Article summary

<ul data-end="785" data-start="311">
	<li data-end="459" data-section-id="5hbcyr" data-start="311">Pikos Group has released the five-penthouse collection at Skye Kangaroo Point, headlined by a two-storey sky home spanning more than 1,000 sqm.</li>
	<li data-end="561" data-section-id="1p7lq8n" data-start="460">Early buyer interest suggests the residences could set a new Queensland apartment price record.</li>
	<li data-end="667" data-section-id="1y70z0l" data-start="562">The collection includes four move-in ready penthouses and the highly customised Skye One residence.</li>
	<li data-end="785" data-section-id="yvm0y1" data-start="668">The release caps one of Bri​sbane's most ambitious luxury apartment developments overlooking the Brisbane River.</li>
</ul>

<hr data-end="790" data-start="787" />
Pikos Group has released the five-penthouse collection at its <a href="https://www.apartments.com.au/buildings/skye-residences-by-pikos-kangaroo-point-8-river-terrace-kangaroo-point-qld-4169">Skye by Pikos</a> development in Kangaroo Point, with early buyer interest indicating the flagship residences could eclipse every apartment sale previously recorded in Queensland.

The collection crowns the luxury riverfront development with five residences, including four completed penthouses and Skye One, a two-level sky home spanning more than 1,000 sqm that will be tailored to its eventual owner.

[smartcode_project:default project_id=90059 project_image_fid=374075]

Wanting to offer a fully customisable home, Pikos is offering Skye One as a blank canvas, allowing the buyer to work alongside the developer's design team to customise the home's layout, finishes and internal spaces.

The residence will feature a 247 sqm private rooftop terrace with its own swimming pool, sauna, steam room, outdoor kitchen and multiple entertaining areas overlooking the Brisbane River and CBD skyline.

The remaining four penthouses have been completed and are ready for immediate occupation, each offering four bedrooms, expansive open-plan living areas, soaring ceilings and private lift access.

[smartcode_project:default project_id=90059 project_image_fid=374059]

One of the defining features throughout the project is its use of Roman Classic Travertine, with more than 20,000 sqm of the natural stone imported from Italy after being personally selected by Pikos Group Founder and Executive Director Pedro Pikos, interior designer Julie Williamson and third-generation stone specialist Mario Caucci.

Pikos said the penthouse collection represented the culmination of the company's long-term vision for Skye.

"True legacy isn't measured by what we build today, but by what endures tomorrow," Pikos said.

"Our ambition is to create places that become more valuable with time, enrich the lives of generations, and stand as timeless landmarks long after we've stepped away."

[smartcode_project:default project_id=90059 project_image_fid=374060]

Williamson said the interiors were inspired by the natural character of Kangaroo Point and the Brisbane River rather than international design trends.

"Materiality tells the story of a place," Williamson said.

"We looked to the movement of the Brisbane River, the texture of the cliff face and the warmth of the surrounding landscape to create interiors that feel understated, enduring and unmistakably Brisbane."

Positioned above the Kangaroo Point cliffs, Skye places residents within walking distance of Howard Smith Wharves, South Bank and James Street while offering uninterrupted river and city views.

[smartcode_project_cta:default project_id=90059]

Joel Robinson

Brisbane's next apartment price record? Pikos unveils Skye's exclusive penthouse collection

Article summary

<ul data-end="888" data-start="289">
	<li data-end="442" data-section-id="8tsh6o" data-start="289">DVB Projects is preparing to launch its second Gold Coast apartment development, with demolition now underway at 137 Old Burleigh Road, Broadbeach.</li>
	<li data-end="573" data-section-id="1nyxl3e" data-start="443">The 34-level tower will comprise just 49 ultra-luxury residences, including half-floor, full-floor and penthouse apartments.</li>
	<li data-end="717" data-section-id="oiyimj" data-start="574">The launch follows strong demand at DVB's nearby Sea Glass project, which is more than 50 per cent sold and currently under construction.</li>
	<li data-end="888" data-section-id="epk9o9" data-start="718">The development adds to the transformation of Old Burleigh Road, with premium beachfront apartment projects continuing to reshape the tightly held Broadbeach strip.</li>
</ul>

<a href="https://www.apartments.com.au/developers/dvb-projects">DVB Projects</a> is preparing to launch its second Gold Coast apartment development, with demolition now underway on the Broadbeach site as the Sydney developer moves closer to bringing the ultra-luxury project to market.

The 34-level tower at <a href="https://www.apartments.com.au/new-apartments/137-old-burleigh-road-broadbeach-qld-4218">137 Old Burleigh Road</a> will comprise just 49 residences, ranging from half-floor apartments through to full-floor homes and a penthouse. The launch follows the strong sales performance of DVB's nearby Sea Glass development. More than half of the apartments at Sea Glass, on the other side of Broadbeach, have been snapped up, well ahead of its late 2027 completion

<img alt="DVB Projects to commence demolition on $320m Broadbeach luxury tower" data-entity-type="file" data-entity-uuid="2944b4be-c84e-4b54-8dc1-c712e76704c0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/E02_Exterior_Street%20Level%20Entrance.jpg?VersionId=YoNig7pRdrE3HCue7sUj78LzJteeQf3H" />

The start of demolition at 137 Old Burleigh Road signals DVB Projects’ underlying confidence in the Gold Coast’s luxury beachside apartment sector.

“We see the Gold Coast as one of the most compelling lifestyle markets in Australia, particularly at the premium end where demand continues to deepen,” said Dean Brown, Managing Director of DVB.&nbsp;

“This project has been carefully designed to respond to that demand - delivering large-format residences with a level of quality, privacy and amenity that is still relatively rare in the apartment market on the beachside."

Brown says the site itself is "exceptional."

"Old Burleigh Road is one of the most tightly held beachfront strips, and opportunities to deliver a project of this scale and calibre in this location are extremely limited.”

<img alt="DVB Projects to commence demolition on $320m Broadbeach luxury tower" data-entity-type="file" data-entity-uuid="398f377a-c037-455e-9250-0c5e0d84c35b" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/I12_FF%20Balcony.jpg?VersionId=NwOiRWGMubR1c8wthuEfggklcja7al9." />

The project will comprise 40 half-floor residences of approximately 260 sqm, alongside eight full-floor residences spanning around 524 sqm.

A single penthouse will crown the building, featuring a private pool, barbecue area, indoor gym and dedicated entertaining spaces.

Residents will have access to a resort-style suite of amenities, including a 20-metre pool with daybeds, a gymnasium, hot and cold plunge pools, a sauna, and private residents’ lounge and dining facilities.

<img alt="DVB Projects to commence demolition on $320m Broadbeach luxury tower" data-entity-type="file" data-entity-uuid="d1642bb0-9a66-4427-a022-dfc0988c6287" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/A02_Pool%20to%20View.jpg?VersionId=c0IXPyn_Gp_Kn3XCwzMrqIVkAdCEwVXP" />

Sales agent Todd Matheson, of <a href="https://www.apartments.com.au/project-marketer/pezet-matheson">Pezet Matheson</a>, which is marketing both 137 Old Burleigh Road and Sea Glass, said 137 Old Burleigh Road would address a clear gap in the market for genuine luxury products.

“There are very few opportunities on the Gold Coast where buyers can secure a residence of this size and quality in a new building,” Matheson said.

“What we’re seeing is a growing cohort of downsizers and interstate buyers who still want space - they’re not willing to compromise on living area, entertaining or finishes.

“This project has been designed with that buyer in mind. It offers the scale of a home, combined with the convenience and security of apartment living, in one of the coast’s most desirable positions.”

<img alt="DVB Projects to commence demolition on $320m Broadbeach luxury tower" data-entity-type="file" data-entity-uuid="59aae0ca-5639-4320-8aca-d0bf60f48e43" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/E01_Exterior%20Hero.jpg?VersionId=DS8Zfy2WtgUEtdfe0TEUuf1W1GfcZq8S" />

Located on a 1,156 sqm site one block from the beachfront, the development will replace an ageing walk-up building and is expected to contribute to the ongoing transformation of the Old Burleigh Road strip into one of the Gold Coast’s most prestigious residential corridors.

With the development moving into the delivery phase, 137 Old Burleigh Road is slated to hit the market later this year.

[smartcode_project_cta:default project_id=145141]

DVB Projects to launch second Broadbeach apartment tower as demolition commences

A proposal to redevelop one of North Sydney's ageing commercial buildings has taken another step forward, with plans for a 38-storey mixed-use tower adding momentum to the long-awaited transformation of the Alfred Street precinct.

Now on public exhibition through the NSW Government's Housing Delivery Authority-led State Significant Development pathway, the proposal for 271-273 Alfred Street would replace an underutilised commercial building with 95 apartments, ground-floor retail, commercial space and affordable housing. The proposal was submitted by&nbsp;Tara Shore Pty Ltd, acting for the John Taylor Family Trust.

While the project will deliver much-needed housing on the southern edge of the North Sydney CBD, it also represents another piece of a broader precinct that has spent years in planning limbo.

<img alt="First look: New public domain vision underpins 95-apartment North Sydney tower on Alfred Street" data-entity-type="file" data-entity-uuid="7e1ce1b4-38df-48ab-992f-386814d86308" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Alfred%20St%20da%20podium.png?VersionId=sC_h6w.A9VEoB98qsqowPlIoz__sBZBt" />

Despite its proximity to both North Sydney Station and the Victoria Cross Metro, redevelopment of Alfred Street has progressed slowly over the past decade as broader planning controls, zoning and building heights remained unresolved. The introduction of the Housing Delivery Authority pathway has provided a new avenue for projects to progress, allowing rezoning and development assessment to occur concurrently and unlocking sites that have long been earmarked for renewal.

Designed by Office of Cortese &amp; Gilder, the proposal seeks to do more than replace an ageing office building. The architects have positioned the project as the first stage of a wider public domain vision that would improve pedestrian connectivity and create a more cohesive mixed-use precinct as neighbouring sites are redeveloped over time.

The proposal includes a widened Alfred Street setback, new street trees, landscaping and outdoor seating, along with a landscaped through-site pedestrian link connecting Alfred Street with Little Alfred Street. The connection is intended to become the first section of a future east-west pedestrian network extending across the precinct.

<img alt="First look: New public domain vision underpins 95-apartment North Sydney tower on Alfred Street" data-entity-type="file" data-entity-uuid="8ea39ac3-46ad-4562-b4a0-b862e91c2dda" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Alfred%20St%20da%20site.png?VersionId=K7umCd21KpetEFuVfsPlnJKhUOsmTTdV" />

The mixed-use tower would comprise retail space at ground level, commercial uses on level two and apartments from level three upwards.

In total, the development would deliver 95 apartments, including nine one-bedroom, 28 two-bedroom, 56 three-bedroom and two four-bedroom residences. Twenty-one apartments, representing 15 per cent of the residential gross floor area, would be secured as affordable housing and managed by a registered community housing provider for at least 15 years.

Nine basement levels would provide 133 resident car spaces, seven motorcycle spaces and 111 bicycle spaces.

According to the Architecture and Urban Design Report, the public domain strategy is designed to transform what is currently an inward-facing commercial edge into a more active and connected pedestrian environment, creating a stronger relationship between the commercial core and surrounding residential neighbourhoods.

Office of Cortese &amp; Gilder has also prepared a broader public domain framework spanning neighbouring properties between 263 and 283 Alfred Street, arguing that a coordinated approach to redevelopment will deliver better public spaces, improved tower separation and a more connected streetscape as the precinct evolves.

The proposal comes at a time where North Sydney is slated for future residential growth. Commercial developer FiveX has residential plans for the neighbouring site at 275 Alfred Street. They've proposed a 39-storey mixed-use tower with 184 apartments, while Freecity was recently approved for nearly 300 apartments across a 51-storey building on Walker Street.

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-freecity-gets-green-light-for-mixed-use-apartment-and-hotel-tower-in-north-sydney">First look: Freecity gets green light for mixed-use apartment and hotel tower in North Sydney</a>

Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-plans-39-storey-residential-tower-in-booming-north-sydney">First look: Fivex plans 39-storey residential tower in booming North Sydney</a>

&nbsp;

Alfred Street the latest North Sydney pocket to be transformed by residential development

Buyers considering a residence at boutique Gordon townhouse development <a href="https://www.apartments.com.au/new-townhouses/lume-gordon-43-47-dumaresq-street-gordon-nsw-2072">Lume</a>&nbsp;now have another reason to bring forward their decision.

For a limited time, purchasers of a residence at Lume will receive a BMW iX3 50 electric SUV, valued at more than $120,000, as part of their purchase. The offer is designed to add value for buyers while complementing the lifestyle envisioned for the architecturally designed Upper North Shore development.

Scott Timmins, Development Manager at <a href="https://www.apartments.com.au/developers/winim">WINIM</a>, said the partnership was created to provide buyers with a compelling reason to act.

"In today's market, buyers need a compelling reason to act now, and the BMW partnership was designed to create that catalyst. We wanted to add genuine value for our future purchasers. Choosing the all-electric BMW iX3 50 also reflects the values behind LUME, forward-thinking design, innovation and a more sustainable way of living. It's a premium incentive that complements the lifestyle our buyers aspire to and rewards those who commit early."

[smartcode_project:default project_id=7354 project_image_fid=374893]

Delivered by WINIM in partnership with Burtonwood Investment Partners, Lume comprises 14 architecturally designed two, three and four-bedroom townhomes created for families seeking the space of a freestanding house with the ease of modern, low-maintenance living.

The three-storey residences, designed by award-winning architecture practice <a href="https://www.apartments.com.au/architects/rothelowman">Rothelowman</a>, have been tailored for families and multi-generational living, featuring private internal lifts, flexible lower-level spaces, generous open-plan living and entertaining areas, media rooms, and landscaped outdoor spaces with custom outdoor kitchens.&nbsp;

Inside, engineered oak flooring, bespoke dining joinery with integrated wine fridges and backlit bars, sculptural porcelain bathrooms, Parisi freestanding baths and Astra Walker tapware create interiors that balance functionality with refined finishes.

Each townhome has been designed to combine generous internal spaces with sustainability initiatives such as EV charging infrastructure, while <a href="https://www.apartments.com.au/landscape-architect/arcadia-landscape-architecture">Arcadia</a>'s landscaped communal areas, centred around a restored creek line and native planting, encourage residents to connect with nature and spend more time outdoors.

[smartcode_project:default project_id=7354 project_image_fid=269527]

Rothelowman's Gary Tsui said the architecture was conceived to respond carefully to its Upper North Shore setting.

"Our vision was to create elegant, uplifting homes that draw on and positively contribute to the local character through meticulously considered design and an interaction with the surroundings."

The communal landscape has been designed as more than an open space between homes. Arcadia's Ben Newell and Kate Phillips said the adjoining reserve provided an opportunity to create a distinctive natural retreat for residents.

"Just as waterways carve their way through Ku-ring-gai's landscape, a raised boardwalk weaves through the reserve, connecting the homes to this tranquil oasis."

[smartcode_project:default project_id=7354 project_image_fid=374892]

Located just 300 metres from <a href="https://www.apartments.com.au/developments/gordon-nsw-2072">Gordon</a> Village and Gordon railway station, Lume offers convenient access to Sydney's CBD while placing residents close to some of the North Shore's leading schools, including Ravenswood, Pymble Ladies' College and Knox Grammar. Lane Cove National Park, Gordon Golf Club and a range of cafés and restaurants further reinforce the family-focused lifestyle on offer, with the BMW iX3 50 complementing everything from local trips around Gordon to weekend drives and city commutes.

Construction is underway with completion expected in mid-2027.

[smartcode_project_cta:default project_id=7354]

Boutique Gordon townhomes now come with a BMW iX3 50

Two apartments have sold for more than $10 million at EADE Byron Bay, setting some of the highest apartment prices ever achieved in the coastal town and underlining the growing appetite for luxury beachfront apartments in Australia's most popular coastal locations.

The $210 million project by Vitale Property Group has now secured more than $70 million in sales, led by residences that changed hands for $12.75 million and $11.75 million.

The record-breaking transactions reinforce the shift occurring in Byron Bay's premium property market, where affluent downsizers and lifestyle buyers are increasingly opting for high-end apartments over large beachfront homes.

<a href="https://www.apartments.com.au/new-apartments/eade-byron-bay-29-shirley-street-byron-bay-nsw-2481">EADE Byron Bay</a> occupies a rare 6,000 sqm absolute beachfront site on the corner of Shirley and Milton Streets overlooking Main Beach and The Wreck surf break, just 350 metres from Byron Bay's town centre.

The 25-residence development is the first beachfront apartment project approved in Byron Bay in more than a decade and is currently under construction, with completion expected in May 2027.

[smartcode_project:default project_id=145590 project_image_fid=359521]

The project has attracted a mix of local Byron Shire residents downsizing from larger homes, alongside interstate buyers from Sydney, Melbourne and Brisbane seeking a permanent coastal lifestyle without compromising on space.

Designed by <a href="https://www.apartments.com.au/architects/hayball">Hayball</a> and with interiors by <a href="https://www.apartments.com.au/interior-designers/alexander-co">Alexander &amp; Co</a>, EADE comprises&nbsp;10 garden apartments ranging from 284 sqm to 622 sqm, nine with private pools, five full-floor apartments and 10 rooftop residences with private plunge pools, expansive outdoor entertaining areas and uninterrupted ocean views.

[smartcode_project:default project_id=145590 project_image_fid=359527]

<a href="https://www.apartments.com.au/developers/vitale-property-group">Vitale Property Group</a> Managing Partner Chris Vitale said the project's combination of scale, location and limited future supply was driving buyer demand.

"There isn't another beachfront holding in Byron Bay of this size and position that could be developed again," Vitale said.

"Buyers are responding to the scarcity and the irreplaceability of a site of this calibre and to floorplans they can't find elsewhere in the market.

"We are seeing buyers place significant value on quality, space, design, resort-style amenities and the rarity of the location. The sales achieved to date demonstrate that discerning purchasers recognise the long-term significance of what is being created at EADE Byron Bay.

"Many are coming from larger homes in the Byron region, or from Sydney, Melbourne and Brisbane, and are after the space, security and convenience, without the upkeep of a house."

&nbsp;

[smartcode_project:default project_id=145590 project_image_fid=359523]

The Byron Bay project follows Vitale Property Group's delivery of the Mondrian Hotel and Private Residences at Burleigh Heads, with EADE continuing the developer's focus on luxury coastal developments.

Residents will have access to a resort-style swimming pool, gymnasium, sauna, cold plunge pool, concierge services and dedicated workspaces, while the project is targeting an 8-Star Green Star rating.

EADE Byron Bay is being exclusively marketed by Projx Australia in conjunction with WHITEFOX Projects.

WHITEFOX National Projects Director Phillip Rand said demand had been driven predominantly by owner-occupiers.

"We are seeing buyers at EADE place significant value on quality, space, design, resort-style amenities and the rarity of this location," Rand says.

"The sales achieved to date demonstrate that purchasers at this level recognise the long-term significance of what is being created at EADE Byron Bay."

Residences at EADE Byron Bay are currently priced between $4.75 million and $15.95 million.

&nbsp;

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[smartcode_project_cta:default project_id=145590]

Vitale breaks Byron Bay records with EADE sales flurry 

Prominent New Zealand apartment and hotel operator, <a href="/developers/safari-group">Safari Group</a>, is offering up a prime investment opportunity for Australians to purchase off the plan in one of the world’s most popular ski destinations.

They recently took to market Mountain Oak Queenstown Apartments, in the growing precinct of Remarkables Park in Frankton, near the airport and at the foot of The Remarkables - the mountain range the locals like to call “The Remarks”.&nbsp;

Sydney investors have shown interest in the one, two and three-bedroom apartments that secure high-season occupancy six months over the year, primarily over summer and winter months.

They average 90 per cent occupancy across their portfolio over January, February, March, August, November and December, while shoulder season months of April, July, September and October are still occupied 70 per cent of the time, with the growing appeal of Queenstown becoming not just a hotspot for the snow, but a lifestyle destination.

Even in the low seasons of May and June, occupancy levels reach around 40 per cent.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/f_auto,c_limit,w_1440,q_auto/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/field/image/Ext_Cam15_Sunny.jpg?VersionId=SJAROUM_1s.Tr5ciMk4EEj5oAt_Vewmv" />

Safari’s Safari Hotels arm can also manage the holiday letting for an investor, from the listing on holiday accommodation websites such as Airbnb and Booking.com to the cleaning and maintenance of the investment. They’ve been in the short stay management business for 15 years and offer 24/7 support for investors, an important convenience benefit for any overseas investor

Another major drawcard for Australians is that New Zealand doesn’t have a stamp duty policy - so the entry price of NZ$639,000 (AU$586,000), is all that is payable on completion.

<img alt="Safari Group’s Mountain Oak Apartments brings new investment potential to Queenstown" data-entity-type="" data-entity-uuid="" src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,dpr_2.0,q_auto:good/https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/313_Livingv2_WEB.jpg?VersionId=nV229fM0ZeYpoxOrX372HyGjfwY_LR8c" />

Safari is starting construction of the 141 apartments in Q2 this year, with a two-year build estimated to complete in mid-to-late 2027.<img alt="" data-entity-type="" data-entity-uuid="" height="15" src="https://lh7-rt.googleusercontent.com/docsz/AD_4nXczFpFAb7WuA6f4f9TtKWcqXyNwR8qqtakWv352ERkpqNlP3KwIo8YKxw67jZNHfpjEGIZGv5MQTbnvLZwNt8iu9IVdOrswOjCvBZ4zhSoOOLrpt6etVEZTN1gkBho0r_R72zdHNA?key=yq3daOanqHSb88QFd8jGYKdb" title="Click and drag to move" width="15" />​

The apartments will feature modern amenities and contemporary designs with expansive windows capturing sweeping views of The Remarkables mountain range.&nbsp;

Interiors are equipped with modern finishes, premium appliances, and secure electronic key-locked doors, ensuring a comfortable living experience for residents and guests alike.

With its strategic location near Coronet Peak and Cardrona Alpine Resort, as well as key retail and dining precincts such as Market Street, Five Mile Shopping Centre, and Remarkables Market, Mountain Oak offers a strong proposition for investors seeking high rental yields and capital appreciation in one of New Zealand’s most sought-after locations.&nbsp;

Queenstown’s sustained demand for visitor accommodation and rental properties is underpinned by a shortage of housing options, attracting both local and international buyers.

Safari Group offers low-touch investment proposition in Queenstown’s popular ski fields district

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Melbourne house prices increased 1.1% over the December 2011 quarter to a median of $538,000, the best result for all capital cities and the first quarterly rise since December 2010, according to Australian Property Monitors.
The December quarter result helped lift Melbourne to the position of second best-performing housing market in 2011 (behind Sydney) and the best-performing unit market.
Andrew Wilson, senior economist at APM, says the Melbourne improvement is being driven by increased buyer activity at the top end of the market while Sydney buying activity is coming from those at the bottom end.
Wilson says this result is significant “as it shows an end to a recent trend of falling prices over the past year, with the realistic potential for a sustained turnaround in some markets”.
“Looking forward, 2012 will provide mixed outcomes for housing markets, with some capital cities set to revive while others will remain flat.”
However, Monique Sasson Wakelin, managing director of Wakelin Property Advisory, disagrees that prestige buyers are pushing up Melbourne house prices.
“I disagree that it is being driven by the top-end prices. My view is the increase has been driven by upgraders with equity. It’s that group which have tended to anticipate the decline in interest rates,” she told the Australian Financial Review.
She maintains a cautious outlook, forecasting growth of 1% to 3% over 2012.
Recent December quarter figures put out by the <a target="_blank" href="https://www.propertyobserver.com.au/residential/melbourne-metro-house-prices-5.2-cheaper-than-a-year-ago-reiv/2012012253107">Real Estate Institute of Victoria </a> show a 36% increase house prices in affluent Kew and 14% gain in Prahran, but also strong gains in less affluent suburbs West Footscray (up 6.2%).
The outlook appears less rosy for Melbourne’s property investor market, with the <a target="_blank" href="https://www.propertyobserver.com.au/residential/the-nation-s-strongest-and-weakest-capital-city-rental-markets-sqm/2012012453139">latest rental vacancy figures from SQM Research</a> showing the Melbourne vacancy rate rising to 4.4% in December with more than 16,000 properties now available for rent – up from 3.4% and 12,300 vacant rental properties in November 2011.
Melbourne’s vacancy rate is more than twice that of Sydney (2%) and significantly higher than the national vacancy rate of 2.5%.
The figures also coincide with data released today by ING showing that <a target="_blank" href="/news">Victorian mortgage confidence plummeted</a> during the December 2011 quarter.
Overall, house prices were unchanged over the December quarter according to APM, while unit prices declined marginally, down by 0.5%.
Hobart (0.5%) and Adelaide (0.5%) were the two other capital city markets to record price gains over the quarter, while Sydney house prices were unchanged at $637,000.
The worst-performing housing markets over the past three months were Brisbane and Perth, both recording a decline of 1.2%.
<img src="/images/stories/apmjan251.gif">
Nationally house prices were down 3.5% over the year led by Brisbane (down 7.5%), Darwin (7%) and Perth (5.2%). The best-performing housing market for the year was Sydney, with prices down a marginal 1.3%, followed by Melbourne, where house prices were down 3.1% in 2011.
Canberra was the strongest-performing market for units in the December 2011 quarter with a 2.9% increase in prices to a median of $414,000, followed by Perth (up 2.1%) and Darwin (1.1%)
Melbourne unit prices in Melbourne fell by 0.9% during the December 2011 quarter to just under $400,000 while Sydney unit prices softened by 1.1% to just under $450,000.
Nationally, units outperformed houses during 2011, with prices falling just 1.6%
Melbourne unit prices were virtually unchanged over 2011, down just 0.2% for the calendar year.
By far the worst-performing unit market was Hobart, with prices down nearly 16% for the year.
Of the big-city markets, Brisbane registered a 5.8% drop for the year, but a slight recovery in the December quarter with a 0.4% gain.
<img src="/images/stories/apmjan252.gif">
 
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lschlesinger-FZcF9M3vE6

Mixed messages in Melbourne's data as house prices increase slightly

<html><body>
Melbourne
16,007 vacancies representing a 4.4% rental vacancy rate compared with 12,937 vacancies a year earlier in December 2010. 
Sydney 
11,106 vacancies representing a 2% rental vacancy rate compared with 9,504 vacancies a year earlier in December 2010.
Brisbane
6,278 vacancies representing a 2.5% rental vacancy rate compared with 6,908 vacancies a year earlier in December 2010. 
Adelaide
2,731 vacancies representing a 1.9% rental vacancy rate compared with 2,040 vacancies a year earlier in December 2010. 
Perth
1,565 vacancies representing a 1% rental vacancy rate compared with 2,339 vacancies a year earlier in December 2010. 
Hobart
559 vacancies representing a 2.4% rental vacancy rate compared with 303 vacancies a year earlier in December 2010. 
Canberra
482 vacancies representing a 1.1% rental vacancy rate compared with 389 vacancies a year earlier in December 2010. 
Darwin
405 vacancies representing a 1.7% rental vacancy rate compared with 665 vacancies a year earlier in December 2010.
Click to enlarge
<a title="Click to enlarge" rel="shadowbox" href="/images/stories/sqmjan25large.gif"><img src="/images/stories/sqmjan25.gif"></a>
Source: SQM Research
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jchancellor-FAypfDUnLy

The nation's strongest and weakest capital city rental markets: SQM

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For most of this year Australians have had to read asinine media articles reporting purported experts predicting catastrophically large 20%, 40% and, <a target="_blank" href="https://www.propertyobserver.com.au/residential/incredible-prediction-of-australian-property-bloodbath-excites-twitter/2012012053102">last week</a>, 60% falls in domestic house prices. 
The fact that these individuals have no experience successfully forecasting housing market conditions seems to be utterly inconsequential to the journalists desperately seeking to peddle doom and gloom. 
The best information we have today suggests that Aussie house prices will have tapered by around 3.5% over the course of 2011. That’s right: less than one-tenth the decline sensationally predicted by the closely covered doomsayers (no prizes for guessing who I am referring to here). 
Wiser readers will realise that this is history repeating itself: the same individuals expressed the same opinions during the global financial crisis only to see Aussie house prices surge over 2009 and 2010. 
And now we have mounting evidence that the housing market is staging a slow recovery, as I’ve projected in these pages for some time. The key catalyst appears to have been the RBA’s decision to swing 180 degrees from expecting to hike interest rates to cutting them in November and again in December. A low core inflation result from the ABS today would significantly increase the prospect of a third delicious rate cut for home owners at the RBA’s February board meeting. 
The first tangible signs of the recovery derived from RP Data-Rismark’s November house price index release, which reported a marginal 0.1% increase in seasonally adjusted dwelling prices. This was the first rise in capital city home values since December 2010. Importantly, even stronger capital growth was found across Australia’s “regional” (i.e., non-capital city) markets. 
A key question that will be resolved next week is whether this November data was a once-off or indicative of a more sustainable theme. More specifically, will the preliminary November month result revise up or down, and what will the index tell us about the highly seasonal month of December? 
Today a second leading house price index provider, Australian Property Monitors, has echoed these findings, reporting that nationwide house prices actually ground out a tiny gain over the December quarter (the three months inclusive of October, November and December). 
The main take-away here is not that home values are inflating again: it is, on the contrary, that they are not falling, or falling at an accelerating rate, as Steve Keen has predicted. 
In today's release, APM comments, “Median house prices have risen nationally for the first time since September 2010, indicating early tentative signs of recovery in the housing market… The rise in the national median house prices reflects activity in the Sydney and Melbourne housing markets over the December quarter.” 
APM’s chief economist, Dr Andrew Wilson, adds: “This result is significant as it shows an end to a recent trend of falling prices over the past year, with the realistic potential for a sustained turn-around in some markets.” 
The coincidence between the APM and RP Data-Rismark house price index paths is especially encouraging because they use markedly different methodologies. APM’s index is based on a “stratified median” technique pioneered by Dr Anthony Richards (and colleagues) at the RBA. RP Data-Rismark uses a more sophisticated hedonic regression approach. Over the long term, the two indices tend to move very closely together. 
The recovery in housing activity, which seems to be occurring more rapidly than perhaps even I forecast, is entirely understandable. 
Australians have benefited from a tremendous improvement in housing affordability. Capital city house prices have not increased since May 2010. In fact, they have tapered by a cumulative 4.5% (one bad day for the share market!). At the same time, disposable incomes per household have risen by about 14%. On a longer-term basis, Rismark’s analysis suggests that disposable incomes per household have outpaced capital city dwelling prices by more than 15% since the end of 2003. 
The final nail in the affordability argument is, of course, mortgage rates. The RBA’s munificence has bequeathed borrowers with home loan rates that are now well below their 15-year averages. Ubank is offering variable rates of 6.14% and fixed rates of just 5.93%. 
If the RBA cuts again in February, and further thereafter, as some analysts believe they will, expect to see the return of rapid house price appreciation. As I've said before, housing (and bank-intermediated credit growth) will be the chief beneficiary of any interest rate relief.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
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chrisjoye-JYhJsTrNRC

Aussie house prices could be on the rise again: Christopher Joye

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The total land value of the Coffs Harbour local government area sits at $6.558 billion, a 3.6% jump over the July 2008 valuations, according to NSW Valuer-General Philip Western.
New land values have been issued to the council today to use in the determination of rates of the 26,518 properties in the Coffs Harbour local government area.
Over the three-year period the value of residential land throughout central, west and south Coffs Harbour, Toormina, Boambee and Sawtell generally remained steady. In the last year the median residential holding was steady at $165,000.
Some residential land in the northern beaches area showed a slight decrease in value, the Valuer-General says.
Sustained demand for a limited supply of available good-quality property has resulted in slight increases in values of rural residential land across most areas, particularly throughout the well-regarded Crossmaglen, Bonville, Middle Boambee, Karangi, Korora, Sapphire and Moonee localities.
Commercial land values had remained steady.
The median business landholding was steady at $530,000 over the most recent financial year.
Industrial land values have generally shown a slight increase, with the exception of industrial land in the Orlando Street/Lawson Crescent locality, which has decreased slightly over the three-year period in the face of increased competition from other industrial centres.
The median industrial value rose over the last year by 1.3% from $288,000 to $293,000.
The value of larger rural holdings, including retreat homesites, grazing and horticultural holdings, has generally shown a slight increase over the three-year period. In the past year there was a small jump from $258,000 to $259,000 for the median rural landholding.
Land values for grazing and larger rural homesite holdings throughout the Orara Valley, Bucca and eastern Dorrigo Plateau localities have increased slightly as demand generally continues to exceed the limited supply of good quality properties.
Western says the 2011 valuation program included the analysis of 352 residential sales, 10 commercial, 22 industrial and 127 rural sales.
Typical residential land values were:
<ul>
<li>809 square metres at Thirteenth Avenue, Sawtell valued at $261,000 </li>
<li>1,014 square metres at Cutter Drive, Coffs Harbour valued at $295,000 </li>
<li>700 square metres at Abel Tasman Drive, Coffs Harbour valued at $150,000 </li>
<li>500 square metres at Thrower Avenue, Coramba valued at $125,000</li>
<li>646 square metres at Barnes Street, Woolgoolga valued at $155,000 </li>
<li>843 square metres at Burns Crescent, Corindi Beach valued at $145,000 </li>
<li>570 square metres at Rutland Street, Bonville valued at $155,000 </li>
<li>697 square metres at Paperbark Street, Sapphire Beach valued at $320,000 </li>
</ul>
Typical commercial land values were:
<ul>
<li>544 square metres at First Avenue, Sawtell valued at $510,000 </li>
<li>397 square metres at Harbour Drive, Coffs Harbour valued at $715,000 </li>
<li>498 square metres at Harbour Drive, Coffs Harbour valued at $560,000 </li>
<li>1012 square metres at Park Avenue, Coffs Harbour valued at $635,000 </li>
<li>323 square metres at Beach Street, Woolgoolga valued at $428,000 </li>
</ul>
Typical industrial land values were:
<ul>
<li>2,100 square metres at Craft Close, Toormina valued at $250,000 </li>
<li>1,853 square metres at Lawson Crescent, Coffs Harbour valued at $315,000 </li>
<li>1,623 square metres at Featherstone Drive, Woolgoolga valued at $195,000 </li>
<li>2,028 square metres at Isles Drive, North Boambee Valley valued at $410,000 </li>
</ul>
Typical rural land values were:
<ul>
<li>30.9 hectares at Ferretts Road, Nana Glen valued at $375,000 </li>
<li>66.1 hectares at Grafton Street, Lowanna valued at $325,000 </li>
</ul>
Typical rural residential land values were:
<ul>
<li>6,054 square metres at Fig Close, Bonville valued at $240,000 </li>
<li>6,021 square metres at McRae Close, Boambee valued at $270,000 </li>
<li>8,094 square metres at Mt Bishop Road, Karangi valued at $245,000 </li>
<li>1.262 hectares at Heritage Drive, Moonee Beach valued at $240,000 </li>
<li>3,166 square metres at Shearer Drive, Woolgoolga valued at $180,000 </li>
<li>1.1 hectares at Red Rock Road, Corindi Beach valued at $265,000 </li>
</ul>
Typical hobby farm land values were:
<ul>
<li>10.1 hectares at Irvines Road, Bonville valued at $430,000</li>
<li>10 hectares at East Bank Road, Coramba valued at $326,000</li>
</ul>
 
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Coffs Harbour land values up 3.6% over three years

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As economists tell the Australian government to ready for another round of economic stimulus, Australians for Affordable Housing is calling on state and federal governments to make creating more affordable housing a national priority. 
This follows the release of the annual Demographia International Housing Affordability survey of 325 global housing markets, which classified Australia as having no affordable markets in 2011, with the <a target="_blank" href="https://www.propertyobserver.com.au/residential/sydney-and-melbourne-in-the-top-five-least-affordable-cities-in-the-world-demographia/2012012353110">majority of those markets classified as “severely unaffordable</a>”. Housing is the biggest cost-of-living issue in Australia, and this report is further evidence of the need for proactive government action on this issue. 
Australia has the worst housing affordability of any national market outside of Hong Kong, which is a terrible indictment and shows just how serious this problem is. 
The survey classified Melbourne and Sydney as “severely unaffordable”, with the cities’ median house price 8.4 times and 9.2 times the median income respectively. 
Although Australia’s national unaffordability ratio reduced from 6.1 times in 2011 to 5.6 times this year reflecting a slight fall in house prices, we must not ignore the fact that this still leaves Australia’s housing as “severely unaffordable”. 
This makes it the right time for governments to prioritise spending on affordable housing and prepare a stimulus plan focused on social housing, in anticipation of further economic problems in Europe. 
Social housing spending was the unheralded success story of the last stimulus package.  It didn’t just keep builders employed but delivered massive social benefits to some of our most vulnerable and disadvantaged people. 
By contrast the boost to the first-home owner’s grant simply supported house prices at record levels delivering a boost to those vendors who sold rather than providing benefits to renters seeking to get into the market.
Sarah Toohey is campaign manager of <a target="_blank" href="https://housingstressed.org.au/">Australians for Affordable Housing</a>.
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stoohey-Wf4skQJiAL

Government intervention is needed to solve affordability crisis

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I predict that this is going to be a boom year! 
But before you start wondering what I’m “on” to make a comment like that, let me explain: I believe this is going to be a boom year for fright. 
There is no shortage of scary stuff in the media. Things like "House prices are unaffordable!"; "Property prices will crash"; "Europe’s financial system will fall apart”; “Which economy will topple next?”; “It’s China’s turn for a property bubble”; “Will America go into recession again?"; "Britney Spears does it again!" 
Every year is a boom year Of course just about every year is a boom year for fright.
As far back as I can remember there have always been scary stories in the media.
And looking back over the years I have invested through many property slowdowns, share market crashes, periods of double-digit interest rates and periods when people thought housing was unaffordable or would never go up in value again. Yet despite all of this the value of my properties keeps doubling, allowing me to refinance and buy even more properties.
Like I said, there’s always bad news in the media. I remember in the late 1980s the cry was, "Don't buy houses... they can't go up in value. Your kids will never be able to afford them." Then there were similar headlines in late 2003 and predictions of our property markets collapsing in 2008.
There always seemed to be scary headlines about a grim future that could have given me plenty of reasons not to invest in property. Before the global warming crisis there was an over-population crisis with politicians, environmentalist and economists predicting massive food shortages, rioting in the streets and an impending collapse of society.
I even recall a panic about global cooling.
Of course, the media gets more mileage out of this type of story. Journalists find it hard to get readers’ interest reporting on the unemployment rate being well below the long-term average, an economy that is the envy of most nations, a resources boom the likes of which we haven’t seen in a century and 19 years of continuous economic growth for Australia. This is boring.
Take a long-term view As a property investor you need to take a long-term view and refuse to be scared by the next boogey man jumping out from behind the bushes.
To be successful you need to step back and take a big-picture view.
The fact is, this week somebody's getting married, somebody's looking forward to having a baby, somebody's getting promoted, somebody's getting transferred, somebody's getting divorced. A lot of people are happening to get rich.
This year more than 150,000 new households will be formed in Australia and they are all going to have to live somewhere. Those who can’t afford to buy will have to rent.
This means the long-term fundamentals – in fact the medium-term fundamentals – for our property markets are very sound. And if you take a long-term perspective, you'll be able to spot and act on opportunities that arise this year, as many potential home buyers and investors get scared by this boom year for fright.
Is this a year of opportunity? This could well be a year of opportunities for property investors who are willing and able to see the big picture.
But remember: what you look for is what you see.
If you look for bad news you’ll find it. On the other hand if you look for opportunities, you will find them. And boy, are there opportunities out there at present.
What determines property prices? While many factors, including supply and demand, affordability, interest rates and the economy, affect property values, I have observed:
<ul>
<li>Short-term property price movements (one to three years) are usually determined by market sentiment (which is currently very low)</li>
<li>Medium- to long-term property price movements are determined by two main factors: population growth and the wealth of the nation.</li>
</ul>
Despite what some people would like, strong population growth in Australia is a given (to replace our ageing baby boomers) and as a matter of fact so is our increasing wealth. I don’t think that anyone would argue that as a nation Australia will become wealthier over the next 15 years.
Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population. We have vast resources that will be required by our growing neighbours and we’re at the beginning of the mother of all resources booms.
However, rising property prices, decreasing affordability, changing sentiment and fluctuating supply were a volatile mix that caused our property markets to slump. And now we are in a buyers’ market.
But the funny thing is that buyers don’t buy in a buyers’ market – yet smart investors do! They recognise that the current market presents them with a smorgasbord of opportunities and they step up and take advantage of them.
I’ve found that when there’s lots of bad news people believe times are going to be tough forever, just like when things are good people forget the bad times ever existed and think that things are going to remain good forever.
Neither case is true!
In fact during booms people are most confident when they should probably be the least confident, as things can’t continue travelling at breakneck speed and above average rates of growth. Similarly, during the market slowdowns, things eventually turn around. Ironically, people have the least confidence when it’s more likely that things are going to improve – that is, when markets are near their lowest point.
Now is the right time to educate yourself and get set to take advantage of the opportunities that this stage of the cycle presents.
Yes, things have slowed, and property prices have fallen over the past 18 months. And they will continue to fall in some areas. But this is a normal part of the ups and downs of the property cycle. As always, while some people worry about the bad news and sit on the sidelines, astute investors will set themselves up for the next stage of the property cycle by purchasing well-located real estate.
Michael Yardney is the director of <a href="https://www.metropole.com.au/">Metropole Property Investment Strategists</a> , a best-selling author and one of Australia's leading experts in wealth creation through property. He also writes the <a href="https://www.propertyupdate.com.au/">Property Investment Update</a> blog.
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myardney-DFoGhGbSJX

This year will be a boom year – for scaremongering

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The inclusion of Sydney in Savills landmark World Class Index highlights the city’s emerging standing in the world of prestige international property offering a safe haven for international investors, particularly from Asia.
The 2011 Savills report on the world’s 10 leading prestige property locations for international investors suggests Sydney is positioned to benefit from the both the “old” and “new” world economies that it bridges.
Savills NSW research director Simon Hemphill believes Sydney is seen as a stable old-world investment choice with a well-established luxury housing market, while also in close proximity to the booming new-world economies of Asia Pacific.
Luxury Sydney property also represents very good value on the global stage, according to Savills, which ranks Sydney as the cheapest location for global billionaires, while also offering the largest size of homes for the super-wealthy, at almost 1,900 square metres.
“Overall, Sydney still offers international investors great value and is extremely well-located to take advantage of Asian wealth if and when its policies restricting international buying are relaxed,” Hemphill says.
“Sydney is geographically very well placed to benefit from investment from frustrated Chinese and other Far Eastern investors, but they will need to open up their markets to such investors to trigger this,” according to Savills international research.
“The city’s undersupply of accommodation and high in-migration plus restrictions on new development, due to zoning and geography, are likely to keep prices the highest of any Australian city.”
Savills describes Sydney as beginning to display many of the common characteristics of the World Class city – constrained land supply, increasing pressure from overseas investors and high demand for prime accommodation – but it is unusual in offering very spacious living accommodation in relation to other leading international investment locations.
“Asian interest in residential developments within the Sydney metropolitan area is at an all-time high, with both Asian developers and private investors making substantial investments in the market,” Hemphill says.
“Anecdotally, almost a third of residential projects in the Sydney metropolitan area currently under construction or being actively marketed are owned by Asian development companies.
“Private investors from Asia also make up a significant portion of buyers for inner-city residential developments, such as the Frasers Property Central Park development in Broadway, in the Sydney market. Indeed, circa 25% of purchases made so far in the Central Park development were by south-east Asian private investors. This trend is set to continue, given the nature and location of a number of developments currently mooted in and around Sydney,” he says.
For more about Asian investors in Australian property, <a target="_blank" href="https://register.propertyobserver.com.au/foreign-investment-in-australian-property-markets/">download our free eBook.</a>
 
 
 
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Sydney a ‘World Class’ city and a safe haven for Asian investors: Savills

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Westfield has been awarded rights to develop, lease and manage the retail space at the Los Angeles airport, LAX, the sixth-busiest airport in the world and third in the US.
It’s a 17-year agreement with the Los Angeles Board of Airport Commissioners.
The forecast minimum revenue to Los Angeles World Airports (LAWA) is US$331.1 million over the full term, which comprises a two-year development period and a 15-year operational period.
Westfield and its concessionaires must invest no less than US$81.9 million in initial improvements and US$16.4 million in mid-term refurbishment improvements to four facilities: the existing Tom Bradley International Terminal (TBIT), the new TBIT currently under construction, Terminal 2 (LAX’s second-busiest international terminal), and the airport’s iconic Theme Building. The landmark Theme Building opened in 1961 with the building with observation level resembling a flying saucer on four legs.
The agreement covers a minimum of 7,828 square metres of concession area.
“Los Angeles World Airports is undertaking a US$4.11 billion modernisation program at LAX to improve customer service, safety and security at one of the most significant international gateways in the world,” advised LAWA executive director Gina Marie Lindsey in a Moodie Report update.
“Westfield is very proud to be selected to partner with Los Angeles World Airports in the transformation of Los Angeles International Airport,” says Westfield Group Chief Executive Officer Peter Lowy. “We are fully committed to bringing our global resources and development expertise to deliver an iconic, world-class airport experience.”
Westfield Concessions Management LLC was selected from three bidders.
Airport officials are planning to award another concessions management contract for terminals 1, 3 and 6 later this year.
Westfield currently has similar operations at nine other US airports, including New York/John F. Kennedy International, Boston/Logan International, Ronald Reagan/Washington National, Washington/Dulles International, and George Bush Intercontinental/Houston.
Westfield’s airport retail division has 16 years of airport concessions development and management experience at major US airports.
The group has investment interests in 122 shopping centres in Australia, the United States, the United Kingdom, New Zealand and Brazil, with a total value of assets under management in excess of US$59 billion.
In the US it has 55 shopping centres that are home to 9,000 specialty stores and comprise 5.85 million square metres of leasable space across the US.
In the Los Angeles area, it owns and operates nine shopping destinations including Westfield Century City, Culver City and Topanga.
LAX offers more than 600 daily flights to 91 domestic cities and more than 1,000 weekly nonstop flights to 56 cities in 32 countries on nearly 75 air carriers.
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Westfield wins contract for LAX retail space

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Tomorrow’s fourth-quarter inflation data is typically a key milestone for Australians focused on the future course of interest rates (i.e., savers and borrowers). Yet recent ructions in credit markets make the RBA’s decision-making process vastly more complex.
On the one hand, the RBA may throw caution to the wind and cut rates further and faster in order to have its desired effect. Alternatively, Australia’s central bank could conclude that its two cuts in November and December, which have been passed on by the banks, have supplied sufficient relief for the time being, and it can wait to gather better information. There is, after all, something to be said for stability. And there is little doubt that a rate cut that was not passed on by the banks could prove damaging and destabilising to community confidence.
But more on these nuances later. I want to begin by dealing with tomorrow’s data. The first chart below shows the path of core inflation in Australia since the middle of 2010 using the RBA’s published estimates. What you can see is that for five consecutive quarters core inflation was heading in one direction. The RBA ignored the two very high core inflation prints over the first half of 2011 (having pre-emptively raised rates in November 2010), and then cut rates twice in November and December partly on the basis of the very low 0.3% result in the third quarter.
Click image to enlarge
<a href="/images/stories/jan241.gif" rel="shadowbox" title="Click to enlarge"><img src="/images/stories/jan241thumb.gif"></a>
The RBA targets keeping core inflation between 2% and 3% per annum “over the cycle”. Since Glenn Stevens was appointed governor in September 2006, quarterly core inflation has, based on the RBA’s data, averaged 0.8%, or circa 3.2% per annum. Any credible judge would concede that the RBA would be uncomfortable with this track record.
Most analysts think the RBA will cut rates in February if the average of the two core inflation numbers prints at or below 0.6% tomorrow. Assuming no further revisions to the first three quarters of 2011, which is a critical rider, a 0.6% result would mean annual core inflation is sitting around 2.5%.
Ordinarily, the RBA would have to see core inflation falling towards, or below, the lower bound of its target band to justify cutting rates into stimulatory territory. If the core number comes out at, say, 0.5% or 0.6%, the RBA can argue that the six monthly pace of inflation is in the lower half of its band, and, further, that it is forecasting weak outcomes over 2012 and 2013.
Since Treasury estimates that the “natural rate” of unemployment is around 5% and the latest ABS estimate is 5.2%, which is around where it has been for the last 12 months, it is not necessarily the case that the labour market provides the RBA with the smoking gun it needs.
As the two question marks in the chart above highlight, the curve ball for the RBA will be if the third-quarter inflation numbers revise up materially, which is not something it would want to see, and the fourth quarter prints at 0.7% or higher. This would both put core inflation in the top half of the RBA’s target band, and perhaps more worryingly, suggest that the low third-quarter result was an anomaly that did not supply grounds for subsequent rate cuts.
No economists are forecasting core inflation greater than 0.7% tomorrow, so this would be a big surprise. Indeed, almost all economists believe that the risks are skewed to the downside, with the possibility of a very low, say, sub-0.3% outcome.
One issue is that the quarterly standard deviation in core inflation since 2000 has averaged about 0.2 percentage points. It is, as a consequence, plausible that we get a result that is well below, or well above, the “consensus view”.
As someone with a substantial home loan, I would instinctively like to see mortgage rates fall further. Let’s nevertheless suppose that it evolves into a line-ball decision for the central bank. There are some additional wrinkles that make this situation especially challenging.
The first relates to financial market stresses. When the RBA cut rates in November, it argued via its media voice-pieces that this was to be a once-off, technical adjustment to the cash rate to get it back to “neutral”. It pointed to the very low third-quarter inflation data as justification for this striking change in its position.
When the RBA then resolved to follow this cut up with another in December, it claimed that this was both a 50:50 call, and, further, not warranted by domestic economic conditions, which it stated were cruising along “at trend”. Its main focus was Europe, and the need to provide the financial system with insurance against adverse outcomes over the New Year period, especially since it was not planning on holding a board meeting in January.
One of the real-time measures of Australian financial market stress that the RBA says it watches closely is the “ITraxx credit default swap index”. Simply put, this gives an indication of investors’ daily estimates of the likelihood of Australian banks and companies defaulting on their loans. My next chart below illustrates the changes in the ITraxx index since the RBA’s November board meeting.
Click image to enlarge
<img src="/images/stories/jan242thumb.gif">
The good news is that the index has plummeted 17% since December 6th (when the RBA last met), and is 12% below its level at the time of the November meeting.
From a pure financial stability perspective, the RBA’s worst fears have not borne out. The eurozone has not collapsed, and the cost of government debt for most European nations has recently declined given the success of the ECB’s long-term funding operations. As a final helpful point, the run of data out of big trading partners, like China, India and the US, has been much better than most forecasters expected.
There is, however, a flipside to this slippery subject. While the credit default index has fallen strikingly, the new year has brought with it a dislocation in Australian bank funding markets.
Whereas the major banks were previously raising five year, AA- rated senior, unsecured funding at about 1.5 percentage points above the benchmark swap rate, that has now risen closer to two percentage points. This is primarily because of the <a href="https://www.propertyobserver.com.au/economy/stand-by-for-world-s-first-daily-house-price-index-christopher-joye/2011111552360">introduction of “covered bonds”</a>, which have forced a repricing of the cost of all Australian corporate debt in the last week or two.
In contrast to other bank debts, covered bonds are “secured” (as opposed to “unsecured”), and rated AAA rather than AA- (in the case of the four majors). They are, therefore, far safer than anything the banks have issued in the past with the exception of securitised home loans (known as residential mortgage-backed securities or RMBS, which also attract a coveted AAA rating).
Covered bonds have several advantages over RMBS, including: (1) they give investors recourse to both the bank and the assets (whereas RMBS only offers recourse to the assets); (2) the banks “overcollateralise” the bonds, which means investors are given security over assets worth more than the value of their capital commitment; and (3) investors can compel the banks to replace impaired assets with good ones (whereas in an RMBS issue you are stuck with the assets you get).
The problem for the banks is that even with all these advantages, AAA-rated covered bonds are pricing at about 1.7 percentage points over the benchmark swap rate, which means that everything else – which has lower ratings and higher risk – must price higher again. So we have seen, and could continue to see, a secular increase in the cost of corporate debt since the introduction of CBA’s covered bond into the domestic market last week.
The biggest casualties of this new dynamic are the non-major banks, which will not issue covered bonds because they are too expensive to do so. The short explanation as to why is that the non-major banks start with much lower credit ratings than their bigger cousins (because the latter are regarded as “too big to fail”), and in order to lift one of their covered bonds to a AAA rating, they would have to provide substantially more security (i.e., pledge more assets). In the words of one smaller bank CFO, it is simply “non-economic” for them to do so.
The bad news is that the cost of all the non-majors’ unsecured debt is now soaring, because it is regarded as so much riskier than the majors’ covered bonds. This will likely force many smaller banks to boost their deposit rates and focus on raising funds in the retail market, which is not a bad outcome for savers.
This is but a simple sketch of what is going on in bank funding land. It means that if the banks want to preserve their historic net interest margins, they would currently struggle to pass on a standard RBA rate cut of 0.25 percentage points. That in turn creates uncertainty for the RBA.
How much should they cut by if they want to do so, and how much community angst will this process create if they cut by, say, two standard moves (or 0.5 percentage points), and the banks only pass on one? Does a double rate cut send confusing signals to Australians about the prospects for the local economy (i.e., exacerbating the doom and gloom peddled by popular media)? And should monetary policy be used as tool to support bank margins, or are there more surgical solutions (such as public insurance)?
This is also complex for the banks, since the dislocation created by the advent of covered bonds creates extreme uncertainty for the major and, particularly, non-major banks as to what their “steady-state” cost of funds will ultimately be. The bottom line is that nobody knows.
If core inflation settles at around the mid-point of the RBA’s target band and the European imbroglio looks to be sorting itself out, there is a case for the RBA remaining on the sidelines until it gets better information on the effectiveness of its own policy. If, on the other hand, core inflation surprises on the downside, we should get more rate relief one way or another, which would be a welcome boon for borrowers and the housing market.
The ramifications of a high fourth-quarter inflation number and upward revisions to the low third-quarter print are possibly quite calamitous for our independent central bank.
Christopher Joye is a leading financial economist and a director of Rismark International and Yellow Brick Road Funds Management. The above article is not investment advice.
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Inflation milestone: The RBA is in uncharted territory in deciding next rate movement: Christopher Joye

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The glut of property sitting unsold on the market means 2012 buyers could find reduced prices in capital city markets given vendors face lengthy blowouts in the number of days on market before sale.
Premium housing has recorded the highest blowout in the average time on market before sale, according to a RP Data survey.
Perth’s Cottesloe houses are currently taking up to 160 days to sell, up by 74 days over the year.
The prestigious suburb of Mosman Park on Perth’s Swan River recorded a 59 day blowout in days on market with homes in the suburb currently taking about 123 days to sell.
“The inner areas of each capital city have often recorded some of the largest increases in the average selling time,” says senior researcher at RP Data Cameron Kusher.
“This reflects the broad trend of premium housing markets recording weaker conditions than lower-priced markets.”
“In regional areas – although coastal markets have been the weakest performers in terms of value growth – these markets have generally been underperforming for some time and in many instances have not recorded a substantial increase in time on market over the past year,” he says.
The data records the greatest increase over the 12 months to October 2011.
According to Kusher, with housing markets transitioning out of a growth cycle over the past 12 months and value falls experienced across most regions, vendors have found it increasingly difficult to sell their properties.
“We are now seeing an increase in the amount of stock available for sale where it has risen to record highs over the year.
“Vendor discounting levels have increased and the negotiation process has taken longer.
“Subsequently, the average time on market has risen across most regions,” he says.
Kusher notes unit markets within the outer suburbs recorded the greatest increase in time on market.
Across regional Australia, Plantagenet in south-west Western Australia has recorded the greatest increase in the average time on market for houses, with the average selling time increasing by 123 days over the past 12 months. The Plantagenet council area also has the highest average selling time for houses of all Australian council areas, at 235 days.
Regional areas of Western Australia, South Australia and New South Wales account for the vast majority of council areas highlighted.
The Central Coast council area on Tasmania’s northern coastline sandwiched between Burnie and Devonport recorded the greatest increase in the average time to sell for a unit over the year, with units now taking 166 days.
The time it takes to sell has increased by 104 days over the past year.
Across the regional areas of the country, seven council areas in both New South Wales and Victoria have been among those to record the greatest increase in average time on market, followed by six in South Australia.
 
 
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