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<div class="column">GUEST OBSERVER</div>
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<div class="column">We consider the reasons why the RBA may consider implementing Quantitative Easing (QE).</div>
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<div class="column">There would need to be a sharp downturn in economic activity which is not in our forecasts.</div>
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<div class="column">Some QE options are more likely than others, based on other central bank experiences and the nature of Australia’s financial system. Negative interest rates look unlikely.</div>
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<div class="column">We believe that the RBA sees the Effective Lower Bound (ELB) for the cash rate to be around 1.0%.</div>
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<div class="column">We do not believe that the Zero Lower Bond (ZLB) will happen here.</div>
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<div class="column">A lower Australian dollar (AUD), say below USD0.70, is preferred because it will obviate the need for QE.</div>
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Overview 
The RBA cash rate is currently at a record lows and, in our view, set to go slightly lower. Our forecast is for a 25 basis point rate cut in November, bringing the RBA cash rate to a new record low of 1.25% after the September quarter inflation update. But conventional monetary policy is reaching its limits here. While real GDP growth is close to decade averages, inflation and wages are still trending lower. So a cash rate of 1.0% is a clear possibility. But that could be the low point, or the ELB, before unconventional monetary policies (UMPs), like QE, are introduced here. 
Why are rates being cut to such low levels? Essentially it is because inflation is very low. However, low interest rate are not lifting activity where it is most required. Namely, in non-resources business investment. Ever lower cash rates are required because economic growth rates can be significantly higher than they currently are in order to return inflation to the target range of 2-3%. 
The “neutral cash rate” – the one where full employment co-exists with mild inflation - is clearly moving lower since the Global Financial Crisis (GFC). It has not stabilised. This is a global phenomenon and in the US the Fed currently believes the real neutral Fed funds rate has declined to zero.1 
However, one of the costs of low interest rates is overstimulation of the housing market, necessitating APRA’s macro-prudential new controls over lending to home buyers and developers. We suspect there may be another tweak of the controls if the risks around the housing sector are not abating sufficiently quickly. Housing credit growth is moderating but offshore capital flows into local residential and commercial property remain relatively strong. State government tax hikes on foreign investors’ residential investment are a recent development. Higher property taxes usually slow investment activity. 
UMPs, like QE, have been used effectively since the GFC, to stimulate activity and overcome the lack of liquidity in parts of the financial system. Research from other central banks indicates that it has been effective in lowering longer term interest rates and flattening interest rate curves.2 But that the costs may rise if QE remains in place for an extended period. 
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Of course, Australia’s monetary policy arrangements are not the only factor influencing domestic activity and the level of the Australian Dollar (AUD). They are not done in complete isolation in a world of open capital flows and floating currencies. 
If the US Fed proceeds to lift interest rates later this year, then the effect should be to lift the USD and lower the AUD. A lower AUD, say near USD0.70, would provide a boost to the Australian economy through stronger export growth. It also shifts price relativities in goods and services markets to favour local producers. 
While indicating that the possibility is “very remote”, RBA Assistant Governor Chris Kent, recently discussed the RBA’s studies on UMPs in an interview with Bloomberg. Kent flagged that unconventional policies would not be used on a pre-emptive basis. But rather only after symptoms of economic stress had materialised that warranted policy action. 
Governor Glenn Stevens has also stressed that the RBA’s current inflation targeting framework is flexible enough for inflation to undershoot the target for a reasonable period of time. These comments cover the current situation where there is above-potential economic growth and reasonable growth in the labour market, but low inflation. It also appears to indicate that the RBA is reluctant to use UMPs. There would need to be greater downside risks to economic activity and, as part of that, upside risks to the national unemployment rate.  
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Possible UMP options 
RBA Assistant Governor Christopher Kent, in a recent interview, stated that a combination of UMPs used concurrently may be more effective than a single one. So we could expect more than one unconventional policy tool to be employed in Australia should the need arise. 
Most Likely Options 
We consider the most likely QE options for the RBA to be as follows. The list is not exhaustive, but they appear realistic. 
1. Explicit forward guidance from the RBA that provides a high degree of certainty that the cash rate will stay low for a long time. Credible forward guidance in publications and speeches lowers interest rates along the interest rate term structure. This in turn supports financial asset prices and would apply some downward pressure to the currency. Markets and investors would benefit from regular updates on the RBA’s reasons for maintaining expansionary monetary policy settings. 
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Large scale domestic bond market asset purchase programs. Asset purchases raise the price of assets being purchased, and lower their yields. Lower yields on these assets in turn encourage investors to purchase other types of assets, pushing up their prices and generating positive wealth effects. Preferred assets for purchase are likely to be Federal and State government debt. 
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However a reduction in the long term yields from corporate and 600 government bond asset purchase may not have a significant impact on household or business borrowing costs in Australia. As interest rates go lower the transmission of monetary policy to bank lending rates may become less effective. 
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Looking at other countries with very low or negative policy rates shows that deposit rates have not declined to the same extent as central bank policy rates. This has limited the extent to which banks can reduce their lending rates without reducing their margins and profitability.
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Excluding banks and financials, the Australian corporate bond market is relatively small. This means lower yields for these securities would have 
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a limited impact on overall business borrowing costs, especially if interest rates are already low. 
Asset purchases are likely to have implications for the value of the Australian dollar. Foreigners hold a significant share of government bonds outstanding. The Australian dollar will be sold if foreigners reduce their holdings of these assets in response to lower yields and redirect their money back offshore. Offering a Bank of England type Term Funding Scheme where the RBA lends significant amounts to the commercial banks at the prevailing cash rate to ease commercial banks’ cost of funding. This enables the banks to pass on the full extent of any interest rate cuts.
Financing government infrastructure spending via purchase of Federal and State Government bonds of varying maturities. It could be done in tandem with the current Federal Government asset recycling program. It involves State Governments receiving a 15% premium from the Federal Government for an asset sale that is then used to finance infrastructure that is intended for future sale.
Fortunately, Infrastructure Australia has a list of projects, across the States, which would produce the most effective medium and longer term economic and social outcomes. We have recently published research on the shortfall in public infrastructure investment in Australia.
Unlikely policy options 
We consider the following options to be less likely in Australia:
Negative interest rates (NIR). Assistant Governor Kent has said that NIR would pose problems for the banking system and put the money market fund industry at risk. Governor Stevens has also said that the likelihood of negative rates in Australia is “low” and that it could damage bank earnings. This in turn could lead to higher lending rates and lower credit supply, which is the opposite effect to what was intended.
NIR are initially applied between the central bank and commercial banks at a wholesale level. But in Germany, some banks are now applying them to retail depositors.
It may also pose potential risks for funding Australia’s current account deficit. We make the observation that so far, no country with a current account deficit has implemented negative rates.
The purchases of foreign assets over and above normal reserves management. Kent has said that purchases of foreign assets would be seen internationally as overt exchange rate targeting. RBA Governor Stevens has previously been criticised for trying to “talk down” the valuation of the Australia dollar. G20 member countries, which includes Australia, agreed not to target their exchange rates for competitive purposes.
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Conclusions 
We have canvassed what we see as the most likely options should QE policies be introduced. However we emphasise that it would take a significant downshift in economic growth and a rise in the unemployment rate for the RBA to consider UMP. We see the most likely options as forward guidance and bond market asset purchases. Ideally, a concerted effort to lift activity via publicly-funded infrastructure programs in transport, ports, airports and education would augment it. The aims are to stimulate activity, drive the economy towards full employment and keep inflation within the target band without financial instability. It’s a learning curve at a new, extraordinarily low level of global interest rates. 
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 Michael Workman is senior economist, <a href="https://www.commbank.com.au/corporate/research?ei=mv_research" target="_blank">Commonwealth Bank</a>.
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jchancellor-FAypfDUnLy

Desperation or just the next step? QE in Australia: Michael Workman

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Il Palmetto, the Palm Beach, Florida home has been listed through Sotheby's International Realty, by Jim Clarke, co-founder of Netscape Communications, and his Australian former-model wife Kristy Hinze.
Their waterfront estate in Palm Beach, Florida is on the market for $US137 million ($181 million).
The 1930s Italian renaissance-style mansion was designed by the architect Maurice Fatio for the industrialist Joseph Widener.
After Clark bought it in 1999, he spent four years renovating.
The six-bedroom, 5606-square-metre home is now a series of pavilions connected by cloisters on eight hectares, with a separate beach house with infinity pool and a tunnel under the South Ocean Boulevard leading to it, so guests get to the beach without having to cross the road.
Clarke, a keen yachtsman, married Hinze in 2009.
They sold their Point Piper waterfront apartment in the Sienna block for more than $8 million earlier in the year.
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Tech billionaire Jim Clark and wife Kristy Hinze list mega mansion at Palm Beach, Florida

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GUEST OBSERVER
Each ‘earnings season’ or ‘profit-reporting season’ CommSec tracks all the earnings results of ASX 200 companies to obtain a comprehensive picture of the aggregate health of Corporate Australia.  
Despite some high profile exceptions, companies have generally reported solid results. All but 16 of the 139 companies produced a profit for the year to June. That is, almost 90 per cent of companies made money. Excluding BHP Billiton, aggregate profits lifted by almost 7 per cent.  
Gold, Real Estate Investment Trusts (REITs) and Health Care were some of the strongest sectors in 2015/16 together with companies linked to, or dependent on, home building.  
A record 92 per cent of full-year reporting companies elected to pay a dividend.
The Profit Reporting Season 
There is no doubt that the past year has been challenging for many companies. But that isn’t anything new. Australian companies have been living with the new realities of ‘disruption’, increased competition and low inflation for a few years now. The important point is that Australian companies continue to respond positively to the challenges. Almost 140 of Australia’s biggest companies reported full year results, and all but 16 have recorded a profit. Strip out BHP Billiton and aggregate profits are up by around 7 per cent compared with a year earlier. 
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In typical sporting parlance, it was a year of two halves. In the second half of 2015, unemployment fell, retail spending rose and the Aussie dollar eased  all serving to boost bottom-line profits. But over 2016, the dollar drifted up, the job market stalled and retail spending flattened. You can blame “Brexit” or the long election campaign, but operating conditions for companies became tougher.  
Assessing all the profit results of the major listed companies provides great insights into the health of Corporate Australia and thus the health of the economy. We are less interested in whether companies met or exceeded analyst forecasts. That says more about company guidance, the forecasting abilities of analysts and the number  of analysts providing forecasts for company earnings (in many cases just one broker ‘covers’ a stock).
The good news is that companies are making money; cash levels remain high; and companies remain super-keen to pay dividends to shareholders.  
Overall, though it is clear that Aussie companies have had to work hard in lifting revenues, they continue to achieve success in restraining costs. Low wage growth and weaker input costs such as energy assisted companies in boosting bottom-line profits. Aggregate cash levels haven’t budged much from the last reporting period in December. But as noted, companies are enthusiastic as they have ever been in paying out dividends.  
And while it has been hard work to lift revenues, Treasury Wine Estates (TWE) has shown what can be done with a re-assessment of strategy. TWE now employs a high margin strategy and it was successful in lifting revenues 19 per cent in the last financial year.  
And on the costs side, Fortescue Metals (FMG) has shown the benefits of its focus on cutting iron ore cash costs, slashing expenses by 31 per cent over 2015/16. Fortescue noted that C1 costs had been cut by 43 per cent over the financial year. And Qantas also trimmed costs by 1.4 per cent while lifting revenues by 2.4 per cent, boosting bottom-line profits. Underlying fuel costs fell by 17 per cent in 2015/16 with underlying non-fuel expenses down by 5 per cent.  
BlueScope Steel was another stand-out, continuing its amazing recovery, with profits more than doubling on the back of strategic decisions and improving industry fundamentals.  
It is wrong to say that resources companies had a poor 2015/16. Gold producers as a group actually reported a 4.4 per cent lift in profits. Demand for gold has remained firm while the gold price in Australian dollar terms flirted with record highs on a number of occasions in 2015/16. Earnings weakness was concentrated in the Diversified Metals &amp; Mining sector.  
Arguably the best performing sector in 2015/16 was Real Estate Investment Trusts – REITs or property trusts. The fundamental assets such as shops, industrial premises and offices have remained in firm demand with investors increasingly on the look-out for higher yields.  
Other solid-performing industry sectors include Health Care, Packaged Food, Broadcasting, Asset Management and Casinos &amp; Gaming. Companies linked to, or dependent on, home building and purchase also did well.  
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The Details: Full-year earnings
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CommSec has analysed all results from ASX 200 companies. Traditionally brokers or analysts focus on smaller subsets of results. And some merely focus on just whether companies have met or fallen short of “market expectations”.
Overall, 139 companies from the S&amp;P/ASX 200 reported profits for the year to June. Including all companies, profits fell 16.8 per cent over the year to $30.4 billion. But a significant distortion is imparted into the results from BHP Billiton. The mining heavyweight swung from a profit of US$1,910 million to a loss of US$6,385 million. To include BHP Billiton in the aggregate results would present an incorrect picture of the earnings season.  
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Some of the key results:
Excluding BHP Billiton, aggregate profits rose by 6.8 per cent to $36.8 billion.  
Average earnings per share rose by 1.4 per cent (ex BHP Billion, up 3.9 per cent).  
Aggregate sales were up by 3.2 per cent over the year; aggregate costs/expenses were also up 3.2 per cent.  
All but 16 companies recorded a profit for the year to June: that is, 88.5 per cent of companies recorded a profit.  
63.3 per cent of companies increased profit over the year; above the long-term average near 60 per cent.  
Aggregate cash holdings rose by 0.7 per cent to $74.2 billion.  
Adding in the 28 companies reporting half-year earnings, cash levels were up by 2.5 per cent on end  December levels.  
Aggregate dividends rose by 6.0 per cent over the year.  
 92.1 per cent of companies (128 of 139 companies) paid a dividend.  
Of companies paying a dividend, 65.6 per cent lifted dividends; 16.4 per cent maintained dividends; and 18.0 per cent of companies cut dividends.  
The Details: Half-year earnings results  
CommSec has tracked 28 companies from the ASX200 that reported earnings for the half-year to June. All but three reported a profit. That is, 89.3 per cent of companies reported a profit.  
The gap between profit and loss was closer: 57.1 per cent reported a profit.  
Cash levels fell 24.3 per cent from June 2015 to June 2016 to $24.8 billion.  
92.9 per cent of companies (26 of 28 companies) paid a dividend.  
Of companies paying a dividend, 53.8 per cent lifted dividends; 19.2 per cent maintained dividends; and 27 per cent cut dividends.  What are the implications for interest rates and investors?  
The Aussie sharemarket is slightly overvalued at present with a price-earnings ratio sitting closer to 17, above the longer-term average of 15.7. But the latest earnings results represent a tick for the sharemarket. And with the economy in decent shape, share prices have scope to track profits higher – particularly in light of the super-low interest rate environment.  
We see no need to change our long-held forecasts. We currently expect the All Ordinaries to be between 5,500- 5,700 points by end-2016 (ASX 200 probably 100 points lower) with the index lifting to 5,700-5,900 by mid-2017.  
As always, the focus of investors should be on total returns from shares, not just share prices. Global factors (that is, the US election and US interest rate hikes) may act to constrain domestic share prices in the short-term, but fundamentally Aussie companies are in good shape, making money and choosing to pay dividends. Indeed most  of the major listed companies have decided to lift or maintain dividends. The current dividend yield is around 4.2 per cent.
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<div class="column">Total returns on the Australian sharemarket – as measured by the All Ordinaries Accumulation index (XAOAI, dividends plus share price changes) – hit record highs on August 24 at 51,934 points. Currently total returns on Australian shares are up 7.4 per cent on a year ago. We expect total returns over the next 12 months to record annual growth of between 7-12 per cent. Companies have been cagey about providing guidance for the next six months. And that is understandable. Most are being challenged by the low inflation/low interest rate environment and looking at options for growth. And these options differ. Gold companies are looking to invest and expand. Industrial companies such as SEEK are looking at “aggressive” reinvestment in the business and potential acquisitions. Domino’s Pizza is looking to push the envelope further by focusing on completing deliveries in 10 minutes.
In other words, many see the best form of defence being attack. And that makes sense. Fewer companies can exercise price leadership, and competition is now very much global for many industries. The key for companies is to find a point of difference from competitors and one that customers truly value. The low inflation/low interest rate environment looks to be around for some time to come. 
Savanth Sebastian is an economist for <a href="https://www.commsec.com.au/" target="_blank">CommSec</a>. Craig James is the chief economist at <a href="https://www.comsec.com.au/default.aspx" target="_blank">CommSec</a>.
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Corporate Australia rewards shareholders: CommSec's Craig James and Savanth Sebastian

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A corner freehold investment ion Melbourne's Chapel Street in Windsor has come on the market with a price expectation around $11 million.
The property, 125–131 Chapel St, Windsor, named “Conway’s Corner” currently has eight secure tenancies and is not he market through hockingstuart Commercial’s Charles Carty in conjunction with Colliers International and ASM Commercial.
The property goes to auction midday, 14 October.
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Chapel St, Windsor corner freehold up for auction

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GUEST OBSERVER
Without data centres, today’s world stops. Flights are grounded, Wall Street closes, and the internet grinds to a halt.
Yet despite their emergence as nerve centres of the global economy, data centres have drawn almost no attention in debates about globalisation and nor are they often discussed outside of business and IT publications.
Even the recent debate on the bungling of the digital census managed by the Australian Bureau of Statistics focused on questions surrounding possible distributed denial-of-service (DDoS) attacks.
This was despite mention of hardware failures as well as inadequate redundancy and load testing, which are problems that stem from operations within data centres.
Data centres provide governments and industry with advantages in terms of improving website and internet service speed, providing access to technical and security services and expertise, and cutting labour and hardware costs.
Consultancy firm Frost &amp; Sullivan forecasts that the Australian data centre services market will grow by 12.4 percent a year to 2022.
Much of this growth will be driven by regular internet users. If you use social media sites, Google applications, web-based mail services, or just carry a smartphone, you have your data stored in a data centre.
Even if you only very occasionally use the internet, you still have data stored about you: all metadata of people residing in Australia is now legally required to be stored by internet service providers for two years.
<h2>Where’s your data?</h2>
But where are these data – your data – being stored? Ask someone in Australia where everything they’ve ever uploaded to social media is actually located, and they are more likely to say “in the cloud” than “in a data centre”.
Although cloud technologies make it difficult to pinpoint data to a particular data centre, the reality is that data centres are never too far from us.
They are in our cities, suburbs and occasionally in rural and remote locations. In order to investigate the data centres near us we began looking in the inner Sydney suburb of Alexandria.
Most Sydneysiders are aware of the ongoing transformation of Alexandria, which includes parts of the urban renewal project called Green Square.
In the 1940s it was the country’s densest industrial area: more than 22,000 people were documented to be working in 550 factories that were crammed into a 4km-square boundary.
Today the suburb is best known for its warehouse apartments, tech industries, offices, commercial businesses and showrooms. The industrial look of the suburb has largely been retained thanks to a large number of heritage-listed buildings.
A lesser-known fact about Alexandria is one that is shaping its current development phase: it is one of the places you need to be if you want the fastest connectivity in Australia.
Alexandria, along with Brookvale on the Northern Beaches of Sydney, is where the Southern Cross Cable network “lands” in the country. This cable is one of five that sit above the ocean floor to connect Australia with the rest of the world.
As New York University’s Nicole Starosielski has explained on The Conversation, “undersea cables transport almost 100% of transoceanic data traffic”.
Few people know that Alexandria plays a role in connecting them to rest of the world, transmitting data through telecommunication networks.
This is not surprising. Neither the landing port nor the suburb’s cluster of data centres are easy to find.
Taking a walking tour around the data centres of Alexandria requires research and planning. Data centres generally do not have a company name on their front gates. They are secured by guards and surveillance technologies.
We decided to explore Alexandria by focusing on one company that has four data centres in the area, including a recently opened facility that will become one of the country’s largest data storage and processing plants.
Equinix is a US corporation that operates some 145 data centres across five continents. These data centres are “carrier-neutral”, which means they operate independently from the companies that interconnect within them.
Among Equinix’s clients are cloud service providers such as Amazon Web Services and Microsoft Azure.
Equinix bills its data centres as “international business exchanges”. Peering services like those offered by Equinix allow companies to enhance speed and obtain a competitive advantage by connecting directly with each other inside its facilities rather than having to establish links over the much slower public internet. High-frequency trading is one financial sector that benefits from such arrangements.
Equinix’s four Alexandria data centres are spread along Bourke Road. One is housed in a refurbished warehouse designed by renowned architect Harry Seidler in the late 1960s.
The recently opened facility, dubbed SY4, will almost double the company’s capacity in Australia. A development application submitted in 2014 details plans for power supply, water management and noise control.
The document states that the “data centre is to provide 24/7 mission critical services to business customers by providing a secure and reliable location for the ‘co-locating’ of their equipment”.
<h2>Bricks and mortar</h2>
An argument can be made that the public doesn’t really need to know where data centres like those in Alexandria are located. After all, much of the data they store, process and transmit are private and confidential.
However, since data centres comprise a growing global industry that provides critical social and economic infrastructure we think they warrant research.
Governments spend a great deal of resources safeguarding critical infrastructure. The protection of data and information systems is now included in this work.
However, the focus for data security is on the development of software, as though we have forgotten that data storage happens in real places on the ground – and not in “virtual” clouds.
Not knowing where data centres are located, or indeed what they actually do, prevents us from having conversations about how this infrastructure is governed, supported and protected.
We need to ask how data centres can and will impact on the economy, different industries, government policy, society and the environment.
Becoming acquainted with these facilities is a first step to understanding their role in shaping how digital communication and content are stored, used and moved around the world.
Brett Neilson is professor of Culture and Society, Western Sydney University and can be contacted <a href="https://theconversation.com/profiles/brett-neilson-292112" target="_blank">here</a>.
Ned Rossiter is professor of Communication., Western Sydney University and can be contacted <a href="https://theconversation.com/profiles/ned-rossiter-292064" target="_blank">here</a>.
Tanya Motley is lecturer in Internet Studies &amp; Convergent Media, Western Sydney University and can be contacted <a href="https://theconversation.com/profiles/tanya-notley-110182" target="_blank">here</a>.
All are authors for The Conversation.
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Where’s your data? It’s not actually in the cloud, it’s sitting in a data centre

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Real estate investment management firm Qualitas will provide a $33.5 million mezzanine loan to BPM Group for its ambitious $300 million Shadow Play development in Melbourne’s Southbank.
It is one of Qualitas’ largest mezzanine deals, providing funding alongside Westpac and Bankwest for the 46-level, 486-apartment complex.
Tim Johansen, Managing Director of Real Estate Finance at Qualitas, said the development was attractive to Qualitas as it has been significantly derisked.
“BPM has invested heavily in the design and marketing of Shadow Play to ensure that it’s a sought-after, premium offering that stands out in the market.
"As a result, it has already secured an impressive 75 percent of the project in pre-sales.
"BPM has also partnered with a quality contractor, the ICON Group, which has a strong track record in these types of projects,” he said.
Award-winning architects Elenberg Fraser have designed the project, while Hecker Guthrie are behind the interior design. 
Jonathan Hallinan, founder and managing director of BPM says Shadow Play is on track for completion in the first quarter of 2018.
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75 percent sellout as Qualitas provides further funding for BPM's Shadow Play project

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GUEST OBSERVER
In late 2015, the major banks began to feel the heat from APRA regarding their exposure to residential investor loans and how their appetite for this type of funding was driving new development product and impacting the market. 
Prior to this inevitable crack down by ASIC and APRA in their respective spheres of responsibility, the major banks enjoyed a long and prosperous period where they were largely unchallenged in the construction finance sector. 
However, now we are seeing changes as the capital requirements imposed on the banks start to take effect. Importantly, all political parties support the continued application of pressure via the regulatory levers to ensure that their contingent exposure to underwriting the banks deposit funds is appropriately controlled and “well managed”. This is because Australians have an expectation that their savings accounts will always be there when things get tough and they expect their politicians to ensure this is so. No political leader wants to be explaining why they allowed unscrupulous bankers to lose the hard earned savings of their Mum and Dad constituents. 
These overriding regulatory requirements are not temporary responses to a specific event; they represent an ongoing constraint that will impact the pricing and structure of all future construction loans, resulting in permanent changes to bank lending policies which will now fluctuate within certain lower risk parameters. 
This represents a new world order in construction finance and has been clearly demonstrated with all four banks being either closed for “new to bank” business; or, operating with significantly reduced appetite and lending parameters over the past 10 months. 
These loans are assessed individually via a complex risk model that requires all the relevant factors to be input to ensure the banks satisfy and maintain the accepted risk levels required of them by APRA. As a consequence, there are far fewer “discretionary” decisions available to your bank manager when he deals with an application. 
Developers can no longer expect their house bank to provide the necessary funding because “they have always done it in the past”. As many are learning, the fact that they may have had a long-term relationship with their bank is of no consequence and doesn’t guarantee an ability to borrow funds on the same terms that they have become accustomed to. 
With the banks now limiting their exposure to the sector and pricing risk far more keenly than in the past, a wide range of alternative debt providers and equity players are entering the market or broadening their existing reach. The challenge for today’s developer is identifying which ones best fit both their business and specific project needs. This in turn requires a readjustment of expectations as to what constitutes an appropriate finance cost when assessing project viability as the cost of these funds is generally between 2-3% higher. 
While all this sounds like the industry has become a lot more complicated, and in some ways it has, it also means there are far more options available to developers, enabling them to fulfil their project ambitions and maximise their available capital. Just as the housing mortgage market was completely restructured with the coming of the wholesale funds and brokerage structures, we expect to see the construction finance industry undergo a similar metamorphosis, ultimately with similar positive results for developers. 
With the re-emergence of various second tier lenders, investment funds, managed trusts and private lenders all vying for a share of what will continue to be a growingly sophisticated market, the challenge for the governments and the regulators will be ensuring that Mum and Dad investors in search of better returns get the appropriate levels of protection that their bank funds do. 
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This article appeared in Holden CAPITAL's Special Edition Market Update - Winter 2016 Insights from the Front Line of Construction Finance .
This article was written by Dan Holden of HoldenCAPITAL, who are a bespoke construction finance firm, they arranged over $300 million of construction finance in 2015 across 52 projects. To discuss your project finance requirement please call (07) 3171 4200 or visit <a href="https://www.holdencapital.com.au/" target="_blank">www.holdencapital.com.au</a>
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Construction finance industry likely to undergo metamorphosis: Holden Capital

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The federal government has announced an inquiry into specific cases of mistreatment of small business customers by banks.
It has been interpreted as a bid to take the steam out of Labor's call for a royal commission.
The government made the announcement minutes before Labor leader Bill Shorten moved a motion calling for a royal commission.
Kelly O'Dwyer, the Minister for Revenue and Financial Services, announced the inquiry. 
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, will undertake the inquiry "into the adequacy of the law" to address concerns raised by the Parliamentary Joint Committee on Corporations and Financial Services in its report released in May this year.
It will examine selected cases identified by the committee regarding small business lenders to determine whether regulatory action is required.
Mr Shorten's motion, seconded by independent MP Bob Katter, noted that "scandals in the banking and financial services industry have led to retirees having their retirement savings gutted, families being rorted, small business owners losing everything, Life insurance policy holders being denied justice; and agricultural assets being improperly foreclosed; and despite several inquiries, new powers, new resources, and a Financial Ombudsman Service, the rorts and the rip offs continue."
The terms of reference for Ms O'Dwyer's inquiry are:
"In undertaking the inquiry, the Ombudsman should: review a selection of the cases that have been identified by the PJC as unfair and ascertain whether there are any deficiencies in the regulation of authorised deposit taking institutions in lending to small business; 
"refer any matters identified in the review to the relevant authority for further consideration as necessary;
"determine whether the regulatory deficiencies identified by the PJC, or additional deficiencies identified through the inquiry, are being addressed by subsequent Government and industry reforms; and
"recommend whether additional reform measures should be implemented (legislation, regulations, guidance and practices) to ensure products perform in the way they should, taking into account that consumers have a responsibility to accept their financial decisions, including market losses, when they have been treated fairly, and any impact on the availability and cost of credit to small business."
The inquiry will take 12 weeks.
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Bank inquiry announced by Federal Government

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Scrutiny of commercial property lending has been "dialled up", the Australian Prudential Regulation Authority chairman Wayne Byres said yesterday.
Commenting on the 10 percent growth cap imposed on bank investor loan portfolios - with actual rates of growth sitting at around half that rate - Byres advised the cap, initially announced in December 2014, was "always intended to be temporary [and] it is still our view that it will be temporary, so we are certainly thinking about the next evolution of what we do". 
But Mr Byres said "there is no doubt we have dialled up the intensity of our focus" on commercial property lending.
He was at an event at the Actuaries Institute. 
"In the history of banking, commercial property has always been front and centre whenever there have been any serious issues in the system. So it is natural that at times when valuations look to be on the high side, we are making sure the lending quality of the banks and the basis on which they are assessing credit is maintaining a healthy degree of prudence about it." 
The challenge when monitoring commercial lending is that it is less homogenous than standard housing loans, but "it is natural at this part of the cycle that supervisors are going to pay particular attention to it." 
At the same time APRA announced the investor lending caps, it also said banks should assess borrowers' capacity to pay their mortgages using an interest rate buffer of at least 2 per cent more than the actual interest rate on the loan, with a floor lending rate of at least 7 percent. 
Mr Byres said these rules are working well. "The 7 percent number is a useful mechanism to keep serviceability standards at a certain level and not have those serviceability standards shift with general interest rate movements up and down," he said.  
At the same event, National Australia Bank's global head of research Peter Jolly said residential house prices had been driven by low mortgage interest rates, foreign demand from Chinese buyers, and population growth outstripping supply of residential dwellings. He said the second and third of these drivers were now waning.
But Mr Jolly warned that the ratio of Australian household debt to GDP was the highest in a recent analysis by the Bank of International Settlements of 40 major economies. 
"There is no way to get around the fact that Australian households are very leveraged on any reasonable measure. The reality is pretty stark that household debt is high....There is no doubt in my mind that affordability may be around average, but households are a bit more vulnerable to either interest rates going up - which doesn't seem likely - or an interruption in their income," he said.  
"In the history of banking, commercial property has always been front and centre whenever there have been any serious issues in the system. So it is natural that at times when valuations look to be on the high side, we are making sure the lending quality of the banks and the basis on which they are assessing credit is maintaining a healthy degree of prudence about it.
He suggested the challenge when monitoring commercial lending was that it is less homogenous than standard housing loans, but "it is natural at this part of the cycle that supervisors are going to pay particular attention to it." 
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APRA watching commercial property lending for prudence

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Australian fashion label Willow will be wound-up at the end of September, after owner Apparel Group was unable to find a buyer for the brand.
The Willow online store closed on Monday.
According to a notice on the brand’s website, its four stores in Melbourne and Sydney will close their doors in late September.
Willow was founded by Kit Willow Podgornik, who continued to work for the label as creative director until 2013.
Apparel Group (APG &amp; Co) acquired the brand in 2011 and fashion label sat alongside sister brands JAG, Sportscraft and Saba.
The Smartcompany website said the closure of Willow comes in a tough year for some Australian retailers of women’s clothing as fast fashion wreaks havoc.
The Australian operations of UK brand Laura Ashley entered voluntary administration in January and 20 of the chain’s 38 stores were closed before a buyer was found for the remaining 18 outlets.
Women’s clothing retailer Meredith &amp; Moore entered voluntary administration in March and closed a month later.
The fashion chain Seduce closed its nine Australian stores, after voluntary administrators and liquidators were appointed to the business in August.
According to Brian Walker, chief executive of the Retail Doctor Group, Australian retailers, particularly those that specialise in fashion, are operating in an “increasingly competitive and challenging environment”.
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Willow fashion stores to close

A landmark former orphanage site in Surrey Hills could be transformed into a new residential community under plans lodged by <a href="https://www.apartments.com.au/developers/antipodean-land-developments">Antipodean Land Developments</a> that would deliver 76 apartments and townhouses while restoring some of the suburb's most significant heritage buildings.

The burgeoninng Melbourne-based developer has submitted plans for the 9,158 sqm site at 1 Kent Road and 24 Durham Road, home to the former St Joseph's Home for Destitute Children, a historic institutional complex dating back to the late 19th century. The proposal seeks to adaptively reuse several heritage buildings while introducing two new four-storey residential buildings set within extensive landscaped grounds.

Designed by <a href="https://www.apartments.com.au/architects/woods-bagot">Woods Bagot</a> and Kerstin Thompson Architects, the project has been conceived as a contemporary residential village embedded within a restored heritage precinct. The development team describes the design approach as "The Village in the Garden," with new buildings positioned among mature landscaping by OCULUS and significant heritage structures.

<img alt="First look: Antipodean Land Developments plans heritage-led apartment community in Surrey Hills" data-entity-type="file" data-entity-uuid="44ec8c1b-c0b6-44ae-859e-5811b3e6a023" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Untitled%20design%20%281%29.png?VersionId=p.p1_KFh4iQoV4nisdnPfQBAsWNi7m79" />

The proposal would deliver 76 dwellings comprising a mix of apartments and duplex-style residences, significantly increasing housing supply on one of the largest privately held residential landholdings in Surrey Hills. The development includes 127 car spaces, 24 bicycle spaces and more than 1,000 sqm of communal amenity, with the existing chapel building earmarked for conversion into resident facilities.

According to the planning submission, the project centres on the restoration and adaptive reuse of the site's most significant heritage assets, including the original c.1889 St Joseph's building, the chapel designed by architect Augustus Andrew Fritsch, and the historic brick perimeter walls and entry gates. The proposal also incorporates the retention of other contributory buildings including the former infirmary and school building.

Tract Consultants, in the planning report accompanying the application, said the scheme had been shaped through extensive heritage analysis and design development.

"The shared vision for the Site by the project team has culminated in a scheme which successfully breathes life back into a historic site while delivering upon the objectives of Victoria's Housing Statement in a carefully curated and contextually responsive manner."

<img alt="First look: Antipodean Land Developments plans heritage-led apartment community in Surrey Hills" data-entity-type="file" data-entity-uuid="7263b7d8-95ea-400f-9531-6ca7d22c3c33" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Untitled%20design%20%282%29.png?VersionId=4cR1tiWOsDpgxEOwZi5vVFcyvvOsYkIE" />

The proposal is being assessed under Victoria's Significant Residential Development with Affordable Housing pathway. As part of the application, three per cent of the project's residential development cost would be contributed to the Social Housing Growth Fund. The development would also provide a diverse mix of one, two and three-bedroom residences targeting a broader range of buyers than typically found in Surrey Hills' detached housing market.

Sustainability initiatives include an anticipated 66 per cent BESS score, natural cross-ventilation to 80 per cent of apartments, 28 per cent deep soil landscaping and a canopy cover outcome exceeding local planning requirements. The proposal also sets aside more than 1,083 sqm for communal indoor and outdoor resident amenity spaces.

<img alt="First look: Antipodean Land Developments plans heritage-led apartment community in Surrey Hills" data-entity-type="file" data-entity-uuid="33fad46f-fe26-4d0a-acfd-6b776e1c6a3d" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Untitled%20design.png?VersionId=D9F6WVSyYCtGvSUmith35LRp6R7PQkw_" />

Planning documents describe the property as one of the largest underutilised residential sites in Surrey Hills, arguing it presents a rare opportunity to introduce "missing middle" housing in an established inner-eastern suburb while preserving and revitalising a significant heritage precinct.

Antipodean Land Developments has built a reputation for design-focused residential projects across Melbourne, particularly in the medium-density sector. Previous developments include Neighbourhood in Brunswick East, delivered with Breathe Architecture, and Balfe Park Lane, designed by Kerstin Thompson Architects.

They've been very active in site acquisition as they build out their future development pipeline. They recently launched Thornubury House, 45 apartments above a mix of commercial, retail, and food and beverage tenancies, and have plans for a boutique project in Fitzroy and another <a href="https://www.apartments.com.au/news/vic/antipodean-plan-apartments-for-deepdenes-missing-middle-on-whitehorse-road">"missing middle" project</a> on Deepdene's Whitehorse Road.

Joel Robinson

First look: Antipodean Land Developments plans heritage-led apartment community in Surrey Hills

Developer <a href="https://www.apartments.com.au/developers/auyin-property-development">Auyin</a> is the latest to turn to the Victorian Government's Development Facilitation Program in an effort to secure approval for its long-planned, mixed-use project in Elsternwick.

In 2018, Auyin lodged plans with Glen Eira City Council for a 14-storey building, however Council approved a reduced eight-storey scheme. A subsequent VCAT appeal in 2019 upheld the eight-storey height limit.

The project was later amended to nine storeys, but Auyin is now seeking to revive something closer to its original vision. The developer argues that the planning context has evolved significantly over the past decade, particularly within the Elsternwick Activity Centre, where higher-density development has increasingly been encouraged along Glen Huntly Road.

The proposal would transform the 1,239 sqm site at <a href="https://www.apartments.com.au/new-apartments/7-12-horne-street-elsternwick-vic-3185">7-15 Horne Street</a>, opposite Elsternwick Railway Station, into a 13-storey residential and retail development designed by CBG Architects, with 40 apartments

The site currently comprises three commercial properties.

<img alt="First look: 13-storey mixed-use tower planned for Elsternwick activity centre" data-entity-type="file" data-entity-uuid="5f465dd4-509b-4082-a669-0253b313914b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/elsternwick%20podium.png?VersionId=72frWi0SmQ5AVJ3ARRhX5ILUYObhTm7x" />

The proposed apartment mix comprises 25 two-bedroom and 15 three-bedroom residences above 200 sqm of retail space at ground level. Residents would have access to a 90 sqm wellness facility, a 351 sqm communal indoor and outdoor terrace on the third level, and extensive landscaped areas throughout the development. A publicly accessible 135 sqm plaza would be created on the north-east corner of the site, providing seating, landscaping, and a new gathering space adjoining Horne Street.

The design adopts a four-storey podium that references the finer-grain character of the surrounding streetscape, with the upper tower recessed behind generous setbacks on all boundaries.

<img alt="First look: 13-storey mixed-use tower planned for Elsternwick activity centre" data-entity-type="file" data-entity-uuid="e637e763-2abc-4c34-a0aa-5c7ad36fae18" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/elsternwick%20open.png?VersionId=J1AoOpZgTyaF.KeeFSX6lMjEScX8KKRi" />

A key element of the proposal is the reconfiguration and widening of the surrounding laneways. Vehicle access would be retained from Lois Lane, with upgraded pedestrian connections linking Ross Street and Horne Street. The development would provide 58 residential car spaces, two retail car spaces, and 52 bicycle spaces across two basement levels and ground-floor facilities.

Architecturally, the building draws inspiration from the established character of Elsternwick Village. The façade combines dark charcoal brickwork, textured concrete, bronze-toned metal detailing, and extensive planting integrated into podium and tower levels. The design also incorporates a chamfered corner treatment and publicly accessible plaza intended to strengthen pedestrian activity around the station precinct.

Elsternwick's last new development completion was&nbsp;EVA Elsternwick by Pitard late last year. <a href="https://www.apartments.com.au/developers/milieu-property">Milieu</a> is working away on its nature-led neighbourhood, <a href="https://www.apartments.com.au/new-apartments/elsternwick-gardens-by-milieu-8-gordon-street-elsternwick-vic-3185">Elsternwick Gardens</a>, on Gordon Street, with its first stage expected to complete next year.

First look: Auyin seeks mixed-use apartment project in growing Elsternwick Activity Centre

<a href="https://www.apartments.com.au/new-apartments/otium-parkdale-123-125-como-parade-east-parkdale-vic-3195">Otium Parkdale</a>, the 13-residence boutique development by&nbsp;<a href="https://www.apartments.com.au/developers/huxtable-property">Huxtable Property</a>, has entered its final stages of delivery, with completion expected within the coming month and more than half of the residences sold.

The Como Parade East project is nearing the finish line at a time when opportunities to purchase new apartments in <a href="https://www.apartments.com.au/developments/parkdale-vic-3195">Parkdale</a> remain exceptionally limited. Fewer than 10 per cent of dwellings in the bayside suburb are apartments, making developments like Otium a relatively rare addition to a market traditionally dominated by detached housing.

[smartcode_project:default project_id=134974 project_image_fid=5427]

The three-level development comprises 13 residences, including ten two-bedroom apartments and three larger three-bedroom homes, all positioned above a secure basement car park.

Designed by <a href="https://www.apartments.com.au/architects/almeida-architects">Almeida Architects</a> with a strong connection to its coastal surroundings, Otium combines red brick, exposed concrete and dark metal detailing with integrated landscaping and greenery. Expansive glazing, generous balconies and terraces have been incorporated throughout the design to maximise natural light and reinforce indoor-outdoor living.

Inside, the residences feature engineered European oak flooring, natural and reconstituted stone benchtops, Bosch kitchen appliances, ducted heating and cooling, lift access and secure entry systems. The larger three-bedroom residences on the upper level have been designed with house-like proportions, while the two-bedroom apartments prioritise functionality, flexibility and low-maintenance living.

[smartcode_project:default project_id=134974 project_image_fid=5421]

The project is now in its final stages, with <a href="https://www.apartments.com.au/builders/labco">Labco</a> completing the remaining landscaping and external finishing works following the completion of the residences' interiors.

Otium's location within the heart of Parkdale continues to underpin its appeal. Residents will be just steps from local cafés, restaurants, shops and the newly elevated Parkdale Station, while the beach is less than a kilometre away.

With the project tracking ahead of schedule, buyers can currently secure a residence with a five per cent deposit and benefit from settlement terms of up to eight months. The advanced stage of construction also provides buyers with the opportunity to walk through the near-complete residences and experience the quality and finishes firsthand ahead of completion.

[smartcode_project_cta:default project_id=134974]

Otium Parkdale enters final month before completion as rare apartment opportunity nears sellout

A new boutique apartment development is entering the market in <a href="https://www.apartments.com.au/developments/chermside-qld-4032">Chermside</a>, with Brisbane-based developer <a href="https://www.apartments.com.au/developers/ausdev">Ausdev</a> bringing 33 residences to a well-connected pocket of Brisbane's north.

<a href="https://www.apartments.com.au/new-apartments/parkdrive-apartments-chermside-25-sammells-drive-chermside-qld-4032">Parkdrive Apartments</a>, at 25 Sammells Drive, will comprise a mix of one- and two-bedroom residences positioned within walking distance of Westfield Chermside, The Prince Charles Hospital, and Bradbury Park.

Established in 1989, Ausdev has a long-standing presence across both development and construction, with Parkdrive Apartments representing its latest residential project in Brisbane's northern suburbs.

[smartcode_project:default project_id=152125 project_image_fid=363778]

The development has been designed around open-plan living and natural light, with residences featuring stone benchtops, timber cabinetry, BOSCH appliances, and private balconies that extend the living areas outdoors.

Kitchens are positioned as the centrepiece of the homes, incorporating natural material palettes and integrated appliances, while bathrooms have been designed with a focus on functionality and understated finishes.

Residents will have access to a communal barbecue and entertaining area on Level 3, providing shared outdoor space within the development. Secure parking and lift access are also incorporated into the building.

The project will deliver a limited collection of 33 apartments, with one-bedroom residences priced from $749,000.

[smartcode_project:default project_id=152125 project_image_fid=363782]

Beyond the building itself, the location places residents within easy reach of several of Chermside's key amenities. Bradbury Park is around 350 metres away, while Westfield Chermside is approximately 1.3 kilometres from the site. The Prince Charles Hospital is located within 750 metres, and the Chermside Bus Interchange is around 1.5 kilometres away, providing connections across Brisbane.

Parkdrive Apartments adds to the growing residential pipeline in Chermside, a suburb that continues to evolve as a major retail, healthcare, and transport hub for Brisbane's north.

[smartcode_project_cta:default project_id=152125]

Ausdev introduces boutique Parkdrive Apartments to Chermside's growing centre

<a href="https://www.apartments.com.au/developers/skymark-group">Skymark</a>'s boutique Cronulla development Solis has secured a 10-year Latent Defects Insurance policy through Resilience Insurance, providing buyers of the 16-residence building on Ewos Parade with structural and waterproofing protection that extends a decade beyond the building's completion.

Currently under construction and due for completion in late 2027, <a href="https://www.apartments.com.au/new-apartments/solis-cronulla-8-ewos-parade-cronulla-nsw-2230">Solis</a> is one of a small number of new developments in the Sutherland Shire to carry Resilience LDI coverage, a distinction that carries increasing weight as buyer confidence in the off-the-plan sector continues to be shaped by how developers stand behind their product.

Latent Defects Insurance, which entered the Australian market in 2022 when Resilience Insurance was approved to offer the cover, protects buyers against major structural or waterproofing defects for ten years post-completion. Unlike traditional statutory warranties, it operates as a first-resort policy, if a covered defect arises, the insurer responds directly, without the buyer needing to pursue the builder or developer through a lengthy claims process.

Resilience Insurance CEO Corey Nugent has noted that the product addresses something fundamental to the new apartment market.

"The overarching feedback from prospective buyers in the new development space is that they want more confidence and assurances around the quality of the build," Nugent says.

"Resilience Insurance Latent Defects Insurance not only gives them complete peace of mind for 10 years, but it shows the developer they are buying from is standing by their product."

[smartcode_project:default project_id=150499 project_image_fid=370898]

For Solis, the Resilience LDI policy adds a meaningful layer of accountability to an already considered project. The development comprises nine two-bedroom and seven three-bedroom residences, including one dual-level three-bedroom apartment, across a five-storey building on Ewos Parade, positioned between Shelly Beach and South Cronulla.

Garden apartments connect directly to private landscaped courtyards, while upper-level homes capture beach views to the east from level four and above.&nbsp;

All 16 residences include at least one balcony or courtyard, and select apartments on the upper floors feature bar areas and secondary flexible living spaces.

Hiba Sander, Managing Director of Skymark, says Solis offers a rare balance, nestled between the quiet beauty of secluded beaches and the lively charm of South Cronulla's esplanade.

"It's a place to choose your pace and live gracefully, seaside'," Sander says.

[smartcode_project:default project_id=150499 project_image_fid=370900]

The architecture, designed by <a href="https://www.apartments.com.au/architects/ida-design-group">IDA Design Group</a>'s Michael Trinh, draws from the natural erosion patterns of <a href="https://www.apartments.com.au/developments/cronulla-nsw-2230">Cronulla</a>'s sandstone headlands, translating the organic forms of the coastline into soft curves, pavilion-style massing, and a material palette chosen for longevity in a salt-tinged environment.&nbsp;

Textured natural stone, soft renders, and timber-look battens reference the tones of the surrounding cliffs, while the building has been oriented to maximise natural light and passive ventilation, with primary living spaces facing north and east to capture morning sun and sea breezes.

"At Solis, our aim was to create architecture that feels quietly confident, grounded in natural materials like stone and timber, and elevated by light and landscape," Trinh says.&nbsp;

"The buildings are designed to sit gently within their coastal surrounds, with expansive glazing and abundant greenery creating a seamless dialogue between inside and out."

[smartcode_project:default project_id=150499 project_image_fid=370897]

Interiors by <a href="https://www.apartments.com.au/architects/hot-black">Hot Black</a> carry the same material language through to every room. Kitchens feature integrated Gaggenau appliances, sculpted stone benchtops, and Lo &amp; Co joinery, while bathrooms feature natural stone, timber, and brushed metal finishes.&nbsp;

Hot Black Founder and Design Director Sophie Safrin describes the intent as one of considered restraint: "At Solis, every detail has been thoughtfully considered to create a timeless coastal retreat, calm, refined, and effortlessly liveable. From natural finishes to seamless indoor-outdoor flow, Solis offers a quiet elegance that's deeply connected to its surroundings.

The landscape, designed by Julian Brady of <a href="https://www.apartments.com.au/landscape-architect/sitedesignstudios">Site Design Studios</a>, treats green space as an integral part of the resident experience rather than an afterthought.&nbsp;

"Gentle curves and layered native plantings mirror the ebb and flow of the ocean," Julian Brady says, "creating a serene connection between architecture and place."&nbsp;

Coco Republic has provided bespoke furniture packages tailored to the project's coastal palette.

[smartcode_project:default project_id=150499 project_image_fid=370899]

Skymark has an established track record in the Sutherland Shire, with a portfolio spanning Cronulla, Woolooware and Burraneer that includes Isla, Sylva, Bask, Shells, Sula and Mist. Securing LDI on Solis reflects a broader shift in how the developer is positioning its buildings to buyers, at a time when Resilience Insurance expects the policy to become mandatory in New South Wales by 2028.

Sales at Solis are launching soon through Ray White Projects, with an official event scheduled for 11 June. Enquire for more information.

[smartcode_project_cta:default project_id=150499]

Jonathan Chancellor

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