<p>Developer <a href="https://www.apartments.com.au/developers/bottega-property-group">Bottega House</a> has secured council approval for its first Brisbane project - a $270 million luxury residential development on an absolute riverfront site in leafy St Lucia.&nbsp;</p>

<p>The 15-storey project, known as <a href="https://www.apartments.com.au/new-apartments/st-lucia-by-bottega-house-180-macquarie-street-st-lucia-qld-4067">St Lucia by Bottega House</a> , will occupy a prime north-facing site at 178-180 Macquarie Street, directly fronting the Brisbane River in the established inner-west suburb known for its rowing clubs, golf courses and sprawling University of Queensland campus.&nbsp;</p>

<p>St Lucia by Bottega House will feature a suite of amenities including dedicated wellness spaces, a mineral pool and cold plunge. The project has been positioned to attract affluent owner-occupiers seeking high-quality, house-sized apartments.&nbsp;</p>

<p>Bottega House has been set up by co-directors Nick Malloch, Louis Mennes and Craig Marsh.</p>

<p>Malloch said the project drew inspiration from its Brisbane River setting and leafy inner-west surrounds, while responding to the demands of discerning locals looking to transition from freestanding homes into apartment living.&nbsp;</p>

<p>"With an expansive river frontage and lush green surrounds, we knew we had to create something special that reflects the natural beauty of the location while offering residents masterfully crafted homes," said Malloch.&nbsp;</p>

<p>"Our intent was to complement the project's quiet, private setting by introducing residences that offer a calm retreat and sanctuary from the everyday. The result is a harmonious blend of architecture, interiors and amenity that emphasises wellbeing, comfort and beauty without excess."&nbsp;</p>

<p>Malloch added that project consultants had been carefully selected in alignment with Bottega House's commitment to care, quality and attention to detail. The design team includes architects <a href="https://www.apartments.com.au/architects/plus-studio">Plus Studio</a>, interiors practice <a href="https://www.apartments.com.au/interior-designers/mim-design">Mim Design</a> and landscaping by <a href="https://www.apartments.com.au/architects/urbis">Urbis</a>.&nbsp;</p>

<p>Three-bedroom apartments are expected to start around $5 millio. Selling agents Keenan &amp; Byrne said the pricing strategy for the project was anticipated to achieve upwards of $25,500 per square metre.&nbsp;</p>

<p>The project's development approval this week follows the success of Bottega House's inaugural Queensland project - a 22-storey collection of full-floor sky homes at Broadbeach on the Gold Coast which included the sale of a two-storey penthouse at a record price for a beachside residence.&nbsp;</p>

<p>St Lucia by Bottega House is expected to launch to market in November, with construction anticipated to be completed mid 2029.</p>

<p>[smartcode_project_cta:default project_id=151826]</p>


Joel Robinson

Bottega House to make Brisbane debut with St Lucia riverfront apartment development

<p><a href="https://www.apartments.com.au/developers/sherpa-property-group">Sherpa Property Group</a> is advancing its affordable apartment model into Brisbane with the acquisition of another site at Cordelia Street in South Brisbane for $27 million.</p>

<p>Sherpa, which has a $1.7 billion pipeline across Southeast Queensland, intends to bring a cohort of apartments exclusively for first homebuyers into its proposed 186-apartment project to be built at 2 Cordelia Street.</p>

<p>The Sherpa model has already been incredibly well received from their Gold Coast projects, where Sherpa Group set aside a number of apartments exclusively for first homebuyers.</p>

<p>The new $320 million project marks Sherpa Group's second development in Brisbane, following its $255 million Symphony project, also on Cordelia Street, which is currently under construction.</p>

<p>Symphony will deliver 146 apartments across 28 levels, offering a mix of one, two and three-bedroom apartments. With 114 already sold, construction by <a href="https://www.apartments.com.au/builders/lps-group">LPS Group</a> is scheduled for completion in 2028.</p>

<p>[smartcode_project:default project_id=7574 project_image_fid=351654]</p>

<p>Sherpa Founder, Christie Leet, said the company was excited to be venturing into Brisbane for its second residential project.</p>

<p>“We’re big believers in the future of Brisbane as we lead into the 2032 Olympics and beyond,” Leet said.</p>

<p>“The success of Symphony has guided us into what will be our second project and we look forward to submitting our plans with council soon so we can deliver yet another quality project to the inner city residential market.</p>

<p>“Our Flourish model has been very well received both in Brisbane and the Gold Coast, and we’re excited to be able to offer some of these apartments again exclusively to first homebuyers to help get them into the property market.</p>

<p>“The model has been extraordinarily well received in our previous projects and it is something we are committed to moving forward.”</p>

<p>2 Cordelia Street will be designed by <a href="https://www.apartments.com.au/architects/hal-architects">HAL Architects</a> &amp; Finegrain and will include Sherpa’s signature residential amenities including pool, gym, recreation, wellness and work from home spaces.</p>

<p>The project will feature ground-floor commercial space, creating a vibrant amenity for residents and the surrounding community.</p>

<p>A development application will be lodged with Brisbane City Council in August on the code compliant site and will be launched to the market early 2027.</p>


Sherpa acquires new site for second Brisbane apartment tower

<p>One of North Sydney's best-known commercial buildings could become hundreds of new homes, with insurance giant Zurich Australia lodging a State Significant Development Application (SSDA) to transform 5 Blue Street into a mixed-use residential development above North Sydney Station.</p>

<p>Rather than demolishing the existing building and starting again, Zurich is proposing an adaptive reuse project that would convert the landmark office building into a 15-level residential development delivering 62 apartments, 86 affordable co-living dwellings, activated retail and significant upgrades to the Blue Street Plaza.</p>

<p>The proposal reflects a growing trend of commercial property owners repositioning ageing office assets into residential housing as Sydney grapples with housing supply shortages and changing workplace demand.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="0bba7d12-06dc-4375-aad7-238c94b21ac5" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.42.05%E2%80%AFAM.png?VersionId=NJl5oLAEBDGuPmY3RnyliKODjMc8lvRh" /></p>

<p>Located directly above North Sydney Metro and train station, the 3,051 sqm site occupies one of the most strategically positioned parcels of land on Sydney's Lower North Shore.</p>

<p>Designed by fjcstudio, the proposal seeks to retain and adapt much of the existing structure while creating a contemporary residential address that better connects with the public domain surrounding North Sydney Station.</p>

<p>The application proposes two basement levels, ground floor retail, affordable co-living accommodation across the podium levels, and apartments above, while preserving and enhancing the publicly accessible Blue Street Plaza.</p>

<p>Rather than pursuing maximum apartment numbers, Zurich has opted for a housing mix heavily weighted towards larger owner-occupier residences.</p>

<p>The proposal includes 62 build-to-sell apartments comprising 12 one-bedroom, 19 two-bedroom, 29 three-bedroom apartments and two premium penthouses. It also incorporates 86 affordable co-living dwellings, which would be managed in perpetuity by a Community Housing Provider.</p>

<p>That balance between traditional apartments and affordable housing reflects the NSW Government's push to increase housing diversity around major transport infrastructure.</p>

<p>The proposal has been lodged concurrently with a rezoning application, with Zurich arguing the site is ideally positioned to support additional housing given its immediate proximity to public transport, employment and services.</p>

<p>"The proposal aims to respond to the housing challenges facing Sydney through the delivery of diverse housing types in a highly accessible location," the design report by fjcstudio states. It also seeks to improve pedestrian amenity through upgrades to Blue Street Plaza while creating a high-performing residential building that responds to the surrounding context.</p>

<p><img alt="Zurich" data-entity-type="file" data-entity-uuid="36082e15-c636-4481-bb68-5a5f6443fe39" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%2010.41.36%E2%80%AFAM.png?VersionId=5P6VD.fvmqjQfIG3TWWMRXxQWiQBjeFB" /></p>

<p>Rather than replacing the commercial building, fjcstudio has developed a design that works with the existing structural framework above the rail corridor, an approach that significantly reduces demolition while allowing the site to be repositioned as a mixed-use residential precinct.</p>

<p>The existing structural constraints have informed much of the building's design, including its relationship with Blue Street and surrounding public spaces.</p>

<p>The building has been designed as a slender tower rising above a clearly defined podium, with vertically expressed façades intended to reduce the perceived bulk while reinforcing North Sydney's emerging skyline.</p>

<p>According to fjcstudio, the architectural language responds directly to the surrounding commercial towers while maintaining a finer grain expression more closely aligned with the neighbouring Lavender Bay streetscape.</p>

<p>The tower incorporates articulated façade elements, landscaped podium edges and recessed upper levels to soften its appearance and improve pedestrian amenity below.</p>

<p>A significant component of the proposal is the revitalisation of Blue Street Plaza.</p>

<p>The existing public space has long served as one of the primary pedestrian connections between North Sydney Station, Greenwood Plaza and Blue Street, yet its role is expected to become even more important following the opening of Sydney Metro.</p>

<p>Zurich's proposal seeks to strengthen that role by improving landscaping, introducing new retail frontages, enhancing pedestrian permeability and creating more active edges throughout the day and evening.</p>

<p>Ground floor retail would wrap the plaza, while separate residential and co-living entries have been designed to improve wayfinding without reducing street activation.</p>

<p>Landscape design has been integrated throughout the podium and public realm, softening what is currently one of the most heavily urbanised parts of North Sydney.</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>fjcstudio has carefully oriented apartments towards Sydney Harbour and the CBD while using privacy blades and articulated façades to minimise overlooking between neighbouring buildings.</p>

<p>Large framed openings along the western elevation maximise harbour outlooks, while the eastern apartments have been angled towards the south-east to improve privacy from neighbouring development.</p>

<p>The project forms part of the continuing transformation of North Sydney from a predominantly commercial CBD into a genuine mixed-use city centre.</p>

<p>Since the completion of Victoria Cross Metro Station, developers have increasingly shifted their attention towards residential projects capable of leveraging the area's unparalleled transport connectivity.</p>

<p>&nbsp;</p>

<p>FiveX recently lodged plans for a 61-storey, 490-apartment tower that would become one of the tallest residential buildings in North Sydney if approved.</p>

<p>Aqualand continues to expand its Lower North Shore presence following the completion of AURA on Walker Street and its recent St Leonards and Roseville proposals.</p>

<p>Developers are also progressing projects throughout Walker Street, Miller Street and the Victoria Cross precinct as demand for well-located owner-occupier apartments continues to strengthen.</p>


First look: Zurich targets North Sydney office conversion with 148-unit proposal above Metro station

<p>Busy developer Aqualand Prestige has formally taken the next step in its expansion across Sydney's Lower North Shore, lodging a State Significant Development Application (SSDA) for its long-held Archer Street site in Chatswood.</p>

<p>The application covers <a href="https://www.apartments.com.au/new-apartments/51-55-archer-street-chatswood-nsw-2067">51-55 Archer Street</a>, a 1,767 sqm amalgamated site on the eastern edge of the Chatswood CBD, where the developer is seeking approval for a 45-level mixed-use tower delivering 114 apartments, including a significant affordable housing component, alongside retail, commercial space and six basement levels of parking.</p>

<p>The SSDA marks the latest milestone for a project Aqualand has been quietly progressing over the past two years. The developer first secured the site for its Aqualand Prestige platform before undertaking an alternative design excellence process with PTW Architects, ultimately avoiding a formal design competition through the Housing Delivery Authority pathway.</p>

<p>The proposal has evolved considerably from Aqualand's original concept. The revised scheme has been designed around larger owner-occupier product, with an unusually high proportion of three and four-bedroom apartments, targeting the more affluent buyer profile, and downsizer, emerging across the North Shore.</p>

<p><img alt="Archer St" data-entity-type="file" data-entity-uuid="0171204c-5811-41b5-9b09-2335d1b7c3d0" src="https://s3.ap-southeast-2.amazonaws.com/www.urban.com.au/s3fs-public/inline-images/Screenshot%202026-07-22%20at%208.52.48%E2%80%AFAM.png?VersionId=6YTuxfq.puZo7k2wbfgemcO5K3QfXYGQ" /></p>

<p>The 114-apartment mix comprises six studios, 27 one-bedroom apartments, 18 two-bedroom apartments, 50 three-bedroom residences and 13 four-bedroom homes. A quarter of the building will be dedicated to affordable housing, well above the mandated 15 per cent&nbsp;</p>

<p>PTW has structured the building vertically, with affordable housing across levels one to six, premium apartments through levels seven to 31, duplex skyhomes on klevels 32 to 43, a penthouse on level 44, and a rooftop plant level above. Six basement levels will provide resident parking and servicing.</p>

<p>The tower is proposed to reach approximately 154 metres, placing it among a growing collection of residential high-rises transforming Chatswood's skyline.</p>

<p>Rather than competing purely on height, PTW says the design has been driven by creating a slimmer tower capable of delivering significantly larger apartments.</p>

<p>"The primary objective of this project was to create a distinctive building that stands out from the recently approved or built structures in the Chatswood area," the design report states, noting the structural efficiency allows greater investment into apartment quality and resident amenity.</p>

<p>Residents would have access to more than 450 sqm of communal open space including landscaped gardens, swimming pool, rooftop entertaining areas, fitness spaces, community gardens, children's play areas and barbecue facilities.</p>

<p>A major focus of the design has been the public domain.</p>

<p>The ground plane has been opened up through landscaped terraces inspired by Willoughby's sandstone ridges, with native planting, public seating, artwork, retail activation and a series of gathering spaces intended to soften what has traditionally been a hard commercial streetscape.</p>

<p>The landscape strategy references Blue Gum forests once common throughout the area, while incorporating Indigenous storytelling, public art and lighting installations to strengthen the connection to Country.</p>

<p data-end="239" data-start="66">Chatswood has been one of Sydney's busiest apartment markets over the past 12 months, with a steady pipeline of both new project launches and fresh development applications.</p>

<p data-end="442" data-start="241">Hyecorp recently launched Celine, a 122-apartment development just along Archer Street, while Changfa and Huirong Group are progressing The Anderson, an 84-apartment project on Anderson Street.</p>

<p data-end="661" data-start="444">Develotek recently secured approval for a 101-apartment tower on Pacific Highway, while Tian An LFD received the green light for Hammond Greens, its apartment development on the edge of the Chatswood Bowling Club.</p>

<p data-end="909" data-start="663">Commercial property developer FiveX is also making its move into the residential market. Last month it lodged plans for a 61-storey tower with 490 apartments, which, if approved, would become one of the tallest residential buildings in Chatswood.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-fivex-targets-chatswood-skyline-with-61-storey-tower-after-north-sydney-plans">First look: FiveX targets Chatswood skyline with 61-storey tower after North Sydney plans</a></em></p>

<p data-end="1339" data-start="1019">Aqualand is also expanding its development pipeline following the launch of its luxury residential brand, Aqualand Prestige. The developer has delivered a string of high-end apartment projects across Sydney's affluent suburbs over the past decade, most recently AURA by Aqualand on Walker Street in North Sydney.</p>

<p data-end="1339" data-start="1019">[smartcode_project:default project_id=30959 project_image_fid=292863]</p>

<p data-end="1398" data-start="1341">It has since quietly assembled its next wave of projects.</p>

<p data-end="1805" data-start="1400">Earlier this year Aqualand launched Boronia in Roseville, a boutique 111-apartment development on Larkin Street. The project is one of the first significant apartment developments to launch in the suburb ahead of what is expected to become one of Sydney's most active new housing precincts under the NSW Government's Low and Mid-Rise Housing reforms, which allow greater density around train stations.</p>

<p data-end="1805" data-start="1400">[smartcode_project:default project_id=152095 project_image_fid=373685]</p>

<p data-end="1991" data-start="1807">The developer has also lodged plans for a two-tower, 413-apartment development on Herbert Street in nearby St Leonards, further strengthening its presence across the Lower North Shore.</p>

<p data-end="2303" data-is-last-node="" data-is-only-node="" data-start="1993">Beyond that, Aqualand remains behind the final stage of Barangaroo, where plans will deliver a five-hectare mixed-use precinct comprising new homes, retail, hospitality and community facilities, alongside a new Metro entrance and more than two hectares of public open space, completing the Barangaroo precinct.</p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/central-barangaroo-development-takes-big-step-with-concept-proposal-approval">Central Barangaroo development takes big step with concept proposal approval</a></em></p>

<p><em>Read more:&nbsp;<a href="https://www.apartments.com.au/news/nsw/first-look-aqualand-joins-st-leonards-apartment-party">First look: Aqualand joins St Leonards apartment party</a></em><br />
&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>

<p>&nbsp;</p>


First look: Aqualand pushes ahead with Chatswood apartment tower as SSDA lodged for Archer Street

<p data-end="492" data-start="327">Mass timber is becoming an increasingly popular construction material in apartment developments, but Adelaide developer <a href="https://www.apartments.com.au/developers/otello">Otello</a> is taking the approach a step further.</p>

<p data-end="843" data-start="497">At its new <a href="https://www.apartments.com.au/new-apartments/flowe-bowden-18-gibson-street-bowden-sa-5007">Flowe Bowden</a> development, the exposed cross-laminated timber (CLT) structure isn't just about reducing the building's environmental footprint. It also forms the foundation of a broader wellness strategy, influencing everything from indoor air quality and natural materials to the way residents move through and experience the building.</p>

<p data-end="1109" data-start="848">The 115-apartment mixed-use development, designed by Melbourne-based architecture practice Fieldwork, will occupy a prominent island site opposite Bowden Village Reserve, combining one, two and three-bedroom apartments with retail and a dedicated wellness destination.</p>

<p data-end="1109" data-start="848">[smartcode_project:default project_id=152022 project_image_fid=375528]</p>

<p>Wellness isn't confined to a gym or shared resident facility at Flowe. Instead, Fieldwork embedded the concept into the building itself.</p>

<p>The development has been split into two residential wings connected by a naturally ventilated central breezeway, replacing traditional enclosed corridors with open-air walkways that improve natural light, encourage cross ventilation and create more opportunities for neighbourly interaction.</p>

<p>"Rather than treating wellness as something that only happens on the ground floor, our response integrates it throughout the building, which led us to ask what it really means to design a healthy building," Fieldwork Director Quino Holland said.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375531]</p>

<p>The building's architecture also reflects Bowden's industrial heritage. The lower podium references the area's historic brick and sandstone buildings, while the upper levels transition to exposed CLT, allowing the timber structure to become a defining feature throughout the apartments and shared spaces.</p>

<p>The use of mass timber sits alongside a range of sustainability initiatives, including a fully electric, gas-free design, rooftop solar and a targeted 5 Star Green Star rating.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375524]</p>

<p>Inside the residences, the focus remains on natural, durable materials. Blackbutt engineered timber flooring, exposed CLT ceilings, porcelain surfaces and warm timber joinery create a calming interior palette, while low-VOC finishes and responsibly sourced materials have been selected to improve indoor air quality.</p>

<p>Kitchens have been designed as the centrepiece of each apartment, featuring porcelain island benchtops, timber-look cabinetry and brushed steel tapware, with layouts that maximise natural light and ventilation.</p>

<p>[smartcode_project:default project_id=152022 project_image_fid=375530]</p>

<p>The more traditional interpretation of wellness comes in the form of Level Eleven, a two-storey wellness club spanning the ground floor, mezzanine and first floor.</p>

<p>The facility will include a gym, yoga and reformer Pilates studios, Finnish and infrared saunas, magnesium hot and cold plunge pools, and dedicated recovery spaces. Unlike many residential wellness facilities, Level Eleven will also operate commercially, allowing the broader Bowden community to access the venue while giving residents exclusive membership benefits.</p>

<p>The ground floor has also been designed around everyday living. A café overlooking Bowden Village Reserve will activate the street frontage, while a bike workshop with tool storage, co-working space and dog wash has been incorporated to support daily routines and encourage interaction between residents.</p>

<p>"Flowe brings together my two biggest passions, creating places and creating healthier lives," Otello founder Daniel Harris said.</p>

<p>"We wanted to create something Adelaide hasn't seen before, a genuinely healthy building, where the way you live is lifted without even trying."</p>

<p>Flowe is positioned directly opposite Bowden Village Reserve and within walking distance of Bowden Railway Station and the Adelaide Entertainment Centre, placing future residents just minutes from the Adelaide CBD while remaining connected to one of the city's most established urban renewal precincts.</p>

<p>[smartcode_project_cta:default project_id=152022]</p>


Otello launches wellness-focused Flowe Bowden with Adelaide-first mass timber apartment design

Brexit

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<p><img src="https://counter.theconversation.edu.au/content/57114/count.gif" alt="The Conversation" width="1" height="1"></p>
<p>GUEST OBSERVER</p>
<p>For the second time in the space of ten days, it appears that betting markets and pollsters have got it wrong. First, despite odds showing a 90 percent likelihood of “Remain” winning, the UK voted to “Leave” the European Union in its June 23 referendum.</p>
<p>Now, a mammoth federal election campaign has resulted in political stalemate in Australia, and the result will not be known until Tuesday at the earliest.</p>
<p>Clearly, the repercussions of a hung parliament are not as wide-ranging as “Brexit” and we are unlikely to see Canberra’s streets flooded with protesters. However, when Australian markets open on Monday they will still be faced with a high degree of political uncertainty. Investors do not tend to react favourably to such ambiguity.</p>
<h2>Investors reduce risk under political uncertainty</h2>
<p>Investors tend to respond in one of two ways. The most-common situation is for the political uncertainty to manifest in higher levels of market volatility and a flight to quality as investors try to reduce their exposure to risk.</p>
<p>This was what we witnessed post-Brexit: Australian stockmarkets and the dollar fell by more than 3%, while “safe” government bond yields hit an all-time low.</p>
<p>An alternative is for markets to become locked in stasis – where investors sit on their hands, unsure as to whether they should buy or sell. Market liquidity falls and asset prices become resistant to change.</p>
<p>This is effectively what happened following the hung parliament of August 2010. In the aftermath of that election, stock prices remained within a tight trading range and the dollar hardly budged over the course of the following week.</p>
<p>When the result of the 2016 election is finally known, it appears that the outcome will be either a minority Coalition government or a hung parliament. The Senate is likely to be more fractious than prior to the election.</p>
<p>Talk has already started about potential unrest among the conservative faction of the Liberal Party who supported former prime minister Tony Abbott. There is even discussion of an election re-run if the parliament proves ungovernable. Clearly, this uncertainty could linger for months.</p>
<h2>Concerns for jobs and growth</h2>
<p>The likelihood of a lengthy period of uncertainty is important. It means it will be difficult to pass any economic or budgetary reforms. Without such reforms, it is unlikely the budget will return to surplus in the near future (if ever) and it becomes more likely that the AAA credit rating will be lost.</p>
<p>This creates multiple concerns for Australian financial markets, and the broader economy. A credit rating downgrade will likely increase the cost of funding for Australia’s banks.</p>
<p>The Big Four banks will be particularly impacted given the significant role that offshore funding plays in their balance sheet management. This will mean higher interest rates for borrowers – which would not be beneficial for the housing market.</p>
<p>A prolonged period of uncertainty will make it difficult for firms to finalise investment decisions. At a time when the economy is still attempting to transition away from the boom in mining investment this will dent economic growth and employment. So much for “jobs and growth”.</p>
<p>Essentially, this is a recipe for a “risk-off” environment of declining stockmarkets and a depreciating Australian dollar. It is also likely that the market will price a higher likelihood of a reduction in the RBA target rate at the July or August meeting. This will further aid a continued rally in relatively safe government bonds (bond prices rise as yields fall).</p>
<p>If you consider the ongoing political uncertainty resulting from Brexit and the forthcoming US presidential elections in addition to the federal election, then months of nervous markets may lay ahead.</p>
<p><em><span class="fn author-name">Lee Smales is s</span>enior lecturer, Finance, Curtin University and author for The Conversation. He can be contacted <a href="https://theconversation.com/profiles/lee-smales-104586" target="_blank">here</a>.</em></p>
</body></html>

jchancellor-FAypfDUnLy

Hung parliament may lead to investor uncertainty

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<p>I was reading a piece this week at <em>MacroBusiness</em> where it was pointed out that it has been 24 years since we went through the global recession.</p>
<p>Then eight years later we went into the Tech Wreck, then  eight years after that we hit the Global Financial Crisis (GFC) and now  eight years on we have hit Brexit – or as Australians will soon call it Bex – it (as it will probably cause some major headaches.)</p>
<p>Whilst Australia continues to post some very positive data, we need to pay closer attention to the data post June 30 as we now enter a period of uncertainty. Having said that, this should also be viewed as an exciting time as it is now clear that every eight years businesses need to adapt and recalibrate in order to survive.</p>
<p>One statistic we can’t hide from when the GFC hit in 2007 is that debt has grown much faster than GDP in every country. Some may say that this is an economic consequence as globally cash rates have been crashing down where in Australia we sit at a record low 1.75 per cent. Furthermore, many commentators are now stating that the cash rate in Australia will come down even more as a direct result of Brexit.</p>
<p>Whenever an economy reaches that financial standoff, and investors hate uncertainty, we need to be overly protective of investors as they are a particular and crucial economy driver. So there needs to be closer scrutiny as to why the ALP want to change the Negative Gearing goal posts, which will definitely drive up rents, and why the NSW Government wants to drive foreign investors from our property markets with their 4 per cent surcharge plus a 0.75 per cent land tax surcharge on residential real estate only.</p>
<p>Makes one seriously question exactly where governments expect the new buyers to evolve from? The real estate industry is hearing foreign investors are moving away from our markets in droves. Once again we need to be mindful of Brexit and life and results after June 30. Australia is now all but guaranteed that lending will now tighten, which is a good thing, however if we cast our minds back to the GFC we kept hearing two words – “green shoots”.</p>
<p>The sad part about emerging “green shoots” is that governments immediately see them as a new form of taxation – this in turn will bring about market stagnation which is the last thing our economy needs.</p>
<p>Having said that, existing property markets, otherwise known as the established household markets, are now 60 per cent down when compared to property listings two years ago. This is good news for established houses – we are now seeing record low listings which only strengthens the markets. For example, when I go back five years for Mosman houses you will see the pattern that has emerged.</p>
<ul>
<li>30 June 2011 – 97 houses on the market in Mosman</li>
<li>30 June 2012 – 80 houses on the market in Mosman</li>
<li>30 June 2013 – 68 houses on the market in Mosman</li>
<li>30 June 2014 – 63 houses on the market in Mosman</li>
<li>30 June 2015 – 43 houses on the market in Mosman</li>
<li>30 June 2016 – 42 houses on the market in Mosman</li>
</ul>
<p>What this tells us, and we should point out that these results are reflective across Sydney, is that since the GFC homeowners are taking advantage of record low cash rates by paying down debt faster. On the flip side they are renovating over selling as they see no economies of scale in donating a few hundred thousand dollars to our NSW Government in the form of Stamp Duty. In other words, the Stamp Duty component is then redirected to home renovations.</p>
<p>The NSW Government will recognise very quickly that it has a cash flow problem when the effect of the new surcharge stamp duty and the already declining established markets see the property market transactions coming to an abrupt halt. Don’t be surprised to see a total back-flip with the foreign buyer surcharges but not the land tax.</p>
<p>As for the established household markets the NSW Government should look at the amount of stamp duty previously paid on the past acquisition and give that household a 33 per cent deduction from the next stamp duty so long as that household has been in that property between five and ten years.</p>
<p>In business you offer incentives – it’s a shame governments struggle with the concept of that word.</p>
<h5>MOSMAN – 2088</h5>
<p>Number of houses on the market this time last year – 36</p>
<p>Number of houses on the market last week – 48</p>
<p>Number of houses on the market this week – 42</p>
<p>Number of apartments on the market this time last year – 33</p>
<p>Number of apartments on the market last week – 41</p>
<p>Number of apartments on the market this week – 33</p>
<h5>CREMORNE – 2090</h5>
<p>Number of houses on the market this time last year – 3</p>
<p>Number of houses on the market last week – 11</p>
<p>Number of houses on the market this week – 7</p>
<p>Number of apartments on the market this time last year – 16</p>
<p>Number of apartments on the market last week – 18</p>
<p>Number of apartments on the market this week – 17</p>
<h5>NEUTRAL BAY – 2089</h5>
<p>Number of houses on the market this time last year – 2</p>
<p>Number of houses on the market last week – 10</p>
<p>Number of houses on the market this week – 10</p>
<p>Number of apartments on the market this time last year – 39</p>
<p>Number of apartments on the market last week – 22</p>
<p>Number of apartments on the market this week – 23</p>
<p><em>ROBERT SIMEON is a director of </em><em><a href="https://www.rwm.com.au/" target="_blank" title="RWM" rel="nofollow">Richardson Wrench Mosman and Neutral Bay</a> </em><em>and has been selling residential real estate in Sydney since 1985. </em></p>
<p><em>He has also been writing real estate blog </em><em><a href="https://www.rwm.com.au/news/" target="_blank" title="Virtual Realty News" rel="nofollow">Virtual Realty News</a> </em><em>since 2000.</em></p>
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Time for governments to roll out incentives: Robert Simeon

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<p><span>GUEST OBSERVER</span></p>
<p><span>Brexit has delivered a shock to global financial markets. </span><span>Australia’s </span><span>markets have, however, seen much smaller moves than elsewhere, particularly in Europe. </span></p>
<p><span>This partly reflects that commodity prices have held up well, with the iron ore price above its pre-Brexit referendum level. The AUD is down from USD0.76 to USD0.74, but the fall in the AUD is largely explained by strength of the USD. </span></p>
<p><span>The market</span><span>’s </span><span>reaction seems consistent with the apparent limited economic significance of the UK for Australia. Britain </span><span>takes only 2.8 percent of Australia’</span><span>s exports and, although financial connections are larger, recent net capital inflows to Australia have mostly come from </span><span>Asia. In short, Australia’</span><span>s economic story is much more about Asia than about Britain or Europe. To the extent that Brexit affects Australia, it is mostly through an impact it could have on growth in Australia's major trading partners in Asia. We see Brexit as unlikely to trigger a cash rate cut from the RBA this month. </span></p>
<p><span>Locally, economic focus will shift to the federal election this weekend (2 July), with current polling suggesting a tight race. The latest </span><span>Newspoll </span><span>show the Coalition slightly ahead, at 51:49 on a </span><span>‘</span><span>two-party preferred basis</span><span>’</span><span>, although a 2pt lead is within the margin of error. We see the election as unlikely to have market implications, although the desire to be apolitical could explain the central bank</span><span>’</span><span>s recent reluctance to give much policy guidance (see </span><span>Australian Election Observer</span><span>, 17 June 2016). </span></p>
<p><span>More generally, Au</span><span>stralia’</span><span>s growth remains strong, business conditions are at high levels, jobs growth has continued and house prices are rising. Last weeken</span><span>d’</span><span>s consumer confidence and housing auction clearance rates remained high, despite the Brexit vote. We expect continued solid growth, although inflation remains low. </span></p>
<p><span>W</span><span>e continue to see the RBA’</span><span>s next potential trigger as the Q2 CPI print, due on 27 July. Our central case sees a 25bp cash rate cut in August, after a low CPI print. </span></p>
<p><a href="/images/2016/07/01/Screen%20Shot%202016-07-01%20at%2010.06.02%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
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<p><span>What does ‘</span><span>Brexit</span><span>’ </span><span>mean for Australia? </span></p>
<p><span>Brexit has had a large impact on global financial markets, although the local effect has been smaller than elsewhere. </span><span>Australia’</span><span>s equity market sold off only modestly and the AUD has fallen, but the decline can be fully explained by strength of the USD rather than weakness of the AUD. Commodity prices have held up well, with the Bloomberg commodity price index broadly unchanged since prior to the Brexit vote and up 13% year-to-date. Iron ore prices have risen since the Brexit vote. </span></p>
<p><span>The more limited local market impact reflects the relatively small economic significance of the UK to Australia. The UK only accounts f</span><span>or 2.8% of Australia’</span><span>s exports (Chart 2). The rest of the European Union accounts for 4.6</span><span>% of Australia’</span><span>s exports, so a wider effect of Brexit on Europe could be more significant. However, this event would only be a big deal for Australia if it significantly affects Asia, as 74% </span><span>of Australia’</span><span>s exports go to Asia.</span></p>
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<p><span>Although trade linkages are small, Australia has more significant financial exposures to the UK. The UK accounts for 16% of the stock of foreign investment in Australia and a similar share of Au</span><span>stralia’</span><span>s investment abroad is in the UK. The UK accounts for 11% of Australian-owned banks</span><span>’ </span><span>offshore exposures on an ultimate risk basis. However, much of the recent growth in capital inflows into Australia has been coming from growing links to Asia (Chart 2). </span></p>
<p><span>For the RBA, it is likely that the comparatively muted local financial market response to Brexit and the small trade linkages to the UK are the most important elements for monetary policy. The other key issue will be </span><span>the effect that the UK’</span><span>s recent, post-Brexit vote, sovereign rating downgrade could have on the AUD. S&amp;P has downgraded the UK by two notches, from triple-A to AA. Australia retains a triple-A rating, and is one of only nine countries with a triple-A rating from all three major rating agencies. </span><span>Australia’</span><span>s strong rating could put unwanted upward pressure on the AUD at a time when a competitive currency is needed to support growth. </span></p>
<p><span>Local growth is strong and housing prices are rising </span></p>
<p><span>On the latest readings local growth has remained solid running into Q2, following the strong GDP print for Q1 (1.1% q-o-q). Surveyed business conditions remained at around post-global financial crisis highs in June and capacity utilisation has recently also picked up strongly (Chart 3 and 4). Should the lift in capacity utilisation prove persistent, it may be expected to motivate non-mining firms to ramp up their investment plans, which is a much needed next stage of the rebalancing of growth following the end of the mining investment boom. </span></p>
<p><span>The lift in capacity utilisation and business conditions also helps to explain continued jobs growth in recent months. Employment growth is running at around 2.0% y-o-y, which has been </span>enough to keep the unemployment rate steady at around 5.7% in the past couple of months (Chart 5).</p>
<p>As activity has picked up, local firms have, so far, been choosing to take on more labour, rather than increase investment to meet demand. At some point, they may start to need to increase investment to support a continued pick-up in local production. The improvement in the labour market may also, at some point, start to put some upward pressure on wages growth, which could lift local inflation.</p>
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<p><span>For the RBA, another factor that could discourage a near-term cash rate cut is the recent re- acceleration of house price growth (Chart 6). Housing prices rose by 8% y-o-y in June (based on daily data), up from a rate of 6% y-o-y in March. However, given that loan approvals have been weaker recently, housing supply is coming online and the prudential settings remain tight, we expect that housing price growth will slow in coming quarters (for more on this see </span><span>Downunder Digest: Australian housing is still set to cool</span><span>, 21 June 2016). Nonetheless, the RBA may want a bit more evidence that the re-acceleration does not persist before cutting again.</span></p>
<p><a href="/images/2016/07/01/Screen%20Shot%202016-07-01%20at%2010.09.59%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
<p><span><img src="/images/2016/07/01/Screen%20Shot%202016-07-01%20at%2010.09.59%20AM.png" alt=""></span></p>
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<p><span>The Q2 CPI print on 27 July is all important </span></p>
<p><span>Although we expect the RBA to be on hold on 5 July, our central case is for a 25bp cut on 2 August. This view depends on the Q2 CPI print, which is due on 27 July. Keep in mind, the almost singular motivation for the cash rate cut in May, was the significant downside surprise to the Q1 CPI print, which pushed underlying </span><span>inflation to well below the RBA’</span><span>s 2-3% target band (Chart 7). On a q-o-q and y-o-y basis, the first quarter underlying inflation print was the lowest result since inflation targeting began in 1993 (Chart 8). </span></p>
<p><a href="/images/2016/07/01/Screen%20Shot%202016-07-01%20at%2010.11.30%20AM.png" target="_blank"><span>Click to enlarge</span></a></p>
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<p><span>In our view, if the Q2 print shows underlying inflation below the bottom edge of the 2-3% target band on a quarterly basis, that is, below 0.5%, we see the RBA as likely to cut in August. As our current forecast is for the average of trimmed mean and weighted median to be 0.45%, our central case is for the RBA to cut in August. A higher print will make a cut less likely, although much will then depend on other economic developments. </span></p>
<p><span>Australia’s </span><span>election has little bearing on the RBA </span></p>
<p><span>Australia will hold a federal election on 2 July. The latest </span><span>Newspoll </span><span>shows the current Liberal/National coalition, led by Prime Minister, Malcolm Turnbull, slightly ahead of the Labor Party, led by </span><span>Bill Shorten, at 51:49 on a ‘two</span><span>-</span><span>party preferred basis’</span><span>, although a 2pt lead is within the margin of error. Perhaps more interestingly, the Coalition is currently leading in more of the marginal electorates. All in all, however, the polls suggest it will be a tight race. </span></p>
<p><span>The market implications of the election are expected to be limited. Neither major party is proposing radical reforms. Both major parties agree on the fundamental economic framework, supporting a floating currency, independent central bank, free flow of capital and trade. For more on the economic policies of each party, see </span><span>Australian Election Observer</span><span>, 17 June 2016. </span></p>
<p><span>For the RBA the election is unlikely to make any difference to its approach to policy. However, on the margin, a desire to remain apolitical may help to </span><span>partly explain the central bank’</span><span>s reluctance to provide much guidance in its recent statements. Keep in </span><span>mind that the RBA’</span><span>s recent statements have not included an explicit easing bias. </span></p>
<p><span>We expect the RBA’</span><span>s post-meeting statement to note that the board is waiting for more information, particularly on prices, thus suggesting that the Q2 CPI print will be of key focus for the RBA in determining its next move.</span></p>
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<p><span> <em><a href="https://www.about.hsbc.com.au/hsbc-in-australia/management-team" target="_blank">PAUL BLOXHAM</a> IS CHIEF ECONOMIST (AUSTRALIA AND NEW ZEALAND) FOR HSBC. </em></span></p>
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Brexit unlikely to trigger a cash rate cut from the RBA in July: HSBC's Paul Bloxham

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<p><span>GUEST OBSERVER</span></p>
<p><span>Sales activity and price growth in the prime London residential market have both slowed since mid-2014. The EU referendum has been only one of a number of headwinds which have impacted the market. </span></p>
<p><span>The UK election, the threat of a Mansion Tax, the imposition of higher rates of stamp duty as well as the additional rate for investors and second home buyers, have all conspired with the EU vote to dampen market sentiment. </span></p>
<p><span>The very strong volume of sales seen at the end of Q1, bolstered by the impending </span>additional rate of stamp duty, was bound to weigh on deal levels in Q2, but it is fair to speculate that at least part of the decline since April has related to market uncertainty caused by the referendum.</p>
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<p><span>There is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market. Some demand, especially from investors, will be delayed and in some cases redirected to other markets – although the significance of these trends should not be overstated. </span></p>
<p><span>Demand for prime London property rests on a wide range of drivers – most of which are unaffected by the referendum decision: the scale of London’s business cluster, depth of skills, education, lifestyle and language. It is not easy to identify an obvious alternative destination for investors despite short-term nervousness. </span></p>
<p><span>On the eve of the vote the pound sat 14% below its mid-2014 peak meaning pricing in the prime market was more attractive for dollar buyers. While a further weakening </span>of the pound could increase inward investment, this impact will be constrained by the fact that around 80 percent of central London buyers are UK residents.</p>
<p><span>It seems a reasonable assumption to make that interest rates will be lower for longer, despite the risk of imported inflation from a weaker pound. While the long-term benefit of ultra-low interest rates on the housing market may be questionable, in the short- term they will act to underpin demand especially for equity rich buyers with access to the best funding rates. </span></p>
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<p><span>The prime country house market will be similarly impacted by the result. However while the market has performed relatively well over recent years, following a slow recovery immediately after the financial crisis, prices have not tracked London to date and there is scope for some out- performance in the short to medium term. </span></p>
<p><span>While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe- haven appeal. </span></p>
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<p><span><em>Liam Bailey is partner, Global Head of Research for Knight Frank and can be contacted <a href="https://www.knightfrank.com/research" target="_blank">here</a>.</em></span></p>
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The factors dampening UK residential market sentiment: Knight Frank's Liam Bailey

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<div>GUEST OBSERVER </div>
<div>
<p>There is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty, but mainly in the UK and Europe. Some demand, especially from investors and businesses (hiring and investing), will be delayed and in some cases redirected to other markets.</p>
<p>Demand for Australian property may actually benefit (as a safe haven) as globalinvestors pause in directing capital into Europe and our demand rests on a wide range of drivers – most of which are unaffected by the referendum decision: the scale of Australia’s business clusters, depth of skills, education, lifestyle and language etc. </p>
<p>However it must be said that the world is entering a period of renewed uncertainty inthe UK and London market, and ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections. Uncertainty and instability is bad for financial markets and capital investment, so let’s see what impact it may have on borrowing costs and business/consumer confidence here in Australia. </p>
<p>The UK has long been a destination for Asian (Chinese mainly) real estate investors, with the attraction of the strong liquidity, stable governance, transparency and clear title. With the decision to exit the European Union, for existing Asian property owners, the fall in the pound will impact the repatriation of any income returns, as well as the gains on any disposal.</p>
<p>Although there is likely to be more volatility in the market, ultimately most investors are looking to the long term – so will continue to hold their assets, in the hope that any short-term instability will eventually subside when more clarity of the UK’s role in Europe is determined.</p>
<p>The decision, however, could also present a buying opportunity for owners not already set, as the significant drop in the value of the pound, as in 2009, could lead to an uptick of interest by Asian investors, who, over the last few months have adopted a wait-and-see approach to the referendum – and will now see their buying power increase significantly.</p>
<p>As stated above, Chinese, Singaporean and Hong Kong investors especially, looking at both residential and commercial properties, could also start to look even harder at markets like Australia over the remainder of 2016 until the dust settles in UK/Europe.</p>
<p>Regarding interest rates, an interest rate cut of 25 basis points is a strong possibility at the UK Monetary Policy Committee’s July meeting, or perhaps earlier if required. We may also see a return of quantitative easing, if there are signs that investment is deteriorating. I think the RBA is now even more likely of cutting rates, either in July or more likely in August once the inflation number comes through.</p>
<p>Uncertainty for businesses is the biggest threat to Australia in a very global world. It is therefore inevitable that business behaviour will be stifled over the short-term and delays in occupier decision making will persist. </p>
<p>Despite this, over the medium-term there are reasons to be positive. First, the pessimistic scenarios highlighted during politicised campaigns often fail to emerge. Second, as the dust settles, and the UK and global economy stabilises, businesses will reconnect with the fundamental qualities of Australia as a business location; ranging from corporate tax rates, to the large consumer market, to the highly skilled worker base, to the lifestyle.</p>
<p><em>Matt Whitby is Head of Research &amp; Consulting, Australia, Knight Frank and can be contacted <a href="https://www.knightfrank.com.au" target="_blank">here</a>.</em></p>
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Potential impact of Brexit in Australia: Knight Frank's Matt Whitby

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<p style="text-align: left;" align="center">GUEST OBSERVER</p>
<p>There is no doubt that the vote in favour of Brexit will generate a period of renewed uncertainty in the prime London residential market.</p>
<p>Some demand, especially from investors, will be delayed and in some cases redirected to other markets – although the significance of these trends should not be overstated. </p>
<p>Demand for prime London property rests on a wide range of drivers – most of which are unaffected by the referendum decision: the scale of London’s business cluster, depth of skills, education, lifestyle and language.</p>
<p>It is not easy to identify an obvious alternative destination for investors despite short-term nervousness.</p>
<p>While we are entering a period of renewed uncertainty in the UK and London market, ongoing issues around EU and especially Eurozone stability, which will be highlighted in the run up to French and German elections, are likely to counter this risk and shore-up London’s safe haven appeal.</p>
<p> </p>
<p><em>Liam Bailey is partner, Global Head of Research for Knight Frank and can be contacted <a href="https://www.knightfrank.com/research" target="_blank">here</a>.</em></p>
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Brexit and the impact on prime London real estate investments: Knight Frank's Liam Bailey

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<div class="column">GUEST OBSERVER</div>
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<div class="column">The past week has been dominated by first the anticipation that Britain would vote to Remain within the EU that saw “risk on” in financial markets and shares rally followed by an abrupt move to “risk off” as the referendum saw the Leave vote win by 52 percent to 48 percent.</div>
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<div class="column">The vote to Leave poses risks: to the UK economy which will also face a period of political instability with PM Cameron to step down by October and pro-EU Scotland pushing for another independence referendum; to Eurozone stability over fears that some Eurozone countries may seek to follow the UK; and hence to global growth.</div>
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<div class="column">It also threatens to add momentum to a move away from economic rationalist policies in favour of populism and a reversal of globalisation which would be a negative for long term global growth.</div>
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<br>Reflecting the worries about the impact on the UK and more significantly Europe financial markets reacted sharply in “risk off” fashion on Friday with the British pound (-8.1 percent), British shares (-3.1 percent), the Euro (-2.4 percent) and Eurozone shares (-8.6 percent) down sharply and this seeing global share markets down generally along with the Australian dollar. Safe haven assets such as bonds, the $US, Yen and gold have all benefitted.</div>
<div class="column"> </div>
<div class="column">This could have further to go in the short term until some of the dust settles. A concern is that a rising $US in response to safe haven demand will weigh on the Renminbi (sparking new fears of capital outflows from China), commodity prices and emerging countries taking us back to the global growth fears we saw earlier this year.</div>
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<br>However, it’s worth putting all of this in perspective. First the moves in some markets seen on Friday were exaggerated because the moves that occurred during the first four days of the last week when markets thought Remain would win had to be reversed. So, for example, while Eurozone shares fell 8.6 percent on Friday they only fell 2.6 percent over the last week.</div>
<div class="column"> </div>
<div class="column">Over the week as a whole US shares lost 1.6 percent, Japanese shares lost 4.2 percent, Chinese shares fell 1.1 percent and Australian shares fell 1 percent. Bad but not monumental. Believe it or not the British share market actually rose 2 percent over the last week. While the British pound fell 8.1 percent on Friday it only fell 4.7 percent over the week as a whole and the $A actually rose 1 percent last week. It was similar with bonds and oil – big moves on Friday but only modest moves over the week</div>
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<br>Second, Britain has only started down a process to exit and has a long way to go yet. It will first need a new PM then later this year formally notify its intent to exit which will then kick off a negotiation process that will then take up to two years to complete. This will determine the ultimate impact on the UK economy – either it will retain free trade access to the EU but have to continue to allow the free movement of people, agree to EU rules and regulations and contribute to its budget or forgo free trade altogether. At this stage its hard to see which way this will go. But the point is that for some time the UK will still be in the EU. </div>
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<br>Third, while the Brexit vote will likely trigger a guessing game as to which Eurozone country will try and follow its lead and ask for a similar referendum it’s doubtful that Eurozone countries will actually seek to leave because the hurdle to leave the Eurozone is higher than Britain leaving the EU as it will mean adopting a new currency, paying higher interest rates, etc. Just think of Greece despite its woes over the last few years consistently deciding to stay in the Eurozone. Countries to watch though are Italy following the recent success in municipal elections of the Eurosceptic Five Star Movement and maybe Spain given the success of Podemos.</div>
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<br>Fourth, the Brexit vote is unlikely to be akin to a Lehman moment because conditions are radically different. Lehman came after a long period of global strength and a credit boom where liabilities and exposures were opaque. That is not the case now and Brexit has been talked about endlessly so is not the surprise Lehman was.</div>
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<br>Finally, central banks have quickly adopted a “whatever is necessary” stance to provide liquidity to markets and support their economies, notably the Bank of England which is already providing £250bn. The ECB is monitoring the situation but its liquidity measures (eg TLTRO) are probably more than enough at present. The more important point is that global monetary policy will remain easier for longer. The Fed certainly will be slowed further in raising rates because it won’t want to put more upwards pressure on the $US which is being boosted by safe haven demand. A G7 Statement decrying excessive currency volatility has arguably given Japan close to a green light to intervene to stop the Yen rising much further. Expect more BoJ easing soon which should help Japanese shares.</div>
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<br>I am not so confident about British assets given the long period of uncertainty the UK will now face both economically and politically. However, the global bout of “risk off” underway is likely to provide a buying opportunity as Europe is likely to hang together, global monetary policy is likely to be even easier than previously thought and the global economy is likely to continue to see modest growth.</div>
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<br>Given that only 2.7 percent of Australian exports go to the UK and that the Leave victory is unlikely to plunge Europe into an immediate recession the main impact on Australia will be on financial markets. This could affect short term confidence and may add to the case for the RBA to cut interest rates again particularly if banks increase their mortgage rates out of cycle due to higher funding costs flowing from an increase in lender caution.</div>
<div class="column"> </div>
<div class="column">That said we expect the RBA to cut rates again anyway and a falling $A will continue to provide a shock absorber for the Australian economy. Overall, Brexit barely changes the risk of recession in Australia which remains low.</div>
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<br>The key for investors is to either look through the short term noise caused by the Brexit decision or look for investment opportunities that it throws up as investment markets become oversold.</div>
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<br>Just finally on Europe, the last week saw the German constitutional court approve the validity of the ECB's Outright Monetary Transaction (OMT) program, which partly underpins Draghi's 2012 commitment to do "whatever it takes" to preserve the Euro. This is a big relief because its rejection would have put a cloud over the ECB’s ability to respond to any turmoil in peripheral bond markets that may flow from the Brexit vote.</div>
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<br>Now on to other things!</div>
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<br>In Australia, the big event in the week ahead will be the Federal election (Saturday). Each side of politics is offering very different visions for the size of government:</div>
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<div class="column">Labor is focussed on spending more on health and education and in the process allowing the size of the public sector to increase, funded by tax increases on higher income earners (retention of the budget deficit levy and cutbacks in access to negative gearing, the capital gains tax discount and superannuation). The ALP would also undertake a royal commission into banking and intervention in the economy is likely to be higher than under a Coalition government.<br><br>By contrast the Coalition is focussed more on containing spending, and encouraging economic growth via company tax cuts and mild reforms. Despite the Coalition’s tilt to “fairness” with its super reforms it’s committed to keeping taxes down. It does plan to reinstate the Australian Building &amp; Construction Commission but even with the double dissolution election it’s unclear whether it will get enough votes to do this.</div>
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<br>At this stage the polls suggest the Australian election is too close to call. But it’s a big ask to see the ALP become the first opposition in 85 years to regain government after just one term as it will need to win 19 seats. As such betting agencies have the Coalition as favourite. However, the big issue may be what happens in the Senate with there being a good chance that the Greens and minority “parties” control the balance of power again acting as a huge constraint on the government, which would mean another de facto minority government, ie more of the same. Which in turn mean poor prospects for getting government spending under control over the next three years and for implementing serious productivity enhancing economic reforms.</div>
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<br>Over the 7 weeks since the election was called the Australian share market has fallen 3.1 percent. The next table shows that 8 out of 12 elections since 1983 saw shares up 3 months later with an average gain of 4.8 percent. This may partly reflect relief at getting the election out of the way.</div>
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<div class="column"><a href="/images/2016/06/27/Screen%20Shot%202016-06-27%20at%209.42.20%20AM.png" target="_blank">Click to enlarge</a></div>
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<div class="column"><strong>Major global economic events and implications</strong></div>
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<br>Fed Chair Janet Yellen’s congressional testimony didn’t really add much. The key is that the Fed is “proceeding cautiously” to give it time to assess whether the US economy and inflation is on track with its expectations and given global uncertainties. Uncertainty and market turmoil flowing from the Brexit outcome is likely to further delay the Fed in terms of raising rates again.</div>
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<br>US economic data was mostly good. While durable goods orders were weak, the June manufacturing PMI rose, home prices rose, home sales were strong, jobless claims fell sharply and home prices continue to rise. And the US’s top 33 banks passed a Fed stress test indicating that they have enough capital to withstand a severe economic shock (involving unemployment doubling to 10 percent.) In other words they are in good shape to withstand any shock flowing from Brexit.</div>
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<br>The Eurozone composite business conditions PMI fell slightly in June with a decline in services (on Brexit fears?) offsetting a gain in manufacturing. It remains at a level consistent with moderate growth though.</div>
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<br>Japan’s manufacturing conditions PMI rose just 0.1pt to a still weak 47.8 in June indicating that growth in June quarter is still struggling.</div>
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<br>A couple of Chinese business conditions surveys moved in opposite directions for June with one up solidly and a small business PMI weakening. So bit of a wash there.</div>
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<br><strong>Australian economic events and implications</strong>
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<br>In Australia, the minutes from the last RBA Board meeting added little that was new with the RBA neutral and on the sidelines for now. However, our view remains that lower inflation and a too high $A on ongoing Fed delays will still see more easing ahead with the next cut likely in August. Meanwhile Australian economic data over the last week was uneventful. March quarter house prices fell slightly according to the ABS but more timely private sector data suggests a renewed pick up since then particularly in Sydney.</div>
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<div class="column">While population growth has slowed from its 2% peak late last decade to 1.4 percent last year it’s still contributing to solid underlying demand for housing. NSW and Victoria are the top states for population growth, and flowing partly from this house price growth. Which in turn partly explains the good state of their budgets. Finally, skilled vacancies continue to see reasonable growth telling us that the labour market remains solid.</div>
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<br><strong>What to watch over the next week?</strong>
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<br>The focus in the week ahead will no doubt see continued reaction to the Brexit referendum, particularly given an EU leaders’ summit on Tuesday and Wednesday.<br>In the US, expect to see a further gain in home prices and a slight rise in consumer confidence (Tuesday), solid growth in personal spending and a slight rise in the core private consumption deflator to 1.7 percent for the year to May, but a slight fall in pending home sales (all Wednesday) and a slight rise in the ISM manufacturing conditions index (Friday) to around 51.5 (Friday).</div>
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<br>In the Eurozone expect bank lending (Monday) and economic confidence readings for June (Wednesday) to remain around levels consistent with continued moderate economic growth. Core inflation data for June (Thursday and unemployment data (both Friday) will also be released. The outcome of the Spanish election on Sunday may also add to short term uncertainties regarding the Eurozone.</div>
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<br>In Japan, expect a slight fall in industrial production (Thursday), a deterioration in the June quarter Tankan survey reflecting the recent earthquake and continued softness in household spending but the jobs market (all Friday) is likely to remain solid helped by the falling workforce. Core inflation (also Friday) is expected to fall to 0.6 percent yoy in May.<br>In Australia, apart from Saturday’s election, expect the trend in new home sales (Wednesday) to remain modestly down, ABS job vacancies for the 3 months to May to rise consistent with monthly vacancy data and continued moderate credit growth (Thursday) and a slight softening in home price momentum in June (Friday) according to CoreLogic. The AIG’s manufacturing conditions PMI (Friday) will also be released.</div>
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<br><strong>Outlook for markets</strong>
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<br>The aftermath of the Brexit vote could see more volatility in shares in the short term. However, beyond near term uncertainties, we still see shares trending higher this year helped by relatively attractive valuations, ultra easy global monetary conditions and continuing moderate global economic growth.</div>
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<br>Lower and lower bond yields point to a soft medium term return potential from them, but it’s hard to get too bearish in a world of fragile growth, spare capacity, low inflation and ongoing shocks like Brexit. That said, the recent bond rally has taken bond yields to ridiculously low levels leaving them at risk of a sharp snapback at some point.</div>
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<div class="column">Commercial property and infrastructure are likely to continue benefitting from the ongoing search for yield by investors.</div>
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<br>Capital city dwelling price gains are expected to slow to around 3 percent over the year ahead, as the heat comes out of Sydney and Melbourne thanks to toughening lending standards and pockets of oversupply. Prices are likely to continue to fall in Perth and Darwin, but price growth may be picking up in Brisbane.</div>
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<br>Cash and bank deposits offer poor returns.</div>
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<br>While the Brexit outcome knocked the $A lower, it’s still higher than it should be and the longer term downtrend looks likely to continue as the interest rate differential in favour of Australia narrows as the RBA continues cutting and the Fed eventually resumes hiking, commodity prices remain in a secular downswing and the $A sees its usual undershoot of fair value. The $A is still likely to fall to around $US0.60 in the years ahead.</div>
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<br>Eurozone shares lost 8.6 percent on Friday night and the US S&amp;P 500 lost 3.6 percent in response to the Brexit vote. However, since the Australian share market largely responded to the Brexit outcome on Friday, ASX 200 futures actually rose 3 points or 0.1 percent indicating a basically flat start to trade for the Australian share market on Monday.</div>
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<div class="column"><em><span><a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a></span> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.</em></div>
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