By a staff reporter, with AAP

Westfield Group Ltd will move to merge its Australian and New Zealand business with Westfield Retail Trust Ltd to form a new venture to be known as Scentre Group.

Investors responded well to the announcement. At 1604 AEDT, Westfield Group shares were trading 4.44 per cent higher at $10.82, against a benchmark index lift of 0.37 per cent.

In a statement to the Australian Securities Exchange, Westfield Group unveiled the proposal, which would see the international business of Westfield Group become Westfield Corporation.

Both new entities will be listed on the ASX and have separate board and management teams.

The move effectively reverses the demerger of Westfield Retail Trust from Westfield Group in 2010.

In addition, both groups will maintain the Westfield brand on their shopping centres and chairman of Westfield Group Frank Lowy will become chairman of both entities.

Under the proposal, Westfield Retail Trust securityholders will receive $285 and 918 securities in Scentre Group for every 1,000 shares held.

The cash payment will be effected through an $850 million capital return, equivalent to a pro rata buyback of Westfield Retail Trust securities at $3.47 per security.

Westfield Group securityholders will receive 1,000 securities in the new Westfield Corporation and 1,246 securities in Scentre Group for every 1,000 securities held

Lowy backs restructure

Mr Lowy said Westfield’s international business and its Australian and New Zealand business had both grown in scale and quality to the stage where they could stand on their own. 

"They can each operate more efficiently, and generate greater growth and value for investors, by being independent," he said.

"The proposal represents the latest in a series of capital restructures that have maintained the success of Westfield since it was first listed in 1960."

Mr Lowy said the proposal provided investors with a clear choice as to what they wanted to invest in, "both in terms of geographic and currency exposure."

The proposal has the unanimous support of the Westfield Group board and the independent directors of the Westfield Retail Trust board.

Chairman of Westfield Retail Trust, Richard Warburton, said the independent directors of the board believed the proposal is in the best interests of securityholders.

The new Scentre business, which is expected to be listed in mid 2014, will include more than $28.5 billion worth of assets and a development pipeline of more than $3 billion.

Westfield Corporation will own more than $US17.6 billion ($A19.31 billion) worth of shopping centres in the US, UK and Europe, and a future development pipeline of more than $US9 billion.

With Mr Lowy as chairman of both entities, Westfield Group's Australian management team will be transferred to the new company.

Westfield Group Co-chief executives Steven and Peter Lowy will head the new Westfield Corporation, though Peter Lowy is expected to stand down at the end of the transition period.

How much more can investors get out of the housing market? Not a great deal.

The 2013 house price ‘boom’ – if we can call it that – has largely been a Sydney affair, with real dwelling prices in other capital cities growing at a rate consistent with income growth, or in the case of Brisbane and Adelaide, barely growing at all.

Investors have jumped on board the Sydney bandwagon but if they have invested in other cities recently then they would be disappointed in the results.

The state national accounts, released last week, provide information on the average gross disposable income in each state. This data can be used to assess which states have the highest relative house prices.

The house price-to-income ratio is below its peak in each city, in some cases significantly so. Generally the ratios show broadly similar trends with two main exceptions: Sydney house prices tend to do their own thing and Perth house prices rose to unprecedented highs during the first commodity price boom.

It is however important to note that by indexing the ratio I am capturing the change in the house price-to-income ratio rather than the absolute level of the ratio. The level of the ratio has traditionally been higher in Sydney, as Sydney’s diabolical public transport system ensures that people need to live close to amenities (plus the harbour is fairly pretty). However, due to weak house price growth over the past decade, the premium to live in Sydney is no longer as great as it once was.

The most recent peak for each city came during 2009/2010, during which house prices were supported by a first-home owner boost that was largely unprecedented. Once that was removed relative prices declined across the country.

During that period, growth in household gross disposable income slowed across most states, with Western Australia the notable exception owning to the mining investment boom. In 2012/2013, gross disposable income was largely unchanged in New South Wales, Victoria and Queensland.

With the unemployment rate expected to rise and the participation rate likely to slide further  as more ‘baby boomers’ begin to retire, household income growth should be fairly modest in most states in the 2013/14 financial year.

Income growth in Tasmania has been particularly weak in recent years and it was no surprise that Tasmanian Premier Lara Giddings announced a doubling of Tasmania’s first home owner grant to $30,000 or around 10 per cent of Hobart dwelling prices. Of course the grant won’t help Tasmanians afford their own home, the policy is an abject failure wherever it has been done, and will most likely reverse the trend of increasingly affordable housing in Tasmania.

So for investors, where should they be investing? The reality is that most cities are not great investment choices right now.

The house price-to-income ratio increased in Sydney, Melbourne and Perth during the September quarter and is now at levels that would be considered high given the prevailing economic conditions.

Low interest rates will support house prices and lending but subdued household income growth is likely to persist for some time and that will be the biggest driver of house prices in the years ahead. The potential for investors to flip properties for large capital gains is limited if buyer activity slides and that will inevitably happen if income growth is as weak as many expect.

Given the outlook for the economy, new investors will be left to fight over the scraps in the housing market. The current level of price growth nationally is unsustainable without greater activity from owner-occupiers and potential first home buyers and I don’t see that demand picking up anytime soon. Expect price growth to slow and perhaps even decline in 2014.

Westfield has always had an unusual willingness to adapt its corporate structure to its environment, with that structure undergoing regulatory and radical transformations over more than half a century of its listed existence. Today, the Lowys announced the latest (and perhaps the final) phase of an evolution that has been accelerating since the financial crisis.

Frank Lowy and his sons have long demonstrated an unmatched level of pragmatism towards Westfield’s corporate form.

A decade ago, in order to create the scale to pursue their global ambitions, they consolidated the three corporate entities they controlled – each with a market capitalisation of around $8 billion – into a single vehicle. This enabled them to fund about $22 billion of investment, most of it in offshore development.

Post-crisis, with their security price depressed, they changed tack. They spun out half their core Australian portfolio of retail centres into a new vehicle: Westfield Retail Trust.

That released a big chunk of capital for Westfield Group to fund its development pipeline while leveraging the return on the capital it still had tied up in the trust via management and development fees. The Lowys also began selling off interests in some of their international centres to third-party investors to release more capital and further leverage returns.

Today Frank Lowy announced the latest step in the distancing of Westfield Group from the Australasian shopping centre portfolio on which the group (and the Lowys’) fortunes were built.

The Australasian businesses of Westfield Group and the Westfield Retail Trust are to be merged and re-badged as Scentre Group. The management of the Australasian businesses will be internalised.

Westfield Group, which contains the international portfolio of centres and a massive development pipeline, will be renamed Westfield Corporation.

There will be no equity relationship linking the Australasian and international operations for the first time since Westfield began its offshore expansion in the 1980s. However, Frank Lowy will remain chairman of both operations, and the local centres will continue to trade under the Westfield brand.

Westfield may have been disappointed at the relatively lacklustre performance of the securities in both Westfield Group and Westfield Retail Trust since that last restructuring. However, there are also some practical benefits that will flow from the new restructure.

The final separation of the local and international operations will create two very distinct property groups operating in different geographies and currencies and with quite different characteristics.

Scentre Group will contain easily the best portfolio of retail centres in Australasia, with $28.5 billion of prime retail property assets. The internalisation of its management should add material value.

Westfield Corp will have total assets of $US17.6 billion in the US, UK and Europe and a $US9 billion development pipeline.

By separating the two sets of assets completely, Westfield may hope to tap into two quite different types of investor bases with different risk appetites, as well as investors in different geographies.

The Scentre portfolio generates largely passive income while Westfield Corp, apart from operating in a different hemisphere and different currencies, has a significant level of active and higher-risk income flowing from its development activities.

The split, which creates two purer plays, could see each entity re-rated because their profiles will be clearer, more focused and more easily compared to their peers. Scentre will also be able to use its excess cash flows for capital management rather than supporting the group’s offshore developments.

The separation is to be effected by demerging Westfield Group’s Australasian business and merging into with Westfield Retail Trust, with Westfield Retail securityholders receiving $850 million in cash via a capital return and an aggregate 51.4 per cent of the new Scentre Group. Westfield Group securityholders will get securities in the new Westfield Corp on a 1:1 basis as well as 1.246 Scentre securities for every Westfield Group security held.

The board of Westfield Group will become the board of Westfield Corp and Westfield Retail Trust’s board will form the Scentre board. Steven and Peter Lowy will be co-chief executives of the international entity, although Peter Lowy has foreshadowed stepping down as an executive (but staying on as a non-executive) in about 18 months’ time. Westfield Group’s chief financial officer, Peter Allen, will be the chief executive of Scentre.

The re-naming of Westfield Retail as Scentre has a tone of finality to it.

With the 2010 spin-off of the Australian retail centres and the Lowys’ having sold their own stake in Westfield Retail for about $660 million earlier this year, there has been a sense that the family had become more interested in the offshore businesses than in the foundations on which Frank Lowy’s empire and his family’s fortunes were built. The latest proposed restructure tends to confirm that.

That was demonstrated again yesterday with the Westfield restructure, where there are soccer ties between Rothschild banking head Robert Leitao and the shopping centre giant's founding chairman Frank Lowy.

Working on the deal to merge Westfield Group's Australasian operations with Westfield Retail Trust have been investment banks UBS, JPMorgan and Morgan Stanley, as well as Rothschild.

Some say it raises the question about whether the soccer connection was a major factor.

Leitao is head of Rothschild's global financial advisory business, based in Britain, and also on the board of the English Premier League soccer club Manchester United.

Lowy is chairman of Football Federation Australia.

Rothschild was on the deal for Westfield Group with JPMorgan, while WRT was advised by UBS and Morgan Stanley.

UBS Australia chief executive Matthew Grounds and its head of investment banking, Guy Fowler, are believed to have the WRT links for the bank, while at Morgan Stanley, the relationship with the company is with David Dixon, the bank's real estate head.

At JPMorgan, it is the head of investment banking, Grant Dempsey, who has the Lowy family relationship, sources told The Australian.

The cost of the overall deal is $100m-$150m, but the carve-up of the fees among the bankers would only be a small proportion of that amount, a source said.

The surprise split of Westfield Group’s international and Australian operations may see the overseas company listed on the New York Stock Exchange, according to The Australian.

Yesterday, chairman Frank Lowy said Westfield Retail Trust would be joined with Westfield Group before the company is demerged to create an international company – Westfield Corporation – and a local arm – Scentre Group.

“The two new entities will be listed on the ASX and have separate boards and management teams,” the company said in a statement.

According to The Australian however, the newly formed Westfield Corporation may also be looking to list on the New York Stock Exchange, with the paper citing “well-placed sources”.

Adding weight to the theory is Westfield’s increased focus on the United States and Mr Lowy’s purchase of a $13 million apartment in New York earlier this year.

Meanwhile, ratings agency Standard & Poor’s has put Westfield Group and Westfield Retail Trust on ‘credit watch negative’ in the wake of the demerger. Such a move is considered a significant step toward a ratings downgrade.

By a staff reporter

Commonwealth Property Office Fund (CPA) has upgraded its distribution guidance for fiscal 2014, driven by further leasing success.

In a statement to the Australian Securities Exchange, Commonwealth Managed Investments Limited (CMIL), the responsible entity of CPA, said announced a 3.1 increase on the original distribution guidance of 6.55 cents, to 6.75 cents per share.

The company said, the upgrade assumes no change in the payout ratio of approximately 75% of funds from operations.

CPA fund manager Charles Moore said the upgrade was driven by further leasing success as well as a number of favourable one off outcomes.

"These successes are a reflection of the quality of the assets in our portfolio and the calibre of our asset management team," he said.

Mr Moore also announced CPA's estimated distribution for the six-month period ending December 31 of 3.5 cents per unit.

By a staff reporter

Westfield Group has agreed to buy the remaining 50 per cent interest in the World Trade Center retail premises in New York for $US800 million ($878 million).

In a statement to the Australian Securities Exchange, Westfield said it will own 100 per cent of the retail project after the acquisition from the Port Authority of New York and New Jersey.

The sale brings Westfield's total investment in the site to more than $US1.4 billion and is expected to close within the next 30 to 45 days.

The purchase price is subject to a one-time additional contingent payment to the Port Authority within five years of the opening date if Westfield exceeds agreed return thresholds, the group said.

Maybe it was just overwhelmed by the general sharemarket softness today, but the market’s response to Wednesday’s Westfield restructuring appears to be lukewarm at best.

The security prices for both Westfield Group and Westfield Retail Trust drifted down as the market absorbed the detail of the re-packaging of the two entities and $63 billion of assets into independent Australasian and international groups.

At the core of the less-than-enthusiastic response appears to be some cynicism as to why the Lowys would separate the business they are clearly very keen on – the international businesses that will be rebadged Westfield Corporation – from the Australasian assets on which their fortunes were built.

That’s despite the fact that the logic of the transaction is quite sound.

The Australasian business is essentially one that generates largely passive, low-risk and high-quality income flows from a mature portfolio of the region’s best shopping centres. It’s perfect for yield-driven investors with low tolerance for risk.

The international business, mainly centred on the US and UK, has much more of a higher-risk and more volatile development flavour to it. With Australia’s A-REIT sector no longer the cheap source of capital on which the Lowys built their international presence, internalising Westfield Retail’s management and combining its assets with Westfield Group’s to form Scentre Group is a rational move.

Apart from a general caution built on the market adage that one should always invest next to the entrepreneur rather than downstream, an element of the lacklustre response to the announcement could be the absence of important detail in the announcement. No doubt there will be a lot of detail in the scheme documentation and the independent expert’s report on the transactions.

An obvious missing piece of the Westfield jigsaw is the $1.9 billion reduction in Westfield Retail’s net tangible assets as it morphs into Scentre Group. The presentation yesterday showed net tangible per security falling from $3.47 to $2.81.

Half of that is easily accounted for. As part of the scheme, Westfield Retail securityholders will receive a $850 million capital return. They would also have to fund their share of the costs of implementing the restructure, which is estimated between about $150 million and several hundred million dollars.

The bulk of the rest of the missing asset backing probably relates to the internalisation of the trust’s management, currently provided by Westfield Group. Westfield hasn’t revealed the valuation of the management rights, but the core property management and corporate services agreements alone amounted to about $72 million last year. Westfield Group also collects development and design fees.

Presumably, if those fees were capitalised, they’d account for much of the missing value. That’s something the market will certainly take a closer look at once the detail becomes available.

There have also been some mutterings in the market about the apportionment of debt within the two entities.

Westfield Retail Trust’s borrowings will, when added to the debt within Westfield Group’s Australasian operations and once the capital return is taken into account, rise from $2.9 billion to $10.9 billion within the new enlarged Scentre Group. Westfield Group’s $12.1 billion of borrowings will be reduced to $6.5 billion within Westfield Corp.

Again, that makes sense. The low-risk profile of Scentre means it ought to be able to carry more debt, although the increase in gearing from the trust’s 21.5 per cent to Scentre’s 38.3 per cent is a big shift in balance sheet strategies.

Westfield Corp, with a big development pipeline and far more opportunities to expand, ought to have a far more conservative balance sheet.

While Westfield argues that the transaction should be evaluated in terms of its impact on earnings – it says the split will be immediately earnings accretive for both sets of securities (the leverage in Scentre presumably plays a part in that outcome) – the relative treatment of the two sets of securityholders will be the key focus of the institutional evaluation of the proposal once the detailed information becomes available.

A scheme of arrangement has a high threshold for approval, requiring 75 per cent of the securities voted in support of a proposal. Any kind of organised opposition tends to jeopardise the outcome of a scheme.

There is significant overlap at the big end of the Westfield Group and Westfield Retail Trust registers, so it is conceivable that at least some of the bigger institutions will be relatively indifferent to the way value has been apportioned.

Institutions with exposure only to Westfield Retail, and the significant retail investor presence on that register, are potentially a larger obstacle to the Lowy’s ambitions. They will be more cynical about the proposal given the Lowys’ obvious preference for the international business. There could be some pressure for some tinkering with the terms from those sources.

The family will still have a major ($600 million or so) interest in Scentre at the point at which the split occurs and Frank Lowy will be chairman of both the new entities. Today, at least, there is still some level of common interest.

The split is complex and the available details not as comprehensive as one might suspect. Westfield will have an interesting time negotiating with its lenders and the ratings agencies and will inevitably make the case to the securityholders in both existing entities in something other than broad brushstrokes.

Once the details are available, we’ll get a better sense of the fairness of the proposal and its impact on the two different sets of securityholders, as well as the prospects for its probable – but not guaranteed – success.

One market source said yesterday that they believed the proposal favoured unitholders in Westfield Group -- the company in which the founding Lowy family holds its money -- over those in Westfield Retail Trust.

The Lowy family sold their $664 million stake in WRT earlier this year.

If the company perceived that the current proposal was unlikely to receive WRT shareholder support, they may change the way shares in each group were distributed, a source said.

In the latest deal, the company is proposing to spin the Australian and New Zealand operations of Westfield Group into WRT -- a satellite that currently owns 50 per cent of Westfield's Australasian shopping malls.

Under the proposal, WRT shareholders will receive $285 cash plus 918 shares in a new company called Scentre Group for every 1000 units held.

Westfield Group shareholders would receive 1000 units in the new Westfield Corporation and 1246 securities in Scentre Group for every 1000 Westfield Group shares held. Westfield Group's shares rallied on the news, while WRT shares fell.

Meanwhile, some have suggested the latest deal could help the Commonwealth Bank when it comes to placing a value on the management rights of its CFS Retail Fund, which has been earmarked for a management internalisation process.

However, analyst numbers on the value of the management rights of Scentre Group range from $600m and $1.7bn, and it is difficult to draw any parallels.

It is understood that one of the sticking points between CBA and the fund's directors could be the price of the performance fees paid out for CFS Retail.

Where China spends its vast $US3.7 trillion foreign reserves is going to dominate asset prices and developments around the world.

Right now apartments in Sydney and Melbourne are in favour with the Chinese. And Brisbane is also gaining support.

As a result, our two largest cities have cranes dotting their skylines with large numbers of projects in the planning stage. Most of the apartment developments are being built on the back of Chinese demand.

Our new editor of China Spectator, Peter Cai (蔡源), points out that that in just over four years China’s foreign exchange reserves have risen from $US2 trillion to $US3.7 trillion and China is looking to diversify its spending (Cashed up China Inc needs to spend, December 5).

While a lot of the Chinese demand for Sydney and Melbourne apartments still remains related to parents or relatives of Chinese students in Australia, buying from Chinese investors not connected with students is increasing.

I don’t think it will be long before we see a large tower completed and locked with no occupants. China has countless towers in that category and there is no reason to believe that, in time, the Chinese will not follow the same pattern out here.

Joining the Chinese are Australian investors. They include some self-managed superannuation funds but the predicted avalanche of superannuation investment has not taken place.

Of course running a bad third are young Australians. Although interest rates are low, they are being priced out of the apartment market or are reluctant to take on large amounts of debt. Many don’t care whether they own a dwelling or not.

Sydney’s largest apartment developer Harry Triguboff says the biggest price booster is the way that the department of planning and local councils approve projects, which holds up new developments by at least one or two years.

This forces the developers to have high holding charges, which boosts prices. In addition it creates uncertainty in the outcome of applications so does not allow enough units to be produced, which again causes costs and prices to go up.

In Melbourne there are similar problems but the real price booster is union work rules on large projects.

The high costs of apartments and the desire for conventional dwellings is kindling higher demand for outer suburban houses in most eastern states although Melbourne remains sluggish.

We are headed into a society that is very different to anything previous generations have experienced. The home ownership dream is fading, at least in the inner city, and is increasingly being replaced with a tenant relationship with Chinese landlords.

The move caps a week of upheaval in the retail property market during which Westfield announced it would consolidate its Australian and New Zealand operations in one company and carve off the bulk of its international holdings into another group, and the Commonwealth Bank overcame last-minute wobbles about its resolve to spin off Centre Retail.

Doubts about the deal had arisen over questions about the value of the trust's management rights. There were reports that the bank's hopes for a price of about $400 million for the rights would not be met. But a series of corporate moves ahead of the bank's December board meeting due today point to an agreement being reached and the rights could be bought by the new entity for between $400 and $500 million.

The pricing is in line with funds under management and earnings multiples across the property funds industry. Buying the management rights may necessitate an equity raising by Centre Retail but it would likely be earnings accretive as fees that would have previously been paid to the bank would be kept in the new vehicle.

The independent directors of CFS Retail, Nancy Milne, James Kropp and Richard Haddock, last week joined the board of the new Centre Retail Management and more appointments are expected.

Current CFS Retail fund manager Michael Gorman and the head of Colonial First State Global Asset Management's property unit, Angus McNaughton, are also tipped to join, as they lead a cohort of specialist retail property management staff from the bank across to the new group.

Major CFS shareholder John Gandel is now believed to be backing the spin off as it will give him a greater say in the running of the fund. His Gandel Group co-owns Melbourne's $3.2 billion Chadstone Shopping Centre with the trust and he wants a greater influence over its development pipeline and strategies. This is likely to be achieved by him being granted board representation. UBS is advising the independent directors of CFS Retail, the Commonwealth Bank is advised by Goldman Sachs, and Macquarie Capital is assisting the Gandel Group.

Centre Retail would be the second largest retail property trust behind Westfield's new group, to be known as Scentre, that will own $28.5bn worth of Australasian retail complexes now owned by Westfield Group and Westfield Retail Trust. Westfield Group properties in the US, Britain and its first European development, in Milan, will form the basis of the $US18.4 billion ($20.36 billion) international business, to be known as Westfield Corporation.

The similar names between the new local Westfield fund and the ex-Commonwealth Bank may mean some changes in future.

By a staff reporter

The demand for home loans rose in line with expectations in October, according to the Australian Bureau of Statistics.

The data showed the number of home loans granted in October rose a seasonally adjusted one per cent to 52,305.

Bloomberg had expected the number of housing finance commitments to lift by one per cent in the month.

Total housing finance by value rose 4.1 per cent in October, seasonally adjusted, to $26.486 billion.

"It looks like another fairly solid outcome," National Australia Bank senior economist Spiros Papadopoulos said.

"It's another indicator that points to the recent strength that we've seen in the housing market and growth in the investor sector.

"If you line that up with the building approvals data, which has seen quite a lot of growth in multi-level dwellings, or apartments, that suggests we're seeing a lot of investor activity in apartments coming through.

"It's a comfort to the Reserve Bank that low interest rates are working and with no interest rate rise on the horizon any time soon, you'd expect that housing finance approvals and other housing indicators continue to trend higher in coming months."

JP Morgan economist Tom Kennedy said he was encourage by the increases in housing finance for the purchase of new dwellings, and the construction of dwellings.

"When you look at the breakdown it was fairly broadbased," he said.

"Construction loans, which is the one that the Reserve Bank of Australia has been targeting, trying to get a bit of a lift in that sector, they were up about one per cent and that is its third consecutive monthly increase, there are tentative signs of life in that sector.

"This is really representative of strength in the housing market and the continual demand for property."

Mr Kennedy expects the housing sector to continue strengthening in the new year.

"We don't think at this stage that the uptick in house prices has been too much of a concern for the RBA and activity is coming off pretty low levels, so we think it has a while to run," he said.

Pub real-estate trust Hotel Property Investments has failed to find early support on its ASX debut, shedding more than 1.5 per cent in its opening minutes of trade.

HPI, formerly Redcape Property Services, fell 1.67 per cent to $2.065 at 1300 AEST, against a benchmark rise of 0.59 per cent.

It fell as low as $2.04 shortly after listing at 1230 AEDT at $2.10. 

The listing comes after brokers Goldman Sachs and JPMorgan raised $279 million last month in a much more forgiving market climate. The float priced in the top half of its $2 to $2.15 a share range.

The success of HPI is being watched as a barometer of appetite for the sector, which has not seen a pub float for at least five years.

HPI has a portfolio of 41 pubs, seven detached bottle shops and a handful of specialty stores. The bulk of the assets are in Queensland.

NSW treasurer Mike Baird said the government made the changes to increase the number of first home buyers purchasing new homes.

Grants for newly built homes are up 83 per cent in the six months to November compared to the same period in 2012, Mr Baird added.

A $15,000 grant, applicable for the next two years, is available to first homebuyers of new homes costing up to $650,000.

Stamp duty won't be charged on homes worth less than $550,000 and a reduced fee will be imposed upon those who purchase property for less than $650,000, Mr Baird said.

"Previous incentives to first homebuyers for existing properties simply increased mortgage sizes, as they increased demand without any boost to housing supply," Mr Baird said in a statement to AAP.

"We are unashamedly targeting first homebuyer incentives towards new homes."

The NSW property market, he said, was the best it had been for a decade.

"Increasing housing stock and choice will ease competition in the market and help to get more first homebuyers into the housing market sooner."

The high price of land in Australia is one of the reasons businesses like Holden and Qantas are uncompetitive and the combination of several recent developments is making the situation much worse.

Australian house prices are already among the highest in the world, both in absolute terms and relative to income, and are now starting to rise rapidly again, especially in Sydney.

Yet new developments in planning laws by Conservative state governments in NSW and Victoria are drastically restricting supply, and at the same time demand is escalating because apartments have become a financial commodity being sold by investment spruikers and the business is rapidly becoming globalised, with powerful demand coming from China especially.

It is a combination of factors that will tend to make Australia even less competitive as housing costs rise and put upward pressure on wages, and put huge intergenerational pressures on families as first home buyers are priced out of the market.

There is now growing demand for investment apartments from self-managed super funds because property is not caught by the Future of Financial Advice legislation that bans commissions paid to financial advisers.

This means developers are able to pay large commissions – usually 10 per cent – to advisers who put clients into apartments that are essentially financial investments.

In some ways it’s similar to the boom in tax-driven managed investment schemes, usually based on gum trees, which collapsed spectacularly in 2009. The promoters of those schemes paid 10 per cent upfront commissions to financial advisers, pushing hundreds of millions of dollars into them, before the money was lost four years ago.

Superannuation regulators and industry are now starting to warn about the potential for big losses in the future for self-managed super funds that are being pushed by spruikers and unscrupulous commissioned advisers into high-priced apartment developments that will be hard to rent and even harder to sell when the time comes.

The other explosive new development is the globalisation of the apartment market.

The research director at property advisory firm Charter Keck Cramer, Robert Papaleo, told me yesterday that global developers operating in most major cities around the world have been outbidding local developers for the best sites and, as a result, the apartment market is no longer acting as a traditional housing submarket to service the basic accommodation needs of Australia’s growing population.

It’s increasingly being distorted by non-housing factors like global demand, residency applications and currency movements.

This is exacerbated by the fact that non-residents can’t buy existing dwellings, only new ones, which means all of the rapidly growing foreign demand is being channelled into new stock.

Meanwhile, in Melbourne the state government has given local councils the right to impose restrictive new planning zones that prevent high density housing in the suburbs, and therefore contain the apartments to diminishing areas close to the city.

The Victorian government has introduced what it calls “Plan Melbourne”, which proposes 393,000 new dwellings in established suburbs, as well as 200,000 in an “expanded central city” to make housing more affordable, but the plan is now being subverted by the freedom the government has granted to councils at the same time.

Specifically, councils have been given the right to impose what’s called a “Neighbourhood Residential Zone” on most of their suburbs, and they’re doing it. NRZ limits development to a maximum of two dwellings per lot plus a range of strict design constraints – effectively banning suburban blocks of flats like the ones that were built in their thousands during the housing boom of the 1960s and are still dotted around the suburbs.

Those mostly ugly blocks of 10-20 flats released a lot of the pressure on house prices in the 1960s that resulted from the post-war baby boom, but local communities are now trying to make sure it doesn’t happen again.

Glen Eira has already applied NRZ to 78 per cent of its land and others like Boroondara, Yarra, Brimbank and Whitehorse are looking to apply it to up to 80 per cent.

In Sydney, the planning reforms of the O’Farrell government’s White Paper on the subject have been watered down by the NSW Upper House and now deferred completely, following lobbying by community action groups.

Chris Johnson of Urban Taskforce, which represents developers, says the process has put the state back many years; “Sydney needs 32,000 houses every year and we are only producing 21,000 now,” he says.

Bans on new suburban apartment blocks by local communities plus rapidly growing demand from ‘financialisation’ and globalisation means that the apartment market is becoming disconnected from the general housing market. But the distorted prices are infecting the whole.

According to Robert Papaleo, less than 10 per cent of Sydney’s and Melbourne’s housing needs are supplied by apartments, whereas in comparable cities like Vancouver and Seattle it’s up to 40 per cent.

The demand for apartments is only going to grow but supply is being choked. The inevitable result is higher prices and less affordable housing, putting more upward pressure on wages and making Australian industry even less competitive than it currently is.

By a staff reporter

Fairfax Media Ltd has bought property data and mapping provider, Property Data Solutions Pty Ltd, for cash consideration of approximately $30 million.

In a statement to the Australian Securities Exchange, Fairfax said the acquisition will be combined with its existing property data business, Australian Property Monitors, and will be called APM PriceFinder.

PDS provides property data research subscriptions to real estate agents, developers, investors and interested corporations and its chief executive officer Tom White will head the combined group.

Fairfax said PDS's strong presence in Queensland and Western Australia will complement APM's subscriber base, which is mainly in New South Wales and Victoria.

Fairfax CEO Greg Hywood said PDS would join Fairfax as part of its Domain Group run by Antony Catalano.

"This acquisition is consistent with our strategy to invest in Domain, where we continue to see significant growth potential," Mr Hywood said.

By a staff reporter

Dexus Property Group has again increased its takeover offer for the Commonwealth Property Office Fund (CPA).

In a statement to the Australian Securities Exchange, Dexus said its joint offer with the Canada Pension Plan Investment Board was valued at $1.27 per CPA unit, including a cash payment of 77.45 cents and 0.4516 Dexus stapled securities.

The offer to CPA's responsible entity, Commonwealth Managed Investments Ltd, is not subject to a minimum acceptance condition and has only limited customary conditions, Dexus said.

The suitor's earlier sweetened bid was valued at $1.21 per CPA unit but CPA terminated the offer after Dexus failed to match a rival bid from GPT Group Ltd in the specified time.

Dexus noted that CMIL recommended its earlier proposal to CPA unitholders in the absence of a superior proposal prior to the termination.

Industry Superannuation Property Trust had been chosen by a Colonial First State fund that is being wound up to buy the fund's half stakes in 135 King Street and the Glasshouse for about $140 million.

But Stockland exercised its pre-emptive rights as co-owner of the $280 million complex to buy the PPS fund out of the retail centre and nominated Investa for the office tower stake.

The $8.9 billion ISPT had been chosen to buy the PPS fund's stake in 135 King Street and the Glasshouse.

It is separately finalising a deal to buy Bendigo Marketplace, a sub-regional shopping centre in Victoria, for about $160 million.

JLL's retail and office teams and Colliers International handled 135 King Street and the Glasshouse.

With the PPS fund being wound up, ISPT had seen an opportunity to access retail property and a well-located office tower.

Securing the tower stake is a coup for the Investa fund.

The fund has emerged as a player this year, having bought a Brisbane CBD tower and committed to a half stake in Leighton's development in Melbourne's Collins Street.

The behind-the-scenes deal indicates a bond may emerge between Stockland and Investa.

Stockland is also selling the near $400 million Piccadilly Centre in the Sydney CBD, which may also come on to the Investa's radar.

It is understood the billionaire shareholder is taking his time to mull a proposal from the Commonwealth Bank, which is believed to value the rights at about 6 per cent of funds under management.

The amount being tipped by market sources is higher than what was previously anticipated by analysts -- between $400 million and $500 million.

Some sceptics in the property industry question whether the negotiations between Gandel and Commonwealth Bank played a part in the timing of Westfield Group's portfolio carve-up last week.

The shopping centre giant might have been mindful of a potential announcement by CBA about its asking price for the CFS Retail management rights and how its proposal to sell Westfield Group's management rights to Westfield Retail Trust would be perceived in comparison, a source said.

Another said it was unlikely to be a determining factor for Westfield and was more to do with finalising the deal before the end of the financial year, with shareholders to vote in May.

One analysts said it was a case of "smoke and mirrors" trying to decipher the true price being paid by WRT shareholders for the management rights.

But according to some estimates, a deal for Westfield to merge its Australian and New Zealand property interests with WRT would wipe $1.7 billion off the value of WRT's net tangible assets.

The cost of the deal was about $150 million, which would imply the value of the rights would be about $1.55 billion.

This would mean Westfield's management rights for its Australia and New Zealand assets was closer to 10 per cent of assets under management, which could appear expensive in light of what is being proposed for the rights of CFS Retail.

Gandel, a major CFS shareholder, has the first option to buy those management rights.

During the global financial crisis, the management rights of some groups were effectively given away. During the boom, former shopping centre empire Centro cut a deal for the sale of management rights at about 4 per cent.

Vodafone Hutchison Australia is pushing retail landlords to reduce rents as it fights to turnaround recent losses, according to Fairfax Media.

The telco has reportedly been vacating stores when landlords have refused to come to the negotiating table, with the moves coming after a letter was sent to property owners in November.

“This request is on the back of numerous store closures that have been performed in the last two years due to the significant losses that have been incurred from the impact of customers leaving,” a letter from Vodafone’s national retail property manager said, according to Fairfax Media.

A Virgin spokesperson downplayed the action, according to the report, noting the letter wasn’t signed off by senior management.