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Monday, May 17, 2010
Saturday, May 15, 2010
Australian Property Report - April 10
Much talk of housing ‘bubble’ - but fundamentals sound
– Record population gains & inadequate supply growth
– Critical housing shortage worsening/demand momentum strong
– FHB replaced by investors, upgraders & offshore buyers
– Conservative lending/low delinquencies/no sub-prime/full recourse loans
Household sector well placed
– Economy & labour market solid, unemployment falling – no forced sales
- Low delinquencies reflect comfortable debt servicing
- Solid gains in real household incomes
- Growing skilled labour shortages/upward wages pressure
Financial system solid
– On balance sheet lending raises incentives re. sustainable serviceability
– Conservative lending = low delinquencies
– Full recourse lending cf. US = less incentive to default
Risks
– Rising interest rates/deteriorating affordability could cap price gains
– Policy reversal of 2009 FIRB changes?
– Change in immigration policy?
– Rising unemployment/recession?
Click here to download full report - http://www.ipsinvest.com/News_199_Australian_Property_Report_April_10.aspx
– Record population gains & inadequate supply growth
– Critical housing shortage worsening/demand momentum strong
– FHB replaced by investors, upgraders & offshore buyers
– Conservative lending/low delinquencies/no sub-prime/full recourse loans
Household sector well placed
– Economy & labour market solid, unemployment falling – no forced sales
- Low delinquencies reflect comfortable debt servicing
- Solid gains in real household incomes
- Growing skilled labour shortages/upward wages pressure
Financial system solid
– On balance sheet lending raises incentives re. sustainable serviceability
– Conservative lending = low delinquencies
– Full recourse lending cf. US = less incentive to default
Risks
– Rising interest rates/deteriorating affordability could cap price gains
– Policy reversal of 2009 FIRB changes?
– Change in immigration policy?
– Rising unemployment/recession?
Click here to download full report - http://www.ipsinvest.com/News_199_Australian_Property_Report_April_10.aspx
UK House prices in April rose by 0.5%
* House prices in April rose by 0.5%
Despite a fall in transactions, the monthly average price of all residential property sold in England & Wales in April 2010 was an estimated 0.5% higher than in March. This is the twelfth month in succession in which the AcadHPI has shown an increase.
* Annual price increase is 12.9%
The annual average price of all residential property transactions in England & Wales was 12.9% higher than a year ago when prices were still falling - a significant recovery albeit in a market still characterised by great uncertainty. This is now the sixth consecutive month in which the annual rate of change in house prices has been positive.
* Housing transactions fall by 5% in April
There were an estimated 50,650 properties sold in April 2010, which is 5% lower than the number of sales recorded in March 2010. The level of sales in April 2010 is the second lowest April figure since the Land Registry started reporting transaction numbers in 1995.
* London house prices reach a new record level
For the second month in succession the average house price in London has reached a new peak. There is now substantial evidence to show that the major movement in London house prices is taking place at the top end of the market, with more modest price rises being experienced elsewhere.
Click here to download report -
http://www.ipsinvest.com/News_198_UK_House_prices_rose_05_in_April_.aspx
Despite a fall in transactions, the monthly average price of all residential property sold in England & Wales in April 2010 was an estimated 0.5% higher than in March. This is the twelfth month in succession in which the AcadHPI has shown an increase.
* Annual price increase is 12.9%
The annual average price of all residential property transactions in England & Wales was 12.9% higher than a year ago when prices were still falling - a significant recovery albeit in a market still characterised by great uncertainty. This is now the sixth consecutive month in which the annual rate of change in house prices has been positive.
* Housing transactions fall by 5% in April
There were an estimated 50,650 properties sold in April 2010, which is 5% lower than the number of sales recorded in March 2010. The level of sales in April 2010 is the second lowest April figure since the Land Registry started reporting transaction numbers in 1995.
* London house prices reach a new record level
For the second month in succession the average house price in London has reached a new peak. There is now substantial evidence to show that the major movement in London house prices is taking place at the top end of the market, with more modest price rises being experienced elsewhere.
Click here to download report -
http://www.ipsinvest.com/News_198_UK_House_prices_rose_05_in_April_.aspx
Wednesday, May 12, 2010
Warren Buffet's latest shareholder conference
Sandi and I just returned from Omaha and the annual Berkshire Hathaway meeting with Warren Buffett.
Although we have been shareholders for years, I never carved out the time to attend.... DUMB! We will be going back next year.
I have always thought that if you are going to listen to somebody, make sure they are eating their own cooking and have created truly sustainable success. Clearly, Warren Buffett falls into this category and his insights are crystal clear, simple and make sense..... here are a couple that I found particularly useful:
1. The key to getting rich is to create a structure or set of rules that minimizes the "Everyone else is doing it" syndrome. If everyone else is doing it, be wary!
2. The primary key to successful investing is not the size of your circle of competence, but rather knowing where the perimeter is. Too many people drift away from what they know and in the process move from investor to speculator.
3. The biggest single cause of the recent meltdown on Wall Street is the Business Schools and MBA Programs throughout the country. Teaching people to invest for the short term instead of owning a piece of the business will always produce gyrations and spikes in stock prices.
4. The most recent rise in the stock market is primarily a result of low interest rates.... people can't stand sitting on the sidelines making 2/10th of 1% on their money. Money has started flowing back into stocks because there are no alternatives and most investors can't sit and do nothing when there is nothing to do that makes sense.
5. Given the recent level of government intervention on top of the previously existing debt obligations in the United States, inflation is very likely. So are higher taxes. Inflation and higher taxes are the result of an the US inability to live within its means, so collecting and printing more money is the most likely answer.
6. The real culprit in the recent economic turmoil in the US is not the US Treasury department, it's Congress. Too much money has been spent in comparison to the amount being collected and this imbalance will result in even more pain.
7. The problem in Greece is that it doesn't have its own currency to print its way out of the problem.... Nor do any of the other members of the Euro. The Greece problem is likely to be repeated several times in the coming months.
8. Long term, Warren and his long time partner Charlie Munger are HUGE believers in the US economy, which is why they just spent $29 Billion buying a railroad. Railroads will be the primary mover of goods in the foreseeable future. The better the US economy, the more goods that need to be moved. This is a long term "all in" bet on the United States economy.
For those of you who are unfamiliar with the spectacular investing results of Warren Buffett, consider this: In 1979, you could have purchased his stock for $290/share. Today it costs $120,000/share. You can read more about this incredible man and his investing philosophy by reading his annual Chairman's Letter to Shareholders.... You should read all of them (1977-2009):
http://www.berkshirehathaway.com/letters/letters.html
For those of you addicted to speed, please remember that it took Warren 12 years (1950-1962) to make his first million.... The lesson: The goal is not to get rich.... The goal is to get rich and stay that way!
Best,
Keith Cunningham
Although we have been shareholders for years, I never carved out the time to attend.... DUMB! We will be going back next year.
I have always thought that if you are going to listen to somebody, make sure they are eating their own cooking and have created truly sustainable success. Clearly, Warren Buffett falls into this category and his insights are crystal clear, simple and make sense..... here are a couple that I found particularly useful:
1. The key to getting rich is to create a structure or set of rules that minimizes the "Everyone else is doing it" syndrome. If everyone else is doing it, be wary!
2. The primary key to successful investing is not the size of your circle of competence, but rather knowing where the perimeter is. Too many people drift away from what they know and in the process move from investor to speculator.
3. The biggest single cause of the recent meltdown on Wall Street is the Business Schools and MBA Programs throughout the country. Teaching people to invest for the short term instead of owning a piece of the business will always produce gyrations and spikes in stock prices.
4. The most recent rise in the stock market is primarily a result of low interest rates.... people can't stand sitting on the sidelines making 2/10th of 1% on their money. Money has started flowing back into stocks because there are no alternatives and most investors can't sit and do nothing when there is nothing to do that makes sense.
5. Given the recent level of government intervention on top of the previously existing debt obligations in the United States, inflation is very likely. So are higher taxes. Inflation and higher taxes are the result of an the US inability to live within its means, so collecting and printing more money is the most likely answer.
6. The real culprit in the recent economic turmoil in the US is not the US Treasury department, it's Congress. Too much money has been spent in comparison to the amount being collected and this imbalance will result in even more pain.
7. The problem in Greece is that it doesn't have its own currency to print its way out of the problem.... Nor do any of the other members of the Euro. The Greece problem is likely to be repeated several times in the coming months.
8. Long term, Warren and his long time partner Charlie Munger are HUGE believers in the US economy, which is why they just spent $29 Billion buying a railroad. Railroads will be the primary mover of goods in the foreseeable future. The better the US economy, the more goods that need to be moved. This is a long term "all in" bet on the United States economy.
For those of you who are unfamiliar with the spectacular investing results of Warren Buffett, consider this: In 1979, you could have purchased his stock for $290/share. Today it costs $120,000/share. You can read more about this incredible man and his investing philosophy by reading his annual Chairman's Letter to Shareholders.... You should read all of them (1977-2009):
http://www.berkshirehathaway.com/letters/letters.html
For those of you addicted to speed, please remember that it took Warren 12 years (1950-1962) to make his first million.... The lesson: The goal is not to get rich.... The goal is to get rich and stay that way!
Best,
Keith Cunningham
Monday, April 19, 2010
South African House Prices Rise Further In March: Absa
The average nominal value of medium-sized houses in South Africa increased 4.2% on a yearly basis in March, after rising by a revised 2.8% in February, a report from Absa Group showed Monday. This brought the average nominal value in this category of housing to around ZAR 965,300 in March.
Further, the report showed that cost of small houses moved up 9.6% annually, slower than the 7.3% growth in the previous month, while cost of large houses increased at a faster pace of 5.3%, following a 4.8% rise in February.
According to Absa, the South African economy is forecast to grow by a real 3.3% in 2010 on the back of the global economic recovery and steadily growing domestic demand. CPI inflation, currently at 5.7% annually is expected to average 5.3% in 2010.
Absa forecasts the residential property market to gather further momentum with the improvement in household sector finances in the course of 2010. Growth in the nominal value of houses is forecast to be 6%-7% higher in 2010 compared with last year.
Further, the report showed that cost of small houses moved up 9.6% annually, slower than the 7.3% growth in the previous month, while cost of large houses increased at a faster pace of 5.3%, following a 4.8% rise in February.
According to Absa, the South African economy is forecast to grow by a real 3.3% in 2010 on the back of the global economic recovery and steadily growing domestic demand. CPI inflation, currently at 5.7% annually is expected to average 5.3% in 2010.
Absa forecasts the residential property market to gather further momentum with the improvement in household sector finances in the course of 2010. Growth in the nominal value of houses is forecast to be 6%-7% higher in 2010 compared with last year.
Clarendon Mews Parow, Cape town, Western Cape
Priced from R399,900 No transfer fees.
Deposit - Only R5, 000.00
Rent Subsidy from Completion Feb 2011 to Feb 2013!
This development is situated in a popular area with great rental demand and close to all amenities.
Parow Valley really is one of the most convenient suburbs to reside in. Parow Valley has great shopping centres such as the Parow Shopping Mall, Shoprite Park, top primary and secondary schools for your convenience, places of worship, entertainment and night life for the outgoing and very popular chain stores like Woolworths, Edgars and Foschini for the shopping fanatics. All of your shopping needs can be catered for and you will spend many hours simply strolling through the massive malls which inhabit this stunning area.
A unique investment opportunity as transfer/completion will only take place in early 2011 so you will start accumulating great capital growth from now until the development is completed in 2011, you only start paying your bond payments when the development is complete and registered in your name in 2011.
1 bedroom units selling at R399,900.00 with monthly rentals of R3250 plus R1000 a month rental subsidy from the developers for 24 months. R4250 monthly rental income.
2 bedroom duplex selling for R 499, 900.00 with monthly rentals of R4100 plus R1000 a month rental subsidy from the developers for 24 months. R5100 monthly income.
Excellent location, walking distance to Parow Shopping Centre and Shoprite Park - close to railway station, public transport and schools.
Deposit - Only R5, 000.00
Rent Subsidy from Completion Feb 2011 to Feb 2013!
This development is situated in a popular area with great rental demand and close to all amenities.
Parow Valley really is one of the most convenient suburbs to reside in. Parow Valley has great shopping centres such as the Parow Shopping Mall, Shoprite Park, top primary and secondary schools for your convenience, places of worship, entertainment and night life for the outgoing and very popular chain stores like Woolworths, Edgars and Foschini for the shopping fanatics. All of your shopping needs can be catered for and you will spend many hours simply strolling through the massive malls which inhabit this stunning area.
A unique investment opportunity as transfer/completion will only take place in early 2011 so you will start accumulating great capital growth from now until the development is completed in 2011, you only start paying your bond payments when the development is complete and registered in your name in 2011.
1 bedroom units selling at R399,900.00 with monthly rentals of R3250 plus R1000 a month rental subsidy from the developers for 24 months. R4250 monthly rental income.
2 bedroom duplex selling for R 499, 900.00 with monthly rentals of R4100 plus R1000 a month rental subsidy from the developers for 24 months. R5100 monthly income.
Excellent location, walking distance to Parow Shopping Centre and Shoprite Park - close to railway station, public transport and schools.
Low risks make it a great time to invest in property in Australia
* ECONOMIST: Frank Gelber
* From: The Australian
* April 15, 2010 12:00AM
DO I sound bullish about property to you? If not, you're missing the point. To me, this is an extraordinary time for property investment.
Most of the risk has gone. Non-residential prices have fallen dramatically. They're below replacement cost. Development has stalled. Demand is returning. And we can't build until rents rise.
Risk hasn't been this low, or investment decisions more clear cut, for 15 years. Certainly, across cities and sectors, prospects aren't uniform. But by and large, we're looking at strong positive returns over the next five years, with some internal rates of return above 20 per cent.
The key is risk. Some think high return means high risk. Too many people look at risk as statistical without trying to understand where it comes from. For them, risk is variation, everything that they're not sure of.
We can do better than that. We can specify sources of risk associated with specific events.
Let's focus on three specific cyclical property risks: overbuilding and its consequences, excessive gearing and overvaluation.
First, overbuilding. Before the global financial crisis hit, I was worried about overbuilding during the boom leading to oversupply and significant falls in rents and prices, a classic boom/bust cycle. Buoyed by the inflow of funds, building was rising to unsustainable levels. As it turned out, the GFC did us a favour, curtailing construction early, before we oversupplied markets.
The initial setback to development came from the funding squeeze. Now, the problem is making financial feasibilities work. Commercial and industrial commencements have halved in real terms since the peak and are struggling. During the boom the risk of overbuilding was high. Now, it has evaporated and there is the prospect of a shortage.
Second, gearing. This is not only an individual property investor risk but can also create market risk. The financial engineering boom put enormous pressure on corporate Australia to gear up. And the Real Estate Investment Trust sector, with relatively stable cash flows, was a prime candidate.
It was hard to resist. And the REITs didn't, gearing up from 14 to 40 per cent in the blink of an eye, with some more classic financially engineered operations heading above 90 per cent.
Gearing compounds returns in the good times, but multiplies losses when returns don't cover interest. Of course, the GFC triggered falls in property prices which, with gearing, compounded the fall in net assets.
Initially, shell-shocked investors did nothing. The REITs, without equity injections, were forced to try to sell assets. But, with few investors, markets didn't clear and prices fell. Only later were the less affected REITs able to raise equity, mainly through new rights issues, gradually reducing gearing to levels that are allowing them to resume normal operations and think about development and investment.
The third risk is overvaluation.
Increased gearing in the boom, plus additional equity, hugely boosted investable funds, all chasing a limited amount of property. Yields got away from us. Weight of money caused yield compression and caused prices to overshoot.
The risk was that yields would correct, that prices would fall. And they have. The risk of further price falls is low.
Contrary to the present heightened perception of risk, all three types of risk have receded. We're too cautious.
To me, it's safe to invest.
I worry more when I can't understand value. My benchmark is replacement cost -- we can't stay below it for long when we need to develop. This stage of the cycle presents an undervalued market with emerging demand and little new supply.
At BIS Shrapnel we're looking at internal rates of return in some sectors up to 20 per cent. Most risks are on the upside. What would you do? I know what I'll do.
Frank Gelber is chief economist for BIS Shrapnel fgelber@bis.com.au
* From: The Australian
* April 15, 2010 12:00AM
DO I sound bullish about property to you? If not, you're missing the point. To me, this is an extraordinary time for property investment.
Most of the risk has gone. Non-residential prices have fallen dramatically. They're below replacement cost. Development has stalled. Demand is returning. And we can't build until rents rise.
Risk hasn't been this low, or investment decisions more clear cut, for 15 years. Certainly, across cities and sectors, prospects aren't uniform. But by and large, we're looking at strong positive returns over the next five years, with some internal rates of return above 20 per cent.
The key is risk. Some think high return means high risk. Too many people look at risk as statistical without trying to understand where it comes from. For them, risk is variation, everything that they're not sure of.
We can do better than that. We can specify sources of risk associated with specific events.
Let's focus on three specific cyclical property risks: overbuilding and its consequences, excessive gearing and overvaluation.
First, overbuilding. Before the global financial crisis hit, I was worried about overbuilding during the boom leading to oversupply and significant falls in rents and prices, a classic boom/bust cycle. Buoyed by the inflow of funds, building was rising to unsustainable levels. As it turned out, the GFC did us a favour, curtailing construction early, before we oversupplied markets.
The initial setback to development came from the funding squeeze. Now, the problem is making financial feasibilities work. Commercial and industrial commencements have halved in real terms since the peak and are struggling. During the boom the risk of overbuilding was high. Now, it has evaporated and there is the prospect of a shortage.
Second, gearing. This is not only an individual property investor risk but can also create market risk. The financial engineering boom put enormous pressure on corporate Australia to gear up. And the Real Estate Investment Trust sector, with relatively stable cash flows, was a prime candidate.
It was hard to resist. And the REITs didn't, gearing up from 14 to 40 per cent in the blink of an eye, with some more classic financially engineered operations heading above 90 per cent.
Gearing compounds returns in the good times, but multiplies losses when returns don't cover interest. Of course, the GFC triggered falls in property prices which, with gearing, compounded the fall in net assets.
Initially, shell-shocked investors did nothing. The REITs, without equity injections, were forced to try to sell assets. But, with few investors, markets didn't clear and prices fell. Only later were the less affected REITs able to raise equity, mainly through new rights issues, gradually reducing gearing to levels that are allowing them to resume normal operations and think about development and investment.
The third risk is overvaluation.
Increased gearing in the boom, plus additional equity, hugely boosted investable funds, all chasing a limited amount of property. Yields got away from us. Weight of money caused yield compression and caused prices to overshoot.
The risk was that yields would correct, that prices would fall. And they have. The risk of further price falls is low.
Contrary to the present heightened perception of risk, all three types of risk have receded. We're too cautious.
To me, it's safe to invest.
I worry more when I can't understand value. My benchmark is replacement cost -- we can't stay below it for long when we need to develop. This stage of the cycle presents an undervalued market with emerging demand and little new supply.
At BIS Shrapnel we're looking at internal rates of return in some sectors up to 20 per cent. Most risks are on the upside. What would you do? I know what I'll do.
Frank Gelber is chief economist for BIS Shrapnel fgelber@bis.com.au
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