Monday, February 4, 2013

Australian Homebuilders Can’t Give Them Away: Mortgages

Australian homebuilders are resorting to discounts, gift cards and help with mortgage payments to compete for dwindling buyers as home sales slow.
Home prices fell 0.4 percent across Australia’s eight major cities in 2012, to an average of A$483,000, after dropping 3.8 percent the previous year, according to the RP Data-Rismark home value index. Photographer: Ian Waldie/Bloomberg
The Mirvac Group logo is displayed on a crane at the construction site of a residential apartment block, left, in Sydney. Photographer: Ian Waldie/Bloomberg
Stockland (SGP), Australia’s biggest residential developer, is giving rebates and gift cards of as much as A$30,000 ($31,300) in Victoria, Queensland and New South Wales states. Devine Ltd. (DVN) is matching deposits in South Australia and taking over mortgage payments for as long as a year in Melbourne. Peet Ltd. (PPC) has been offering discounts of as much as A$50,000 in Western Australia, Queensland and Victoria.
Central bank interest rate cuts of 1.75 percentage points since November 2011 have failed to spur housing demand amid slowing job growth. New home sales in December were 6.6 percent below the level of a year earlier, and loan approvals to build or buy new homes the same month were 31 percent below an October 2009 peak.
“The discounts this time ’round are bigger than we’ve seen before because the response we’ve seen to rate cuts has been far more muted,” said Stuart Cartledge, managing director of Melbourne-based Phoenix Portfolios, part-owned by Cromwell Property Group. (CMW) “Affordability based on mortgage costs has improved, but people are worried about losing their jobs. House buyer confidence isn’t there.”

Negative Surprises

Developers, including Stockland and Peet, have said they’re facing the worst housing market conditions in 20 years and expect little change in 2013. Stockland, Mirvac Group (MGR) and Australand Property Group (ALZ) may report “negative earnings surprises” in the fiscal year ending in June, John Kim, Sydney- based head of Australian property research at CLSA Asia-Pacific Markets, said in a report Jan. 29. Kim expects Stockland’s shares to underperform peers, while he gives an outperform rating to Australand and Mirvac. Both benefit from non- residential revenue sources.
Australian home-building approvals unexpectedly declined for the second time in three months in December. The number of permits granted to build or renovate houses and apartments fell 4.4 percent from November, the Bureau of Statistics said in Sydney yesterday.
Building approvals in December advanced 9.3 percent from a year earlier, yesterday’s report showed. That compares with economists’ forecast for a 14.9 percent rise year-over-year.
Housing companies’ shares are likely to have the worst performance of all property groups, Tony Sherlock, Sydney-based head of property research at Morningstar Australasia Pty, said in a telephone interview. “Pure play” residential groups such as Peet, Devine and Sunland Group Ltd. (SDG) will struggle, he said.

Prices Fall

Home prices fell 0.4 percent across Australia’s eight major cities in 2012, to an average of A$483,000, after dropping 3.8 percent the previous year, according to the RP Data-Rismark home value index. The biggest decline in 2012 was in Melbourne, where prices fell 2.9 percent. Prices in Sydney in New South Wales state and Perth in Western Australia, both of which are seeing growing populations amid a shortage of homes, rose 1.5 percent and 0.8 percent respectively.
Prices of detached houses in the nation’s eight state and territory capitals rose 1.6 percent in the three months to Dec. 31, government figures today showed. Perth had the biggest gains, while Melbourne and Brisbane were among the worst performers.
Sales of new homes fell to 5,875 in December, compared with 6,287 a year earlier, figures from the Housing Industry Association show. The number of loans to build or buy new homes fell to a seasonally adjusted 7,189 in November, from the previous high of 10,457 in October 2009, according to the Australian Bureau of Statistics.

Two Speed

Australia’s two-speed economy -- where mining regions like Western Australia thrive while manufacturers, retailers and builders in the south and east struggle -- has created disparities in the housing market. Prices may jump as much as 7 percent in Perth, remain unchanged in Adelaide, in South Australia, and rise a maximum 3 percent in Melbourne this year, Sydney-based researcher Australian Property Monitors said.

JPMorgan Joins Rental Rush For Wealthy Clients: Mortgages

Justin Sullivan/Getty Images
A large "rent" banner is posted on the side of an apartment building in San Francisco, California.
JPMorgan Chase & Co. (JPM) is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value.
PulteGroup Inc., the largest homebuilder by market value, was the biggest gainer on the Standard & Poor’s 500 Index last year, rising 188 percent, helping an index of 11 builders more than double since the end of 2011, and raising concern among analysts including Michael Widner of Stifel Nicolaus & Co. that growth is already priced in. Photographer: Daniel Acker/Bloomberg
The firm’s unit that caters to individuals and families with more than $5 million, put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank. Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.
The bank’s wealthy clients are joining a growing number of private-equity firms and individuals buying rental homes in the regions hardest hit by the U.S. housing crashBlackstone Group LP (BX) has spent $2.7 billion, and said last month it accelerated purchases as home prices rise faster than anticipated. Even after home values in November gained by the most in six years, investors are wagering on rental properties as an alternative to housing-related stocks and mortgage debt that’s already soared.
“The traditional places people might look -- homebuilder stocks and appliance makers -- probably aren’t the best places for new investments,” said John Buckingham, chief investment officer at Al Frank Asset Management in Aliso Viejo, California, which oversees about $4.5 billion. “They’ve had fantastic runs.”

Builders Gain

PulteGroup Inc., the largest homebuilder by market value, was the biggest gainer on the Standard & Poor’s 500 Index last year, rising 188 percent, helping an index of 11 builders more than double since the end of 2011, and raising concern among analysts including Michael Widner of Stifel Nicolaus & Co. that growth is already priced in.
Whirlpool Corp. (WHR), a home-appliance maker, was the third-best performing stock in the S&P 500 Index last year, rising 114 percent, and subprime-mortgage bonds gained more than 40 percent.
The investments rallied as the housing recovery strengthened through 2012 with the Federal Reserve pushing mortgage rates to record lows, and as institutional investors increased their purchases of foreclosed homes. Home prices in 20 U.S. cities rose 5.5 percent in November from a year earlier, the most in more than six years, an S&P/Case-Shiller index of property values showed last month.

World’s Most Profitable Banks in Indonesia Double U.S. Returns

The lime-green Yamaha Mio motorbike that Suryadi bought in 2011 to commute to his job pumping gas in Jakarta would have cost 11.8 million rupiah ($1,221) had he purchased it outright. Instead he took out a loan at 16 percent.
Now the 44-year-old father of three is making monthly payments to PT Bank Danamon Indonesia (BDMN) that eat up about one- fifth of his salary. He’ll end up paying 46 percent more than the cost of the bike by the time he retires the loan.
A man counts Indonesian rupiah at a money at currency exchange in Jakarta. Photographer: Dimas Ardian/Bloomberg
Food stalls stand in front of buildings in the financial district of Jakarta. As profitable as lending in Indonesia is, banks have made loans to only 28 percent of the population, or about 67 million people, according to World Bank data. Photographer: Dimas Ardian/Bloomberg
A customer purchases fruit from a market stall in Jakarta. Indonesia’s history of inflation, averaging 7.3 percent in the past 10 years, has kept benchmark interest rates for the past year at 5.75 percent, one of the highest among major economies, data compiled by Bloomberg show. Photographer: Ed Wray/Bloomberg
“I don’t have the money to pay in cash,” said Suryadi, who like many Indonesians goes by one name. “Paying in installments is all I can afford.”
Borrowers like Suryadi have helped make Indonesian lenders the most profitable among the 20 biggest economies in the world, according to data compiled by Bloomberg. The average return on equity, a measure of how well shareholder money is reinvested, is 23 percent for the country’s five banks with a market value more than $5 billion, the data show.
That’s greater than Chinese banks of the same size, which have an average return of 21 percent, and Canadian firms with 20 percent. It’s more than double the 9 percent in the U.S. Profitability might have been even higher if Indonesia’s lenders weren't also among the most inefficient, as measured by the ratio of operating expenses to total assets.

Interest Margins

Returns in Indonesia, Southeast Asia’s largest economy, are driven by net interest margins, the difference between what banks charge for loans -- an average of 12 percent, according to the central bank -- and what they pay for deposits. The average margin for the country’s big banks is 7 percentage points, the highest of the 20 economies, according to the latest available data compiled by Bloomberg.
“It’s a basic supply-and-demand equation,” said Ken Timsit, a Jakarta-based partner and managing director at Boston Consulting Group, which has studied the profitability of banks worldwide. “There’s plenty of demand for credit, but limited supply,” making it lucrative for banks to lend.
The profitability of lenders including PT Bank Rakyat Indonesia (BBRI), whose 34 percent return on equity is the highest, and PT Bank Central Asia (BBCA), the largest by market value, contrasts with that of Western counterparts such as Deutsche Bank AG (DBK)Barclays Plc (BARC) and UBS AG (UBSN), which have lowered targets as they reduce risk-weighted assets to meet higher capital requirements.


  1. Mammoth - I too am re-siding my house, it's a work in progress. They did the exterior out of stucco over brown fibre-board. The stucco is not really bad, but the fibre-board they used is basically 3/4" thick cardboard, you can break chunks off if your arent't careful.

    I am going over it with 2" of pink styrofoam and then vinyl siding fastened to galvanized metal furring. WHen I pulled down the old soffit, I found they had not put the stucco above the soffit line, so the fibre-board was exposed to the outside air all along the top foot of my walls. No wonder it always felt cold in the winter.

    My house was built in '72, obviously their idea of insulation is a little different from mine. Tyey put fibreglass batts in the walls, but it has fallen down in many of the stud cavities to half way. Vapor barrier, none. The interior is plaster over hardwood lath, their plaster is like concrete and about 1" thick in places.

    The studs are fir, real 2" x 4", you can wear out drill bits trying to hang a picture. They don't build 'em like they used to.

  2. From last comment on previous thread.
    Bukko is a licensed OT bookmaker. Are they any more legit than any company that sells stock?

    They used to be listed on the english stock exchange until the US twisted their arm so as not to allow US players. So they moved to Costa Rica and there is a counter party to the bets. Don't worry that didn't slow down the US players. I think Congreff is trying to protect indian casinos or they would have allowed the Las Vegas companies to go online too. Fantasy Sports betting is now legal in the US. I just won one league and came in second on two. I won 160.00 and holding a check from pay pal.

  3. Stillwater (SWC) just got a boost in ratings from JPM so up it went. Now I am in the green finally.

  4. "Australian homebuilders are resorting to discounts, gift cards and help with mortgage payments to compete for dwindling buyers as home sales slow."
    - - - - - -
    WTF? Just the other day there was a post on this blog showing a roomful of bidders hoping to buy property at an auction.

    And now they are saying property isn't selling?

    The next thing you know - they will be saying one day the Euro is saved and the next day that Spain, Italy and Greece's woes are still ongoing. LOL!

  5. Mammoth you have to love the contradiction. You will see that it is area specific just as in the US. One city holds its value while another does not.

  6. The phone interview went fine, but was a waste of time and I should have cut it off right away. They want me to work 2pm to 11pm and 2 weekends a month. That is a deal breaker.

  7. 2 p.m. to 11 p.m.? That's nine hours. One-hour dinner break? I used to like the 3 p.m. to 11:30 p.m. shift because it meant I didn't have to get up early, and I'm a night-owl anyway, so I could still have some decent conscious time after work.

    And weekends? What's a weekend? I've been in the medical racket for 20+ years now (I'm starting to be surprised at how old I am) and no one has invented a way to turn sick people off for the weekend, so someone has to be working then. And that's often me. I figure it's the price I pay for having a job. No perfect solutions when you're working class.

  8. As for Australian house prices, I'm reminded of the maxim that "Prices are sticky." People have an idea of what their house is "worth" and they don't want to drop their asking price unless their situation is desperate. So they hold on the top line and try to wiggle with gimmicks like gift cards.

    Doubly true for new home builders. If they have a cost structure that demands that they get $500,000 for each condo in a complex they built, and they sell one officially for $450,000, then they've just lowered the price they can expect to get for EVERY condo in that place by $50,000. But if there's a $30,000 kickback to the buyer instead, it looks like they're selling at full price, which pleases the lenders.

    And maybe you can grift some buyers so they don't get the full $30K. ("Terms and conditions apply" is a weasel-phrase they use a lot in Australia which often means "What we promised in the big print, we're going to gyp you out of in the fine print.")

    The big problem from these sticky prices is that houses don't sell so fast when what's demanded is more than what the buyer thinks they can get away with paying. The sales decline was mentioned in the story. I can tell you how lower home sales volume in Australia is affecting MY future here in Canada.

    Because houses are not flipping as fast in Melbourne, the state government of Victoria is not getting as much money from "stamp duty" (the taxes paid on home sales) as it used to. During the boom years, the government used the high-flow tax dollars as a basis to set up programs like how many beds would be operating in a hospital (and how many nurses they'd hire to take care of patients in those beds.) Now that house-flipping has fallen off, and tax money is drying up, the hospital where I used to work has a notice on its website "Not recruiting any international nurses as of July 2012." An old mate I correspond with tells me the hospital closed a couple of floors last year.

    No problem; I kept my Aussie nursing licence paid up even after I left, and I have the unhindered legal right to move back there (at least until January 2014) even if I don't have a job. I reckoned I could sign on as "bank staff" at the hospital, i.e. one of those people they call when someone "rings in a sickie" or goes on holiday. The hospital always used to be desperate for their in-house bank nurses, and they had to pay high wages for rent-a-nurses from outside agencies when there weren't enough of their own. Unfortunately, I had an e-mail exchange this week with the person who hires bank nurses, and she said they've suspended hiring them, too.

    So my dilemma is, stay at a comfy job in a nice town where I don't want to be all that much, or take a flying leap at great expense into uncertain circumstances in a place where I'd rather live (even though there's no logic for me wanting to live there)? I'll probably make the leap anyway, because that's the kind of crazy risk-taker that I am, but fark! This housing bubble zeitgeist is still playing dice with my life, as it is with so many other peoples. When will it end?!?

  9. As for the bankmaggots and hedgesquids moving into big-time rental house operations, would YOU want your landlord to be one of those bastards? When a pipe springs a leak, or your refrigerator craps out, can you imagine having to deal with the bureaucracy of hedge fundies to get things fixed?

    I am blessed with that rarest of things, a decent Chinese landlady, who responds nicely when things go wrong. But even though the maggots would have property managers (Lloyd Blankfiend isn't going to be answering the phone at 3 a.m. in February when the heater won't work), you KNOW that they're going to chisel-and-dime everything about these rentals they're buying en masse. And the homes will get crappier and crappier, destroying the value of the asset that sucker hedge fund "investors" (aka literal rent-seekers in this case) were buying into.

    The only ones who will win in this deal are the middle-maggots who set up the scheme and cream off their cut from the cash flow. The poor schmoes who pay rent to these slumlords-in-the-making, and the dupes who think they'll profit from being passive rentiers, and gonna get screwed at both ends.

    I expect to be renting the rest of my life. I don't mind. "Building equity" is a thing of the past, in terms of houses. I'll let someone else deal with the property taxes and repairs. I'd rather have my freedom to "up sticks" as the Aussies put it. But I'm going to try to rent from individual owners or stand-alone apartment complexes, not from mega-maggot corporations.

  10. Insightful comments Bukko.

    At my work, everyone works a 9 hr day, with a 1 hour lunch after 4 hours, and no other breaks. Smokers are required to swipe their pass when they go out to have a cig, and they don't get paid for smoking time, they are expected to work longer to make up for the lost time. But at least they can go out when they want to, within reason. They do allow employees in most jobs to set their own hours, as long as the work gets done, so most work 10 AM-7 PM or 11 AM-8 PM.

    Now that I am upper management, I can supposedly set my own hours, but getting it all done usually takes 10-12 hours, and I don't take a lunch break most days.

    If that doesn't suit the employee, the boss says no one is forcing them to work there.


    or, how to keep losing elections - great news for world peace too

    "...Rove helped build American Crossroads, a super-political action committee, and its companion nonprofit, Crossroads Grassroots Policy Strategies, into the biggest-spending outside group of the 2012 federal elections. The two groups invested more than $175 million in last year’s elections, according to the Center for Responsive Politics, a Washington-based group that tracks campaign finance.

    The Crossroads groups spent more than $127 million on 82,000 television spots to help Romney in his unsuccessful bid to topple President Barack Obama, according to Kantar Media’s CMAG, an ad tracker based in New York. In Senate races, 10 of the 12 candidates they supported were defeated and four of the nine House candidates they backed lost their race."

    LOL The crossroads of Stoopid Ave & Moron Pkwy.

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  13. Bukko-judging by your comments here, I'd say follow your instinct and GO. Regrets cause bitterness and no one knows what tomorrow holds. Great comment about the bankers being landlords! I think that when you are renting in places from a 'family' type of landlord you stand a better chance because they also recognize the importance of good tenants.

    As for working hours, etc. To be frank, Queen has a full time I do. I do the banking, the cooking, the shopping, the cleaning, entertainment, plus caring for a patient.

    I've claimed for ages that the job of PARENT is a full-time DIFFICULT job to do well even working part-time, let alone full time. Sometimes, working is easier than dealing with kids 24-hours a day. Well, you could add 'dealing with a partner 24-hours a day', as well. Why do you think there are so many divorces after men retire?

    I don't think Queen would object to the hours/conditions of the job if she wasn't already working full time as a caregiver--but then again, I may be wrong. It wouldn't be the first time ;-)

  14. Damn a lot of spam cleanup this morning. It's not the hours so much as it would be difficult to find someone to come in and take care of Yvonne during those crazy hours. If I were to leave her home alone I would be responsible and DCF (department for children and families) would toss me in jail asap for negligence. I would be forced to put her back in skilled nursing and that I won't do.

  15. Platinum is looking at gold in its rear mirror. Once again takes its rightful owner as the top PM. SWC is doing well for me so far.

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