The ABS national wage report showed the slowest growth in the 19-year history. Wages grew by 0.5 per cent for the quarter, or 2.1 per cent for the year to June.
The July survey showed a 0.1-point drop in the unemployment rate to 5.7 per cent largely because of a surge in part-time employment at the expense of full-time jobs. For example, the weakest wages growth of all was in the retail sector, just 0.1 per cent for the June quarter. This industry, Australia’s single biggest employer with 1.2 million workers, has been able to reduce its costs through hiring more juniors, trainees and casual workers. Employers are still pushing to drive down labour costs by taking more workers off penalty rates.
This is also a reflection of changes in the workforce as employers seek to casualise their workforce by engaging more part-time and casuals. This in turn hides mass levels of underemployment.
While unions have been pushing for reasonable increases in the minimum wage, and they battle to hold on to weekend penalty rates, they’ve been unable to address growing job insecurity and casualisation.
Sydney is the easiest city in Australia to find employment according to figures which compare vacancies recorded by job aggregator Adzuna with the number of people officially recorded as being out of work.
In the Sydney region there are only an average of 2.9 job seekers per job vacancy, compared to 3 in Canberra, 5.4 in Melbourne, 6 in Brisbane, 10.4 in Perth, 10.8 in Hobart, and 14.9 in Adelaide.
In general, it is easier to find a job in the large capital cities than in regional areas. In Newcastle the figures show there are 15.3 job seekers for each job vacancy, 11.9 in Cairns, 11.6 on the Sunshine Coast, 10.5 on the NSW Central Coast and 7.9 in Geelong.
The figures are based on June 2016 statistics.
Underlying global dividend growth has slowed to 1.2 per cent (year-on-year to $421.6billion) in the second quarter of 2016, from 3.1 per cent growth (in the first quarter of 2016), putting further pressure on Australian investors to search for steady income.
Data from Henderson Global Investors showed Australian investors needed to seek income offshore, as Australian equities continued to produce flat dividends.
The global dividend index showed Australian dividends fell -0.2 per cent (on an underlying basis), while the largest payer of dividends, the Commonwealth
Henderson Global Investors analysed 1,200 of the largest firms by market capitalisation and found that the US engine of global dividends decelerated to its slowest level of growth since 2013. US dividends grew by 4.6 per cent on an underlying basis, which also reflected subdued profit expansion.
“This US slowdown began late last year, but should be considered a normalisation to more sustainable levels of dividend growth, after several quarters of double digit increases,” it said.
“Europe saw broad-based encouraging growth year-on-year — [as] Q2 [quarter two] saw two thirds of Europe’s dividends.”
South Korea produced the best global dividend growth, while Australia’s dividends were flat. Japan’s stronger yen impacted corporate profits and Japanese dividend growth, as their dividends rose strongly.
On a headline basis, global dividends rose by 2.3 per cent (by $9.7 billion year-on-year), partly due to the muted performance in the United States.
By region, emerging markets recorded the strongest annual dividend growth of 12.1 per cent, followed by the Asia Pacific region, which recorded 5.9 per cent growth.
Lenders are discreetly changing loan conditions, imposing new borrowing terms, changing rates or reducing the amount a buyer qualifies for by thousands of dollars which is forcing property buyers to either look for other loan options or move out of the market. Lenders are increasingly pulling out of deals at the last moment, forcing loan renegotiations on worse terms. Under the watchful eye of the Australian Prudential Regulation Authority, lenders are being told that they have to keep loan growth under 10 per cent a year in a bid to control demand and keep a lid on prices.
In the current market scenario lenders nearing or breaching the speed limit are either raising rates and fees, or in some cases not accepting more loans until demand has cooled. Criteria used to assess a property loan are being tightened so that living expenses are increased, assessable incomes reduced and maximum borrowing caps. Borrowers who sought pre-approval for a loan six months ago before looking for a new property are being told their home loan application has expired and no longer qualifies.
For example, six months ago a couple earning net income of about $116,000 could have qualified for a loan of about $1.1 million, according to Mortgage Choice.
Under the new rules they would qualify for about $70,000 less. During this period variable rates have dropped by up to 25 basis points. Living expenses used to qualify for loans are routinely being increased by 20 per cent and assessment rates – which is a “stress test” rate to assess whether the borrower can cope with successive rate increases – are being raised by 15 basis points.
Other lenders are not taking into account certain types of income. For example, overtime, bonuses, commission payments are either being excluded, or only a percentage considered in calculating eligibility.
Some lenders, such as P&N Bank, one of the nation’s largest lenders, is making it tougher for applicants with “less dependable” jobs to qualify for loans. Borrowers are also barred from special savings and investment accounts that allow lenders to draw down equity in their property. Last month ANZ announced tough new measures intended to tackle fraudulent applications, such as authorising documents missing pages, untraceable employer references and suspicious income statements.
The big four banks, Adelaide and Bendigo Bank, Macquarie Bank, Citi and ME Bank have either banned new loans to foreign buyers, imposed currency restrictions, or stricter terms.
Due to the government’s lack of appetite for any more work on tax reform the taskforce set up within Treasury to lead the tax white paper process will soon be disbanded. Prime Minister Malcolm Turnbull has indicated there will be no major tax changes in this term beyond the government’s superannuation package and progressive company tax cuts.
Modelling of a GST increase was provided by the unit but dismissed by the government on the basis that compensating low-income households would cost too much. PwC partner Paul Abbey said the fact that serious tax reform was off the agenda was disappointing given Australia desperately needed something to spur growth in real income. A lack of income growth was a recipe for electoral dissatisfaction, the likes of which had given rise to Donald Trump in the US, he said.
“Mr Abbey took a swipe at the government for failing to sell the importance of tax reform to the electorate. The series of state taxes which we know impact negatively on the economy.
“Slogans like growth and jobs failed to engage the public,” he said. The public needs to understand that tax reform is all about the quality of their jobs and the growth of their income. It’s about their ability to buy a new car, enjoy a holiday and pay for their healthcare. Mr Abbey said Australia tended to make tax changes either in crisis or after very long gestation periods.
“The debate to expand the GST I would not view as over. It might take 10 or 15 years to make it happen.”
It is time for the tax professionals to be wary of potential tax scams as the Australian Competition and Consumer Commission reports a loss of $1 million this year. 300 Australians have reported losing money to tax scams in the first half of 2016, resulting in a total loss of $1 million according to ACCC. This follows the 400 individuals who reported losing money in the 12 months prior, with $1.6 million lost in total.
ACCC deputy chair Delia Rickard said these incessant scams come in a variety of forms, but generally claim that individuals have underpaid their taxes and are required to repay the tax debt immediately or face frightening repercussions such as arrest.
Tax scammers are particularly aggressive, so many people feel pressured to pay quickly without questioning them. The most threatening scammers even say that police are on their way to arrest you but can be stopped if you pay immediately. The scammers generally access personal information they find online to try and convince victims they are legitimate and usually ask for payment for an ‘unpaid debt’ via wire money transfer, credit card, direct debit cards or even iTunes cards. Most use voice over internet protocol (VOIP) phone numbers to disguise the fact that they are calling from overseas however, the call looks like it comes from a local phone number.
Individuals must be careful and caution should be taken while dealing with any unusual requests to send money via money transfer, gift card or other digital currency as they could be highly suspicious.
With new data revealing $11.7 billion is sitting in lost super accounts, the ATO is encouraging all Australians to reconnect with their super using its online services. The ATO has recently released its latest lost and unclaimed super data.
The postcode with the highest amount of lost super, totaling $49 million, is the 4740 postcode in Queensland, which covers Mackay and the surrounding suburbs. In the past financial year $2.5 billion has been consolidated into active super accounts.
A lot of Australians are unaware their hard earned super is unnecessarily being eroded away by fees. A lot of people who worked casually while they were studying or worked multiple part-time jobs find super they had completely forgotten about. While some people purposefully maintain a number of accounts.
The super is considered ‘lost’ when a fund is unable to contact the individual and hasn’t received a contribution to an account for five years. Members often lose contact with their super funds when they change jobs, move house, or forget to update their details.
When it comes to big life events, updating details with super fund is very essential. Individuals should make sure that their super fund has their tax file number. It helps the ATO reunite you with your super down the track. People might choose to keep multiple accounts, but to save on fees and charges consolidating multiple super accounts online should be considered into the one which is preferred.
All small lost member accounts with balances of $4,000 or less are transferred to the ATO and become what is called ‘unclaimed super’. Just like lost super, unclaimed and other ATO-held super can be claimed at any time. Unlike missing car keys, lost super isn’t hard to find. Over the past couple of years, ATO has made a lot of changes to their online services that has made finding and consolidating super simpler than ever.
“Once the myGov account is linked to the ATO online services, all super account details can be viewed, including any that has been lost or forgotten. It’s a great time for Australians to check up on their super, particularly if they plan on logging-in to lodge their own tax return using my Tax.
An unregistered auditor is not permitted to audit an SMSF. Conducting an audit of an SMSF when not permitted to do so may have further serious consequences for the fund and the auditor. Keeping this in mind the Australian Securities and Investments Commission has struck more than 100 approved self-managed superannuation fund auditors and has cancelled their registration with the corporate watchdog after failing to file accounts in another blow to Australia’s ‘selfie’ economy.
According to figures from the Australian Taxation Office, almost half of all SMSFs on average lost or did not make money over the past seven years, compared to industry and retail funds which grew an average of 2.9 per cent.
As a result there are only 6,547 registered auditors to assess the financial integrity of the more than 500,000 SMSFs that manage $595 billion in life savings.
A staggering 811 auditors – or one in eight SMSF auditors – were threatened with deregistration for failing to follow the basic requirement of filing accounts or paying registration fees to ASIC. Several major actions launched by ASIC came after the life savings of hundreds of Australians disappeared through unregistered schemes sold at one-stop shops hawking property investments.
Investors can hope that things will get a little better from now as 2015/16 fiscal year will count as one of the worst for profit growth by Australian companies. Earnings for listed companies have declined by an average eight to 10 per cent on the previous year.
Surprisingly only 41 per cent of the companies have beaten earnings expectations this season, a drop from the average of 45 per cent. Resources companies, weighed down by the collapse in commodities prices, accounted for much of the damage, but subdued growth in other sectors is raising warning flags for future prospects.
Major results that have weighed included miner BHP Billiton’s record full year loss of $8.29 billion, a big decline in earnings by supermarket giant Woolworths, which reported a $1.23 billion loss, and an 83 per cent plunge in full year profit for Wesfarmers, the parent company of Coles.
Large sectors such as insurance, telecom, healthcare, and, banks faced huge decline in their earnings. Decline in earnings of resources companies was however expected. Other companies still exposed to the resources sector in engineering, rail, and chemicals also continue to face headwinds.
The median company performance has been profit growth of 4 to 5%, mainly due to the improving commodity prices and cost controls.
An estimated 62 per cent of listed companies have actually seen their profits rise but 86 per cent of companies either raised or maintained their dividends, reflecting the investor appetite for yield. Results are broadly expected to be better in 2016/17, but analysts are worried on the extent of recovery.
While resource earnings look to have bottomed, and recent headwinds like volatile financial markets have abated, a lower growth environment and rising competition for market share could likely undermine the rebound in margins and overall earnings as a result of which market growth may be restricted to mid-single digits this fiscal year.
The investors will need to continue to have lower expectations of returns for the rest of 2016, as low interest rates and limited earnings growth prevail.
With the August reporting season nearly wrapped, the overall trend is becoming evident with the big knocks of the Fy16:
- Energy giant Woodside Petroleum posts 50 per cent slide in first half profit to $US340 million.
- Blood products giant CSL suffers 10 per cent slide in annual profits to $US1.24 billion.
- Rail freight operator Aurizon posts 88 per cent fall in annual net profit to $72 million
- Energy producer and retailer AGL Energy unveils worse-than-expected $408 million annual loss.
Deutsche Bank AG, which runs Europe’s biggest investment bank, said second-quarter profit was almost wiped out as trading revenue slumped and it set aside money to reduce jobs, with Chief Executive Officer John Cryan signalling possible deeper cuts. Net income decreased to 18 million euros (US $20 million) from 796 million euros a year earlier, according to the the Frankfurt-based company.
Analysts forecast a loss of 22 million euros, according to the average of 11 estimates compiled by Bloomberg. The forecasts ranged from a profit of 524 million euros to a loss of 1.8 billion euros. While results show that the bank is undergoing a sustained restructuring, the bank is satisfied with the progress they are making, if the current weak economic environment persists, the bank will need to be yet more ambitious in the timing and the intensity of their restructuring.
Deutsche Bank has lost about 43 percent of its market value this year. At about a third, the company has the lowest price-to-tangible book value of the world’s nine largest investment banks.
The Net revenue fell to 7.39 billion euros in the second quarter from 9.18 billion euros a year earlier, while risk-weighted assets fell 3.4 percent to 402 billion euros over the same period. The cost-to-income ratio, a measure of profitability, was 91 percent, up from 85 percent a year ago. Restructuring and severance expenses surged to 207 million euros in the second quarter from 45 million euros a year earlier.
Deutsche Bank executives have struggled to reassure investors of the bank’s ability to increase its capital levels and pay coupons on certain debt securities. The lender’s common equity Tier 1 ratio, a key measure of its financial strength, rose to 10.8 percent at the end of June from 10.7 percent three months earlier.
Trading Slump
The company missed a goal of completing the sale of a 20 percent stake in Chinese lender Huaxia Bank Co. in the second quarter, a key step in raising capital levels. That transaction will be completed in the second half, adding about 40 basis points to the capital ratio, according to the bank. The Bank has raised 21.7 billion euros from investors through three capital increases since the global financial crisis forced lenders from Commerzbank AG to Royal Bank of Scotland Group Plc into bailouts. The Bank said it has begun discussions with the U.S. Department of Justice on a potential settlement of claims based on the regulator’s investigation of the bank’s RMBS origination and securitization activities.
The beverages giant Coca-Cola Amatil decides to rebalance its business towards water, energy and dairy drinks as demand for frizzy drinks continue to reduce. Coca-Cola Amatil operates in six countries, posted a half-year profit of $198.2 million, up 7.8 per cent from the corresponding period a year ago. Its Australian business showed weakness with earnings before interest and tax down 1.9 per cent to $218 million in the six months to July 1.
Managing director Alison Watkins said the group continued to shift its Australian business towards water, energy and dairy drinks amid falling consumer demand for soft drinks. Volumes of still beverages increased by 9.3 per cent in Australia, driven by strong performances from water, energy and dairy drinks.
FUZE Tea and Monster Energy are a result of innovation and investment across the categories that commenced in 2015, including the introduction new Mount Franklin marketing campaign. Overall the group revenue rose 2.8 per cent to $2.5 billion with alcohol and coffee delivering double-digit revenue and EBIT growth.
Indonesia, Papua New Guinea, Fiji, the group’s growth markets, also performed strongly. Shares in Coca-Cola were down 42 cents, or 4.38 per cent, to $9.17 at 1208 AEST.
COCA-COLA HALF-YEAR RESULTS:
Half-year profit up 7.8pct to $198.2m
Trading revenue up 2.8pct to $2.5b
Interim dividend of 21 cents a share, up from 20 cents.
Increased competition from ride-sharing apps like Uber have not hit Cab charge’s profits rather Caps on taxi payment service fees have hit the profits according to the company.
The taxi network and payments system operator’s full-year net profit has slumped 45 per cent to $25.6 million and revenue is down 10.2 per cent to $168.8 million. Introduction of 5.0 per cent caps on payment service fees in NSW, Victoria and Western Australia have had the greatest impact on profits.
According to Cabcharge increased competition is increasing the penetration of personal transport services as a proportion of the overall transport market. It is the change in service fee, far more than competition from new or existing market entrants, that have affected 2015/16 results of the company. Other factors hitting its bottom line include regulatory changes which cut the value of taxi license plates by $27.7 million.
Various government announcements have cleared much of the remaining regulatory uncertainty overhanging the industry. Cabcharge is now ready to invest heavily in technology such as the iHail app, which allows customers to hail the nearest available taxi and pay through the app. New dispatch technologies like Passenger Connect would allow drivers to call passengers on approach.
The company believes that technology is a key arm to the growth strategy and it will continue to invest in new projects to ensure it is well positioned to grow its market share.
CABCHARGE NEARLY HALVES PROFIT
Net profit down 45pct to $25.6m
Revenue down 10.2pct to $168.8m
Final dividend flat at 10 cents, fully franked. Full year dividend of 20 cents, unchanged.
Changes in its mail delivery service and growth in its parcels business has helped Australia Post deliver a $36 million net profit for 2015/16, a turnaround from the previous year’s $222 million loss.
The company has returned to profit despite a record decline in letter volumes. It has stemmed the losses in its letters service, reducing its forecast cumulative losses for the segment from about $5 billion to $1.5 billion over the next five years. Changes to the letters business introduced earlier this year are an important factor in the group returning to profitability.
The introduction of a two-speed letter service has helped Australia Post’s bottom line, although managing director Ahmed Fahour said the letters business was in structural decline. A record annual decline of 9.7 per cent in letter volumes led to a $138 million loss for the postal business. However, the loss was reduced from the previous year’s result.
The group’s parcels service had performed well despite increased competition from overseas players, with its profit up eight per cent at $314 million. Total revenue for the year was up three per cent at $6.6 billion, according to Australia Post.
by David Chin | Aug 30, 2016 | News
Insights on Chinese apartment settlements.
71% of offshore Chinese buyers in the US real estate market paid completely with cash, according to the (US) National Association of Realtors. 20% secured mortgages from banks operating in the US. In comparison, only 7 percent of Indians paid all in cash, while 90 percent had financing from US banks.
Total sales of US residential properties to offshore Chinese buyers in the year to March 2016 fell to $27.3 billion from $28.6 billion a year earlier, according to an annual report of the National Association of Realtors. It was the first fall since 2011.
The number of properties purchased by Chinese also declined to 29,195 units from 34,327 units. (China Daily, 8 Aug)
Concerns about the drying of bank financing, and extra stamp duties imposed on offshore buyers raised concerns about settlement.
- A higher proportion of off-the-plan buyers, roughly one in 20, walked away from their Melbourne apartment purchases in June, according to law firm Maddocks. (AFR 3 Aug)
The firm processed over 800 apartments contracts in June and said 5% of deals did not settle. This compares with a historical average of about 3 per cent. Of those buyers who did not settle in June, roughly two-thirds were foreign-based.
- Lanny Xu, chief executive of Iron Fish China, a broker’s agent in Shanghai, said about 20 per cent of his clients who purchased Australian apartments cannot complete the deal and are trying to sell. (AFR 28 Jul)
- Meanwhile, AC Property, a Melbourne-based Chinese focused property portal, has four or five calls every day from buyers who seek to resell their off-the-plan apartments after concerns about up-coming settlements.
- Boxing Overseas, a Nanjing-based agent specialising in Australian properties, only sold two properties last month, compared with about 30 in previous months. (The Australian, 8 Aug)
However, Basis Point’s research suggests that for the majority of offshore buyers, their ‘pain point’ is higher and most will settle, particularly with the help of non-bank lenders.
Lend Lease settled 1203 units in Sydney, Melbourne, Brisbane and London over the past year worth $5.2bn. Lend Lease CEO Steve McCann said fewer than 1 per cent of the apartments sold last year missed settlement, down from the 3 per cent historical average.
Mr McCann said foreign lenders and private equity funds have started to provide extra funding for residential projects after the domestic banks’ decision to tighten lending standards. (The Australian, 20 Aug)
ASX listed developer Mirvac reported 2800 properties went to settlement last financial year, with a default rate of under 1%. The firm has a strategic overweight exposure to the Sydney and Melbourne residential markets. (AFR, 17 Aug)
Hong Kong residential property prices have proved resilient, confounding the doom merchants who predicted up to a 40% slide this year due to weaker Chinese growth. (Dow Jones Institutional News, 10 Aug)
Apartment prices have rebounded and shares in Hong Kong’s top listed developers have outperformed the local Hang Seng Index by 15% after being pummeled in January’s sell-off.
by David Chin | Aug 23, 2016 | News
My business partner CT Johnson writes on the Chinese love affair with Australian property, and gives insights on the ‘settlement risks’ on off-the-plan apartment purchases.
Despite continued concerns that China is losing its appetite for Australian investment property, facts on the ground tell a different story. The Chinese continue to settle on purchases they signed up to three years ago. They continue to buy off the plan for new developments. They are still at the forefront of auctions here in Australia. My bet is that it will stay that way for a long time.
I’ve covered my thinking on this before, but what it boils down to is that there are factors in China, in the rest of the world and in Australia that continue to make Chinese buyers see Australia as an attractive investment destination.
Let’s start with China.
While the Chinese are proud of their nation’s economic progress, and appreciate the huge financial opportunities it provides them, they remain wary of China’s basic social and legal infrastructure. This manifests itself on a number of fronts.
In particular, the Chinese worry about the fact that the rule of law is tenuous and weak. Xi Jinping’s ongoing anti-corruption campaign, while welcome on one level, is a powerful demonstration that the law means what the Party and Xi say it means.
Aus-China Non-Bank Financing Conference, 22 Sept 2016 | Westin, Grand Ballroom, Sydney Click here
The recent change in the enforcement of currency regulations, which has significantly restricted outbound cash flows and forced investors to hold RMB-denominated assets, have left the Chinese feeling exposed to macroeconomic, fiscal and political issues far beyond their control. At the moment, currency effects continue to make Australian property look attractive:
But the Chinese know this can change at any time and without warning. These currency restrictions will likely continue until China’s terms of trade improve.
The leasehold basis of property ownership is another factor that sits badly with Chinese investors. All non-agricultural property rights in China are based on a 70 year lease, commencing from the date the land was converted from agricultural use. The concept of a freehold doesn’t exist under Chinese law, reminding investors that their property rights are at the continuing pleasure of the government.
Aside from issues related to the rule of law, the volatility of its property and stock markets in China is another major source of problems. The Chinese stock market, as embodied by the Shanghai Composite Index, has a disturbing habit of losing a third of its value in panic-driven sell-offs, something that’s happened twice in the past 14 months. Likewise, Chinese property prices can fluctuate dramatically, driven by insider deals and arbitrary government policies.
All of these things drive insecurity within Chinese investors, and create an urgent desire to geographically diversify their asset holding.
Which brings us to the rest of the world.
Largely due to the rule of law, high quality of life and perceived attractiveness as destinations for immigration, North America and Western Europe are desirable places for investment.
To a large degree, the US, Canada, UK, France and Germany solve the problems Chinese investors face at home, with the additional benefit that they are pleasant places to live and raise children (the Chinese have a remarkable attachment to investing in places to which they intend to immigrate, or to which they intend to send their children for school). However, they also have issues that reduce their allure.
France and Germany are generally seen as second-rate choices for investment because their economies are neither as large nor as vibrant as other possible destinations. France and Germany carry the added disadvantage of not being English-speaking, which is regarded by many wealthy and middle-class Chinese people as a requisite for immigration, or sending their children to school.
The US, Canada and UK are highly desirable places to invest, immigrate to, and send children to school. But all three have significant restrictions on immigration. The UK, although very prestigious, is very expensive, even by the standards of buyers from Beijing or Shanghai. Canada is also increasingly expensive, especially now with a 15% tax on foreigners buying Vancouver homes. The US, while extremely glamorous and much less expensive than the UK, has the added problem of being increasingly at odds with China politically.
Which brings us to Australia.
Australia is a society strongly based on the rule of law. Capital can move freely. Property can be owned outright, not just as a leasehold. It is English speaking. It is politically less problematic than the US. It has an outstanding educational system. It is close and in the same time zone. It already has a substantial Chinese immigrant community. It is beautiful. The air is pure and the food is clean. My Chinese friends routinely tell me that Australia is the nicest place on earth.
Given this context – the issues in China, the challenges in the rest of the world, and the attractiveness of Australia – it’s absurd to judge the behavior of Chinese property buyers against the same yardstick as Australian ones.
A Chinese investor’s pain point is much higher than what’s generally perceived in Australia because the Chinese have a far greater need for security and far fewer ways of achieving it. The risk of a small decline in property prices (assuming they’re not offset by currency movements), or adding another 4 percent to a foreign buyer’s stamp duty, simply isn’t material to someone wanting to get a big chunk of their wealth out of China.
The above also assumes that the Chinese buyer is actually a foreign national and not an Australian citizen or permanent resident. In recent years, Chinese immigrants have numbered 16,000 annually, adding to the already substantial Chinese immigrant population in Australia. By one calculation, the number of people living in Australia who were either born in China, or who are the children of someone born in China, is over one million.
These people have capital resources, either individually or pulled from family and friends, which they can use to buy properties in Australia in their name. Hence, the perception that there are many foreign buyers when, in fact, a large number of them are new migrants.
In the year ending June 2014, there have been 14,700 FIRB approvals (on Chinese purchases) that will be due for settlement starting from mid 2016 onwards. This compares to 25,400 approvals in 2015. It’s likely that China’s currency restrictions will have eased by the time the vast majority of these settlements come due.
In the meantime, the non-banks have been moving to fill in the funding gaps. Our research in preparation for our Aus-China Non-Banking Lending Conference on Sept 22 in Sydney has found that a large number of local and offshore lenders are stepping into the breach left open by the exit of Australian banks.
Many more individual ultra-high-net-worth lenders, hedge funds and private businesses are also urgently exploring opportunities, particularly as risks can be mitigated with loans made on low LVRs.
Chinese investors settling now are looking at 15-20% capital gains on apartment purchases made 2 years ago, based on index price movements over this period in the East Coast cities. Then there is a 5 -15% currency profit based on the AUD/CNY exchange rates in 2013/14 to now.
So the consequence of NOT settling is the 10% deposit loss AND not realizing a a 20-35% profit…a differential of 30-45%.*
Again, this picture is consistent with facts on the ground. Mirvac recently pointed to higher than anticipated residential settlement rates as one of the reasons for its strong 2016 financial performance, telling the Australian Financial Review that they expected settlement rates to remain unchanged throughout 2017, and that FIRB buyers (the majority of whom are Chinese) posed no additional risk to their business.
(* Even should this 30-45% profit margin dissipate, particularly for those Chinese buyers who bought during the June quarter 2015 peak against possibly lower or flat prices at settlement in 2+ years’ time, the reasons discussed earlier in this article indicates most will still settle.)
While the property market will continue to fluctuate, and the appetite of Chinese buyers will wax and wane to some extent, the broader picture is that Chinese buyers will maintain their strong appetite for Australian real estate and will continue to be one of the most active groups in the market.
– By James Mackintosh WSJ
Wall Street traders and fund managers returning from the break are likely to focus on the obvious: a series of central-bank meetings in coming weeks and the imminent U.S. election.
They also should be paying close attention to some unusual behavior in the market, where the changing relationship between bonds and stocks may be a sign of trouble ahead.
A generation of traders have grown up with the idea that stock prices and bond yields tend to raise and fall together, as what is good for stocks is bad for bonds (pushing the price down and yield up), and vice versa.
This summer, the relationship seems to have broken down in the U.S. Share prices and bond yields moved in the same direction in just 11 of the past 30 trading days, close the lowest since the start of 2007.
This is far from unprecedented. But since Lehman Brothers failed in 2008, such a swing in the relationship has been unusual and suggests prices are being driven by something other than the balance of hope and fear about the economy. It has tended to coincide with times of deep discontent in markets, notably the 2013 “taper tantrum,” when bond yields briefly surged after Federal Reserve officials signaled they would soon end stimulus, and last year’s brief bubble in German bunds.
The simplest explanation is that expectations of interest rates being lower for longer – some central bankers have suggested lower forever – pushes the price of everything up, and yields down. When the focus is on the discount rate used to value all assets, bond and stock prices rise and fall together, creating the inverse relationship between bond yield and shares.
Such as focus on monetary policy isn’t heathy. It leaves the markets more exposed to sudden shocks, both from changes in policy and from an economy to which less attention is being paid.
It’s a somewhat mercurial thing, but there are big shifts (in correlations), and being on the right side of those big shifts is important.
This summer provides just such an example in Japan. The supposedly safe 40 year Japanese bond has plunged in price by 20% since early July, amid expectations of fiscal stimulus and worries about the central bank’s ability to ease policy.
There is an alternative explanation for the breakdown in the U.S. equity-bond correlations. It could be that shares are tracking improving economic developments, while Treasurys are being driven by British, Japanese and European money fleeing super-easy monetary policy.
Such an explanation leaves investors vulnerable to a snapback in prices if either global growth improves, prompting foreign money to leave again, or global growth worsens, hurting U.S. corporate profits.
Daily and weekly correlations between stocks and bonds provide useful signals, but the deeper question is what will happen when things next go wrong. Will stocks and bonds sell off together? The past few times correlations broke down, they returned to something like normal in the next equity selloff. That is, bonds still provided a cushion for investment profiles.
Jan Loeys, chief market strategist at J.P. Morgan, thinks government bonds will offer protection in the next downturns in the U.S., as Treasury yields could fall another percentage point or so in a recession, but perhaps not in Europe or Japan. The near-term implication is that investors who don’t expect bonds to protect them in a crisis “have to reduce equity allocation because bonds might not save the day: he said.
Much depends on what is behind a selloff. For the stocks and bonds to fall together needs rising interest rates combined with weak growth.
Stagflation as in the 1970s could be one cause; a central-bank mistake could be another.
Or, as Alasdair MacDonald, head of U.K. advisory portfolio management at Willis Towers Watson says, such as breakdown could be caused by a loss of faith in central banks. “Investors might realize that the central banks have run out of ammunition, and they can’t keep pushing up asset prices further.
It could be that this summer’s price moves were just noise while traders were on the beach, and stock prices and bond yields will start moving together again soon. But keep an eye on those correlations, as shifts often mean tough times ahead for investors.
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