats in Washington as by our own boffins in Canberra — think succession planning at the Federal Reserve.

Although speaking of Canberra, The Australian Financial Review’s Jennifer Hewett believes incoming assistant treasurer Arthur Sinodinos will have his work cut out for him in an ill-defined portfolio that will include superannuation and financial services.

In company news, Fairfax’s Elizabeth Knight writes about the changing role of John Alexander as a confidant of billionaire James Packer, as the Crown executive deputy chairman’s position is confirmed for an ‘indefinite’ period.

And finally, The Australian’s Barry Fitzgerald says he’s always astounded at how Australian junior miners and explorers are tearing it up in all corners of the globe.

His case in point this morning is the ASX-listed Base Resources, with its $US305 million ($326 million) Kwale mineral sands project in Kenya. It’s due to come online this year.

Offshore appetite for Australian commercial real estate is strong, investment advisers say, The Australian Financial Review reports.

According to the newspaper, The Trust Company Ltd general manager of corporate clients Andrew Cannane told a Melbourne panel discussion foreign investors are eyeing around 300 prime commercial properties in Australia.

UBS head of Asian real estate Kim Wright told the panel investors are concerned about markets like China, while the advantage in Australia is the rule of law.

Foreign investment is set to keep pouring into prime CBD commercial property despite vacancies rising, the panel agreed. 

Australian regulators are under pressure from two senior economists to take a proactive approach in curbing lending amid growing concerns over a potential housing bubble, according to The Australian Financial Review.

The warnings, from former Reserve Bank of Australia (RBA) board member Bob Gregory and Melbourne University professor Ross Garnault came as the latest RBA meeting minutes revealed concerns within the central bank's board over the property sector.

“If you are worried about the risk of a bubble in the housing market, the simple and logical things to do is remove the privileged risk-weighting of housing in bank capital adequacy ratios,” Mr Garnaut told the AFR.

“That puts it on them to be careful as capital costs them more.”

Mr Gregory said the current property landscape was reminiscent of the late 1980s when rising asset prices forced the RBA to raise interest rates to fresh record highs.

He added that a housing bubble “just seems to be inevitable”.

“The only question is when,” he told the AFR.

“Everyone is hoping that the economy will recover soon enough and quick enough that we can reverse the stance of [monetary] policy.”

Read Alan Kohler's 'A housing bubble? You bewdy!' here.

Read Robert Gottliebsen's 'How the cork was popped on housing demand' here.

Read Stephen Koukoulas' 'House price bull heaven' here.

Banks warn on lending limits

Banks say lending restrictions to address concerns record low interest rates could cause a property price bubble would hurt first home buyers, The Australian Financial Review reports.

According to the newspaper, Australian Bankers' Association chief executive Steven Münchenberg said there was no sign banks were relaxing lending standards, and New Zealand-style lending limits would affect first home buyers.

The Reserve Bank of Australia's September meeting minutes released yesterday said members agreed it was important for banks to maintain prudent lending standards in an environment of low interest rates and slow credit growth.

Investing in property is a no-brainer at the moment. Prices have bottomed, auction clearance rates are on fire, especially in Sydney, and you can get a fixed rate mortgage for 4.8 per cent with 100 per cent gearing, 70 per cent in your super fund.

And the experts are now saying there’ll be another housing bubble (How the cork was popped on housing demand, September 18). What could be better?

There’s no sign of a housing bubble yet: values are only just back to where they were three years ago. Will there be one next year or the year after? Who knows? But one sure way to make it happen is to sternly warn about one.

By way of confirmation, a lot of the coverage of yesterday’s Reserve Bank minutes plucked out the comment that: “Property gearing in self-managed superannuation funds was one area identified where households could be starting to take some risk with their finances.”

Yes, well, you’d be mad not to move some of your DIY super money from bank shares into geared residential property.

The bank share index is up 54 per cent in the past 12 months while the median house price is up 7 per cent over the same period. If there’s a bubble it’s in high-yielding shares, especially banks; it’s time to take the profits and put them to work in the next bubble.

The main problem with housing in Australia is that we never build enough of them, and the main problem with the Australian economy is not housing – it’s that it’s begun a transition from resource investment-led growth to … well, hopefully something else.

In the United States between 2002 and 2007, low interest rates led to a boom in both house prices and house building. They ended up with a glut of houses and prices collapsed: you could famously buy a house for the price of a second-hand car.

In Australia over the same period there was a house price boom and that’s it – no glut. In fact there has been a consistent shortage of housing in this country right through the boom and bust of at least 100,000 per annum. As a result prices didn’t fall much and have started rising earlier than in the US.

Why is there a persistent shortage of housing in Australia when it’s the 3rd least densely populated nation on earth? (Mongolia and Western Sahara are less dense).

Good question. The reasons are complicated and probably boil down to a lack of spending on infrastructure by state governments and planning restrictions by local councils.

Why are people in outer suburbs, especially western Sydney, so grumpy that during the election campaign politicians are thick on the ground, wearing holes in the carpets of motels there? Because they can’t get around because the roads are clogged and schools, hospitals and shops are miles away.

So Australia has a housing supply-side problem that means the definition of a price bubble is distorted. Bubbles only occur when supply exceeds demand. Just because a price rises a lot, that doesn’t mean it’s a bubble if there’s a shortage.

So what about the issue that, according to yesterday’s minutes, the RBA board spent most of its time talking about this month?

For example: “Members noted that, based on a profile for projects derived from the bank's liaison and public statements by mining companies, the staff assessment was that mining investment was likely to decline noticeably over the next few years from its recent very high levels.”

That’s Australia’s real problem.

In 2001 when China entered the World Trade Organisation, gross fixed capital formation, or investment, broadly defined, represented 18 per cent of our GDP. Ten years later it was 28 per cent, having contributed about 1.5 percentage points to the average annual GDP growth of 3.1 per cent since 2001.

Since the GFC the proportion of our economic growth contributed by investment has been even greater – 1.4 percentage points out of 2.7 per cent.

Australia’s great investment phase is now over, and capital expenditure on non-dwelling construction and plant and equipment is falling. Half of our GDP growth of the past 12 years is in the process of disappearing.

As the Reserve Bank minutes noted yesterday, housing construction has “increased moderately”, but household consumption had been “below average”. Wages growth has eased and as a result of the declining terms of trade, national income has fallen.

So GDP growth is below trend and its main prop is being pulled away. We just have to hope that stable government – if that’s what we get with all blokes in charge – improves consumer and business sentiment, and that the dollar falls some more so that investment in manufacturing, agriculture and tourism increases.

Low interest rates aren’t getting much traction because they’re feeding into house prices (House price bull heaven, September 18), not house building, and borrowers are not using the lower rates to cut their repayments so they can spend more.

Apart from that, the new government has to find a way to persuade super funds – both SMSF and public offer – to invest in building things rather betting on rising asset prices, and since asset prices are indeed rising, that won’t be easy.

Treasurer Joe Hockey has been talking about infrastructure bonds where the Commonwealth guarantees some of the risk. Good idea. Get on with it.

House prices are continuing to move solidly higher, driven by record low interest rates, a shortage of supply, strong underlying demand, rising incomes and a lift in wealth coming from a buoyant stock market.

It is nearly as good as it can get for the house price bulls.

About the only thing working against an even more powerful rise in house prices is the recent softness in the labour market, where employment has fallen in the last two months and the unemployment rate has increased by around 1 percentage point over the past year to 5.8 per cent. If the labour market was stronger, house prices would no doubt be rising at an even faster pace.

At the start of the year, most of the dynamics were already in place for house prices to rise strongly and it seemed likely that they could rise by 10 per cent or so in 2013 (All signs point to a house price hike, January 10).  

According to the RPData series, house prices are up 1 per cent so far in September and by 6.1 per cent since the start of the year. The 10 per cent increase for 2013 looks to be in the bag.

The question now is where to for house prices in 2014 and beyond? Is the rise in house prices threatening to distort investment decisions and therefore is it a threat to the stability of the financial system and the economy?

For now, the Reserve Bank is not all that fussed with the recent house prices gains, particularly when the recent rise is set in the context of the 7 per cent fall up to early 2012. In the minutes of the September board meeting released yesterday, the Reserve Bank noted the house price gains and that “recent data and information from liaison were consistent with further recovery in the established housing market and moderate growth in dwelling investment”. 

The Bank’s minutes did have a particularly interesting inclusion. They noted that the board “was briefed on developments in the New Zealand housing market and the macroprudential policy framework recently introduced by the Reserve Bank of New Zealand” (New Zealand’s bold move against the housing bubble, August 21).  

It is not clear whether the Reserve Bank would ever embrace such macroprudential changes, given its assessment that “the Australian banking system remained in a relatively sound position. Banks were well placed to meet the Basel III capital requirements... Members observed that banks' asset performance and funding structures continued to improve, and their profitability remained strong”.

This was a cool and calm assessment of the soundness of the financial system.

Critically for consideration of any concern (or the lack thereof) about a housing bubble, the Reserve Bank board minutes noted the “continued high rate of excess home loan repayments was consistent with low rates of financial stress among households with mortgages”. In other words, there are fewer concerning signs of financial stress in the financial system (A housing bubble? You bewdy! September 18).

Whatever the merits of the government or Reserve Bank considering non-monetary policy means to deal with any future unwelcome rise in house prices, it won’t take too many more solid monthly house price gains for the central bank to become antsy about the risks from what soon might be excessive growth.

While there is probably something to be said for some steps along the macroprudential path not only to take some of the heat out of house price gains, but also for reasons linked to stability in the banking and finance sector, good old fashioned interest rate hikes will also do the job, albeit with consequences for the economy away from housing.

The case for regulatory changes to tackle house price rises also loses weight given that housing credit growth is particularly slow at the moment and there is not a lot of evidence that the recent pick up in house prices is being driven by leverage. Another issue working against a macroprudential regulatory change is that it imposes another layer of red tape on mortgage providers and business and it might not even work. 

As has been demonstrated over the ages, price signals in markets work better than regulatory changes. Witness the success of the carbon price in reducing per capita electricity consumption and the increase in clean energy output over recent times.

For housing, those price signals come through higher interest rates which reduce affordability and raise the cash flow required by borrowers to fund a given level of debt. Less is borrowed, which dampens house price gains. Interest rate changes are clean, transparent, easily understood and do not impose a red-tape complication for borrowers or lenders.

Whatever the approach that may be taken, house price growth would need to accelerate further for it to become a problem. In the meantime, there is plenty else happening in the economy which may yet see the Reserve Bank move to a tightening bias and even deliver an interest rate hike early in 2014. The economy is lifting, global conditions are improving and inflation risks just might be moving up rather than down for the first time in more than four years. 

Either way, as Reserve Bank governor Glenn Stevens starts his second term at the top, the community can rest assured he and his board will get things right whenever they feel the need to adjust policy or if or when house prices become a problem.

Leaving aside the election, in the last six weeks a series of major events have transformed Australia – the prospect of further interest rates cuts has all but disappeared, the housing market boom is underway, shares are rising, miners are making more money so will boost tax payments and consumer confidence is surging.

And so when new treasurer Joe Hockey does his revenue projections he will discover some pleasant surprises, particularly as volumes of iron ore shipments have risen along with higher prices.

I take as my base date August 4 – the day Kevin Rudd called the election. Just over a week later I made what most people thought was a very high risk call and I predicted a housing boom (Beware the mother of all housing booms, August 13).

Since then even I have been stunned at what has taken place. In making the housing call I relied on an Abbott election win and the simple forces of the market. The supply of housing in both inner and outer suburbs on the east coast is being restricted by the tough rules on bank finance for developers and heavy planning regulation.

But demand for housing is being fanned by banks being willing to lend at low interest rates to home buyers and investors – a classic supply/demand squeeze.

However there is currently a lot of land in outer suburbs and in some places, like Melbourne, there are a large number of apartments coming onto the market. But the force of the boom will take up much of this stock and we will be back to the restriction of supply.

Australian dwellings are already among the more expensive in the world so there is danger in another boom.

Not surprisingly Australia’s largest apartment owner and developer Harry Triguboff saw the boom and the dangers and began selling some off his Sydney apartments to cool the market (Putting a lid on property exuberance, August 21). 

All of these forces might have played out in a more orderly way but for the chaos in Canberra, which acted like a cork bottling up those forces. And the Canberra chaos and the high dollar may have forced the Reserve Bank to take rates too low. The election of the Coalition government removes the cork so there is a rush of demand which transforms the outlook. I highlighted this development in change seven of Abbott government road map (Abbott's 12-point plan to transform Australia: Part 2, September 10.) 

Now what’s ahead is being more widely recognised. The money markets no longer predict interest rate reductions and leading economists are catching up and warning of bubbles. 

Banks say they are being tougher in awarding credit to home buyers but I was yarning to a bank manager the other day and he has been given the nod by head office to ‘go for it’.

Perhaps the most fascinating development is what is happening to consumer confidence.

The weekly Roy Morgan Consumer Confidence Rating has now risen for six straight weeks and is back to the levels of April.

At the same time Australians are clearly more positive about the year ahead with 47 per cent (up 4 per cent) expecting to be ‘better off’ financially this time next year – the highest level for more than three years.

All of the above has helped drive the share market.