This week we’ll start with a look at property bubbles, and more specifically the one involving property trusts, or more formally Australian real estate investment trusts. Chief Executive of Cromwell Property Group, Paul Weightman, has this week cast doubts on the strength of the current property trust bubble. Weightman believes a trend of overly high property valuations and debt levels are a precursor to a repeat of history, in this case a nasty bursting of the property trust bubble in the GFC of 2008. This time, according to Weightman, the bubble is a different animal to that which crushed the ambitions of property trust investors five years ago. The latest bubble is characterised by large amounts of offshore capital trying to find a place in the local market but being kneecapped by poor fundamentals, which translate to yield hungry investors bidding up prices. If property values don’t measure up alongside this price bid fervour- the bubble will burst. As a CEO of a trust seeing huge fiscal benefits as a result of the investment bubble, Weightman’s cautionary stance is telling- shouldn’t he be justifying the cause for more investment to jack those bids up further? He isn’t and this is a significant cause for alarm bells among those partial to REIT’s. The thing is, he’s not alone. Other examples of those in the know cashing their chips abound. Take the Lowy family’s recent sale of of a $664 million stake in Westfield Retail Trust as perhaps more than a slight indication that- as the saying goes- where there’s smoke, there’s fire.
Real Estate figuresConstruction work fell against expectations in the March quarter, according to the Australian Bureau of Statistics (ABS). Total construction work for the quarter slipped two per cent to $51.0538 billion, including homes and non-residential buildings like offices and shops, fell 1.1 per cent from the December quarter. Overall, construction work done is 0.2 per cent stronger than the previous corresponding period.
Home sales rose for the second straight month in April, continuing the housing industry's slow recovery, according to the Housing Industry Association (HIA). Just over 6,000 new homes were sold in April, an improvement of 3.9 per cent on March.
Australian auction results
This week’s auction results across Australian capital cities - Sydney recorded a 75 per cent clearance rate from 286 properties for auction, Melbourne cleared 65 per cent from 268 properties, Brisbane had a 59 per cent clearance rate from 43 properties listed and Adelaide cleared 58 per cent from 31 reported auctions.
Commercial property sector
Westfield Group
(ASX:WDC) is looking to sell seven US shopping centres to US investment firm Starwood Capital Group for more than $US1 billion, part of the retail property giant’s efforts to downsize by selling non-core shopping centres. Westfield has sold about $15 billion worth of its shopping mall stakes since 2010.
James Hardie Industries’
(ASX:JHX) full year net profit has fallen sharply owing to changes to its asbestos liabilities and the impact of court action with the tax office. The building products maker posted a net profit of $US45.5 million for the year to March 31, down 92 per cent on last year. Net sales in the period totalled $US1.32 billion, a seven per cent increase on year.
Watpac Limited
(ASX:WTP) has downgraded its profit guidance to between $3 and $9 million, a fall on the $15.3 million posted last year. The revised forecast is mainly due to execution issues in Watpac’s civil operations in Queensland and Victoria and the expected costs associated with consolidation of the operations. Despite the revision Watpac says its national contracting operations in construction and mining continue to perform strongly.
Lend Lease Group
(ASX:LLC) has sold seven office suites in its Lifestyle Working building in Collins Street Melbourne for approximately $3.5 million. The western Australian buyer purchased a total floor area of 508.7 square metres at an average of $7 thousand per square metre.
