By a staff reporter

Housing values rose in July as positive conditions in Sydney, Perth and Melbourne buoyed the property market, according to a private survey.

RP Data and Rismark International's home value index found capital city dwelling values rose 1.6 per cent in July, slightly less than the 1.9 per cent gain in June.

Prices have recovered a total of 6.5 per cent since May last year, according to the survey.

RP Data research director Tim Lawless said the market is still a mixed bag despite the strong headline.

"As noted by Reserve Bank of Australia Governor Glenn Stevens earlier this week, with an easing in monetary policy one of the expected and intended effects will be that people start to shift their portfolios away from the less risky assets such as cash and in the direction of holding equities and physical assets such as property," Mr Lawless said.

By a staff reporter

New home sales lifted for the fourth consecutive month in June, but the outlook for the property sector remains far from certain, according to a private survey.

The Housing Industry of Australia new home sales report showed that total seasonally adjusted new home sales increased by 3.4 per cent in June.

In the same period detached house sales increased by 7.3 per cent, but multi-unit sales dropped by 17.5 per cent.

HIA chief economist Harley Dale said the report reiterated the changing composition of new home building in 2013.

"Last financial year was a tale of two halves for new home sales," Dr Dale said.

"The first stanza was dominated by weakening detached house sales up against stronger multi-unit sales, the latter marked by an improving detached house segment occurring as the multi-unit market lost momentum.

"The overall result was that new home sales fell by 4.3 per cent in 2012/13 when compared to the 2011/12 financial year."

Dr Dale said detached housing has gained momentum as non-detached housing, primarily mid/high density product, lost momentum in the year to date.

"The leading home building indicators of both new home sales and building approvals are highlighting this trend."

AAP

South Korea's Incheon city says a $US290 billion ($A325.62 billion) plan to transform a fishing village into a rival to the Chinese gambling enclave of Macau has collapsed.

Incheon Free Economic Zone official Jung Mi-hyun said on Thursday luxury hotel operator Kempinski AG, a key member of the development consortium, failed to raise a promised $US40 million ($A44.91 million) by the end of July.

Kempinski's Korean unit KI Corp is the largest shareholder in the consortium, Eightcity Co. Korean Air Lines Co is the second-largest.

According to Incheon city, Kempinski agreed in May to the $US40 million investment and to pay land owners of Yongyu-Muui district by the end of June, after the German group failed to attract investment several times.

The two parties also agreed to call off the contract if Kempinski failed again to raise money. Incheon extended the deadline one last time by a month.

Incheon said the six-year-old contract with Eightcity is cancelled and it will seek a new developer. The city is considering using multiple developers and investors by splitting up the district.

Eightcity said it cannot accept the city's move and will seek to nullify the cancellation in court.

Park Seong-hyun, vice chairman of Eightcity, said the company is still trying to attract investment to the project and Incheon city is also responsible for the delay in raising the money on time.

"We are willing to continue to pursue the project," Park said. "The city cannot unilaterally call off the contract."

Incheon and Eightcity said last year that they would raise 300 trillion won by 2030 to remake the 30 square kilometre town near Incheon International Airport into a tourism, shopping and gambling centre to lure China's middle and upper classes.

The project has been dogged by doubts about its viability.

Kempinski's plan to operate a hotel in the North Korean capital of Pyongyang is also uncertain.

Commonwealth Bank of Australia has lawyered up against Dexus Funds Management over the disclosure documents pertaining to a stake in Commonwealth Property Office Fund. Dexus doesn’t believe it’s in the wrong. Meanwhile, the consumer watchdog looms as an obstacle between Perpetual and The Trust Company, Amcor is demerging to the jubilant celebrations of many an investment banker and APA Group might have to throw in some cash for Envestra.

Commonwealth Bank of Australia, Dexus Property Group

Commonwealth Bank of Australia has gotten off to a rocky start in its effort to untangle itself from its listed property management businesses.

Commonwealth Property Office Fund has commenced legal proceedings against Dexus Property Group in the Federal Court following the ‘acquisition’ of a 14.9 per cent stake in the fund.

The bank claims that Dexus’s ASX documents did “not comply with relevant legal requirements,” resulting in a situation where the market wasn’t fully informed.

What CBA is getting at is the market doesn’t know the precise details of the forward contract that Dexus has secured to control a share parcel in the Commonwealth Property Office Fund.

Last night Dexus wasn’t budging, releasing a statement saying that it believes it has met disclosure requirements and was not obliged to release any more details.

It has engaged King & Wood Mallesons– which has just done a deal of its own with a UK firm – for representation in the matter.

The Trust Company, Perpetual, Equity Trustees

As anticipated, the greatest obstacle for Perpetual in the race for The Trust Company probably isn’t rival bidder Equity Trustees, but the competition regulator.

The Australian Competition and Consumer Commission chairman Rod Sims issued a statement yesterday saying that its initial take on the $220 million offer for Trust Co is that it “may raise competition concerns in relation to certain corporate trust services”.

Sims said concerns related particularly to Perpetual’s established strength in trustees services for debt capital market products. He said the competition regulator is also looking for more information about custodial services.

“Perpetual and The Trust Company are both strong providers of particular types of custody services, while the feedback about the ability of other parties to constrain the merged entity has been mixed,” said Sims.

“However, there are a number of factors that impose some degree of competitive constraint on Perpetual, including competition from existing trust corporations and the ability of some customers to provide these services in-house.”

Trust Co noted the decision from the ACCC, adding that it would work with the regulator to resolve the issues raised.

A final decision is now expected by September 19.

Amcor

Packaging giant Amcor has of course jumped on the demerger train – but not in vein, writes Business Spectator’s Stephen Bartholomeusz.

As per usual, Bartholomeusz closes the book on the strategic reasons for the demerger and the appropriateness of the timing, so we won’t pile on more here.

What Breakfast Deals can say is this demerger comes on the back of an enormous amount of hooting and hollering from the investment banks encouraging companies to go for demergers as a way to unlock value.

As Bartholomeusz mentions, this comes on the back of the decision by Brambles to spin off its US document management business Recall.

UBS has been lucky enough to snare the business from Amcor to demerge the packaging and distribution business.

It’s an important bit of business for the investment bankers that have been starved in recent years from M&A advisory revenue.

But, as this column has been emphasising, lately there’s been some optimism creeping into the markets about a return of M&A and IPO activity that isn’t so beholden to the movements of the market.

Optimism has had many false starts in the post-GFC world, particularly in Australia. Best of luck to everyone.

APA Group, Envestra

Speaking of UBS, the investment bank’s David Leitch has told clients that gas pipeline company APA Group could throw in some cash to get the board of gas distributor Envestra over the line on a $1.3 billion merger deal.

APA owns 33 per cent of Envestra, meaning that extra incentive isn’t needed to beat away a rival bidder.

Leitch noted the 7 per cent slide in APA’s share price since the merger proposal was announced and suggested that APA could offer cash to its all-scrip offer to coax the target into accepting.

Envestra chief executive Ian Little has already indicated that the initial reception for the offer isn’t overwhelmingly great, although the board has yet to make that official.

APA’s offer of 0.1678 shares for each Envestra share and a three cents per share final dividend originally gave the target a value of about $1.10. The target closed yesterday at $1.11.

Based on APA’s closing price yesterday, Envestra shareholders would get something like $1.04, including the dividend.

The difference between the two shows how some speculators are predicting a higher offer from APA.

Elders, Futuris Automotive, Clearlake Capital Group

Debt-laden Elders has offloaded its car parts business Futuris Automotive for $69 million, 11 months after putting it up for sale, which will help reduce its net debt by $56 million.

Reports that a US private equity firm was in line to win the day turned out to be right on the money, with America’s Clearlake Capital Group picking up the business.

Elders shares jumped 11.4 per cent on the news, which is much need good news for investors. The stock is down 60.9 per cent over the last 12 months.

The 174-year old Australian icon was at one stage trying to sell its rural services business, but ended up rejecting an offer from rival Ruralco.

Now it’s seeing if it can get that debt load under control. This should go a long way towards doing that.

Wrapping up

Virgin Australia and Air New Zealand have jointly called on the competition regulator to reauthorise their trans-Tasman alliance for five years instead of three, so they can compete with Qantas Airways and Middle Eastern giant Emirates.

The pair has also urged the ACCC to lower the number of capacity guarantees imposed.

In resources, Woodside Petroleum boss Peter Coleman has been keen to meet head on the doubts over its involvement in the Israeli Leviathan gas field due to possible changes to the structure of the project.

“The opportunity to buy in to a resource like Leviathan is a once-in-a-decade opportunity," Coleman said in a speech yesterday.

“It is one of the largest recent gas discoveries worldwide, ideally located to produce gas for Israel's domestic market and export to Asia, Europe and neighbouring pipeline customers.”

Uranium miner Paladin Energy is in a trading halt ahead of a strategic update. The speculation is it could have secured a deal to offload its minority stake in the Langer Heinrich mine in Namibia.

And finally, the International Olympic Committee is trying to entice Nine Entertainment back to the table after the network passed on bidding again for the games after losing big in London, according to The Australian.

The newspaper reports that the IOC has repackaged the rights for the Australian market for a deal that will now include the Rio 2016 Summer Games, the Pyeongchang Winter Olympics in 2018 and the Games of 2020.

Kerry Stokes’ Seven Network is still thought to be favourite.

AAP

The rise in home prices in major Chinese cities accelerated in July, a survey shows, as the government suggests it might not take further steps to tighten the market.

The average price of new homes in 100 major cities rose 7.94 per cent year on year last month, up from an increase of 7.4 per cent recorded in June, according to the independent China Index Academy (CIA).

That brought the average cost of new homes to 10,347 yuan ($A1870) per square metre, said the CIA, which is owned by Soufun Holdings, China's largest real estate website operator.

Month on month, the price increased 0.87 per cent, marking the 14th straight month of growth and accelerating from June's 0.77 per cent.

The academy said the pickup in prices last month was led by rising uncertainties about the economy, which eased concern about new measures aimed at tightening the property sector.

Worries over the world's second-largest economy have intensified this year after an expected rebound failed to appear.

China's gross domestic product grew 7.8 per cent in 2012, its worst performance in 13 years.

It has since weakened further, with growth in the April-June period dipping to 7.5 per cent, from 7.7 per cent in the first quarter and 7.9 per cent in October-December.

Beijing last week unveiled steps to boost growth, including reducing taxes on small companies as well as encouraging railway construction and foreign trade incentives.

It said on Tuesday it would promote the stable and healthy development of the domestic property sector, official media reported, in contrast to previous remarks about regulating the market.

The academy expected policies governing the sector to stay steady in the coming months, credit control to be "reasonable" and prices to continue to rise as a result.

"In the next half of the year or over an even longer period of time, the stabilising macro environment will help release further demand for homes and sales and prices will be in upward momentum," it said.

Property prices are a sensitive issue in China and authorities have sought for more than three years to control their rise.

Measures have included restrictions on purchases of second and third homes, higher minimum down-payments and taxes in some cities on multiple and non-locally owned homes.

Investors will again be looking for places to put their money to earn a better return than paltry at-call rates offered by the banks with the likelihood of a rate cut tomorrow a near certainty.

High dividend yielding shares will continue to have the interest of yield-hungry investors.

The past 12 months has seen the big four banks rise in price and popularity with investors for the dividend yield on offer. Not so long ago they offered a 10 per cent yield, including franking credits, but this has been whittled down to around 7 per cent as share prices have climbed.

Share price appreciation returns are mixed, depending on which bank has your interest. At the low end, is National Australia Bank returning 24 per cent in contrast with leader Westpac Banking Corporation, tacking on 35 per cent.

So in simple terms the total return, which includes share price appreciation and dividends, you have received is over 30 per cent in a worst-case scenario.

There has been talk our local banks are overvalued, and that very well may be the case. However, as long as they can provide investors with a steady income stream they will continue to be in favour with the market. (Especially with self managed super fund investors who collect the dividends in the more favourable tax environment.) 

The proposed deposit levy will potentially hurt depositors in lower rates offered, but the overall hit to the bottom line shouldn’t impact bank profits to the extent dividends need to be reduced from current levels. Prior to the levy announcement last week, analysts were still forecasting increasing earnings per share.

With investors chasing the income offered from banks combined with the perceived level of investment safety we have seen a shift away from the once preferred real estate investment trusts as a means of achieving a constant income stream.

This is a reflection of the miserable returns offered around their collapse at the end of 2007 and was matched with reduced dividends as a result of lower earnings per share. While the yield hovered around similar levels of 6 per cent, the sector had lost over 70 per cent of its value meaning investors were only receiving the prevailing yield on current market prices, not the pre-crash levels.

The problem with this is the significant difference between 6 per cent when the sector was at a peak and 6 per cent when the sector was at its low. The dollar value of income was materially impacted.

The REIT sector currently proposes an interesting dichotomy between risk and reward. Economically, things are set to be tough locally for the foreseeable future with unemployment tipped to rise and the effect of the lower currency yet to work its way through the economy, possibly proposing headwinds for the sector.

Two senior Crown Ltd executives have traveled to Sri Lanka to argue the government there should extend favourable tax and regulatory treatment for the company's proposed $US400 million ($A448.9 million) casino development in Colombo, according to The Australian Financial Review.

The visit marks the first for Crown chief executive Rowen Craigie and chief financial officer Ken Barton, who are inspecting the potential development site, visiting other casinos in Colombo and meeting the country's deputy minister of finance, Sarath Amunugama.

Crown hopes to build a casino and luxury 400-room hotel in the city, in-line with Sri Lanka's target of attracting 2.5 million foreign tourists by 2016, up from one million in 2012.

The Sri Lankan government has made an aggressive push to attract foreign capital since the end of a three-decade civil war in 2009, with a target of $US2 billion worth of foreign investment for 2013, though only $US430 million was invested in the Board of Investment of Sri Lanka in the first six months of the year.

The project would mark the first overseas development for Crown since a failed effort to develop a project in Las Vegas in 2007, the AFR added.

Australians sense danger ahead and it's showing up in surveys and forward estimates.

And the Coalition believes that the fear that is engrained in so many enterprises and their staff will deliver a Coalition victory when the party unleashes its enormous election spending power in the final week of the campaign.

The surveys are also showing that if the Coalition wins there will be a rush of business activity because that sense of danger has deferred decisions. If Kevin Rudd wins – and he is the people’s favourite – then some deferred decisions will be made but the sense of danger will remain.

Over a wide area in business, although there is a stabilising outlook, the Dun and Bradstreet survey shows that enterprises are looking to shed labour, particularly as many now have cash flow problems (Business outlook stabilising: survey, August 6).

A coalition victory will prevent some labour shedding but in many cases the decisions have been made.

Fascinatedly that sense of danger is being reflected in tougher times for restaurants and according to the AIG services survey the labour intensive hospitality industry is struggling (Private service sector activity slumps: AIG, August 5). 

Hospitality is having great difficulty passing on the industrial relations legislation imposed higher labour costs and the higher costs of energy, regulation and other services. This applies in many other industries.

I suspect that is why Tony Abbott is opening his campaign with an attack on the carbon tax and promising immediate action.

Similarly the motor vehicle industry, led by the dealers has stopped to a walk after the FBT changes, which is multiplying the sense of danger in the business community. If the Coalition wins and the FBT changes are scrapped it will cause a rush of pent up motor demand.

Lower interest rates will see a rush by investors to buy houses and may kindle some young home buyers to stop renting, but because the investors have jumped in first home buyers still struggle.

And the sense of danger will see many wait until after September 7.

The lower dollar helps many enterprises but three years of a high dollar sees a wide variety of industries adversely affected by higher import costs. For example retailers will suddenly see prices rise although initially suppliers may take the blow on the chin, but that will not last long.

AAP

InterContinental Hotels Group has announced a 25 per cent increase in first-half net profits thanks to a strong showing by its operations in the Americas.

Profit after tax jumped to $US340 million ($A381.98 million) in the six months to the end of June compared with net earnings of $US271 million in the first half of 2012, said the company that owns the InterContinental, Crowne Plaza and Holiday Inn hotel chains.

Revenue grew 7.0 per cent to $US936 million in the reporting period, InterContinental Hotels Group (IHG) added in an earnings statement.

"We have delivered a good performance in the first half, with our preferred brands driving revenue per available room growth of 3.7 per cent," IHG chief executive Richard Solomons said in the statement.

"Our global scale has allowed us to reinvest in the business whilst growing margins, resulting in solid underlying profit gains led by our Americas region, and strong cash flows," he added.

Solomons said that IHG would pay shareholders a special dividend totalling $US350 million.

"In addition we are increasing the interim dividend by 10 per cent reflecting our good first half results and the confidence we have in the future prospects of the business," he added.

A prominent banking analyst has warned that by cutting interest rates to a fresh record low, the Reserve Bank of Australia (RBA) risks sparking a surge in housing prices that could form a volatile price bubble, according to The Australian Financial Review.

UBS analyst Jonathan Mott warned over the impact of record-low mortgage rates, saying the “ingredients are now in place for another bout of sustained house price inflation in Australia and Sydney in particular”, the AFR reported.

“Given Aussie housing is already expensive by most metrics we see this as undesirable and dangerous.”

Meanwhile, ANZ economist Warren Hogan reportedly said the latest cut to 2.5 per cent should be the last cut made by the central bank, saying “...if there's more ... there's trouble on the horizon for Australia's economy.”

By a staff reporter, with AAP

The demand for home loans rose more than expected in June, according to the Australian Bureau of Statistics.

The data showed the number of home loans granted in May lifted a seasonally adjusted 2.7 per cent to 51,001.

The result compares to an initially reported 49,636 in May.

Bloomberg had expected the number of housing finance commitments to rise by two per cent in May.

Total housing finance by value rose 1.2 per cent in June, seasonally adjusted, to $23.69 billion.

JP Morgan economist Tom Kennedy said the stronger than expected housing finance figures were a sign the property market was responding to low interest rates.

"This is actually the sixth consecutive monthly increase we've seen. We haven't had a negative print yet for 2013," Mr Kennedy said.

"It's obviously a positive sign that does suggest there is a little bit of activity perhaps picking up in the residential housing market.

But CommSec chief economist Craig James said the value of new loans was still more than 4.0 per cent lower than it was five years ago.

"Apparently Australian borrowers haven't had it this good for over 50 years but you wouldn't know it from looking at the home loan data," Mr James said.

Borrowers remain cautious, particularly first home buyers, he said.

"Once the election is out of the road, we would expect more people to seriously contemplate buying homes to either live in or as a form of investment."

"Housing is well placed to provide a boost to the economy and take over growth leadership from mining."

Think back to early 2011 when you could comfortably get 5 per cent, maybe even 6, on a short-dated term deposit. If you were looking for a steady income minus the excitement of the equity market, you were set.

The landscape is much different now, with interest rates at 2.5 per cent. Lower interest rates are great for those with a mortgage but at the same time essentially penalise those who have kept their funds in cash or linked to the cash rate.

Now with the official cash rate at all-time low, investors are in an interesting position. Do you accept a rate of 3-3.5 per cent in a term deposit or do you chase a better return elsewhere?

If inflation remains within the RBA’s target of 2-3 per cent, there is little real return if you leave your wealth in cash. It pushes investment options like equities and property to the forefront. But that doesn’t necessarily mean they are the right avenues to pursue, with earnings casting a question-mark over equities and a potential house price boom doing the same for property.

Some might go as far as to say that this series of interest rate cuts hasn't generated the desired outcome.

Equity

Theoretically, one of the benefits of central banks cutting interest rates is to encourage investors to move into riskier assets, helping asset prices appreciate. Then everyone feels wealthier and will spend their spare cash more freely helping the economy along.

Since the first rate cut, the ASX 200 index has generated a total return (capital growth and dividends) of just over 30 per cent. This is impressive, but we started from a relatively low point of 4200 points and along the way we have had sharp swings in the market.

The difference between the dividend yield received from equities versus the prevailing cash rate has provided a level of ongoing support for the market over the past two years. With lower rates, this looks set to continue despite weaker economic conditions.

In the US, we have seen the local market, the S&P 500, appreciate 148 per cent from a low reached on March 5, 2009. During this time, interest rates have been kept at 0.25 per cent and the Federal Reserve has pursued a series of aggressive monetary policies to rouse the economy in a bid to continue to drive investors into riskier assets.

In terms of investment, US investors have less desirable options than Australian investors, having had a cash rate near zero for close to five years. The bond market hasn’t even been an option with long-term bond rates hovering around 3-4 per cent. The end result has been money flooding their stock market as investors try and keep their wealth from being eaten away by inflation.

Property

So far the rate cuts have helped property prices along. They are up – earlier this year RBA minutes detailed house prices were up 4.25 per cent since the middle of last year. Fantastic. With fixed term borrowing for three years around 5 per cent it makes debt servicing look a lot more appealing than when rates are 8 or 9 per cent.

Lower interest rates combined with the existing economic conditions we are experiencing can almost fund us with a false sense of wealth. With the majority of Australians' riches associated with property, rising property prices make us feel richer. If the equity market continues on, we count this, too.

The consequence of lower interest rates, I would suggest, is they can encourage speculative investments. When borrowing is cheap and asset price growth is outpacing the growth in the underlying economy, it could be at an unsustainable pace.

Earnings

We are at an interesting point. In simple terms, lower monetary policy is meant to encourage investment but the fundamentals of our share market don’t necessarily support this.

With reporting season upon us, JP Morgan interestingly points out that we have seen consistent earnings downgrades over the past three years. If we continue on this path, we could very well end up in a situation where company earnings don’t reflect their traded market value.

Credit Suisse have a similar view and anticipate earnings forecast for the Australian market could be downgraded by 8 per cent. According to their forecasts, this would put earnings 20 per cent below trend.

Investors generally aren’t rational and, especially, when faced with all-time low interest rates investment fundamentals can get thrown out the window. In favour of the Australian share market, investors tend to have a home country bias so regardless of forecasts and outlooks it could remain their preference, providing continuing support. 

By a staff reporter 

Shares in BWP Trust will be placed in trading halt at the trust's request, pending an announcement on a possible equity raising.

In a statement to the Australian Securities Exchange, the group said the request follows a media inquiry that indicates confidentiality may have been lost in relation to an incomplete proposal for a potential equity raising.

The Australian Financial Review reports that the capital raising of $150 million to $200 million to buy properties from controlling shareholder Wesfarmers Ltd was to be unveiled at the trust's full-year results tomorrow.

The halt will remain in place until the start of trade on Friday August 9 or when the announcement is released, whichever is earlier.

The listed property trust invests mainly in warehouse retailing properties.

By a staff reporter

BWP Trust has posted a lift in full-year net profit and revenue on the back of growth in its property portfolio, including acquisitions.

In the twelve months to June 30, BWP Trust posted net profit of $110.6 million, a 58.1 per cent lift on the $69.931 million recorded in 2012.

The net profit includes $34.8 million in unrealised gain in the fair value of investment properties, compared to an unrealised loss of $600,000 in the fair value of investment properties in 2012.

In the same period, revenue was $109.229 million, 7.9 per cent higher than the previous corresponding period's total of $101.198 million.

BWP Trust will pay a full-year dividend of 14.14 cents, with 50 cents fully franked, on August 28.

The dividend is slightly lower than the 14.67 cents declared in 2012, however that payment also included a 1.17 cents capital profit from the sale of an investment property.

The group's date of record was June 28. 

BWP buys 11 new Bunnings properties

Meanwhile, BWP Trust will spend $326.4 million, including acquisition costs, to buy a portfolio of 10 Bunnings Warehouse properties and one Bunnings Warehouse anchored bulky goods centre from Bunnings Group. 

Wesfarmers said the deal would reap Bunnings about $271 million.

The group will conduct a fully underwritten non-renounceable rights issue to raise approximately $200 million to partially fund the purchase, and upgrades to three other warehouse properties. 

By a staff reporter

Dexus Property Group Ltd has released more information about its holding in takeover target Commonwealth Property Office Fund (CPA) to a end a court battle with the group.  

In a statement to the Australian Securities Exchange, Dexus said it had entered into a forward contract with Deutsche Bank, giving it the ability to buy 350 million CPA units at $1.1334 apiece and the bank the obligation to deliver them. 

The deal gave Dexus the right to increase its  9.3 per cent interest in the fund to 14.9 per cent. 

In the dispute, CPA alleged Dexus had not followed corporations law by not disclosing enough information about the derivative product it entered into with Deutsche. 

AAP

Mortgage giant Fannie Mae earned $US10.1 billion ($A11.2 billion) in the second quarter, aided by the recovery in the housing market.

The government-controlled company has turned a profit in each of the past six quarters.

Fannie said on Thursday it will pay a dividend of $US10.2 billion to the US Treasury next month and requested no additional federal aid.

The company said the rise in home prices during the quarter enabled it to reduce its reserves set aside for losses on mortgages, helping boost its net income.

The earnings for April through June period compared with net income of $US5.1 billion in the second quarter of 2012.

The government rescued Fannie and smaller sibling Freddie Mac during the financial crisis after both incurred massive losses on risky mortgages. The companies received loans totalling about $US187 billion.

The current home loan focus of Australia's four largest banks poses a risk to the country's economy, according to former National Australia Bank (NAB) chief executive and BHP Billiton Ltd chairman Don Argus.

In an interview with The Australian Financial Review, Mr Argus said the four largest banks have essentially become building societies with their focus on home loans, warning that if “your banks aren't supporting business initiatives to create growth and jobs, then you finish up like Europe”, referring to the extent to which European banks bought US mortgage bonds in the lead-up to the global financial crisis.

Current figures show the four largest banks control more than 80 per cent of the $1.3 trillion home loan market, with Commonwealth Bank of Australia (CBA) and Westpac Banking Corp alone holding respective market shares of 26.9 per cent and 24.9 per cent.

“If you go too much one way, then clearly that has an impact on your costs and revenues,” Mr Argus told the AFR.

“You've got to get a balance.”

Mr Argus praised NAB, which controls 16.3 per cent of the Australian home loan market, for diversifying the most into Asia, thereby easing its exposure to the domestic mortgage market.

By a staff reporter

FKP Property Group will take a $187.9 million impairment charge after a revaluation of the group's property asset values.

In a statement to the Australian Securities Exchange, FKP said the impairment was predominantly attributable to non-retirement property assets and is in the context of the group’s strategy for their rationalisation.

FKP chief executive officer Geoff Grady said the write downs were a necessary step in executing the group's strategy.

"With the gradual recovery of the retirement sector, we are confident about the outlook for our business and are well progressed on delivering our strategy of becoming Australia’s leading pure play retirement group," he said.

FKP said the valuation of its Australian retirement assets remained unchanged and is supported by an independent valuation.

UGL is expected to announce today that it’s going with the demerger plan that Goldman Sachs has been looking into. Rio Tinto’s decision to put the brakes on its Pacific Aluminium sale is actually a prelude to much bigger selling plans, according to the speculation. Elsewhere, Tom Waterhouse has sold to a UK bookmaker – just not the one we originally thought – and, could SingTel be shifting its Optus Satellite plans?

UGL, DTZ

UGL chief executive Richard Leupen is set to pull the trigger on the company’s demerger of its engineering and property businesses.

With its annual results set for today (Monday), UGL is expected to officially announce that after four months of consideration, the demerger of its DTZ property business from its engineering business will be given the green light. Goldman Sachs has been conducting the business ‘review’.

Investment bankers have been pushing the demerger angle on a handful of companies lately as a way of unlocking value, and UGL has been a particular target of such enthusiastic advice, with its share price falling 32 per cent so far this year.

In mid-May, UGL stock tanked 17 per cent following the company’s second downgrade for 2013.

Brambles is of course the poster child for the demerger case. The pallet company tried and failed to find a trade buyer for its US document management business Recall. Ultimately, it went for a demerger after the offers that were drawn up didn’t impress.

Then there’s Amcor, which announced earlier this month that it’s spinning off its $3 billion Australian and New Zealand packaging and global distribution business into a new company.

Rio Tinto, Pacific Aluminium

Speaking of spinoffs, the decision by Rio Tinto boss Sam Walsh to abandon the sale of Pacific Aluminium has led to speculation that this is a precursor to shaving off the aluminium division in its entirety.

During the announcement on Thursday, Walsh was asked whether the aluminium had a place in the Rio portfolio and he let that one go through to the wicket keeper (unlike Cook and Trott off the bowling of Harris!).

Credit Suisse, UBS and Commonwealth Bank all jumped on the lack of clarity on the matter as a signal that perhaps Walsh could have even greater ambitions than his predecessor Tom Albanese.

“Pacific Aluminium's reintegration within Rio Tinto Alcan does raise the question as to whether an initial public offering and partial selldown is a future possibility,” said Credit Suisse analyst Paul McTaggart.

This would fit somewhat awkwardly with some of the noises we’ve heard from Walsh over the last few months.

“I think the market was aware that PacAl was not going to sell,” Mr Walsh told reporters last week.

“I’m a realist, I’m a pragmatist: Let’s get on with life. Running two aluminium businesses within one organisation – that’s not all that productive.”

Then there are the more bullish comments he made about aluminium in his interview with the UK’s The Telegraph in June about how other Asian countries and Africa will help pick up some of the China demand slack.

“That will provide continuity for our business. The sort of things we supply, there are no substitutes. If you want to urbanise, industrialise, you need steel, you need copper, you need aluminium.”

You could make the argument that it’s perfectly reasonable for a CEO to talk up the prospects of a business without maintaining a long-term commitment to it. Someone else might like it more than he does.

But it would be quite an effort to sell a business of that size after almost two years of searching for a buyer for Pacific Aluminium and coming up with bubkes. 

Tom Waterhouse, William Hill

Tom Waterhouse has put an occasionally troubled year behind him by selling the online betting website that carries his name to British bookmaker William Hill for up to $110 million.

William Hill will hand over $30 million for the website and $6 million to cover the bookmaker’s debt up front. It will then deliver $70 million down the track, depending on whether the business delivers earnings of $10 million to $30 million in 2015.

William Hill chief executive Ralph Topping said that there was “no intention” to remove Waterhouse as the face of the business in the near term.

Waterhouse in a sense became the face of online gambling when community concerns about the presence of advertising for online betting during sports broadcasts garnered the attention of federal politics.

When Topping visited Australia in March he played down the prospect of a takeover of the Waterhouse business, a name synonymous with Australian horseracing, and it was subsequently reported that the UK’s Ladbrokes was interested at $200 million. This was denied.

Wrapping up

Speculation that the struggling Adelaide-based Astra Resources could be pushing towards a multi-billion dollar European float hit a big roadblock over the weekend.

The Australian reports that an analysis of the two exchanges that Astra is supposed to be targeting, GXG Market and Frankfurt Stock Exchange, reveals that the company would be unlikely to meet the listing preconditions relating to revenue and profitability.

Speaking of IPOs, The Australian Financial Review has raised the prospect of Singapore Telecommunications floating its Optus Satellite business. Apparently the last round bids could be falling short of the $2 billion price tag and, given the increasing interest in Australian floats, it could be a really good option.

Elsewhere, FKP Property took a $187.9 million hit on Friday in its non-retirement properties in the lead-up to asset sales designed to transform it into pure retirement play.

And finally, Rural Equities and interests associated with the prominent Cushingfamily have built a 17.7 per cent stake in ASX-listed agribusiness company Tandou.

UGL Ltd will move forward with plans to spin-off its DTZ property business into a new, listed entity as it looks to ensure stronger valuations for its businesses in the investment community, The Australian reports.

According to the newspaper, UGL chief executive Richard Leupen will announce the plans as part of the group's full-year profit results today.

UGL's holding of the DTZ property services unit and its engineering arm has diversified the group's earnings, however, the entire company has been weighed by the engineering arm in the past year, particularly following a pair of profit downgrades.

The Australian reports the spun-off property group would be a unique entitiy in the Australian market as most commercial real estate agents are predominately controlled by international groups listed on foreign stock exchanges.