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.