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Something has got to give in the local Australian non-mining economy. Before all else, let me explain and then I will set out what I think will give first.  The high dollar is forcing large numbers of businesses to look at transferring manufacturing and service provision offshore. The high interest rates in Australia are fuelling that high dollar but also slowing local demand.  Many (but not all) unions, armed with 120 new weapons to use against employers via the so called “Fair Work" industrial relations act, are playing hard ball and becoming less flexible.  Productivity in Australia is falling –in other words, output per employee is falling. Employers are reluctant to retrench because of the high cost and the fear that the skills can’t be replaced.  Retailers are squeezing local suppliers because in the supermarket industry there is intense competition and in non-food retailing the internet gives customers the chance to bypass local retailers. And then we have power prices and other utility charges rising, plus the high carbon tax on top of all this. Consumers are lowering their borrowing and home building and commercial construction is slowing in non-mining Australia. All this is happening in an environment where the way we do business is changing dramatically as the real implications of internet/mobile phone communications on supply chains and consumer behaviour become apparent. Those that picked these changes and were first to move will do very well.
The state governments are cutting back on outlays because their budgets are under pressure and, not surprisingly, the profits of the non-mining sector are being squeezed in the above environment – so the federal budget is under pressure. At the same time the miners are involved in extensive expansion which always affects profits to some degree. And just to top it off the Greens are planing a massive attack on coal mining in Queensland while the unions are giving BHP the stick in Queensland coal. I am sure readers will think of more pressure points but we will stop it there. So what gives first? All around the country <a href="https://www.propertyobserver.com.au/industry-news/estate-agents-in-the-eye-of-australian-economic-structrual-upheaval/2012030653720" target="_blank">enterprises are re-looking at what they do and how they do it</a>. Supply chains are being re-examined and the effectiveness of systems and labour is being looked at. Those companies that do this quickly and well will prosper. On the labour front, the industrial relations act is going to cause companies to get much tougher. My guess is that we are going to see a great many disappointing profits – but again, it will not be across the board.  I believe we are gong to see a dramatic rise in overseas outsourcing lead by the service industries such as accounting computer technology. There will a big rise in the number of takeovers as managers see that some companies “get it” while other legacy businesses do not. Productivity will rise but in many areas it will be brutal. I must emphasise again that many businesses will do very well – especially those that adapt to the changes in the way we do business and those connected to mining. Industries like heath and those linked to Chinese tourism have a good outlook. Independent contracting is maybe the way around labour hire in a number of industries.
Last month Morgan Research showed a rise in unemployment but the latest Morgan figures show an unemployment fall, so this process of labour shedding has not really started. When it gets underway the repercussions will force the government to use its borrowing power to lower interest rates. Unfortunately, there are few places to hide.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>.
 
 
 
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A survival kit for non-miners: Robert Gottliebsen

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One of the pillars of the Australian financial system, the independence of the Reserve Bank of Australia to set interest rates, is crumbling. It will soon be apparent to all that if anyone outside the big banks has the power to set interest rates in Australia, it is Treasurer Wayne Swan.
Successive Australian treasurers, including Swan, have endorsed the independence of the Reserve Bank and this new power is not one that the current treasurer desired. And I am not sure that either he or Treasury have fully grasped that the game has changed.
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With the benefit of hindsight we should have realised that the ability of the Reserve Bank to be the main determiner of interest rates was weakened when Australian banks in the last two decades – but particularly in the last 10 years – turned their back on using local Australian savers but rather funded their growth by massive overseas borrowing on the wholesale banking market.
At the time, they could obtain funds overseas much more cheaply than local savings and this was a contributor to the large growth in bank profits and the Australian economy. But if we had thought about it, we would have realised that we had greatly lessened our power over Australia’s interest rate destiny.
On two occasions in the last four years, international events have boosted the cost of this wholesale funding and it is possible the current high cost of overseas bank money will continue for a long time.
Right now the fundamental change is being obscured by a treasurer playing politics and blaming the banks. I am sure Wayne Swan knows that if the banks allowed their profits to fall at this time, the cost of this overseas money would skyrocket further, forcing even higher interest rates. But the government is under pressure so Swan must do his part and pass on blame to the nasty banks.
As it happens the Reserve Bank‘s recent analysis of the Australian economy is suspect. They almost raised interest rates around the April-July period of 2011 but thanks to the stand of Business Spectator and later Westpac economist Bill Evans, they were saved from making a major error. I have stepped back because the Reserve Bank began lowering rates, but its latest statements have rekindled my fear that it is again out of touch with what is happening in the real, non-mining Australian world. But let us not make that judgement yet.
But even if the Reserve Bank reduced interest rates, it only affects part of the bank funding base. In other words, the RBA no longer has full power. In my view the only person with that power is Wayne Swan. Overseas investors are scrambling to buy Australian government paper and the government can borrow at much lower rates than the banks. Swan should be ready to tap that market and fund maturing overseas bank borrowing at much lower rates. This would enable banks to lower interest rates. He would make a profit and set some conditions about pass on, etc. Swan would boost the economy and may even lower the dollar.
No treasurer in modern history has had this power and Wayne Swan has not sought it. But when unemployment in non-mining Australia starts to jump, it will be time to exercise.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator.</a>
 
 
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Swan song for the RBA: Gottliebsen

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Australia has one of the strongest banking systems in the world because our banks didn’t play the silly overseas banking games of lending to people, organisations or governments who were unable to repay loans. But we have a weakness – our so-called ‘funding gap’ – and it's time to bring that weakness into the open, given that ANZ is this week deciding whether to lift mortgage interest rates.
Australian banks’ funding gap is the money they need to raise from the expensive overseas inter-banking market. It’s expensive because global banks no longer trust each other, as no one knows the extent of bank exposure to high-risk securities. 
To determine the size of the Australian funding gap I needed help, and not everyone will agree with the method of calculating the difference between bank loans and deposits (excluding wholesale deposits). But the methodology shows that we have a massive $625 billion funding gap.
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In times gone by this funding gap could be filled overseas at interest rates that were lower than Australian rates. Now the overseas borrowing costs have risen sharply and are slightly above the local term deposits rates. It is the rising cost of filling the funding gap that is causing the banks to think about lifting mortgage rates despite the Reserve Bank’s latest steady interest rate stance.
At the moment, all the focus is on overseas borrowing maturities because when the old low-cost loans mature they must be replaced by higher-cost loans. And there have been periods where the overseas markets are not open, which requires banks to hold liquidity to see them through.
The graph above shows that Westpac has the largest funding gap, followed by the Commonwealth Bank, partly reflecting the major drive both banks undertook to increase housing market share some years ago. Both slightly improved their position in the last six months.
ANZ and NAB have a lower exposure but both edged up the size of their funding gap in the last six months – particularly ANZ. But both banks are smaller than CBA and Westpac.
The sharp rise in ANZ exposure underlines the importance to ANZ of having mortgage rates that reflect costs.
As I have written many times before, the Commonwealth government can borrow that $625 billion far less expensively than the banks can. If the federal government borrowed the money and loaned it to the banks, Canberra would make a healthy profit but would inevitably have greater influence over bank operations and levels of profit.
Alternatively, the banks could become much more aggressive at raising local term deposits. But to do that requires higher interest rates and major promotions. Currently, along with the falling official interest rates, term deposit rates are falling. The banks are offering in the vicinity of only 5% for one-year money. A few months ago it was over 6%.
On the other hand they are aggressive in bidding for four and six-month money and are offering between 5.7% and 5.8%. The banks are clearly punting on lower interest rates. But if they want to tackle the funding gap on a permanent basis they will have to lift their rates, because at around 5% superannuation money will start to drift away from banks to infrastructure, bank shares and other high-yielding securities.
This article originally appeared on<a href="https://www.businessspectator.com.au/" target="_blank"> Business Spectator</a>. 
 
 
 
 
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Government can borrow and lend to banks to keep interest rates down: Robert Gottliebsen

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What is the best news Australian residential property owners and share investors have received in the first month of 2012? That mainland Chinese have not deserted the inner-city apartment markets of Sydney and Melbourne.
You will remember that last November, Chinese purchases of inner-Sydney and Melbourne apartments off the plan suddenly halved (<a target="_blank" href="https://www.propertyobserver.com.au/economy/the-sting-in-a-china-property-tale/2011112252489">The sting in a China property tale</a>, November 23).
The 2012 return of the Chinese to inner-city apartment buying will underpin the brighter figures we are seeing in the overall Australian dwelling market, as explained by Christopher Joye (Sydney housing streaks ahead of national market January 31).
Clearly the Chinese feared the severity of the funding squeeze back home, which made their Australian adventures so much more risky.
There was danger that if the squeeze on domestic China funding had gathered momentum, then the Chinese apartment downward trend would have accelerated, affecting the wealth of many Chinese property owners. 
Almost certainly that would have translated into further reductions in new Australian contracts. But if the China squeeze was severe enough, it might have also caused a large number of Australian partly-completed apartments – where the Chinese have paid 10% deposits – coming onto the market, because the Chinese walked away from the contracts as Australians did on the Sunshine Coast. And almost certainly, if events in China caused a pullback on Chinese buying of our apartments, then it would have also been reflected in much lower commodity prices as exports slowed. In turn that would have affected the share market. The man who exposed this danger, Australia's largest apartment developer, Harry Triguboff, says that while January is always a confusing month because there are two New Year celebrations, the Chinese are back in the Sydney market. Moreover, Sydney rental yields are rising. Australians were not major buyers of inner-Sydney apartments in 2011 but are now making inquiries. Triguboff says that another half a per cent fall in interest rates will bring Australians back in the market. Of course, while a half a per cent fall in the Reserve Bank’s official rate is on the cards for the first half of 2012, the turmoil in Europe has put the cost of overseas borrowing by the big banks above local Australian term deposit rates (<a target="_blank" href="https://www.businessspectator.com.au/bs.nsf/Article/Interest-rates-deposits-RBA-house-prices-Mike-Hirs-pd20120127-QVQZQ?opendocument">Don't bank on mortgage rate cuts</a>, January 27). That means that mortgage rates will not fall by the same amount as official interest rate falls. As I have pointed out before, the Australian government can borrow overseas close to two per cent below the rates banks pay so, if they want to, the Australian government can borrow and lend the money to Australian banks, lower Australian rates, and take a nice profit on the way. But the Chinese don’t need Australian money to buy apartments and they are beginning to understand that landlords in Australia gain a much greater yield than those in China.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator.</a>
For more on Chinese investment in Australian property, <a href="http://propertyobserver.com.au/ebooks/free-ebook-foreign-investment-in-australian-property-markets" target="_blank">download our free eBook.</a>
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Harry Triguboff says Chinese buyers back in Sydney market in January: Gottliebsen

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James Stewart of Ferrier Hodgson has prepared a graph about the likely growth in internet retailing that will frighten bankers, particularly those who are worried about their jobs. Bankers will look at business lending propositions with a degree of self-interest – they don’t want to make a mistake. On the other side, retail tenants will also be frightened because they usually have to put their houses on the line and the changes taking place make them very nervous. And perhaps the greatest fear comes from those shop owners who are highly leveraged. 
Over the years, one of the safest investments has been owning a shop in a good shopping centre. Many investors were not afraid to borrow heavily on them. There seemed a never-ending number of tenants prepared to pay exorbitant sums to fit them out and commit to big rents. But that’s changing and by the end of the year the landscape will have changed dramatically.
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The Ferrier graph above shows one US retailer is selling 18% of their goods online. Almost all US retailers have sales online well above the Australian averages (the estimated average Australian retailer online sales percentage is indicated by the red line). Partly because of our high retail costs, the difference between buying online (from offshore) and local prices can be staggering. The successful retailers will find a way to lower their costs to be more competitive with overseas retailers. Ferrier say that retailers are going to need to work out how they mix the online and store sales. In some retail areas, the online percentage will rise to 30 per cent in Australia, and this figure is backed by the research of the Quantum Group. Many retailers will adjust, others will not. Rents will depend on the talents of the tenants. Right now, Sydney and New York fight over who charges the highest retail rents in the world. With the dollar above parity, Sydney has its nose in front but Melbourne is not far away. In the next year or two, rents in many areas are going to fall and in some cases fall sharply. The big upmarket centres like Westfield’s Bondi and Chadstone believe they will be insulated. Indeed, Chadstone is backing that view with a massive expansion. I think these centres may experience a delay in reaction but over the next two years the downward movement in rents in the rest of the country will be too large for them to be insulated. And with that fall in rents will come a fall in the value of the rental properties, which will lead banks to request that building owners contribute more equity to maintain lending ratios. This will force shops onto the market. There are three forces pushing down rents. The first is that consumers are very price conscious, which means that margins are tight. Second, the new labour laws mean that for many retailers opening on the best trading days – the weekends – is much more expensive. If retailers can't put up prices they must accept lower returns – and lower returns will need to be transferred into lower rents and capital values. And finally there is the internet.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>.
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Owning a retail shop no longer a safe investment: Robert Gottliebsen

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As in Australia, US consumer confidence is inextricably linked to the value of houses – and the slump in US housing is what has prevented the 2011 American stimulus measures from working as hoped. It looks like at last, in 2012, there is some good news coming.
But if American growth is to stay in the black, the US needs to stop the house price decline, because many Americans have their businesses attached to their property in some way and so are starved of capital. 
Even more importantly, many Americans can afford to stay in their homes, but are in negative equity so can’t move. This reduces workforce mobility, which means there are some jobs being filled by substandard candidates, or no one at all, because the ideal worker is stuck in Atlanta with a home loan that’s underwater. Quite possibly they’ll be earning less as well.
It’s amazing to think that with the European debt crisis threatening to send the global financial system into a Lehman-style freeze, the spark that shut down credit markets in the first place – the US property market – is still struggling.
If that doesn’t get Europeans thinking about how long it takes to recover from a debt crisis, nothing will.
While a European catastrophe would have an adverse effect on interest rates for US property – at which point all bets are off – the source of the GFC seems to be getting close to finding a solid floor.
The latest signal came from the November building starts data, which really got the market talking. Statistics from the Commerce Department pointed to a 9.3% jump in building starts to 685,000 annually, the highest level since April 2010.
To put this into context, at the height of the subprime mortgage crisis, annual housing starts were hitting two million. But those levels were fuelled by cheap credit – among other things – and the latest increase, from an admittedly low base, is one of the first things economists are looking for to signal the true bottom of the US housing market.
In December, Goldman Sachs analysts Hui Shan and Sven Jari Stehn published a note revealing their belief that the Case-Shiller US home price index has another 2.5% to fall by the middle of this year, but that will be the bottom.
They come to this conclusion with a new model.
Shan and Stehn took a sample of 147 US metro areas and estimated “equilibrium” for each one, based on population, income, lending costs and construction costs. The researchers concluded that US home prices are getting back to their fundamentally based equilibrium prices after shooting well ahead of them during the boom years.
It should also be noted that the US property market has already shown some strong signs of recovery this year that onlookers have too frequently failed to notice.
Barclays Capital analyst Stephen Kim has pointed this out to us.
US house prices are seen as a singular market, but the subprime phenomenon creates a world of haves and have-nots. Areas that were prone to subprime lending are continuing to struggle but of course the non-distressed areas have been stabilising for all of 2011, he says.
“This is the most important trend in the housing industry right now, and we are amazed at how little attention it has been getting from the media and the street,” Kim says. “This stability on the part of non-distressed prices has occurred despite a very high share of distressed activity and continued declines in overall prices.”
Not all areas in the US are recovering and so, unfortunately for workers with negative equity in Atlanta hoping for greener pastures, they’re living in a city that isn’t likely to show signs of improvement this year. In fact, the Goldman analysts expect Atlanta house prices to fall another 6% in 2012, with New York City prices tipped to match that and Portland, Oregon slipping 8%.
But on the other side of the ledger is Miami, which sits in one of the states hardest hit by the subprime crisis that continues to boast some of the highest foreclosure numbers in the US – Florida. Miami house prices are tipped to rise 3%, while it’s a similar story in Detroit, Michigan and Cleveland, Ohio.
Of course, much of this could be turned on its head if Europe falls over. But if the eurozone is to hold together, you can expect to see a similar story as with the US housing market in a few years down the track. Some areas will be leading the way, others will continue to frustrate and nick all the headlines.
This article was co-written with Alexander Liddington-Cox.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>.
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A firmer floor for US housing: Robert Gottliebsen

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One of the biggest question marks facing Australia in 2012 is whether global banking turbulence will affect Australian property prices. The international bears say we are very vulnerable. For example, the International Monetary Fund says that Australian house prices are overvalued by between 10% and 15%. The Economist magazine reckons the overvaluation is closer to 50%. By contrast, Property Observer columnist Christopher Joye from Rismark believes our dwellings are not overpriced.
The last word we got from 2011 was RP Data-Rismark November capital city home value index, showing a rise of 0.1% in November – its first lift in 11 months.
The factor to watch in 2012 is the willingness of our banks to lend. The tightening of Australian bank lending for housing is one of the reasons we have seen a small fall in the housing market in 2011. If banks were to tighten further there would be a more marked decline.
Of course, closely related to the availability of bank lending is the level of employment. If there is a rise in unemployment and therefore a rise in problem housing loans, not only will it tighten bank lending, but it will also increase the supply of houses as people can't keep up with their mortgages.
The banks' lending criteria is also closely related to the level of interest rates. If rates rise, banks become more cautious because people can't afford to repay the loans. Urged on by our politicians, Australians have come to link Reserve Bank official interest rates with the level of home loan rates.
There is grave danger that in 2012 this nexus will be broken.
Historically, Australian banks have made substantial profits by borrowing money on the overseas wholesale market and using that money to fund about 40% of our home loans. European banks are headed for a substantial money squeeze and that may spread to the US, particularly if US state and local governments get into trouble. If that happens then Australian banks will have to either pay the going wholesale rate, bid up the local deposit interest rates to attract local savings or curtail their lending.
Each of those alternative actions will affect the value of Australian dwellings. One of the looming dangers in the banking sector is the exodus of European banks from Australia.
As they withdraw funds from a large number of medium-sized businesses, those enterprises will lower employment levels, although the accelerated mining boom will take up a lot of the slack.
The aim of Australian banks in 2012 will be to attempt to take advantage of the sharemarket turbulence to entice people to put money in bank deposits and without paying substantially higher interest rates.
If they can do that, it will contain the higher interest rate pressure and be of great value to the dwelling market.
Banks have to be careful because if they take actions that reduce the value of dwellings by a substantial amount, they will in turn cause a big rise in bad debts as people throw in the towel and the subsequent foreclosures create bank losses and further house price declines. Accordingly, if banks are smart enough to understand these forces, they should be able to restrict any housing decline to relatively small amounts.
But there is an Australian dwelling factor outside of our banking system and domestic economy.
Mainland Chinese have dominated the purchases of inner Sydney apartments and, to a lesser extent, Melbourne apartments. In the last month or so the Chinese have halved their buying of apartments and if that accelerates, it will push down the prices of apartments in our two major cities (primarily in Sydney). We could be looking at a 10% fall. In turn, that will spread to apartment blocks outside the inner city and ordinary houses. But again the effect is manageable.
The greatest danger is that a sizeable proportion of the multitude of inner Sydney and Melbourne apartments that have been bought off the plan by mainland Chinese are not consummated and the Chinese simply walk away and accept the loss of their deposit.
That will create a pall of unsold dwellings over the Melbourne and Sydney markets in much the same way as contracts reneged in the Sunshine and Gold Coast have affected property values.
The Chinese have honoured almost all contracts to date but we all need to understand that there is a danger. Australia has one of the best banking systems in the world because we have not gambled with depositors' money as occurred with European and US banks.
But that doesn't mean we don't face important challenges in 2012.
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/">Business Spectator</a>. 
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The banks' delicate property balance: Robert Gottliebsen and Alexander Liddington-Cox

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The next round of the European crisis will involve banks. In Australia, suddenly what banks pay for deposits will become a major issue. Having been forced to cut their mortgage interests rates, the Australian banks will be tempted to recover that money via lower term deposits and other deposit rates – in other words, to take the money from retirees.
But there is a danger in this. Australian term deposits are cheaper than borrowing on the overseas wholesale market. Moreover, there are clear dangers that the wholesale market could be greatly diminished by the European manoeuvres. The ratings agencies have already downgraded the big Australian banks for their dependence on wholesale borrowing. Losing market share in deposits carries risk.
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And to underline this global banking risk, foreign investors are rushing into Australian government bonds at yields below 4 per cent. They are snubbing Australian banks, which are paying in the vicinity of 50 per cent more for their money than government bonds. The government will have to consider reinstating its deposit guarantee.
At the moment, there is a minimum of trust among European banks because everyone knows everyone is hiding losses – it’s a question of who is broke and who is not. As trust breaks down, so does confidence in European banks. Of course, if the politicians can convince markets to pay more for Italian and Spanish paper, then those paper bank losses will decline.
Nevertheless, any further deterioration in Italian and Spanish bonds (and perhaps French) during 2012 would severely damage the wholesale banking market, possibly at a time when Australian banks have maturing overseas wholesale loans.
Australian banks have already slashed deposit interest rates, and if they cut them again you could see an exodus of self-managed funds and other money, which will seek better rates from corporate securities, bank hybrids or even bank shares.
At the weekend, the most aggressive bank in leading deposit rates down was ANZ – the bank that broke ranks in cutting mortgage rates. This morning it has narrowed the gap, although its term deposit rates in most periods are still a little below the other big banks, except in five-year paper where ANZ offers 5.8 per cent – the same as NAB.
However, in this five-year sector Westpac has suddenly taken the lead and has lifted its offering from 5.8 per cent about two weeks ago to 6 per cent, compared to ANZ's 5.8 per cent, CBA’s 5.9 per cent (over $50,00) and NAB's 5.8 per cent.
It is fascinating that while the Westpac economics department has been the most vocal in forecasting lower rates, when it comes to term deposits the bank's special rate for products up to five years' duration either matches or beats its opponents.
CBA and NAB match Westpac in most (but not all) rates but if customers with larger sums seek a better rate, they can usually negotiate it. This is a game that will unfold as the day and week moves on.
This article originally appeared on <a href="https://www.businessspectator.com.au/" target="_blank">Business Spectator</a>.
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The big four's risky rates play: Robert Gottliebsen

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In light of the savage downgrading by ratings agency Standard &amp; Poor's, are Australian banks really safe for depositors? While my answer to that question is an absolutely unqualified "yes", I raise the question because just before the downgrading, I had a deep conversation with a top Australian banker about just how his bank would handle a global banking crisis.

The combination of that conversation and the Standard &amp; Poor's ratings downgrade made me realise that S&amp;P is delivering to Australian banks a much needed wake-up call that bank CEOs ignore at their peril and to the peril of Australia.
And just to underline that this is a serious matter, the German-based global giant Siemens is establishing its own bank because it does not trust the solvency of the major European banks. The major Australian banks now have the same rating as some suspect European banks. While that says more about the fear inside the US-based ratings agency about the impact of bank downgrades, it again underlines our longer-term vulnerability.
Another long-term warning comes from the sharemarket, where the high yields on Australian bank shares show that international investors are worried about our banks' ability to maintain profits in the new world of global banking.
Australian banks have been money-making machines because they have paid low rates to bank depositors and supplemented their consequent low Australian deposit base by borrowing between 40 and 50% of their funding requirements from the global wholesale market. (It's currently around 40%. The banks have then used their fund avalanche not so much to support businesses, but to fund houses. Australian dwellings have become among the most expensive in the world because of the widespread availability of bank credit.
What Standard &amp; Poor's is telling the bank CEOs, Treasurer Wayne Swan and the Australian public is that it is highly likely that longer-term this game can't continue. Because of the deep problems in the European and US banking communities, plus the demand for funds in Asia, massive wholesale bank borrowing to fund housing markets will not be available unless you are prepared to pay much higher rates of interest.
Right now, the wholesale banking market is shut down so we can't fund our banks, but we clearly expect it to open again. I asked my top banker what happens if it stays shut for an extended period – say a year or two. He points out that most of the large Australian banks have borrowed over three years so they will be impacted gradually. When wholesale funds become due for rollover next year, the impact will be minimised because demand for funding from businesses is low and housing is not buoyant.
Moreover, the strong rise in local deposits has kept the banks very liquid. And the banks know that in the superannuation movement there are substantial funds which could be tapped with higher rates if necessary. And if all that proves to be insufficient, there is the Reserve Bank as a back-up.
While that is a good plan for the short term, it is not a good plan for longer-term funding. First of all, scrambling for superannuation funds in a crisis would be very expensive. Most of the big public superannuation funds do not have a "bank deposits" classification because the funds can't get commission on them. As interest rates fall we are beginning to see the self-managed funds – which control 30 per cent of the superannuation market – switch to equity-style securities that offer higher yields. A few more deposit rate reductions will accelerate that trend and that money will not be easy to get back.
The wake-up call to Australian banks requires them to become less dependent on wholesale bank deposits and begin to fund much more of their loan book at home. Secondly, banks will need to be much more active in funding businesses that create jobs to generate the capital city employment needed to enable homeowners to service their loans.
And finally, the banks better hope that the mainland Chinese cutback in apartment buying is not a signal for a wholesale mainland Chinese withdrawal from our apartment markets in Sydney and Melbourne. Then we really would have trouble.
This article first appeared on <a href="https://www.businessspectator.com.au/">Business Spectator</a>.
 
 
 
 
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Our banks just got a wake-up call on housing: Robert Gottliebsen

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Australia’s largest apartment developer, Harry Triguboff, has confirmed that Chinese buying of inner-Sydney apartments has halved in the last month. The China squeeze on its property market and fears about the level of our dollar are now having a direct effect on the Australian dwelling market.  Triguboff believes that the sharp cutback in Chinese apartment demand will probably reduce apartment prices in Sydney by about 10%, but the prices will not collapse. He believes that a fall in apartment prices will flow on to the whole dwelling market in Sydney.  But what we are looking at is a much bigger squeeze on Australian finance, because as I revealed last week, European banks are now looking to quit their Australian loans (<a href="https://www.businessspectator.com.au/bs.nsf/Article/Europe-crisis-markets-investment-banks-Germany-Fra-pd20111117-NNS8B?OpenDocument&amp;src=mp" target="_blank">The euro's last-minute print job</a>, November 17). The Chinese apartment pullback and the European bank withdrawal plus the truly astounding events in Europe – where (in the words of Westpac’s London man James Shugg) the world is watching a train wreck taking place in slow motion – is going to intensify the pressures on the Reserve Bank to reduce interest rates a lot further.  We are not on the front line, but the missiles have reached our shores.  Yesterday I looked at the effect of the European mess plus the China downturn and its possible effect on Australian property and other areas (<a href="https://www.businessspectator.com.au/bs.nsf/Article/Australian-property-prices-China-real-estate-apart-pd20111122-NTRM2?OpenDocument&amp;src=sph" target="_blank">China triggers the recession alarm</a>, November 22).  Mainland Chinese investors had been almost the sole buyer of Sydney apartments, investing about $2 billion a year and they were major buyers in Melbourne, taking their annual investment rate to about $3 billion. They were seeking to have some of their funds outside of China as a risk hedge.  But there are now much greater liquidity pressures at home and those that bought when when the dollar was around $1.08 are showing a 10% loss. At the moment, there are a great many apartment towers being built in Sydney and to a lesser extent Melbourne, where the mainland Chinese have bought off the plan, usually with a 10 % deposit. Triguboff says so far all Chinese buyers have honoured their agreements but no one can be sure which way the Chinese will jump if the global crisis intensifies. If they failed to honour their agreements, then apartment prices would almost certainly fall by more than 10%. On the other hand, lower interest rates and the lift in rents are starting to rekindle some Australian buying of apartments, which will be helped by the lower prices. But Triguboff fears that the Australian banks may be on the way to engineering their own train crash, albeit nothing anywhere near as serious as the European disaster. Australian banks – having been the main driver of higher house and, to some extent, apartment prices – are once again lowering the values of dwellings in determining how much they will lend. While the Chinese were buying apartments that did not matter, although it has contributed to a large number of unsold houses in most capitals. If Australians can’t get bank finance to buy apartments and the Chinese withdrawal intensifies, then we will see even greater pressure on dwelling prices. This is not a forecast, but when banks push prices up via their lending policies and then push them down with different policies, then they have only themselves to blame for any losses. Of course, in the apartment market local councils and state governments have taken actions that have increased the price of apartments by about 15%. If the councils and other bodies made the rules for approvals straightforward and made their building requirements fit into economic construction methods and market demand, then apartment costs would fall (<a href="https://www.businessspectator.com.au/bs.nsf/Article/Harry-Triguboff-China-apartment-property-interest--pd20111026-MYRRJ?opendocument&amp;src=rss" target="_blank">Apartment antics hurt Australia</a>, October 26). This would enable Australians to buy them, but might affect the values of existing apartments.  There will be many twists in this tale, some of them rather unpleasant.
This article originally appeared on <a target="_blank" href="https://www.businessspectator.com.au/bs.nsf/Article/apartments-Australia-China-housing-market-prices-r-pd20111123-NURMV?OpenDocument&amp;src=sph&amp;src=rot">Business Spectator</a>.
 
 
 
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The sting in a China property tale: Robert Gottliebsen

Australia’s housing debate has rarely been more urgent. The National Housing Supply and Affordability Council forecasts the country could fall around 262,000 homes short of housing needs by 2029, underscoring the scale of the challenge facing planners, governments and developers.

In response, much of the conversation has centred on high-density towers around transport corridors and strategic centres.

Diversified developer Coronation Property, while also focused on well-located, strategic sites, is incorporating an arguably underutilised typology, the terrace.

Difficult to integrate into true high-rise developments, terraces have become a defining feature of Coronation’s lower-rise portfolio, including projects in Ashbury and Erskineville. <a href="https://www.apartments.com.au/buildings/ashbury-terraces-165-171-milton-street-ashbury-nsw-2193">Ashbury Terraces</a> places a stronger emphasis on this housing type, forming part of a broader community mix.

At its Erskineville development, <a href="https://www.apartments.com.au/new-apartments/lillian-erskineville-9-metters-street-erskineville-nsw-2043">Lillian</a>, terraces are more limited, with just a handful&nbsp;included within the wider, predominantly apartment-led precinct, one of the first developments to launch in Erskineville in several years.

[smartcode_project:default project_id=135149 project_image_fid=368392]

Terrace residents at Lillian benefit from many of the same advantages as apartment owners, the lock-up-and-leave lifestyle and access to shared amenities like the rooftop wellness space, but with significantly more space.

Spanning multiple levels, the terraces also feature front and rear courtyards, providing direct access to the central landscaped gardens within the precinct.

<h3 data-end="212" data-section-id="1n97jye" data-start="191">The terrace model</h3>

Terrace housing has long been part of Australia’s urban fabric. From Paddington and Surry Hills to Glebe and Annandale, rows of terrace homes have shaped neighbourhood streets, offering a housing form that sits between detached houses and apartments.

The contemporary terrace, however, addresses many of the limitations of older designs, where narrow staircases and constrained layouts often compromised liveability.

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“Terraces represent one of the city’s most intelligent housing models,” says Joe Nahas, Managing Director of Coronation Property.

“They deliver density without losing the human scale that makes neighbourhoods liveable. In many ways, they provide a bridge between the Sydney we know and the Sydney we need to build. If Sydney is going to grow well, it can’t rely on towers alone.”

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<h3 data-end="1124" data-section-id="1a7l0gw" data-start="1092">The evolution of the terrace</h3>

That thinking has shaped Coronation’s approach at Ashbury Terraces, where the terrace typology has been reinterpreted for modern living.

Designed by SJB, the project recently received recognition at the 2026 Better Future World Design Awards, acknowledging its architectural clarity and response to the surrounding suburban context.

SJB Director Adam Haddow says the intent was to evolve a familiar housing form rather than reinvent it.

“The terrace is one of Sydney’s most familiar housing forms, so our approach at Ashbury was to reinterpret that typology in a contemporary way,” Haddow says.

“The homes are designed to sit comfortably within the existing neighbourhood while introducing more light, landscape and shared spaces that support modern living.”

Ashbury Terraces combines terraces, apartments and penthouses across a series of low-rise buildings, integrating contemporary architecture with landscaped communal spaces and resident amenity.

That same typology is now being carried into Coronation’s Lillian development in Erskineville, where a smaller number of terraces sit within a predominantly apartment-led precinct.

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<h3 data-end="2289" data-section-id="cazuws" data-start="2271">Buyer response</h3>

Coronation’s decision to include terraces at Lillian was informed by strong buyer feedback from Ashbury Terraces, where purchasers were drawn to the flexibility and scale the housing type offers.

One resident, Sweta Pursem, purchased a terrace as a single buyer, citing its long-term versatility.

“As a single buyer, it might seem surprising that I chose a terrace over an apartment, but I was thinking long term,” Pursem says.

“The terraces are incredibly versatile, catering to a range of lifestyles while still offering the space and privacy of a house.”

For Pursem, the multi-level layout provides a level of functionality not typically found in apartment living.

“Having a separate living area from the bedroom and home office makes everyday living feel both functional and comfortable. When friends and family come to visit, the layout gives a sense of privacy while still feeling open and spacious.”

Her terrace also supports a more connected, lifestyle-driven way of living.

“I love entertaining, and the courtyard is ideal for relaxed weekend drinks with friends. I tend to use each level differently throughout the day, it creates a natural rhythm between work, downtime and entertaining, which I didn’t have in apartment living.”

Ashbury Terraces is now complete and ready to move in, while Lillian in Erskineville is under construction and expected to welcome residents in mid-2027.

Joel Robinson

Coronation champions terraces as a key piece of Sydney’s housing mix

Private equity real estate firm Conquest has entered into a $220 million partnership with Woolworths’ development arm, Fabcot, to deliver its long-awaited Waterloo project on Bourke Street.

The Bourke Street development was first flagged by Fabcot back in 2021 as part of its push into Sydney’s residential market. However, progress has since stalled, with no activity on site amid a number of design revisions in consultation with the City of Sydney.

<a href="https://www.apartments.com.au/developers/conquest">Conquest</a>, which is actively planning more than $6 billion worth of new developments, predominantly mixed-use precincts, is now set to move the project forward.

The current plans include between 110 and 120 apartments across two buildings designed by Bates Smart at <a href="https://www.apartments.com.au/new-apartments/923-935-bourke-street-waterloo-nsw-2017">923 Bourke Street</a>. The scheme will incorporate a portion of apartments reserved for key workers, alongside premium commercial space at ground level, including a full-line Woolworths supermarket.

Construction is expected to commence in the second half of 2026.

Michael&nbsp;Akaawi, CEO of Conquest, said the partnership reflects the firm’s commitment to "convenience-led" urban renewal."

"We are preparing to commence construction in the second half of this year," Akaawi says.

"Along with Woolworths, we look forward to delivering the first major supermarket to the growing Waterloo community, integrated with premium new apartments and specialty retail shops. Our focus is on creating a seamless lifestyle hub where essential services are at the doorstep, saving residents time and enhancing their quality of life."&nbsp;

<img alt="Conquest" data-entity-type="file" data-entity-uuid="d8beee83-ef9b-446b-a3b3-1e2fe596512b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-05-01%20at%2011.08.46%E2%80%AFAM.png?VersionId=raYhGepiLUJfx4InLPRRJduA3ftDJ_kS" />

The news comes just a week after Conquest went to the NSW Government to upsize its plans for Castlecrag's Quadrangle Shopping Centre.

Conquest purchased the site for just shy of $70 million last year, with existing plans in place for a mixed-use residential and retail precinct comprising 38 luxury apartments.

Those plans have now been significantly expanded, with the developer lodging a State Significant Development Application with the NSW Government’s Housing Delivery Authority for 150 apartments across two 11-storey buildings. The apartments will sit above a four-storey podium, incorporating specialty retail tenancies and five levels of basement car parking, on the 5,166 sqm site at&nbsp;<a href="https://www.apartments.com.au/new-apartments/100-edinburgh-road-castlecrag-nsw-2068">100 Edinburgh Road</a>.

Conquest has been increasingly active in the development space in recent years. The group acquired the&nbsp;<a href="https://www.apartments.com.au/developments/eastlakes-nsw-2018">Eastlakes</a>&nbsp;Shopping Centre redevelopment, where it plans to deliver more than 1,000 apartments above a new retail precinct, and has also lodged a $900 million State Significant Development Application for a&nbsp;<a href="https://www.apartments.com.au/news/nsw/conquest-unveils-900m-stanmore-village-vision-for-landmark-inner-west-site">mixed-use precinct in Stanmore</a>.

Conquest partners with Woolworths to deliver mixed-use Waterloo project

A shift away from Sydney’s industrial past has left parts of the inner south defined by contrast, brick warehouses repurposed into dining precincts, former factory streets softened by landscaping and pedestrian activity.

Rosebery is one of those suburbs. Over the past decade, it has undergone significant gentrification, anchored by The Cannery, which has helped reposition the area as one of the inner city’s most sought-after lifestyle pockets.

What hasn’t kept pace with that transformation is new residential supply, which has remained relatively limited. Builder-developer Deicorp identified that gap early, securing a site in 2019 and delivering what is now one of the suburb’s most architecturally distinctive developments.

To realise the vision, Deicorp engaged Candalepas Associates to design The Rothschild, a project that is immediately recognisable from the street.

Completed in 2025, The Rothschild comprises two buildings across Rothschild and Mentmore Avenues, delivering 176 apartments. The development replaces a former industrial site, retaining a material and structural dialogue with its past while introducing a more resolved residential framework. The scale is deliberate but not monolithic, broken into forms that engage both street frontages, with retail at ground level and two levels of basement parking below.

[smartcode_project:default project_id=106843 project_image_fid=221665]

From the street, the architectural intent is clear. Off-form concrete columns run through the façade, establishing a repeated structural rhythm that gives the building its visual weight. These are paired with deep-set arches and sections of exposed brickwork, creating a layered elevation that reads less like a typical apartment block and more like a reinterpretation of industrial architecture.

The material palette is intentionally restrained, with concrete left exposed and brick used to define mass rather than decoration. The result is a building that stands out through proportion and repetition, rather than height or glazing.

This approach continues internally. A central landscaped courtyard sits between the two buildings, anchored by an olive grove that acts as both a visual and spatial focal point. Rather than functioning as residual space, the courtyard is designed as a shared ground plane, where circulation paths, seating areas and planting come together to create a usable communal environment. Its positioning allows natural light to penetrate deep into the site while maintaining separation between residences.

[smartcode_project:default project_id=106843 project_image_fid=221666]

Within the apartments, the planning follows a clear and functional logic. Entry points lead directly into open-plan living areas, with kitchens positioned as central elements alongside dining and lounge spaces. These zones extend to balconies or external openings, maintaining a visual connection to either the courtyard or the street.

Kitchens prioritise practicality, with generous bench space, ample storage and European appliances configured for everyday use. Bedrooms are typically set back from the main living areas, creating quieter zones within each residence, with separation achieved through layout rather than material change. Bathrooms are compact but efficient, incorporating mirrored cabinetry and integrated storage to maximise space. Across all residences, the emphasis is on clarity of movement and functional planning.

[smartcode_project:default project_id=106843 project_image_fid=221669]

At ground level, retail and hospitality uses extend the building’s presence beyond its residential function. A café or restaurant space, alongside communal amenities such as a music room and rooftop areas, positions the development as part of a broader urban network rather than a standalone project. These shared spaces reinforce a lifestyle where the building operates as an extension of the surrounding neighbourhood.

Rosebery’s proximity to Green Square, The Cannery and nearby parklands supports this model of living, where much of daily life is within walking distance. The Rothschild sits comfortably within that network, contributing to the streetscape through its distinctive architecture, while internally organising space around light, structure and communal use.

The Rothschild is now complete and ready to move in, with limited residences remaining.

[smartcode_project_cta:default project_id=106843]

The Rothschild reinterprets Rosebery’s industrial DNA into residential form

KTQ has unveiled&nbsp;<a href="https://www.apartments.com.au/new-apartments/casilia-16-marine-parade-coolangatta-qld-4225">Casilia</a>, the final residential release within the Kirra Point precinct which really kicked off the boom in the area back in 2019.

The final stage comprises&nbsp;87 residences and marks the culmination of a long-term, family-led vision for Kirra Point, as the precinct moves toward completion in tandem with the development.

Around $100 million in sales have been achieved already, close to 35 per cent of the residences secured ahead of launch. There have been a significant number of buyers returning from the first stage of the development, Miles Residences, securing another property within Kirra Point.

[smartcode_project:default project_id=152295 project_image_fid=368410]

Selling agent Tim Keenan from Keenan Byrne said the response reflects both the scarcity of the offering and Kirra’s growing reputation as a premium coastal market.

“This is effectively Kirra’s final act, the last release within what has become one of the Southern Gold Coast’s most tightly held beachfront precincts,” Keenan said.

“We’ve seen exceptionally strong pre-sale interest, from VIP waitlists through to off-market enquiry, which speaks to both the quality of the product and the confidence buyers have in the precinct. What’s particularly compelling is the number of buyers returning from Miles, either upgrading or investing again, which is a strong signal of how the precinct has been received."

Keenan adds that at the same time, north-facing beachfront remains exceptionally rare in Australia, limited to places like Noosa, Byron and Kirra, which is underpinning long-term value.

[smartcode_project:default project_id=152295 project_image_fid=368415]

Positioned along one of Australia’s few true north-facing beaches, Casilia offers a mix of two and three-bedroom residences with pricing ranging from $1.87 million to $7.15 million and two exclusive penthouses. Residences are oriented to capture varying outlooks, from uninterrupted Pacific Ocean views across Kirra Beach to hinterland vistas, with upper levels and shared amenity taking in sweeping perspectives along the Gold Coast coastline.

At rooftop level, a north-facing pool deck captures expansive, uninterrupted views over Kirra Beach and north towards Surface Paradise. The space incorporates a heated resort-style pool, mineral spa, sun lounges and a covered BBQ cantina.

Buyer profiles are broad, typically aged between 40 and 70, with a strong skew toward second-home ownership, drawn by a combination of lifestyle, relative value, proximity to Gold Coast Airport and lower congestion compared to more established markets such as Byron Bay and Noosa.

[smartcode_project:default project_id=152295 project_image_fid=368414]

The project is being delivered by <a href="https://www.apartments.com.au/developers/ktq-group">KTQ Group</a>, a family-owned Australian property group with a diverse portfolio spanning residential, hospitality and commercial developments. The group has delivered a number of notable projects across sectors, including the award-winning Elements of Byron resort, demonstrating its depth of experience across both hospitality and residential development.

Known for its long-term approach to place-making, KTQ Group retains a vested interest in its projects, often holding assets within its portfolio, which has also helped build trust among buyers and reinforced confidence in both the vision and delivery certainty of the precinct.

“Casilia represents the final opportunity to secure a residence within Kirra Point and brings to market the last release within our long-term vision for the precinct," KTQ Group's Jeremy Holmes said.

"Kirra Point has been more than a decade in the making, and that timeframe reflects the care behind each decision, it takes listening, balance and vision to arrive at something that feels right for the location.

“Our approach has always been to deliver Kirra Point as a destination in its own right, a connected coastal neighbourhood integrating residential, hospitality and wellness, rather than a standalone project. It’s a vision that respects place, pace and permanence, and contributes to a sense of community that feels authentic to Kirra.”

[smartcode_project:default project_id=152295 project_image_fid=368411]

Once complete, the Kirra Point masterplan will incorporate a mix of dining establishments, bars and cafés, alongside the Kirra Point Health Club and a future 91-room independent resort hotel, creating a walkable, integrated lifestyle precinct.

Architecutue and interiors at Casilia have been designed by the experienced design houses of <a href="https://www.apartments.com.au/architects/little-boat-projects">Little Boat Projects</a> and O’Neil Architecture &amp; Interior Design, The design moves beyond the conventional coastal apartments, instead taking cues &nbsp;from the surrounding landscape - layering natural materials, soft curves and warm textures to create spaces that respond to light, airflow and the rhythms of coastal living.

Residences are designed with an array of floorplates, generous proportions and intuitive flow, while at ground level Casilia connects into the broader precinct, where future laneways, retail and hospitality offerings will contribute to a neighbourhood defined as much by how people live day-to-day as its beachfront position.

[smartcode_project_cta:default project_id=152295]

The final residential release within the Kirra Point masterplan is set to launch, as strong pre-sales signal sustained demand for the Southern Gold Coast

A decade in the making: KTQ launches Casilia at Kirra Point

South East Queensland developer&nbsp;<a href="https://www.apartments.com.au/developers/gardner-vaughan-group">Gardner Vaughan Group</a>’s entry into the Gold Coast apartment market has progressed from pipeline to market, with its Chevron Island project Bronze on Chevron now formally available to purchase ahead of a planned 2029 completion.

The 119-apartment development on Mawarra Street marks the Brisbane-headquartered builder-developer’s first residential play in the Gold Coast, following its expansion south from Brisbane and the Sunshine Coast.

<a href="https://www.apartments.com.au/new-apartments/bronze-on-chevron-8-mawarra-street-surfers-paradise-qld-4217">Bronze on Chevron</a> comprises a mix of two-, three- and four-bedroom residences, with pricing starting from just over $1.5 million. The project is being delivered under Gardner Vaughan’s fully integrated model, with the group acting as both developer and builder, a structure it has consistently applied across its South East Queensland portfolio.

[smartcode_project:default project_id=107520 project_image_fid=367182]

Architecture has been designed by <a href="https://www.apartments.com.au/architects/cottee-parker-architects">Cottee Parker</a>, with landscape architecture by <a href="https://www.apartments.com.au/landscape-architect/jeremy-ferrier-landscape-design">Jeremy Ferrier</a>. The building presents as a single-tower scheme, with a focus on maximising outlook across both the Surfers Paradise skyline and the Nerang River.

Apartments have been planned with open-plan living zones extending to generous balconies, a response to the site’s dual-aspect positioning between river and ocean. Interiors follow a restrained coastal palette, with two colour schemes offered, and an emphasis on natural light and cross-ventilation.

[smartcode_project:default project_id=107520 project_image_fid=367181]

Resident amenity is concentrated across more than 1,250 sqm and includes a resort-style pool, gym, yoga lawn and rooftop entertaining areas. A function space with catering facilities forms part of the upper-level offering, alongside north- and south-facing outdoor areas.

Ground level will incorporate two retail tenancies, intended to extend the existing village character of the surrounding streets.

&nbsp;

[smartcode_project:default project_id=107520 project_image_fid=367200]

The project sits within walking distance of Thomas Drive’s established dining strip, while maintaining proximity to <a href="https://www.apartments.com.au/developments/surfers-paradise-qld-4217">Surfers Paradise</a> beach and broader Gold Coast amenity. The location, positioned on Chevron Island between the river and coastline, has increasingly attracted mid- to high-density development in recent years as the precinct evolves beyond its low-rise origins.

Gardner Vaughan’s move into the Gold Coast was first signalled in 2025, with the group identifying the region as a natural extension of its operations. Chief Executive Officer Simon Betteridge described the expansion as both “strategic and natural”, citing demand for well-designed apartments in lifestyle-driven markets.

Construction is expected to complete in early 2029.

[smartcode_project_cta:default project_id=107520]

Robert Gottliebsen

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