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Rarely has there been such a concerted warning from financial regulators as we've seen in recent days about the exposure of the self-managed superannuation fund industry to investment property markets. It has now emerged as the first financial regulatory test of the new government.

For those with a memory longer than five minutes -- which doesn't seem to include Assistant Treasurer Arthur Sinodinos, based on his <a href="https://www.afr.com/p/national/economy/liberals_question_diy_super_amid_Qe0JyGDpATUuISvpx5Wd0N" target="_blank">comments in the Financial Review</a> yesterday -- it's a problem dripping with irony and big risks.

As the RBA went to some lengths to explain in Wednesday's second <a href="https://www.rba.gov.au/publications/fsr/2013/sep/pdf/0913.pdf" target="_blank">Financial Stability Review</a> of the year, this is a problem that successive federal governments have created. The RBA explains a series of legislative steps and other changes from 2006 up to 2010 that cleared the way for self-managed super funds to step up their investment in property, especially geared residential property.

The central bank said Australian households continued to show prudence in managing their finances compared with 10 years ago, with a higher rate of saving and a slower pace of credit growth. This included taking advantage of low interest rates by paying down their existing mortgage debts and other debt.

But (and there's always a but or 20 in documents like this) "[t]here are some signs that households are taking on more risk in their investment decisions,'' the RBA said. "The potential for a further increase in property gearing in self-managed superannuation funds is a development that will be monitored closely by authorities for its implications, both for risks to financial stability and consumer protection." The bank said the same in last week's RBA board minutes -- the broader context for the RBA's concern is the revival in housing price growth:

"An increase in housing market activity more generally is not surprising given reductions in interest rates. However, it is important that those purchasing property maintain realistic expectations of future dwelling price growth. In contrast to the decades leading up to the crisis -- when dwelling prices grew rapidly in response to disinflation and financial deregulation -- long-run future growth in dwelling prices might be expected to be more in line with income growth."

And to underline the importance of self-managed super funds, which now have around a fifth to a quarter of their assets in property, the RBA <a href="https://www.rba.gov.au/publications/fsr/boxes/2013/sep/d.pdf" target="_blank">devoted separate article to them</a> and this explanation in the report's foreword:

"In this issue of the Review, a particular focus has been placed on the self-managed superannuation fund (SMSF) sector. Although this sector does not currently pose material risks to financial stability, it is important for the financial position of the household sector and has a number of aspects that warrant careful observation in the period ahead. Changes to legislation in recent years have permitted superannuation funds, including SMSFs, to borrow for investment, for example to purchase property."

What changes? The Howard government (when Sinodinos was Howard's chief of staff) established "Choice of Fund" for super in July 2005 in an effort to undermine the industry super sector; it allowed individuals to choose which superannuation funds, including an SMSF, their employer’s superannuation guarantee contributions are paid into. The 2007 "Simplified Superannuation" legislation eliminated tax on super benefits for over-60s and for a limited period encouraged individuals to pump up to $1 million into their super funds, which massively inflated member contributions to self-managed funds. And in 2010, borrowing rules were clarified to protect other assets in self-managed funds if funds had borrowed money to purchase assets, which had been permitted by the 2007 changes.

As the bank notes, these changes all drove SMSFs toward property investment:

"Since then, property holdings by SMSFs have increased and this type of investment strategy is being heavily promoted. The sector therefore represents a vehicle for potentially speculative demand for property that did not exist in the past. SMSFs and other retail investors have also been the dominant class of purchasers of hybrid securities recently. These investors seem to have been attracted by the higher yields offered on hybrids compared with conventional debt securities; it is important that they fully appreciate and price in the risks embedded in these more complex products."

As the history of legislative change makes clear, SMSFs are a favoured sector of the Coalition and its media cheerleaders. The Right might like retail super funds because they keep a diehard Liberal constituency, financial planners, rolling in fees, but they're ultimately run by AMP and the big banks. SMSFs have the air of rugged individualism about them. Judith Sloan, for example, <a href="https://www.theaustralian.com.au/opinion/columnists/unions-play-politics-with-super-funds/story-fnbkvnk7-1226524486152" target="_blank">has repeatedly suggested</a> that industry super funds have been "haemorraghing" members and money to SMSFs (when it's actually retail funds that have been losing out -- <a href="https://www.apra.gov.au/Super/Publications/Documents/June%202013%20Quarterly%20Superannuation%20Performance.pdf" target="_blank">the most recent APRA data</a> for 2012-13 shows industry super increasing market share while retail funds go backwards and SMSFs have been flat).

And Mathias Cormann, who was shadow assistant treasurer in opposition, used to spruik SMSFs. <a href="https://www.mathiascormann.com.au/speeches/CEDASpeech13.pdf" target="_blank">In May this year</a> he rejoiced in how "[a] growing number of Australians are taking advantage of the opportunities they perceive from self-managed super," Cormann said. "It gives you more control, it gives you choice, it gives you the opportunity to tailor your investment strategies for retirement according to your individual needs, but it also of course can come with increased risk."

Ah -- the increased risk -- especially given SMSFs are not entitled to compensation if they are the victims of theft or fraud in APRA-regulated funds. Cormann was unhappy that the previous government had left SMSFs out of compensation for the victims of the Trio fraud in which investors in APRA-regulated funds were ripped off. "In all of the circumstances, we do believe that there is a case for the government to look more closely as to whether there would be some justification for a level of compensation, if not for the full amount of the loss, but at least a level of compensation."

Cormann didn't take the bait offered at the time and back a general compensation arrangement for SMSFs -- he was only applying it to the Trio circumstances. But with SMSFs rushing into property -- and particularly riskier commercial property -- you can bet the heat will be on if a big property collapse burns a lot of SMSFs. And that heat will not merely be on politicians, but on anyone nearby with deep pockets -- which will mean the banks.

Sinodinos is now singing a different tune to Cormann's. He hasn't lauded the surge in SMSFs as the triumph of Howardesque aspirationalism and choice; instead he described it as "[o]n one level ... quite understandable". However, "we have to make sure that no matter what the vehicle is, it’s done in such a way that the ultimate objective is to preserve and maximise the savings for retirement. In the super space we need to make sure it’s a level playing field and that you get appropriate competition between the different funds, the industry funds, the self-managed super funds and that’s the starting point."

Perhaps Sinodinos forgot he was "present at the creation" of this issue back in 2005. But he, or at least the Treasury advisers who will have been briefing him over the last week, have worked out that SMSFs' exposure to the property sector contains the seeds not merely for a lot of angry victims but for a systemic problem: if the SMSF sector's $80-100 billion in property investments goes bad, the impacts will be felt well beyond retirees, into the banks and the entire property market.

<hr>
This article originally appeared on <a target="_blank" href="https://www.crikey.com.au">Crikey</a>.
 

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Coalition changes its self-managed super tune as regulators fret

"An array of spending cuts at the poorest": Budget 2014

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The Abbott government’s National Commission of Audit has recommended the abandonment of Australia’s post-war fiscal structure in favour of a decentralised state-based model of taxation and service delivery that would significantly reduce the Commonwealth’s role in national life. It also recommends targeting pensions, disability insurance, carers, higher education students, foreign aid and the homeless in order to deliver a more sustainable long-term budget.
Across 66 recommendations aimed at reducing government spending by $60 billion to $70 billion per year by 2023, the commission, chaired by business figure Tony Shepherd, has called for a massive reduction in Commonwealth programs and substantial reform and restructuring of the public service. But the most radical call is for a return to pre-war taxation arrangements in which the states would partially control income tax.
Federalism:
The commission has called for the devolution of services to the level closest to those receiving the services — a common enough argument — but has backed it up by calling on the Commonwealth to reduce the current personal income tax rate and replace the reduced rate with an equivalent “state surcharge” revenue from which would be hypothecated to the states. State governments would then have the power to increase or decrease the surcharge “as a means of injecting further competition into the federation”.
GST revenue would also be split between the states on a per capita basis, with smaller states receiving top-up grants from the Commonwealth to ensure they are not worse off. In return, the Commonwealth would then slash tied grants to the states, in effect freeing up the states to use tax revenue as they see fit. Natural disaster payments to the states would also be reduced to one-quarter to one-third of the cost of recovery, and Commonwealth payments to local government would cease.
Transfer and social assistance payments:
The commission calls for a major overhaul of Commonwealth welfare programs:
<ul>
<li>Slowing indexation of the age pension so that it falls to 28% of average weekly earnings over a 15-year period and then remains at that level thereafter; 
</li>
<li>Automatically adjusting the eligibility age to 77% of life expectancy from 2033, such that the pension age would reach 70 in the 2050s; the superannuation preservation age would adjust automatically to be five years under the pension age; 
</li>
<li>The family home, above a high value threshold, would be included in the pension means test for new pensioners, and tapering rates increased, from 2027; 
</li>
<li>Making the Commonwealth Seniors Health Card harder to quality for; 
</li>
<li>Slowing down the roll-out of the National Disability Insurance Scheme; 
</li>
<li>Cutting off Family Tax Benefit A at a significantly lower threshold — just under $100,000 a year compared to $110,000 now, and reducing the level of benefits for families with more than one child; 
</li>
<li>Abolishing Family Tax Benefit B and replacing it with a sole parent family supplement; 
</li>
<li>Forcing young unemployed people to relocate to “higher employment areas” and increasing the taper rate for additional income; 
</li>
<li>More tightly targeting the Disability Support Pension and setting it at the same level as the age pension at the same time; 
</li>
<li>Consolidating indigenous-specific programs and altering arrangements for overseeing indigenous program spending; and 
</li>
<li>Dumping homelessness programs, as they are a state responsibility, and confining the Commonwealth’s social housing role to rent assistance payments.</li>
</ul>
Education:
The recommendations on education are straightforward — the commission wants the Commonwealth out of education as much as possible and wants higher education students to pay much more:
<ul>
<li>States to have full responsibility for schools, with the Commonwealth’s role limited to providing pools of funding for public, Catholic systemic and private schools, and funding capped at 2017 per-student levels indexed by a combination of CPI and the Wage Price Index applying education; 
</li>
<li>States to have full responsibility or vocational education and training; all Commonwealth programs to be abolished; 
</li>
<li>
“Significantly” reducing the size of the Commonwealth Department of Education; and 
</li>
<li>Students to pay a greater share of higher education costs — 55% from 41% now — and accelerating payments under the Higher Education Loan Program.</li>
</ul>
Defence:
The commission is sceptical of the government’s “aspiration” to lift defence spending to 2% of GDP (which would worsen the budget by $11 billion in 2023 if achieved, according to Shepherd) and suggests funding be driven by the capability required to counter the strategic risks Australia faces:
<ul>
<li>Moving the Defence Materiel Organisation back into the Department of Defence and privatising the Defence Housing Authority; 
</li>
<li>Cutting the level of staff in the Department of Defence to 1998 levels; 
</li>
<li>Greater transparency and budget accountability for the Department of Defence; 
</li>
<li>But on intelligence — bizarrely, no discussion of any kind by the commission of Australia’s massive intelligence budget.</li>
</ul>
Health:
While the commission wants the burden of healthcare shifted to the states, it recognises this is a more complex task than in education. Instead, its priority is imposing more user charges in health in order to deter overuse:
<ul>
<li>Punitive taxation for high income earners who don’t take out expanded, more flexible private health insurance, with no access to the private health insurance rebate; 
</li>
<li>All patients to make Medicare co-payments of $15 up to 15 visits a year and $7.50 thereafter, with lower rates for concession card holders; 
</li>
<li>State governments should impose emergency department co-payments for non-emergency treatment to deter avoidance of the GP co-payment; 
</li>
<li>Capping Commonwealth hospitals funding and reducing reporting requirements on hospitals; 
</li>
<li>Cap the Pharmaceutical Benefits Scheme, increase co-payments and deregulate the pharmacy sector; 
</li>
<li>Aged care reforms currently in train are supported, but implementing the full suite of Productivity Commission recommendations in this area; and 
</li>
<li>Means-testing carer payments and targeting them only at carers whose ability to work has been limited, and setting them (eventually) at the same level as the age pension.</li>
</ul>
Industry and employment:
Having proposed that the axe be taken to individual welfare, the commission couldn’t avoid proposing a similar approach to corporate welfare. But it also wants Australia’s lowest wage earners to have their remuneration held down until it reaches 44% of average weekly earnings.
<ul>
<li>Limiting industry assistance to “areas of genuine market failure” and transitional assistance for “genuine structural change”, including closing 22 existing programs (the remaining automotive industry assistance schemes included) costing around $5 billion, and curbing anti-dumping provisions; 
</li>
<li>Abolishing export assistance by closing the Export Finance and Industry Corporation, closing the Export Market Development program, ending tourism grants and cutting back Tourism Australian and Austrade funding; 
</li>
<li>Consolidating and reducing research and development funding; 
</li>
<li>Less independence for the CSIRO “to ensure that resources are being directed at areas of greatest priority”; 
</li>
<li>Curbing the growth in the minimum wage until it is 44% of AWE in 10 years; 
</li>
<li>Capping the paid parental leave scheme at average weekly earnings (but not means-testing it) and redirecting savings to childcare assistance, which the commission believes was more important to female participation than the PPL; and 
</li>
<li>Ending Farm Finance Concessional Loans.</li>
</ul>
Foreign affairs and immigration: 
<ul>
<li>Abandoning the current bipartisan policy of linking foreign aid with Gross National Income and only indexing current levels of foreign aid, and reducing it if fiscal needs require it; 
</li>
<li>Outsourcing visa processing; and 
</li>
<li>Reducing costs of detaining asylum seekers to 2011-13 levels, plus “renegotiating contracts and better targeting of services”.</li>
</ul>
Broadcasting:
<ul>
<li>Benchmarking the ABC and SBS against commercial broadcasters to inform decisions to cut funding.</li>
</ul>
Public service:
<ul>
<li>Abolishing 35 agencies, a list headed by the Australian Public Service Commission (to be folded into the Department of Employment); most casualties though are small advisory boards; 
</li>
<li>Merge or consolidate over 60 other bodies: the biggest is the merger of Customs and Immigration, and 22 health bodies should be considered for merger or consolidation; 
</li>
<li>Privatise Australian Hearing Services, Snowy Hydro Ltd, Defence Housing Australia, ASC, consider privatising Australia Post in the medium-term; 
</li>
<li>Outsource the Department of Human Services payments system; 
</li>
<li>Public service departments to shift away from middle-management heavy structures; 
</li>
<li>Public servants to be required to be “highly productive”; 
</li>
<li>Departments to provide corporate/HR services to small agencies in their portfolios; and 
</li>
<li>A more coherent and systematic alignment of key performance indicators, reporting requirements and program evaluation.</li>
</ul>
Infrastructure:
<ul>
<li>Commonwealth should only invest  in projects “that provide broad economic or social benefits beyond commercial returns but cannot be completely funded in the short-term by user charges and would not otherwise go ahead”; and 
</li>
<li>
“Over time”, move to road-user charging “for all vehicles to the maximum extent possible”.</li>
</ul>
This article first appeared on <a href="https://www.crikey.com.au/" target="_blank">Crikey</a>.
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Commission of Audit recommends radical shake-up of state and federal government relations

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We’ve now entered the traditional pre-budget softening-up period in which treasurers engage in expectations management ahead of the fiscal set-piece of the year in May. But even given that, Joe Hockey is treating us as complete idiots.
The line Hockey has been pushing for some days now, and which he gave a big push to yesterday in a flurry of media appearances, is that not merely did Labor hide the level of deficits in the current budget cycle, but that it left a series of hidden spending commitments in the unpublished years beyond forward estimates. Hockey has been circulating a document to journalists portrayed in the media as a “Treasury analysis” that shows how “the Coalition inherited an unsustainable budget position” and Labor “hid [expenditure] from the public”. Hockey would like us to see him as a budgetary innocent who has found himself in the middle of a fiscal minefield planted by Labor.
<a href="https://media.crikey.com.au/wp-content/uploads/2014/04/BRIEFING-NOTE.pdf"><img class="aligncenter size-full wp-image-431677" src="https://media.crikey.com.au/wp-content/uploads/2014/04/2014-04-01_11-33-411.jpg" alt="" width="520" height="180"></a>
Well <a href="https://media.crikey.com.au/wp-content/uploads/2014/04/BRIEFING-NOTE.pdf" target="_blank">here’s the document</a>, and it isn’t a “Treasury analysis” — it’s prepared by Hockey’s media adviser, former Australian Financial Review journalist Gemma Daley. And if Hockey seriously expects us to believe his latest argument, he must have nothing but contempt for us. This is Hockey yesterday: “We didn’t anticipate that everything else would be of equal or larger scale as a tsunami coming across the water. The fact is Labor’s left us with a massive forecast increase in foreign aid, a massive increase in defence – for example in one year, there’s meant to be a real increase in defence spending of 13%, a 66% increase in foreign aid.”
<blockquote>
Hockey would like us to see him as a budgetary innocent who has found himself in the middle of a fiscal minefield planted by Labor.
</blockquote>
At another media conference, he said: “If no action was taken on the budget, what the fifth-year deficit would look like, contrary to what both Labor promised was a surplus, if no action was taken, based on the approximately 6% increase in expenditure between the fourth year and the fifth year, which Labor locked in on NDIS, on Gonski, on overseas aid, on hospitals, on defence …”
Well, um, tsunamis are actually tiny when they’re on the ocean — but never mind that, let’s look at the detail. Labor in fact revealed the funding for the National Disability Insurance Scheme — or DisabilityCare as it had been renamed — in the budget last May, with new spending broken down out to 2019:
<img class="aligncenter size-full wp-image-431667" src="https://media.crikey.com.au/wp-content/uploads/2014/04/2014-04-01_11-24-28.jpg" alt="" width="501" height="179">
In addition to the numbers in the budget papers, there was a specific “glossy” with funding graphs for <a href="https://budget.gov.au/2013-14/content/glossy/NDIS_policy/download/NDIS.pdf" target="_blank">DisabilityCare</a> and one for <a href="https://budget.gov.au/2013-14/content/glossy/gonski_policy/download/NPSI.pdf" target="_blank">education funding</a> as well, which was still being finalised in deals with the states. The increase in foreign aid was also in both the budget papers and a <a href="https://budget.gov.au/2013-14/content/ministerial_statements/download/AusAid_MS.pdf" target="_blank">ministerial statement by Bob Carr</a>  — not that the government got any credit for it, because it was actually a reduction, with the government’s Millennium Development Goal commitment to lifting foreign aid to 0.5% of gross national income put back another year to 2017. The government spelt out its planned increase in foreign aid up to and including 2017-18.
In fact in question time last week, Labor invited the Prime Minister to spell out the government’s MDG policy, which he duly did: aid is to reach 0.5% of GNI when the budget returns to surplus. Which raises the question of why, in Hockey’s Mid-Year Economic and Fiscal Outlook in December, Hockey left Labor’s MDG aid funding increase intact, in defiance of the government’s own policy. The answer, of course, was that it would inflate the budget deficit for 2017 and beyond.
As for defence, the Gillard government <a href="https://www.minister.defence.gov.au/2013/05/14/minister-for-defence-budget-2013-14-defence-budget-overview/" target="_blank">gave the portfolio a “guidance”</a> that it would receive around $220 billion in the six years from 2017-18, which Hockey’s document proposes to mean funding would leap 13% in 2017, when in fact the “guidance” reflects a growth rate in defence spending from 2017 lower than the average between now and 2017 of nearly 7%. And remember that Labor was repeatedly criticised fordecreasing defence spending — every armchair general and arms industry lobbyist in the joint was whinging about how we weren’t spending enough taxpayer money on buying gear from the US military-industrial complex. “Military spending slumps to 1930s level,” The Australian’s <a href="https://www.theaustralian.com.au/opinion/columnists/military-spending-slumps-to-1930s-level/story-e6frg74x-1226352458112" target="_blank">Paul Kelly shrieked</a>. The 1930s theme — hint,appeasement!­ —  was picked up by the Coalition, including Tony Abbott and Barnaby Joyce. Abbott “aspired”, he said, to lift defence spending to 3% of GDP.
So, Labor were both neo-Chamberlain surrender monkeys for not spending enough on defence when in government and now, magically, reckless spendthrifts who committed too much to defence at the same time.
Hockey’s fiscal innocent act is a little hard to believe given we were told what an exhaustive, indeed exhausting, shadow ERC process Hockey was leading within the opposition at the time to establish its fiscal credibility.
And above all, there’s this point: if Hockey seriously believes his own claims about the budget beyond forward estimates, why did he remove Labor savings measures that offset future spending? Why did he remove the 15% tax on superannuation income over $100,000 a year, costing the budget billions beyond forward estimates, for the benefit of high income earners? Why did he restore the Fringe Benefits Tax rort on novated leases — remember Joe being photographed in front of a sports car? And why have Hockey and his leader pushed for the abolition of the mining tax, which even in its crippled form, according to Hockey’s own MYEFO, is worth more than $3 billion over forward estimates? Eventually it will be the only way of recovering some of the profits offshore owners of LNG and iron ore projects will make and ship overseas (over 60% of these projects are foreign owned or controlled).
Then there’s the silly decision to hand $8.8 billion of borrowed money to the Reserve Bank in one hit, when it doesn’t need the capital. And the sale of Medibank Private — a $4-5 billion contribution to the budget — will be spent on roads because Abbott wants to be an “infrastructure prime minister”, when it could cut the budget deficit or the debt. That could be $13-14 billion off the deficit and debt right there — or an interest saving of more than half-a-billion dollars a year.
Hockey is talking about sharing the budget burden around, but that’s only after the government plans to increase its own spending for political purposes and sought to hand billions of dollars in tax revenue back to foreign mining companies, large carbon emitters and the well-off in the community — revenue that would have offset exactly the spending on education, disability and foreign aid that Hockey is now claiming to have only just discovered.
This article originally appeared on <a href="https://www.crikey.com.au/" target="_blank" rel="nofollow">Crikey</a>.
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Joe Hockey treating Australian public as fiscal fools ahead of the federal budget

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It's rare to see the Left and the Right reaching consensus, but it appears nothing can pull Australians together as much as the threat posed by Chinese property buyers.
Today Paul "Magic Water" Sheehan offered his take on the impact of Chinese buyers on the Sydney residential property market. He <a href="https://www.smh.com.au/comment/cashedup-chinese-are-pricing-the-young-out-of-the-property-market-20140309-34f9k#ixzz2vVe3TEVC" target="_blank">warned darkly in today's Sydney Morning Herald</a>:
"The growth of the Chinese middle class has been so explosive, and on such a scale, that it has the capacity to affect Australia in ways that will need to be controlled if some trends continue to accelerate. Notably home buying."
Sheehan, it seems, is was most worried about young people:
"First-time buyers, young buyers, are now caught in a pincer movement between superannuation and Chinese investment."
A pincer movement. Wow. But Sheehan was merely echoing Clive Hamilton, who recently <a href="https://www.theguardian.com/commentisfree/2014/feb/18/wealthy-chinese-buyers-are-making-sydneys-housing-problem-worse" target="_blank">wrote an article for The Guardian</a> originally headlined "Wealthy Chinese buyers are making Sydney’s housing problem worse". Hamilton's piece commenced:
"Every weekend in Sydney, young Australian couples are turning up at auctions excited at the prospect of finally owning their own home, only to find that other bidders are wealthy foreign buyers with money to burn."
"Cash pouring in from China" was responsible, Hamilton claimed -- a "flood of unregulated investment". It touched on the same themes as Sheehan's piece later would: young people priced out of the market, official indifference, how Hong Kong doesn't let the same thing happen.
But the headline on Hamilton's piece was changed to "Foreign demand is making Sydney’s housing problem worse" after an outcry from readers. The Guardian offered an apologia almost as long as the article itself admitting a number of problems with Hamilton's article, although "the author stands by his opinion".
Hamilton and Sheehan aren't the only ones, though. This "flood" of unregulated money from China is becoming a staple of media real estate coverage, especially in Fairfax papers, which have carried articles about the Chinese property "splurge" as real estate prices, especially in Sydney, have soared.
Well, let's try some facts, courtesy of the Foreign Investment Review Board's <a href="https://www.firb.gov.au/content/Publications/AnnualReports/2012-2013/_downloads/FIRB-Annual-Report-2012-13.pdf" target="_blank">2012-13 annual report</a>, which has data on who is buying residential property. Total foreign investment in residential property in Australia fell in 2012-13, from $19.7 billion to $17.2 billion. That was because of a fall in "off the plan" purchases; purchases of existing dwelling stock increased to $5.4 billion (it had fallen in 2011-12), and purchases of vacant land had more than doubled to $1.4 billion. Victoria and New South Wales dominate as destinations for foreign investment in residential property, garnering around $5.8 billion and $5.5 billion respectively.
But importantly, foreign residential real estate investment skews toward new dwelling construction: in 2012-13, despite the fall-off in off-the-plan purchasing, $8.64 billion in foreign investment was for new dwellings, with a further $2 billion for other development, while investment in existing dwellings was $6.4 billion. The predominance of new dwelling investment in foreign residential investment is dramatically at odds with the rest of the market, where new dwelling investment is a fraction of housing finance.
Where does the investment come from? Residential property investment from China is substantial. Chinese buyers are the biggest foreign real estate investors: in 2012-13 they purchased just under $6 billion in real estate -- but that includes commercial real estate, which is twice as large a target for foreign investment as residential real estate. But Canada and the United States aren't far behind the Chinese; Canadians invested just under $5 billion in Australian real estate, and Americans $4.4 billion. Singapore was next with $2 billion, then Malaysia with $1.6 billion; in between were the British, on $1.7 billion.
So, even arbitrarily and xenophobically combining all Chinese, Singaporean, Hong Kong and Malaysian real estate investment under a "Chinese" stereotype means "China" is only just ahead of North American real estate investment (and again, remember that these figures include commercial real estate). And if you lump in the Brits and the Kiwis, investment from "white" foreigners exceeds that from "Chinese" foreigners.
Read many stories about white people driving up Sydney real estate prices? Of course not. Hard to get a good anecdote about white people showing up to an auction and bidding successfully for a property. "Chinese" buyers, even if their families have lived in Australia for a century, are easier to spot and complain about.
But let's assume that all "Chinese" property investment -- just over $10 billion of it in 2012-13 -- was for residential property, which we know isn't true. How much of an impact does that have? The total value of housing finance commitments (which isn't all housing purchases anyway) was $264 billion in 2012-13, so our "Chinese" stereotype is investing less than 4%.
And even if you think 4% is too high and is placing too much pressure on prices, ask sellers in Sydney and Melbourne what they think of foreign residential buyers. Chances are they're perfectly happy to be getting higher prices.
There are legitimate grounds for concern about housing affordability, but they've got little to do foreign property buyers, whether Chinese, Canadian or any other ethnicity. They're related to land supply, planning laws, development approval processes, NIMBYism, the balance between local councils and developers financing the necessary infrastructure for new housing, and tax expenditures that encourage investment in existing housing stock. The best way to improve housing affordability -- assuming that's what you really want to do, given ultimately that will reduce the rise in value of the key asset of most voters -- is to create incentives for investment in building new housing stock.
And oddly enough, at the moment it's foreign investors who are doing that, not the rest of us.
This article first appeared on <a href="https://www.Crikey.com.au" target="_blank">Crikey</a>.
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Is there a Chinese real estate invasion? Not according to the data, fellas

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The economy is marking time at the moment, all the available evidence is telling us, including some out this morning.
First of all, Finance Minister Mathias Cormann issued the government’s first monthly financial statements, covering July and August. They show tax revenue tracking more than $3 billion lower than forecast. Now, most of that was offset by expenditure tracking below forecast as well, and it’s only two months so there’s no point making too much of the figures, but they at least suggest that the new financial year began the way the previous one ended, with tax revenue performing poorly.
The ABS also released <a target="_blank" href="https://www.propertyobserver.com.au/https://www.abs.gov.au/ausstats/abs@.nsf/mf/8752.0?OpenDocument" rel="nofollow">Building Activity data</a> for the June quarter. Both overall construction and residential construction rose a little in trend terms and fell in seasonally adjusted terms, with the most startling figure being a 0.7% seasonally adjusted fall in new residential building. That is problematic because what dragged it down was new house building, which fell 2.8% in the quarter seasonally adjusted and 1.4% in trend terms. That will continue to focus the Reserve Bank on the mix being generated by low interest rates between new home construction?—?which everyone wants?—?and rising prices for existing homes, which only home owners want.
Overall <a href="https://www.abs.gov.au/ausstats/abs@.nsf/mf/8782.0.65.001?OpenDocument" target="_blank" rel="nofollow">construction activity data</a> was also released, showing private engineering construction continuing to fall in seasonally adjusted terms?—?no surprise there?—?albeit a little offset by a welcome rise in public sector residential and non-residential construction.
All that’s on top of yesterday’s meh September unemployment numbers: the headline unemployment rate fell but participation also fell and overall employment growth was underwhelming?—?just 9000 new jobs, seasonally adjusted, and aggregate monthly hours worked actually fell, seasonally adjusted, the first fall in four months.
All of this backwards-looking, especially the building data (although the <a href="https://www.abs.gov.au/AUSSTATS/abs@.nsf/ProductsbyReleaseDate/0545FFC6A101264DCA25719F007F6F1F?OpenDocument" target="_blank" rel="nofollow">August building approvals data</a>showed no pick-up in the new financial year?—?but maybe there’ll be a post-election boost), and is really part of the last data from Labor’s time in office?—?its last GDP and CPI data are still to come. But it confirms that Labor and Treasury were right to downgrade economic growth and employment forecasts for the rest of this year. The news is by no means bleak?—?this is still a low inflation, low unemployment economy, but the transition from the mining investment boom is still not secured yet.
Treasurer Joe Hockey, Cormann and the RBA will be focused on ensuring that happens in the next couple of quarters.

<hr>
This article first appeared on <a href="https://www.crikey.com.au/" rel="nofollow">Crikey</a>.
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Economy marking time with more flat news from the statisticians

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SEIFA data confirms the existence of “two cities” with markedly different economic potentials. It’s not by any means certain though that planning policies to promote social mix would have much effect    
<a style="text-decoration: none; color: #669900;" target="_blank" href="https://chartingtransport.files.wordpress.com/2013/09/melbourne-siefa-isrd1.gif"><img style="max-width: 550px;" height="321" width="470" src="https://blogs.crikey.com.au/theurbanist/files/2013/10/SEIFA-Melbourne-19862.jpg" class="size-full wp-image-31657 "></a>
1986: Relative socio-economic disadvantage and advantage in Melbourne (source: Charting Transport)
<a style="text-decoration: none; color: #669900;" target="_blank" href="https://chartingtransport.files.wordpress.com/2013/09/melbourne-siefa-isrd1.gif"><img style="max-width: 550px;" height="318" width="470" src="https://blogs.crikey.com.au/theurbanist/files/2013/10/SEIFA-Melbourne-2011.jpg" class="size-full wp-image-31601 "></a>
<a style="text-decoration: none; color: #669900;" target="_blank" href="https://chartingtransport.files.wordpress.com/2013/09/melbourne-siefa-isrd1.gif"></a> 2011: Relative socio-economic disadvantage and advantage in Melbourne (source: Charting Transport)
After a long hiatus, Chris Loader at Charting Transport has returned to business with this amazing visualisation of <a target="_blank" href="https://chartingtransport.com/2013/09/29/visualising-the-changing-socio-economic-landscape-of-melbourne/">historical changes in the socioeconomic geography of Melbourne</a> (see exhibit). The maps are specific to Melbourne, but it’s likely there’ve been similar changes in other Australian cities.
The maps are based on the SEIFA Index developed by the ABS. The Index uses Census data to rank areas of Australia by their relative socio-economic advantage and disadvantage.
Red means disadvantaged and green means advantaged. I’ve shown 1986 and 2011 for contrast, but if you click on the exhibits they’ll take you to Charting Transport where there’s an animation of the changes at each Census over the 25 year period.
The ABS says the maps are designed to give a snapshot at a single time and historical comparisons <a target="_blank" href="https://www.ausstats.abs.gov.au/ausstats/subscriber.nsf/0/22CEDA8038AF7A0DCA257B3B00116E34/%24File/2033.0.55.001%20seifa%202011%20technical%20paper.pdf">shouldn’t be undertaken “flippantly”</a>. So, best to look only at the big picture. Also keep in mind the index measures the collective socio-economic characteristics of the people living in a particular sub area (1).
What first hits you in the face looking at these maps is the sheer scale of relative disadvantage in the north and west in 1986 and the sharpness of the divide along the Yarra. Then there’s the subsequent “decentralisation” of disadvantage from the inner city and inner suburbs to the outer suburbs over the period.
Most of the inner city was red in 1986, stretching out 20-25 kilometres from the CBD to the north and west and to the bay in the south. The inner eastern suburbs were green as were the outer eastern suburbs, although there were stripes of yellow and red along main transport corridors.
By 2011 however, there’s virtually no red within 10 kilometres of the centre in any direction, other than a few tiny areas (which are probably social housing estates). Within this bound, the eastern suburbs are almost uniformly green and much of the northern and western suburbs are gentrifying.
The Index fell over the period in some outer areas, for example the eastern suburbs beyond 15 kilometres radius. This could be due to the growing preference of higher income households for more central locations but it’s likely there are other factors at play too, including an aging population and new town house developments.
There’s also more yellow in the suburbs, much of it emerging from 2001 onwards (this is clearer in the animation by Census at <a href="https://chartingtransport.files.wordpress.com/2013/09/melbourne-siefa-isrd1.gif" target="_blank">Charting Transport)</a>. This might reflect growing inequality over the last 10 to 15 years.
There’s plenty of talk of the emergence of “two Melbournes” – the rich inner city and the relatively poor suburbs, especially the outer ones. The SEIFA Index however indicates that while the geography has changed, there were always two Melbournes (2).
The spatial pattern primarily reflects differences in preferences, amenities and economic resources transmitted via housing prices, but not entirely.
The better-off can out-compete those of more modest means to live close to the limited supply of better amenities and public goods like the CBD or the Bay. The pattern is exacerbated though by constraints on the supply of additional housing within established and outer areas. Increased supply could widen locational options for all by improving affordability.
Almost every planning strategy published in the last 20 years argues that increasing “social mix” is the appropriate way to respond to economic segregation. They reflexively propose that socio-economically mixed neighbourhoods should be actively pursued as policy (although they’re usually grossly deficient on how that might plausibly be achieved).
There’s doubt though about whether such policies can effectively tackle poverty or reduce income inequality. Researchers from the London School of Economics examined the issue (Cheshire et al: <a target="_blank" href="https://www.spatialeconomics.ac.uk/textonly/SERC/publications/download/sercpp002.pdf">Policies for mixed communities: a critical evaluation</a>) and concluded that residential segregation is essentially a consequence not a cause of income inequality (3).
They argue the evidence suggests an individual’s characteristics, economic outcomes and life chances are not sensitive to the neighbourhood they live in. A careful examination of the evidence currently available, they say, does not provide much support for the conclusion that mixed neighbourhoods are an effective way of relieving poverty and reducing social exclusion.
Our message from this review of the evidence is that creating mixed neighbourhoods treats a symptom of inequality, not its cause. The problem is poverty, what makes people poor and what keeps them poor; not the type of neighbourhood in which people live. Trying to create mixed neighbourhoods costs substantial resources that could be used directly to relieve poverty.
In a paper published this month, another group of researchers from the London School of Economics (Gibbons et al: <a target="_blank" href="https://personal.lse.ac.uk/gibbons/Papers/Everybody_Needs_Good_Neighbours_October_2012_Final.pdf">Everybody needs good neighbours: evidence from student outcomes in England</a>) examined 1.3 million English schoolchildren as they moved from grade six to grade nine (<a target="_blank" href="https://spatial-economics.blogspot.com.au/2013/09/everybody-needs-good-neighbours">summary here</a>).
Gibbons et al looked at changes in neighbourhood composition over the period and say they failed to find evidence of significant neighbour-peer effects on students’ scores.
From a policy perspective, the implication is that – on the educational dimension at least – programmes to promote socioeconomic mixing in communities through residential relocation are unlikely to be effective.
They did find some evidence that behavioural outcomes such as anti-social activities are affected by neighbourhood composition, so it seems this is a complex (not to mention emotive!) topic.
I expect that increasing housing supply would have some effect on economic segregation (e.g. see <a target="_blank" href="https://blogs.crikey.com.au/theurbanist/2013/09/10/do-sunbelt-cities-know-how-to-increase-diversity/">Do Sunbelt cities know how to increase diversity?</a>), but the bigger picture is city managers and policy-makers should understand better what drives segregation at the neighbourhood and sub-regional levels; what the costs and benefits are (e.g. see <a target="_blank" href="https://blogs.crikey.com.au/theurbanist/2013/09/11/diversity-in-cities-does-it-have-to-be-uniform/">Diversity in cities: does it have to be uniform?</a>); and the limits of what planning can do. 
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1). As the designers of the first version of the ICSEA index (intended to help interpret NAPLAN school results – see <a target="_blank" href="https://blogs.crikey.com.au/theurbanist/2010/03/05/limitations-of-my-school/">Limitations of My School</a>) discovered, a suburb which on average scores either high or low can nevertheless exhibit a lot of variation within the population.
2). My understanding of the deeper mechanics of SEIFA is limited. It might be that a score of 10 or 90 in 1986 means something very different to a score of 10 or 90 in 2011 e.g. the “distance” from 0 to 100 might have stretched considerably over the period (given rising inequality).
3). Henry Overman from the Spatial Economics Research Centre in London <a target="_blank" href="https://spatial-economics.blogspot.co.uk/2013/02/strange-bedfellows-neighbourhood-effects">points to</a> a Marxist analysis (Tom Slater: <a target="_blank" href="https://onlinelibrary.wiley.com/doi/10.1111/j.1468-2427.2013.01215.x/abstract">Your life chances affect where you live: a critique of the ‘cottage industry’ of neighbourhood-effects research</a>) that makes much the same point:  “By examining the structural factors that give rise to differential life chances and the inequalities they produce, and by inverting the neighbourhood effects thesis to: your life chances affect where you live, the problem becomes one of understanding life chances via a theory of capital accumulation and class struggle in cities.”
 
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This article first appeared on <a href="https://www.crikey.com.au" target="_blank">Crikey</a>.
 
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 Tale of two cities; What can be done about Melbourne's socio-economic polarisation?

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By the close of business today, thousands of people will have queued around 20 big, flashy Apple shops across the country and smaller telco outlets like Telstra’s shops to look at and then buy a new Apple iPhone 5.
The hundreds of thousands of dollars they will spend today and into the following weeks will be money that won’t be spent in other retail outlets or activities.
And earlier this week, as many of us with teenagers will know, Grand Theft Auto V came out. It sold a record $US800 million worth in the first 24 hours in the US and Europe. Yes, $800 million! That’s more than all but the biggest Hollywood blockbuster movies make. Oh and by the way, new gaming consoles are coming from Microsoft and Sony later in the year. They’ll be accompanied by a new Call of Duty title. Expect similar numbers to GTA V —?except the main interest in CoD titles is online multiplayer gaming, for which you need not only a quality broadband connection but also an Xbox or PlayStation subscription. In the June quarter, Microsoft earned US$1.7 billion from Xbox Live points.
And by the close of business today, millions of dollars will have flown into the bank accounts of Westpac, CBA and their peers from millions of mortgage owners who are repaying their home loans faster than they have to. That’s part of the continuing deleveraging trend as bank deposits soar while consumers and especially home owners save, save, save, instead of spend, spend, spend, which in turn has confused retailers and others in government.
These are all reasons why big retailers?—?Solly Lew and the hands-on Mark McInnes at Premier Investment, Bernie Brookes at Myer, Gerry Harvey and so on?—?will continue to whinge about how tough they’re doing it. Retail in Australia is changing, and the change is clobbering their business models. And the change isn’t just the switch to online purchasing, GST-exempt services and food, as we’ve so often explained.
The spending on smartphones, not to mention the apps that you can buy for them (worth <a href="https://techcrunch.com/2013/09/19/gartner-102b-app-store-downloads-globally-in-2013-26b-in-sales-17-from-in-app-purchases/" target="_blank" rel="nofollow">US$26.7 billion in revenue this year</a>), diverts revenue from existing shops and services into fast-growing areas of consumption dominated not by traditional retailers but by emerging retailers like Apple and telcos. Although iPods and mobile phones have been around for a decade or more, it’s only with the advent of the iPhone (and smartphones generally) and tablets that the sector has grown enormously. Moreover, it’s telcos that manage the accounts of smartphone owners, which sucks  billions of dollars more out of the domestic economy that a decade ago would have been available to be spent on consumable items and services.
Solomon Lew has locked himself out of this trend completely, preferring to concentrate on stay in clothing and apparel. That has hurt his group’s sales and profits, but Lew refuses to acknowledge that, preferring to blame online GST-free purchases from offshore, or bad management by the former ALP federal government.
Meantime, other new product categories have emerged that also have a significant diversionary effect. Gaming has long been dismissed as trivial and juvenile, but the numbers show it is a major entertainment product with, as the Xbox Live revenue shows, an ongoing revenue stream even between major event titles like GTA and CoD.Those titles do need to be physically purchased at an outlet, whether it’s a games store (a retail form that is going the way of the video store) or more likely an outlet like JB Hi-Fi. A rapidly growing segment of gaming is entirely online, purchased via outlets like Steam, despite the blatant gouging of Australians customers that game manufacturers engage in.
A key feature of these new categories is that they are based offshore. We don’t make or design smartphones here, and we don’t produce blockbuster video games, or game consoles. In fact, we don’t produce many entrepreneurs who have the smarts to develop new product categories at all. That means that the stronger the currency, the bigger the impact on traditional retail of these new categories. And right now, with the dollar regaining some of the recent and welcome fall in value, that means things will continue to worsen for retailers.
At least buying a game or an iPhone in Australia will generate GST revenue, if not enough for WA Premier Colin Barnett’s liking (Prime Minister Tony Abbott this morningagain ruled out altering the GST despite Barnett’s plea yesterday). But mortgage prepayments and rising bank deposits (up $125 billion in the year to June) means more diversion: money is being saved and not spent on products and services that attract GST. Some of us remember the 1980s when Australians were continually lectured to save more, or even the early part of last decade when our very low savings rate was said to be a cause of concern. Now the government hopes to knock our prudence and caution out of us so we spend more.
According to APRA figures there are about 4.8 million mortgages on issue in Australia, with around a third of those (1.6 million) held by investors who have a vested interest in not repaying their loans faster than they should because their investment is tax driven. The remaining mortgages are held by owner-occupiers, and upwards of 60% of these are repaying their mortgages faster than they should.
Yesterday, the RBA provided more evidence of the impact of this faster pace of repayments, with <a href="https://www.rba.gov.au/publications/bulletin/2013/sep/pdf/bu-0913-4.pdf" target="_blank" rel="nofollow">a research paper</a> revealing that between 50 and 90% of the 2.25 percentage points of rate cuts since late 2011 have been used for faster than normal mortgage payments. The RBA says this has cut credit growth for home lending by around 0.8% (which is equal to two months of nominal growth at the moment.
Credit growth in the year to July was 4.6%, up from 4.4% a couple of months ago. The 0.8% impact from the prepayments would have pushed growth to around 5.5%. The RBA researchers say that assuming no more changes interest rates, the impact of the high level of prepayments on credit growth will peak at 1% in 2014.
Traditional retailers might be better off thinking about why they’ve been left behind by consumption and savings trends, rather than begging for assistance. There’s?—?for once?—?<a href="https://www.afr.com/p/opinion/us_federal_reserve_to_test_tony_SM5erLtkJQzvBPZivtyu8M" target="_blank" rel="nofollow">a very good editorial </a>in the Australian Financial Review today suggesting that the best response to a strong currency isn’t to try to prop up industries like car manufacturing. “Australian business cannot depend on the Reserve Bank to dull the pain of a high dollar by cutting interest rates lower and lower,” the Fin concluded. Absolutely. And that applies as much to retailers as to manufacturers?—?or state governments such as Western Australia, which wants the rest of Australia to bail it out via a higher GST.

<hr>
This article first appeared on <a href="https://www.crikey.com.au/" rel="nofollow">Crikey</a>.
 
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Grand Theft Retail: Why traditional retailers will continue doing it tough

Repeat buyers are one of the strongest measures of confidence in any apartment development.

At <a href="https://www.apartments.com.au/new-apartments/era-newcastle-west-124-126-bull-street-newcastle-west-nsw-2302">ERA</a> in Newcastle West, some purchasers are returning to <a href="https://www.apartments.com.au/developers/gwh">GWH</a> after living at the developer's One Apartments. Their decision to purchase again was driven by the quality of life they found after moving into their first GWH home.

Keith Wilton had spent years living in a house in East Maitland before deciding it was time for a change. Apartment living had always been on his radar, but he was selective about what he wanted.

<iframe allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture; web-share" allowfullscreen="" frameborder="0" height="315" referrerpolicy="strict-origin-when-cross-origin" src="https://www.youtube.com/embed/FH_1EzB-1vs?si=XScVlP1ERsTDJoME" title="YouTube video player" width="560"></iframe>

"I had some boxes I wanted to tick," he says.

Keith points to the open-plan design, generous outdoor areas and considered inclusions as key reasons One Apartments worked for him.

“One of those things was a nice indoor open plan area, but also I wanted a nice outdoor open area that I could entertain on in summer or Christmases or birthdays,” he says.

He also found value in the smaller details, from integrated appliances to shared resident spaces including the pool, cinema and rooftop areas.

[smartcode_project:default project_id=135096 project_image_fid=356818]

After comparing several developments, he chose One Apartments because of GWH's longstanding local reputation and his own experience working with the developer on a commercial project more than a decade earlier.

"I knew that they were local, that the quality of the build was going to be up there. I'd looked at other apartment complexes around and close by, and I just knew that here was a better decision location wise."

Today, Keith says the move has completely changed how he experiences Newcastle.

"I enjoy living in this location because it's more of a lifestyle change. That Newcastle city living where you can walk to restaurants and bars and even beaches and parks and even shopping across the road."

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Beyond the location, he says it's the sense of community that has surprised him most.

"Everyone loves living here because they chose to live here, but everyone looks out for each other. It's a real great community feel here."

For Aimee and Lyle Goodman, the journey started almost by chance.

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The couple happened to be having coffee in Newcastle when they noticed the site where One Apartments was about to begin construction.

"We were aware GWH was planning a development," Aimee says. "We made one phone call and things moved pretty quickly after that."

As busy business owners, they initially thought apartment living would simply reduce the maintenance that came with larger homes. Instead, it fundamentally changed how they spent time together.

"We actually catch up more as a family now," Aimee says.

"We've had homes with big yards and lots of space, but everyone ended up in different rooms. Here we'll have dinner together, the kids can play, and we spend far more quality time together."

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Lyle says their confidence came from GWH's reputation within Newcastle's building industry.

"I know people who've worked across different apartment projects, and whenever GWH came up the feedback was always the same. They're rock solid. They're quality."

That confidence only grew throughout the buying process.

"One of the things that really impressed us with GWH was the whole process, was the communication," Lyle says. "It was consistent, it was regular, there was no problem if we had some weird questions, there was no problems in getting answers."

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Aimee says one moment stood out.

"The project actually finished on time. We realised we needed to hurry up and sell our house because everything was happening exactly when they said it would."

The positive experience at One Apartments ultimately gave all three buyers the confidence to purchase again with GWH, this time at ERA.

Their confidence reflects what many buyers are seeking in today's apartment market. Location remains important, but so too does certainty around delivery, quality and long-term liveability.

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ERA builds on those foundations with 280 one, two and three-bedroom apartments across two landmark towers in <a href="https://www.apartments.com.au/developments/newcastle-west-nsw-2302">Newcastle West</a>.&nbsp;

Designed by <a href="https://www.apartments.com.au/architects/fk-australia">Fender Katsalidis</a>, the project will include more than 2,000 square metres of resident amenities, including a resort-style pool, gym, sauna, private cinema and rooftop entertaining spaces overlooking the harbour and coastline.&nbsp;

The development is also within walking distance of the Newcastle Interchange, Honeysuckle, Darby Street, the harbour foreshore, restaurants, retail and the city’s beaches, continuing the walkable lifestyle that existing GWH buyers say has transformed how they live.

[smartcode_project:default project_id=135096 project_image_fid=356826]

For Keith, the appeal remains straightforward.

"You feel at home even before you've moved into your home."

For Aimee, the change is measured in time.

“I just felt like I had more time,” she says.

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Construction at ERA is now underway, with more than half of the residences already sold and limited two and three-bedroom apartments remaining in the East Tower release. Priced from $980,000 for two-bedroom residences and $1.46 million for three-bedroom residences, buyers can secure an apartment with a 10 per cent deposit, with premium homes offering ocean views from Level 8 and harbour views from Level 10.

ERA is also backed by Resilience Insurance's 10-year Latent Defects Insurance policy, providing protection against structural or waterproofing defects for 10 years after completion. The project is anticipated to be completed in early 2028.

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Joel Robinson

From ONE to ERA: Why buyers are choosing GWH again in Newcastle West

Virgate Property Group is preparing to commence construction of Verdé, its new apartment development in Melbourne's Arts Precinct at Southbank, following a strong run of sales that has seen more than half of the project's 173 apartments secured.

Verdé has attracted a broad mix of first home buyers, owner-occupiers upgrading from nearby inner-city suburbs and investors, with younger owner-occupier couples aged between 28 and 45 accounting for the strongest enquiry. Many are already living in Southbank, South Melbourne, Albert Park, Port Melbourne, South Yarra and the CBD.

"Verdé is located in one of the most desirable pockets of southern Melbourne," Blair Property Group Director Darren Blair, who is managing sales at Verdé, said.

"It's within walking distance of the Arts Centre, Royal Botanic Gardens, Albert Park Lake, and Southbank's restaurants and retail. It's a great lifestyle location with strong amenity and liveability, which made it a very attractive choice for the project."

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Virgate was already familiar with the precinct, having previously delivered the successful Domain House development in neighbouring South Melbourne. That experience gave the developer confidence to acquire the Coventry Street site and continue expanding its presence in Melbourne's inner south.

"We had been keeping an eye on the site and the broader precinct for a few months before deciding to move forward with the acquisition," Virgate said.

The project was ultimately secured in 2020 following feasibility studies, planning assessments and due diligence, with the brief centred on delivering "a high-quality, considered design that feels both refined and fit for purpose."

[smartcode_project:default project_id=4661 project_image_fid=314259]

Designed by <a href="https://www.apartments.com.au/architects/bruce-henderson-architects">Bruce Henderson Architects</a>, Verdé comprises 173 one, two and three-bedroom apartments priced from $599,000. The architecture is distinguished by a faceted glass façade that responds to both the site's outlook and Melbourne's changing light conditions.

According to Bruce Henderson Architects, the coloured glazing gives the building a distinctive identity while also providing privacy and solar shading, with residences oriented to capture views across the bay, city skyline and surrounding parklands.

Inside, <a href="https://www.apartments.com.au/interior-designers/designoffice">DesignOffice</a> has created interiors focused on natural light, efficient planning and enduring materials. Apartments feature engineered oak flooring, natural stone benchtops, floor-to-ceiling glazing and SMEG appliances, while a restrained material palette aims to complement the expansive outlooks rather than compete with them.

[smartcode_project:default project_id=4661 project_image_fid=372550]

Resident amenity has also been designed around everyday functionality rather than occasional use. Facilities include a concierge-serviced lobby, residents' lounge with fireplace, library and co-working space, gym, terrace garden with barbecue facilities, ground-floor café, and package delivery management.

The project's location continues to be one of its strongest drawcards. Positioned on Coventry Street, Verdé sits within walking distance of the National Gallery of Victoria, Arts Centre Melbourne, Royal Botanic Gardens and Albert Park Lake, while Southbank's dining precinct, Sturt Street trams and the new ANZAC Station are all nearby. The surrounding education catchment also includes Melbourne Grammar, Melbourne Girls Grammar, Mac.Robertson Girls' High School and several major university campuses.

The sales team says buyers have responded particularly well to the combination of location, design quality and long-term liveability.

"They're responding really positively to the quality of the design, premium resident amenities and the uninterrupted views. Many also appreciate the location and how connected it is to everything they need."

The ability to secure stamp duty savings before completion has also been a key factor for purchasers, alongside the opportunity to personalise finishes ahead of settlement.

With construction set to commence soon and more than half the apartments already sold, Verdé enters its next phase as one of the Arts Precinct's more established apartment developments, offering remaining buyers an opportunity to secure a residence before construction advances further. Expected completion is scheduled for late 2027.

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Virgate's Verdé Southbank moves toward construction as sales fly past halfway stage

Downsizer-focused apartment development Kooyongkoot in Hawthorn has been recognised at the 2026 Better Future Melbourne Design Awards, taking home Gold and Silver awards in two categories.

<a href="https://www.apartments.com.au/new-apartments/kooyongkoot-hawthorn-1-kooyongkoot-road-hawthorn-vic-3122">Kooyongkoot</a>, currently being delivered by developer PQD and designed by Cera Stribley, received Gold in the Interior Design – Proposed category and Silver in the Architecture – Proposed category.

The dual recognition reflects the design approach behind the boutique development on prestigious Kooyongkoot Road, where the focus has been on creating homes for downsizers seeking the space, quality and functionality of a detached house within a low-rise apartment building.

Rather than maximising apartment numbers, <a href="https://www.apartments.com.au/developers/pqd">PQD</a> and <a href="https://www.apartments.com.au/architects/cera-stribley-architects">Cera Stribley</a> limited the development to just 18 residences, allowing for larger floorplans, greater privacy, generous landscaping and expansive communal spaces.&nbsp;The majority of the apartments also benefit from corner aspects, allowing for dual sources of natural light.

Now around 70 per cent complete and on track for completion in November 2026, Kooyongkoot will comprise a mix of garden residences, ter​race apartments, sub-penthouses, and is crowned by two half-floor penthouses with direct lift access and private rooftop terraces.

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The Silver Award for Architecture recognised the way the building responds to its prominent corner position at the ent​rance to Hawthorn's Scotch Hill precinct, one of Melbourne's most established residential neighbourhoods.

Rather than competing with the grand homes that line Kooyongkoot Road, the architectural approach focused on restraint and longevity, using curved brickwork, generous landscaping and carefully considered proportions to integrate with the existing streetscape.

"The form feels fluid and timeless, as though shaped by the landscape itself – architecture that belongs, rather than competes," said Chris Stribley, Co-Founder and Managing Principal of Cera Stribley.

The judging submission also highlighted practical innovations throughout the building, including lift cores servicing only nine homes each, a central landscaped lightcourt designed to bring daylight and ventilation into the building, and fully enclosed private storage rooms with lighting, power and shelving to better accommodate residents transitioning from larger family homes.

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The Gold Award for Interior Design recognised the project's focus on long-term liveability rather than display-home aesthetics.

According to the awards submission, the interiors were designed from the inside out, prioritising how homes would function over decades of daily use through generous proportions, practical storage, durable natural materials and flexible layouts.

The specification includes natural stone throughout, upgraded acoustic glazing, V-ZUG appliances and fully enclosed storage rooms, alongside an amenity offering focused on wellness, entertainment and everyday convenience.&nbsp;

Residents will have access to a gym and yoga studio, a wellness centre featuring traditional and infrared saunas, a cold therapy shower and treatment room, as well as a residents' lounge and golf simulator/cinema room for entertainment.&nbsp;Kooyongkoot has also considered the everyday convenience of its residents by offering a private carwash and pet wash facilities on site as well as dedicated parcel lockers and oversized fully enclosed storage rooms.&nbsp;

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The project's attention to detail has already resonated with buyers. Earlier this year, Kooyongkoot recorded one of Boroondara's highest apartment sales when an $8 million penthouse was purchased by a Melbourne CEO downsizing from a nearby family home.

"Every detail feels deliberate, from the overall design down to the smallest touches," the purchaser said.

"The level of quality and refinement is exceptional, but what really sold it was how liveable it felt... It felt like a place where everything had been considered, not just a luxury building."

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Sustainability also formed a key part of both award submissions. Kooyongkoot is targeting a minimum 7.5-star NatHERS rating across all residences, supported by passive design principles, high-performance glazing, EV charging infrastructure, water reuse systems and a wellness model focused on lower-energy dry facilities rather than pools and large wet areas.

Located within walking distance of Scotch College, Methodist Ladies' College, Koo​yong Lawn Tennis Club, Aubur​n Village and Camberwell Junction, Kooyongkoot continues to target owner-occupiers looking to remain in Melbourne's inner east without compromising on space or quality. A limited selection of two, three and four-bedroom residences remains available, with prices starting from $1.9 million.

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Kooyongkoot wins Gold and Silver at Better Future Melbourne Design Awards

New apartment supply has become increasingly constrained across <a href="https://www.apartments.com.au/developments/parramatta-nsw-2150">Parramatta</a> in recent years, with fewer projects progressing through to completion as development conditions have become more challenging.

It makes <a href="https://www.apartments.com.au/developers/novm">NOVM</a>'s 2021-completed <a href="https://www.apartments.com.au/buildings/the-lennox-parramatta-12-phillip-street-parramatta-nsw-2150">The Lennox</a> one of the most recently completed residential towers on the Parramatta River, and among the newest apartment developments in Sydney's second CBD.

With the project largely completed before the sharp escalation in construction costs and inflation following the pandemic, The Lennox is now offering pricing that would be difficult to replicate in a comparable new development in Parramatta today, or across much of Western Sydney.

The majority of the 413 apartments at The Lennox sold before and shortly after completion. A limited release of the remaining apartments has recently been brought to market by capital partner <a href="https://www.apartments.com.au/project-marketer/equitifund-group">Equitifund</a>, with entry-level pricing from $700,000 and two-bedroom apartments available from under $1 million.

Rising above the Parramatta River at 12 Phillip Street, The Lennox comprises one, two, three and four-bedroom apartments, appealing to first home buyers, young professionals, families, downsizers and interstate investors seeking a completed apartment in one of Australia's fastest-growing economic centres.

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Rather than positioning Parramatta as an alternative to Sydney's CBD, Equitifund believes the city has reached a point where it stands on its own merits.

"Parramatta is no longer simply an alternative to Sydney CBD, it's becoming a destination in its own right," Equitifund Executive Chairman Greg Huxley said.

"The Lennox captures that evolution with a level of quality and amenity that's difficult to match at its price point."

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Designed by <a href="https://www.apartments.com.au/architects/marchese-partners">Marchese Partners</a>, the tower responds directly to its riverfront setting through expansive glazing and open-plan layouts that maximise views across the Parramatta River and city skyline. Interiors feature engineered timber flooring, stone benchtops, stainless steel appliances and floor-to-ceiling glazing, while generous balconies extend the living spaces outdoors.

Marchese Partners says the project was conceived to balance high-quality apartment living with practical, long-term functionality, pairing larger, efficient floorplans with amenities more commonly associated with five-star hotels.

That emphasis continues through the resident facilities, which include a 20-metre rooftop swimming pool, fully equipped gym and wellness spaces, full-time concierge, a residents' lounge, function room, private lifts, secure basement parking and rooftop communal areas overlooking the Parramatta River. Ground-floor boardwalk retail and dining further activate the riverfront and integrate the building into the surrounding public realm.

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Australian housing and finance group Equitifund has secured the remaining apartments, believing there are few completed apartment opportunities in Parramatta that offer the same combination of location, amenity and pricing.

Equitifund National Sales Director Ben Hamblett says buyers are increasingly recognising that premium apartment living no longer needs to come with Sydney CBD pricing.

"The Lennox is where aspirational living becomes attainable," Hamblett said.

"Wake to river and mountain views, step into Sydney's Second CBD, and arrive home to resort-calibre amenities, all without the harbour price tag."

Hamblett says owner-occupiers are also attracted by the convenience of having Westfield Parramatta, Church Street's dining precinct, Parramatta Park, Riverside Theatres, Western Sydney University and major transport connections all within walking distance.

"At The Lennox, lifestyle is not an afterthought, it is the foundation."

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The Lennox places residents within walking distance of Parramatta Square, Westfield Parramatta, Church Street Eat Street, Parramatta Station, the ferry wharf, Light Rail, the future Sydney Metro West, Parramatta Park and CommBank Stadium, reinforcing Parramatta's position as one of Australia's most connected metropolitan centres outside Sydney's CBD.

Equitifund says buyers visiting the display suite consistently comment on the quality of the finishes, generous floorplans, river and skyline views, and the walkability of the location. The project has attracted a broad mix of local professionals, upsizers, downsizers, buyers relocating from Sydney's inner suburbs and interstate investors seeking long-term growth opportunities.

That demand aligns with Parramatta's continued evolution as an economic powerhouse. Equitifund Research and Market Insights specialist John Bekiaris says sustained population growth, infrastructure investment and expanding employment opportunities continue to support long-term housing demand across the city.

"Parramatta has evolved from a satellite city into one of Australia's most important economic centres. Population growth, infrastructure investment and employment are all supporting sustained long-term housing demand."

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The apartment price gap drawing Sydney buyers west

A luxury beachfront apartment at Rainbow Bay has more than doubled in value since it sold off the plan six years ago, setting a new local apartment record in the process.

The three-bedroom apartment in the Flow development on Petrie Street, the first of four new projects locally by Paul Gedoun's S&amp;S Projects, has sold for $7.4 million, after originally selling for $3.27 million when the project launched in 2020.

The seventh-floor apartment, comprising 187 sqm of internal living space and a 54 sqm balcony overlooking Froggies Beach and Snapper Rocks, was purchased by a local family.

The transaction was negotiated by Pezet Matheson director Kerry Pezet and equates to more than $30,000 per sqm.

Pezet said the sale reflected the limited opportunities to buy into the boutique beachfront development.

"The sale highlights the rarity of opportunities within the boutique beachfront development, where residences seldom become available," Pezet said.

"Flow is one of the Gold Coast's most tightly held buildings. Buyers from our database move quickly when residences become available, and achieving an off-market sale at $7.4 million demonstrates the depth of demand for property of this calibre."

<img alt="Flow" data-entity-type="file" data-entity-uuid="c585b206-2130-4eee-a50c-3f27c51a7c70" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-06%20at%208.33.25%E2%80%AFPM.png?VersionId=m3pHRDV62Y3fvN.XQuQHq.52ilTWpRLf" />

Flow was the first of four luxury apartment developments delivered by Paul Gedoun's S&amp;S Projects at Rainbow Bay and was completed in 2023.

Positioned on the beachfront overlooking Snapper Rocks, the residence includes three bedrooms, three bathrooms, a powder room and views stretching north along the coastline towards Surfers Paradise.

Pezet Matheson Residential principal Mitchell Lambert said buyers continued to prioritise quality beachfront apartments in tightly held locations.

"Flow Residences offers a rare combination of elevated beachfront positioning, architectural excellence, comprehensive resident amenity and premium finishes, which is exactly what discerning purchasers are seeking," Lambert said.

"The transaction further reinforces Rainbow Bay's reputation as one of Australia's premier coastal lifestyle destinations, where limited supply and growing demand continue to support strong market performance."

Pezet Matheson originally marketed and sold out Flow off the plan, making the latest transaction a return to one of the project's original buyers.

Paul Gedoun is selling his third project, <a href="https://www.apartments.com.au/new-apartments/radia-rainbow-bay-271-boundary-street-coolangatta-qld-4225">Radia Rainbow Bay</a>, after recently completing, and selling out, <a href="https://www.apartments.com.au/buildings/esprit-217-227-boundary-street-coolangatta-qld-4225">Esprit</a>. He has plans for a <a href="https://www.apartments.com.au/news/qld/first-look-s-s-projects-proposes-88-apartment-wellness-tower-at-coolangattas-boundary-street">fourth building</a>, 88 apartments on <a href="https://www.apartments.com.au/new-apartments/209-213-boundary-street-coolangatta-qld-4225">Boundary Street</a>.

Bernard Keane

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