Australia has not seen a housing bubble, nor is it likely to, says John Mulcahy, chairman of Mirvac Group, one of the country’s largest developers.
While he acknowledged Australia’s lofty house prices, the former Suncorp CEO said the structure of lending here made a housing market crash less likely.
“Our mortgage market is different to the American mortgage market, so we have never had the bubble they have,” he told The Australian.
“People can send the keys back in the US. They can’t send the keys back here,” Mr Mulcahy said as the housing bubble debate reignited after figures last week showed two years of double-digit price growth in Sydney, and expectations remain of a further cut to the official cash rate even as the Reserve Bank held steady this week.
“Prices are high at the moment, but do I think it will crash? I don’t have the sense that it will. Do I think that prices will continue to grow? I’m not sure.”
Sydney was a global city attractive to offshore investors, he said. “It’s a city that captures the imagination.” Employment was still strong as was the forecast population growth and demand for homes in NSW, particularly in Sydney, he said.
Mr Mulcahy, who last week attended his final Future Fund meeting following nine years on its board of guardians, was tapped on the shoulder to chair the $7.5 billion developer and landlord in 2013 after predecessor James MacKenzie stepped down following a controversial change of chief executive.
Mirvac had lacked some transparency, said Mr Mulcahy, who had been on the group’s board since 2009.
In 2012, an activist shareholder called for a partial board spill, including Mr MacKenzie, following the abrupt departure of then chief executive Nick Collishaw, who was replaced by Susan Lloyd-Hurwitz.
“We have enhanced that (transparency) and the collegiate approach. That’s not to say that we don’t challenge each other,” Mr Mulcahy said.
Mr Mulcahy, whose corporate pedigree dates to Lend Lease’s days under Dick Dusseldorp, one of the founders of modern Australian corporate culture, said a company’s culture was fundamental to its success.
He said business would have to manage extensive change as the economy transformed from its resources base.
“No business model can stand still any more and the pace of change will alter business models,” said Mr Mulcahy, who also chairs Coffey International and is on the boards of ALS and GWA Group.
“We had a presentation (last week) at the Future Fund from a very good offshore fund manager, talking about global economics and implications of a world that is still quite leveraged but one in which interest rates cannot go much lower. And he was talking about lower for longer.
“I asked him, ‘What do you think the implications of technology are for investment markets?’. He said we spend a lot of time (on this). He said ‘we have no idea’.
“You can’t predict, so you have to constantly monitor and adjust and test.”
As the economy moved away from its reliance on resources, tax reform was needed, Mr Mulcahy said, noting that the government’s white paper had put the alternatives on the table.
“Its going to be up to the government to map a way through tax reform that doesn’t have more unintended consequences than can be predicted. We need to monitor it carefully.”
It was incumbent on every organisation to give feedback on tax reform, Mr Mulcahy said. “But not specifically for their own advantage.”
He also called for infrastructure investment as means of underpinning the economy.
“I do believe in privatisations,” he said, when asked about the NSW government’s plan to sell the state’s poles and wires.
Past privatisations had driven efficiencies and improvements in performance, he added.
Governments should invest to kickstart projects, but not be long-term owners.
“Take the Commonwealth Bank (Mr Mulcahy is a past executive), I suspect the bank would not be the powerhouse it is today if it was still owned by the government,” he said.
“Telstra wouldn’t be. Telstra has improved its customer service. I bet if it was still owned by the government, that wouldn't be the case.”
On the year ahead, Mr Mulcahy expects a higher reliance on corporate partnerships rather than a rash of mergers and acquisition activity.
Deep pools of international capital were looking to form partnerships with groups that could deliver returns.
“At the Future Fund we formed partnerships with investors around the world where we could not provide the ongoing development or management capabilities and we could trust that manager. We would put our capital next to theirs.”
It was inevitable that Mirvac would form more partnerships with Australian or offshore capital, he said.
However, the group itself had no plans to invest offshore at this stage.
Mirvac, which will deliver 2200 residential lots this financial year, saw itself as a “placemaker” that could tap into the extensive urban renewal Australia would undergo, Mr Mulcahy said.
This article first appeared in The Australian Business Review.