Next year is shaping up as an annus horribilus for whoever wins the federal election, but one of the big nasties likely to turn voters against whoever’s in the Lodge is being overlooked – house prices, and the wealth effect that flows from living inside an appreciating asset.

Prices are leaping ahead again, causing much excitement. However to understand what could, and in my view is likely, to go wrong, requires a bit of history.

First, a hands-up moment. In October of this year a bunch of housing-market bears, including yours truly, who walked 230 kilometres from Parliament House to the top of Mount Kosciusco with economist Steve Keen, will be proved wrong.

Wrong, that is, to expect Keen to win his bet against another economist, Rory Robertson, that Australian house prices would fall more than 20 per cent, peak to trough, by October 2013.

That was the bet, and though Robertson disputed the terms of the bet in 2010 (explained fully here, KEEN’S DEBT MARCH: Rory’s repudiation, April 19, 2010), he will no doubt be pleased in October to see that he won nonetheless. Keen 'lost the bet' three years prematurely, and walked the walk, as required.

How can we be sure, five months out, that the bet is lost? Because between now and October there is virtually no chance that home-buyers will be refused the amounts of credit they need to keep prices up in most capital city markets. The Reserve Bank cash rate remains at 3 per cent, and pundits are tipping one more rate cut in this easing cycle.

House prices are not a key consideration in the Reserve Bank rates decisions – the board is always careful to insist it maintains a narrow focus on inflation, not asset prices. Nonetheless, it’s string of cuts since 2011 have clearly buoyed house prices.

In the past 18 months, many thought Keen’s prediction was coming true. Australian Bureau of Statistics nominal house price data shows large peak-to-trough falls between the time of the Kosciusco walk and the end of 2012.

Prices are now recovering, especially in Sydney (4.2 per cent year-on-year compared to 1.7 per cent for the nation), but the falls were:

Sydney           -3.7

Melbourne     -6.9

Brisbane         -7.3

Adelaide         -5.6

Perth              -7.4

Hobart            -10.1

Only Hobart appears to be still falling, with all other state capitals enjoying significant rises. Keen has argued that it is a “sucker’s rally”, and has provided alarming evidence for this claim. In particular, the composition of buyers bidding up prices has changed dramatically.

As Keen wrote two weeks ago: “The revival in mortgage debt growth since 2012 has been more than 100 per cent due to additional speculation: the decline in owner-occupier borrowing from $40 billion per annum at the start of 2012 to $32 billion per annum now has been more than outweighed by the increase in speculative mortgages from $11.5 billion per annum to $21.8 billion today (House prices shoot towards a ceiling, April 15).”

Investors are rushing back to market with the old noughties-era zeal – get in now before the real capital gains kick in.

But as Philip Soos explained in great detail in February, this mentality overlooks fundamentals that have changed beyond recognition since the heady days of the late noughties, when TV programs on every channel taught the nation how to renovate and flip properties, stoking feverish asset inflation (The irregular ratio spooking property, February 1).

The relationship between house prices and rental yields was stretched during that period. So too were the oft-quoted house-price-to-income ratios of owner occupiers.

Some good arguments were made during those years as to why this was not a bubble, but a one-off adjustment in a structurally changed market.

For instance, the houses being bought and sold were much more luxuriously appointed inside, due to a long-standing fashion for renovation.

Another argument was that workforce participation had increased – a couple, both working, could pay more for a home than a single-income household and hence prices were bid up.

But these trends, even if fully accepted as the cause of the asset inflation, have their limits. Deloitte Access Economics suggested last month that workforce participation may have peaked, for all time, in 2010 at 65.9 per cent. That part of the structural change is over. And we really can’t add many more bathrooms.

Where this comes back to haunt next year’s prime minister is in the relationship between fiscal policy, the high dollar, consumer confidence and interest rates. 

There is a good chance, as Robert Gottliebsen writes today (Miners are blind to China’s new reality, April 26), that “the situation in China is more serious than is generally understood in Australia”. Indeed, more serious that Prime Minister Julia Gillard was willing to let on in her Business Spectator interview last week.  

China weakness is one important factor in keeping the dollar high. Capital inflows to fund the final stage of the mining construction boom are contingent on China’s growth, and multi-billion dollar projects, like the Browse Basin LNG project, can vanish from the ‘investment pipeline’ overnight.

There is, therefore, a very real risk of a correction in the dollar mid-2014 as less capital is pumped into Australia. This is not the only factor – safe haven investors in government bonds are another large capital movement – but it is the most volatile.

As explained on Thursday, the 40 per cent of the components of the consumer price index classed as ‘tradable’ would, if the dollar fell even to 90 cents, jump in price – TVs, fridges, clothes, footware – even the foreign cars Australians now prefer to poor old Holdens and Fords. From a possible deflationary scenario, the Reserve Bank would have a large imported inflation problem.

As consumer confidence was hit by rising prices, the Reserve Bank may have to lift rates a little from their record lows. Those two factors together would change the equation for investors wanting to borrow large sums of money, at low rates, to chase capital gains in the residential property market.

The big difference between a stalling of house price growth in 2014 and five years earlier, is that in 2009 Kevin Rudd still had pots of cash, and seemingly unlimited borrowing capacity, to bail the market out with generous rounds of First Home Owner Grants (or First Home Vendor Grants, as Keen calls them).

Neither Prime Minister Tony Abbott nor Prime Minister Gillard will have access to the same kinds of cash Kevin Rudd had. The batteries on the defibrilator that state and federal governments have used to shock the housing market back to life so many times, have run flat.

Global events will, of course, play a big role. But the political fallout from a stalling of the current ‘recovery’ in house prices will be large.

Private investors have no right to expect the public purse to underwrite their risk, but then it's just something we all got used to. When Canberra fails to provide a safety net, there'll be hell to pay.

AAP

Pending home sales rose in March after a February slump, showing strength persists in the US housing comeback, the National Association of Realtors says.

The NAR's index for pending sales, which signal the direction of the housing market, rose 1.5 per cent from February to 105.7.

That was 7.0 per cent above the March 2012 level, with activity strongest in the south and the west.

NAR economist Lawrence Yun said tight supply on the market continued to hold back sales.

"Contract activity has been in a narrow range in recent months, not from a pause in demand but because of limited supply," Yun said in a statement.

"Little movement is expected in near-term sales closings, but they should edge up modestly as the year progresses," he said.

NAR projects that sales of existing homes will grow 6.5-7.0 per cent this year to about five million units, with prices gaining 7.5 per cent.

Against the backdrop of measures to cool property markets in their home countries, Asian residential developers are looking to Australia for growth.

Well-heeled Singaporeans, Indonesians or Hong Kong Chinese have long bought the odd apartment in Australia, mostly for the twin purpose of investment and accommodation for children studying in Australia.

Although Asian investors have been conspicuous investors in non-residential property in Australia for more than three decades, the arrival of offshore residential developers is a relatively new phenomenon.

Investment in residential sites has reached an unprecedented level in Australia. Independent property researcher Kevin Stanley says Asian developers have spent more than $1.1 billion on sites in the last three years.

These sites have approvals for 19,000 units - 30 per cent of the 60,000 apartments approved in Australia each year - and 2,000 houses, in 55 separate projects, located in Melbourne, Sydney, Brisbane, Gold Coast and Perth.

Stanley says the collective development cost of these projects is $10 billion.

The private Chinese-based AXF Group, a relatively new entrant, has sites for 2,300 apartments in Melbourne, including the 3.3 hectare former Kinnears Ropes factory site in Footscray, an inner Melbourne western suburb.

On the Gold Coast, the Chinese development group Ridong has lodged development plans to build a $900 million three-tower residential project on a 1.13 hectare beachfront site.

Aside from large high-profile deals, anecdotally agents say that land-banking on behalf of Asian developers - or for sale to Asian developers - has been going on for some time in suburbs populated by Asians, such as Springwood in Brisbane and Burwood in Sydney.

A leading agent says: "They don't mind old rundown homes as long as they are located close to railway stations and in sought-after suburbs with a view to assembling a development site eventually."

Veteran agent John Hill, who runs an agency in Sydney's inner west, reflects the view of the wider industry, saying that these Asian developers are filling a void left by Australian developers.

The medium-density market in Australia collapsed following the global financial crisis, when liquidity dried up and banks brought in stringent lending rules.

Depending on the track record of the developer, Australian banks require up to 60 or 70 per cent of presale before agreeing to finance a residential project.

Sources say Asian developers are not hamstrung by such restrictions. They source their development capital from overseas at lower interest rates.

Often, they model the viability of their projects differently from the Australian developer who works on supply and demand.

Offshore developers, especially those from China, work on the basis of the broader fundamental of the Australian economy. Often, they have patient money.

Andrew Wilson, senior economist with Australian Property Monitor, says one concern is that offshore project financing, which is not driven by the need for high level of presales, could lead to oversupply.

"There is currently not enough demand, either from tenants or owner-occupiers, for the number of apartments under construction or approved," says Wilson.

This problem is particularly real in Melbourne where, despite a slowdown in demand, commencements and approvals of high-rise residential towers in central Melbourne continues unabated - raising the spectre that some could become "ghost towers" of the future.

According to BIS-Shrapnel, Melbourne traditionally has 2,000-3,000 completion a year (to make the take-up rate), but between now and 2015 more than 5,000 units will be completed each year.

"A lot of the apartments are sold to buyers overseas. Chinese buyers are keen to move their money out of the country and they may be happy to lock up their units," says Angie Zigomanis, BIS Shrapnel's senior economist.

The seriously rich foreign investors of top-end apartments buy for personal use, but generally buyers of run-of-mill units will lease for an income yield.

Asian developers and investors are well aware of a shortage of rental properties and an underlying housing under-supply in some Australian capital cities.

When the Malaysian company SP Setia launched the first phase of its inner-Melbourne Fulton Lane project, in Kuala Lumpur in late 2011, it sold 70 per cent of the 291 apartments for $112 million in three days. (So far, it has sold some 600 of the 780 apartments in Fulton Lane.)

Success stories such as this whet the appetite of Australian developers, including large Australian groups, like Lend Lease, to market units to Asian investors.

Brisbane-based Lachlan Walker, Place Advisory research director, says that Chinese investors have spent $200 million on residential real estate in Queensland in the past year.

Walker says Singaporeans alone spent $29 million on residential property.

Asians love freehold properties, compared to leaseholds in many Asian countries, he says. (In Singapore, leasehold titles are usually for 99 years.)

Mathew Cassidy, Knight Frank's leading project marketing agent, in Brisbane, says his "guestimate" is that Asian investors probably spent as much as $500 million in Southeast Queensland.

Over the coming months, literally billions of dollars worth of projects will be offered to buyers in China, Singapore, Hong Kong, Indonesia and so on.

Asian developers are tapping the Asian innate love for brick-and-mortar investment. Not surprising really, when one considers how a generation of Singaporeans became "middle-class" on the back of the appreciation of their home.

Property is the first step to wealth accumulation for people from rapidly-growing economies, such as China, where alternative investment products have yet to be developed.

AAP, with a staff reporter

Westfield Group Ltd has disposed of its 50 per cent interest in its joint venture in Brazil.

In a statement to the Australian Securities Exchange, the company said it had sold the stake to the Almeida Junior Family.

The proceeds from the disposal of the interest, which represented less than one per cent of Westfield's assets, were in line with book value, the company said, without giving a dollar figure.

"We have decided to dispose of our interest in this joint venture as the partnership was not conducive to the achievement of the group's long-term objectives in Brazil," Westfield co-chief executive Steven Lowy said.

The transaction was expected to have no impact on earnings or distribution, Westfield said.

By a staff reporter

Goodman Group Ltd has completed a fresh equity raising for its industrial real estate investment vehicle Goodman Australia Industrial Fund (GAIF).

In a statement to the Australian Securities Exchange, Goodman said it had raised more than $1 billion, after having raised $624 million at the first close last December.

"As highlighted, a number of investors were completing due diligence at that time, which has now been completed," the group said.

The additional demand was primarily secured from a number of existing GAIF investors, including domestic super funds and large international investors.

"We are very pleased with the strong overall support of GAIF’s investors for this major opportunity to participate in the Australian industrial property market at this point in the investment cycle," Goodman Group chief executive officer and GAIF chairman Greg Goodman said.

A top Lend Lease executive has quit as part of the group's drive to downsize its European business, with about 90 jobs at risk across the region and the UK, according to Building.

Michael Dyke, Lend Lease’s managing director of construction in Europe, the Middle East and Asia (EMEA), has resigned with immediate effect, the UK trade magazine reported.  

At least three other senior executives will depart, commercial director for EMEA, Tom Spilsted, operations director Simon Parham and senior legal counsel Alistair Cutts, Building said.  

The resignations come as the firm embarks on a strategic review, including a cost-cutting drive. 

In October last year, when the first signs that Australian nominal house prices were rising again after falling since June 2010, I argued that this was going to be a “suckers’ rally” (Riding the great debt elevator, October 8, 2012).

I stuck with that call (Where to for house prices in 2013? December 17, 2012) even when the data appeared to be showing a revival in my key indicator, the “Mortgage Accelerator” (Don't look for high-rise house prices, February 11), largely because I couldn’t see mortgage acceleration being maintained when mortgage debt was still within cooee of its historic high.

But last week’s ABS House Price Index was surprising even to a bona fide housing bear like myself: nominal house prices rose a whole 0.1 per cent over the March quarter. In inflation-adjusted terms, it appears that the recent house price rise ran out of steam in January, and resulted in prices being a whole 1.8 per cent higher, in real terms, than at the nadir in September. They are now just 1.6 per cent higher.

Table 1: House Prices and Consumer Prices

Some boom. That’s not even a Suckers’ Rally – it’s a Claytons Suckers’ Rally (for non-Australian readers, a ‘Claytons’ is ‘the drink you have when you’re not having a drink’).

My mortgage accelerator indicator gave an inkling that this could happen, since it peaked out at a mere 0.23 per cent of GDP in January (versus 5  times that during the First Home Vendors Boost), and then fell to below 0.2 per cent.

Figure 1: House Price Change and Mortgage Debt Acceleration

But since there are many cooks at work in baking the Australian house price cake – from meddling federal and state governments and allegedly rigid councils on the government side, to unregulated and unmonitored overseas buyers in a wide-open domestic real estate market on the private side – I didn’t want to stick my neck out and say that the price rise was over now, since any of those factors could have outweighed mortgage debt acceleration.

I still think this mini-rally could revive a bit (and the most recent figures may well be revised upwards, as the previous quarter’s were with more data), but it is clearly on the edge of deflating after a truly anaemic rise.

This data hasn’t yet dented the enthusiasm of the bulls – my fellow Spectator Stephen Kouloulas stuck with his call for a 8-12 per cent rise in nominal house prices over 2013, and Stephen Nicholas (and interviewees) in The Sydney Morning Herald managed to wax lyrical about how last Tuesday’s Reserve Bank interest rate cut would “generate house price growth“, without once mentioning the flat ABS figures that came out the same day (Agents welcome surprise rate cut, SMH May 7, 2013).

Figure 2: The Kouk's affirmation of his call for an 8-12 per cent rise in Australian house prices in 2013

Nor did their mention of “flying” clearance rates of 78.1 per cent in Sydney last week note that this is more terrain-hugging than high-flying, since the volume of sales is now 27 per cent lower than during the FHVB-inspired boom in 2009, and 40 per cent below the peak level of sales back in 2003 (see figure 3).

Figure 3: A Booming market?

Since the housing stock has grown over time, the current “booming market” involves almost the lowest level of sales volume compared to housing stock since the ABS began collecting the data in 2002 (see figure4). This is almost certainly a factor in why the current rise petered out so quickly – and why any house future price revival is likely to be short-lived:  any apparent revival in prices is likely to bring out an increased supply from would-be vendors awaiting such a price rise. Since the volume of sales is so depressed compared to the boom times of 2002-2008, any temporary revival in prices can easily be snuffed out by an increase in sellers.

Figure 4: Housing sales as percentage of housing stock

With the supply of existing houses for sale so flexible, the only salve for the market could emanate from equally flexible demand. That’s somewhat the case in the US now, since mortgage debt has dropped so much there – and since with lower prices, rental yields are now attractive to genuine investors (i.e., people who plan to profit from being landlords rather than making a tax-deducting loss as in Australia).

In part, this reflects the pain the US has already been through with substantial deleveraging and even larger price falls. Australia avoided this pain, with the First Home Vendors Boost pushing prices up at the same time as floating mortgage rates reduced the cost of carrying mortgages. But the downside of ‘no pain’ is ‘no gain’: whereas the global financial crisis led to actual falls in mortgage debt (and all other categories of private debt) in the US, all it did in Australia was slow down its rate of growth to slightly lower than that of nominal GDP. Consequently mortgage debt is now little different to what it was at the house price peak in June 2010 – and therefore the room for it to rise is also limited.

Figure 5: The US delevered, Australia did not

Of course further interest rate cuts might well entice more people into mortage debt – and as Peter Martin pointed out, just because the Reserve Bank’s cash rate is the lowest it has been since Elvis was in the Army (as opposed to in the House), that doesn’t mean that mortgage rates are as low as they can go. They are still above the lows they set during the GFC, and another three cuts in the cash rate would be needed to take them below that level (How low will the RBA go?SMH, May 8).

Figure 6: Mortgage rates still high after all these cuts

So we may well see mortgage rates that low, or even lower. But while mortgage debt remains as high as it is, we will never see mortgage servicing costing as little as it did before the most recent Australian house price bubble began in 1997 – let alone as low as it was in the 1970s – even if the Reserve Bank dropped the cash rate to zero, and mortgage rates fell to just 3 per cent.

Figure 7: Mortgage interest payments as a percentage of GDP

That isn’t factoring in the repayment of mortgages either. Before the price boom, this wasn’t a major issue: mortgage debt was relatively small compared to GDP, and a large variation in how long people took to repay loans had a minor effect on debt servicing costs as a percentage of total income. During the price boom, this wasn’t a major issue: you could struggle with repayments for a while and then repay by selling your property into the rising market seven years after you bought it. But after the boom, repaying mortgages as fast as Australians have done in the past will be prohibitively expensive. Mortgage durations are therefore likely to blow out, which will make the thought of taking out mortgage debt that much less attractive.

Figure 8: Mortgage payments given different repayment periods

So demand is anything but flexible up, and the trend to falling mortgage debt growth rates is likely to continue.

Figure 9: New mortgages per annum

With that trend, any period of accelerating debt – and therefore rising prices – is likely to be short-lived, as appears to be the case in this Claytons Suckers’ Rally.

Figure 10: Australian Mortgage accelerators

By a staff reporter

Stockland Ltd is expecting its full-year earnings per share to come in at the lower end of its guidance, because of costs associated with a restructure of the group.

The group made the announcement as part of a strategic update, in which Stockland said its business had performed in line with expectations in the third quarter with retail sales growing, leasing in the industrial and office portfolios progressing well and solid reservations in retirement living.

"Stockland expects FY13 full year EPS to be 25 per cent below FY12," the group said.

"This is at the lower end of guidance after now taking into account the impact of its restructure provision."

Stockland said it expects to maintain its 24 cent distribution in fiscal 2014, "assuming no material decline in trading conditions.

"This decision recognises that our business remains in transition and we have a clear strategy to achieve stronger future returns through consistent application of a disciplined, risk-focused capital allocation framework combined with agile execution,” Stockland chief executive Mark Steinert said.

The group also revealed a $49 million impairment on previously impaired residential projects, reflecting further analysis and, in some instances, divestment negotiations.

"A material amount of this additional impairment relates to a court appeal, where we have assumed the worst outcome," the group said.

"No additional material impairments are expected unless trading conditions deteriorate significantly."

By a staff reporter, with AAP

The demand for home loans beat expectations in March, marking the second straight monthly increase, according to the Australian Bureau of Statistics. 

The data showed the number of home loans granted in March lifted a seasonally adjusted 5.2 per cent to 48,071. 

The result compares to an upwardly revised 46,225 in February.

Economists had expected the number of housing finance commitments to rise by 4 per cent in March.

Total housing finance by value rose 4.5 per cent in March, seasonally adjusted, to $22.983 billion.

AAP

Dexus Property Group has sold five of its six remaining European industrial properties for a total of €16.5 million ($A21.72 million).

Dexus, which specialises in owning, managing and developing office, industrial and retail properties, said the properties were all in France: four in Paris and one in Lyon.

Chief executive officer Darren Steinberg said the sale "delivers on our strategic objective of divesting out of our non-core offshore markets and concentrating on our preferred Australian CBD office markets".

The proceeds will be used to repay debt, Dexus said.

The sale follows the divestment of the group's remaining US industrial property in April 2013.

Dexus' one remaining European property, located in Berlin and 100 per cent leased to DHL, is being marketed for sale.

AAP

The New South Wales (NSW) government should cut transfer stamp duty rates in next month's budget to stimulate the property market, a real estate group says.

The Real Estate Institute of NSW (REINSW) says a cut in NSW transfer stamp duty rates of as little as half a per cent would motivate the property market and potentially boost state revenue by up to hundreds of millions of dollars.

REINSW President Christian Payne says the Reserve Bank's reduction of interest rates last week is a clear sign the economy needs to be stimulated.

"When property transfer taxes are too high, state revenue suffers," he said in a statement on Wednesday.

Last year the ACT cut the top rates of transfer duty by 0.75 per cent and it has reaped almost $28 million additional transfer duty since then, he said.

In the Northern Territory between 2006/07 and 2008/09, property transfer duty rates were cut by 0.45 per cent, which resulted in an increase of more than $22 million in revenue from that duty.

And between 2003 and 2006, WA cut duty rates by 0.9 per cent and revenues from that duty rose by more than $709 million over the period, Mr Payne said.

"The evidence is clear: cutting property transfer duty rates incentivises and stimulates the market, which produces revenue streams for the state government," he said.

The NSW budget will be handed down on June 18.

GPT Group is set to announce the sale of its half stake in aNew South Wales central coast shopping centre, as talk grows of fresh discussions with Australand. UGL’s profit guidance downgrade has underlined just how much shareholders would love a demerger. Meanwhile, James Packer has picked his Barangaroo architects and ANZ Bank is reportedly responding to the scrip battle over The Trust Company.

GPT Group, National Pension Scheme, Erina Fair

South Korea’s National Pension Scheme, a $300 billion powerhouse, looks poised to be named as the winner of GPT Group’s half stake in the Erina Fair shopping centre.

The ASX-listed property group should pick up something like $400 million from the sale if media reports are correct, with the sovereign wealth fund joining Lend Lease’s wholesale APPF Retail Fund as a co-owner of the site on New South Wales' central coast.

Well known US investment giant Blackstone dropped out of the race and ended up pursuing a site in Melbourne.

The extra $400 million or so could well come in handy in regards to GPT’s most prominent play at the moment – a deal with Australand.

Talk has centred on GPT and Australand opening up proper negotiations over the former’s proposal to buy everything of the latter, excluding its residential business.

There’s even been some suggestion that GPT could sweeten its $2.8 billion offer, although given that Australand has had every opportunity to solicit rival interest, and none seems forthcoming, it’s a bit early to say a sweetener is coming.

Particularly when you consider that Australand’s majority shareholder, Singapore’s CapitaLand, has put its stake in 'review' – which means it wants to sell.

When the buyer is the only buyer and the seller wants to sell, that’s not a recipe for a higher price.

However, if a higher price does end up becoming necessary to win the day, GPT at least has a little more in the bank to meet it with Erina Fair out of its life.

UGL

Contractor UGL will know beyond a shadow of a doubt that its shareholder base is baying for a demerger simply by looking at the share price reaction to its second earnings downgrade of the year.

UGL shares tanked 17 per cent to $7.94 after yesterday's announcement. That’s well below the levels they were trading at before the company announced it was conducting a 'review', which put a demerger of the property and engineering arms firmly on the agenda.

Investment bank Goldman Sachs has been conducting the review since then, with managing director Richard Leupen telling shareholders in March that a decision should be in by August, “if not earlier”.

Earlier might be the way to go. UGL now expects to book an underlying profit after tax of $90 million-$100 million for this financial year, down from the $150 million-$160 million guidance issued in February.

The board itself acknowledged yesterday that a demerger appears to be the most likely option.

Given expectations that the mining sector will continue to slow down, dragging engineering firms down with it, they’d be well advised to hop to it.

James Packer, Crown, Wilkinson Eyre Architects

Billionaire James Packer has picked British firm Wilkinson Eyre Architects ahead of two US rivals to build his $1 billion-plus Crown casino site in Barangaroo, Sydney.

According to media reports, the official announcement will be made this morning.

Wilkinson Eyre beat out Chicago’s Adrian Smith + Gordon Gill Architecture, and New York firm Kohn Pedersen Fox Associates, for the $10 million design brief.

While Packer might have picked some sketchers, the real announcement that he wants to make is for the state government to pick his Barangaroo proposal over a rival Sydney casino plan by Echo Entertainment, owners of The Star.

Both players have submitted unsolicited proposals to the New South Wales government, predicated on the other’s being ignored.

ANZ Banking Group, ANZ Trustees 

It appears the bidding war for The Trust Company has got the industry thinking about some more action for trustees.

The Australian Financial Review understands that ANZ Banking Group is reviewing its trustee arm, entitled rather simply ANZ Trustees, with expectations that it’ll try to sell it off in coming months.

Apparently, ANZ Trustees has earnings of about $10 million a year.

The difference between the bidding war over Trust Co between Perpetual and Equity Trustees and ANZ’s musing is that the former is a scrip bidding war. ANZ will be after cash.

Wrapping up

Qantas Airways has received final approval for its alliance with Emirates from the New Zealand government.

The trans-Tasman services of the two airlines was a point of contention for the Australian Competition and Consumer Commission, but the attention kind of died down after their approval, considering there’s a country, and a regulator, one the other side of the Tasman.

It turns out that it all went very well. The five-year alliance has been given the thumbs up.

Meanwhile, Dexus Property Group has offloaded five of its six remaining European industrial properties for a grand total of £16.5 million ($21.7 million).

And finally, Billabong International has lost two more key staff members as discussions about a potential takeover offer, and the accompanying trading suspension, drag even so slowly onwards.

The Australian reports that senior designer Mandy Fry and Sector 9 founder Steve Lake are the latest to exit the group.

This shouldn’t be interpreted as a sign that the talks themselves have gone sour, as it’s unlikely the two have a particular insight into the outcome.

This is symptomatic of two employees working for a company that has had its books open for a year that no one has found a good read in.

Better fortunes can be found elsewhere.

AAP

Construction of new United States homes plunged in April but new building permits soared, official data show, pointing to continued recovery in the housing sector.

Housing starts plummeted 16.5 per cent from March to an annual rate of 853,000, according to seasonally adjusted Labor Department figures on Thursday.

The plunge came after two months of gains, including March's surge to more than one million units. The drop was steeper than the 970,000 rate expected by analysts.

The typically volatile multiple-family sector led the decline, with starts diving 37.8 per cent. Single-family housing starts fell 2.1 per cent.

Year-on-year, starts were up 13.1 per cent.

New building permits for single and multi-family housing, a sign of potential future construction activity, surged 14.3 per cent from March to an annual rate of 1,017,000.

Permits were up 35.8 per cent from a year earlier.

Analysts said the trend in housing construction was still upward.

"Stirred by volatile multi-unit starts, housing starts are experiencing an adjustment after two months of solid gains," said Mei Li of FTN Financial.

"The rise in building permits suggest the starts drop represents a temporary setback."

With mortgage interest rates near historic lows, an improving economy and tight inventory on the housing market, home builders are growing more confident, according to a survey released on Wednesday.

The National Association of Home Builders/Wells Fargo housing market index gained three points to a 44 reading for May.

"Builders are noting an increased sense of urgency among potential buyers as a result of thinning inventories of homes for sale, continuing affordable mortgage rates and strengthening local economies," NAHB Chairman Rick Judson said.

Property giant Westfield Group's executive pay policy has been sharply criticised by two major proxy firms, despite both firms having backed Westfield's remuneration report ahead of its annual general meeting in April, according to The Australian Financial Review.

CGI Glass Lewis and its international peer ISS both called on Westfield investors to back the company's remuneration report last month, but have since questioned the $18 million combined pay package for Westfield's chief executives Steven Lowy and Power Lowy.

“We question the need for the entity to allocate such significant pay towards the chief executive role,” CGI argued in a report, according to the AFR.

“At a minimum, we expect an entity to provide a thorough and convincing explanation for such high remuneration, which this entity has failed to do.”

The proxy firm acknowledged that Westfield's executives have had their pay frozen for four of the past five years, but argued there is too “great a focus on short-term performance” within Westfield's incentive packages.

During the past year, Westfield has reformed its remuneration methods, distributing short-term bonuses in shares and deferring payouts.

By a staff reporter

GPT Group Ltd has sold its stake in Erina Fair shopping centre on the New South Wales Central Coast as part of its portfolio re-weighting strategy.

In a statement to the Australian Securities Exchange, GPT said it had sold its fifty per cent stake for $397.1 million.

Chief executive and managing director Michael Cameron said GPT had capitalised on the strong interest from domestic and overseas investors in quality Australian property assets.

"This solid demand has allowed GPT to realise the value of this asset and continue to progress its strategy to move to a more balanced portfolio weighting," Mr Cameron said.

"In the past year we have effectively executed this remixing strategy moving retail from 61 per cent of the portfolio to 54 per cent, inclusive of this latest transaction.

"We continue to investigate further opportunities for investment in office and logistics and business parks.”

The Australian Financial Review reports the buyer of GPT's stake was South Korea’s National Pension Service.

The sale of GPT Group Ltd's half-stake in the $800 million Erina Fair shopping centre in NSW to South Korea's National Pension Service (NPS) is expected to set off a flurry of activity as South Korean groups eye Australian real estate, according to The Australian.

Up to $1 billion worth of Australian real estate could shift into South Korean hands in coming weeks, as South Korean investors seek high-yielding, safe haven investments at the same time that Australian landlords increasingly look to offload shopping centre stakes.

Seoul-based Samsung is nearing an entry into the Australian property sector with a potential $150 million deal for the Australia Post NSW headquarters in partnership with Eureka Funds Management, The Australian reported.

Meanwhile, South Korea's Mirae Asset Financial Group is in exclusive due diligence to buy Sydney's Four Seasons Hotel for some $350 million.

Stockland Ltd has cut 80 jobs as part of its renewed focus on cust-cutting, The Australian Financial Review reports.

The newspaper reports the group is aiming cut gross overheads by 10 per cent in 2014 - half in staffing costs and the remainder in better processes and a national approach to procurement.

Last week, Stockland said it was expecting its full-year earnings per share to come in at the lower end of its guidance, because of costs associated with a restructure of the group.

The group also revealed a $49 million impairment on previously impaired residential projects, reflecting further analysis and, in some instances, divestment negotiations.

"A material amount of this additional impairment relates to a court appeal, where we have assumed the worst outcome," the group said, at the time.

"No additional material impairments are expected unless trading conditions deteriorate significantly."

Stockland shares closed the previous session at $3.92.

By a staff reporter

Stockland Ltd has raised $400 million through a fully underwritten placement to institutional investors, with the proceeds to reduce the group's balance sheet gearing by three per cent.

In a statement to the Australian Securities Exchange, Stockland announced it sold 103 million securities at a price of $3.88, a 2.5 per cent discount on yesterday's closing price.

Stockland managing director and chief executive officer Mark Steinert said: the completion of the placement, highlighted investors' confidence in the group's new strategic direction.

"The proceeds will help fund our $1.5 billion accretive retail development pipeline, with projects in strong trade areas, accretive pre-AIFRS yields of 7 to 8 per cent and incremental internal rates of return (IRR) of 13 to 14 per cent," he said.

Stockland said the placement was not expected to impact on earnings per security in either fiscal 2013 or 2014.