Just when you had doubts about the property bubble...

Introducing a recent addition to the $100 million house club...

Australia's most significant property listing does not officially hit the market until late January, but already the international marketing campaign has begun.

The Fairfax family's decision to sell the historic Victorian mansion Elaine was announced in September and has dominated talk in the prestige real estate market since, with agents speculating on how to value the trophy property.

There is no official price guide on the Point Piper estate but experts say it could sell for $100 million. Only a handful of Australians could afford to buy the property, let alone maintain it.

That's the Fairfax mansion at Sydney's exclusive Point Piper (link here).

Meanwhile across town there is nothing like the shine of a new landmark building project coming to life in a falling market:

THE Sydney skyline is set to be transformed across the next three years with a host of office buildings planned, but some in the industry warn that an oversupply looms as these developments enter a tough leasing market.

An analysis by one of Australia's leading property consulting firms LPC Australia has suggested that the spike in developments could lead to 355,000sq m being released between next year and 2017: between five and seven years of supply.

Sydney already has about 437,000sq m of unlet office space, about 9 per cent of the market, as the city has struggled with the contraction of the banking sector since the global financial crisis (here).

What Rupert Murdoch has to say..

Hard to disagree...

          

Themes of 2013

A couple of stories setting the tone into 2014.  First to the layoffs at tinned fruit company SPC, killed by the high Aussie dollar and competition from China - much like the rest of Australia's non-resources economy, but also involving inefficient workplaces, stifling regulation and political interference:

FEDERAL cabinet has demanded new assurances from Coca-Cola Amatil to justify taxpayer aid for its fruit processing division in another sign of Tony Abbott's hard line on industry assistance.... 

....Cabinet remains broadly reluctant to give the company the cash it seeks and there is "no sense of urgency" to completing the deal, The Australian was told after yesterday revealing the deep concerns about the company's request for public funds (here)

....

...Over the next three years, Simplot will revamp Devonport and upgrade Echuca so that both plants are also efficient. Simplot managers and workers must also adopt the most flexible practices to make this work....So why wouldn't Coles and Woolworths do this for SPC? The simple problem is that the management and workers at SPC are not up to it, and their management and work practices belong to a totally different era. Worse still, SPC makes canned fruit, which consumers no longer want.

A substantial investment is therefore required in a new plant to package fruit in the way supermarket customers want to buy it....The government has appointed some excellent people to look at the SPC problem, but the panel includes Greg Combet. While the deep-seated problems at SPC are not Combet's fault, he played a role in the ALP industrial relations legislation that compounded SPC's problems. (here)

The other news item for which there may be more happening is the overvalued Aussie banks and the question of how much they will need in reserves going forward.  This week, suggesting likely future difficulties, the regulator APRA required the banks to increase their capital reserves.  This was mostly to do with implementation of Basel Committee on Banking Supervision requirements and may not be enough in the event of a sharp downturn:

"It'll be a relief," said Ric Spooner, a Sydney-based trader at broker CMC Markets. "And the actual buffer increase was probably at the lower end of expectations."(here)

End of Days

All around you see corporate Australia in trouble.  Big names taking hits QBE Insurance profits down, QANTAS bonds rated as junk and the car industry imploding. 

...More than $5 billion has been wiped off QBE's market value in two days, as investors punish the company for repeatedly disappointing and analysts warn that further pain could follow this week's profit downgrade.
In another blow to the insurer, Moody's on Tuesday downgraded its credit to Baa2, two notches above the rating it gives ''junk'' or speculative assets. It cited a weaker outlook for profits and higher debts.(here)

and meanwhile it seems S&P forgot to factor in the likelihood of possible future adverse macro events when they tried to bring some positive spin to current events...

Credit rating agency Standard & Poor’s has said the troubles faced by two of Australia’s most iconic brand names, Qantas and Holden, should not be regarded as a sign that the nation’s economy is derailing. [note it absolutely IS a sign!]
In a rare comment piece, the global rating agency said its decision to downgrade Qantas was a reflection of the competition the airline sector, which hit its earnings, and not the result of a change in consumer sentiment, and therefore it does not reflect broader economic conditions.

A drop in sentiment could further stall the much-needed pick-up in business and household spending. As it is, Standard & Poor’s currently forecasts ongoing subdued economic growth in 2014, with the fall in mining investment not fully offset by a very slowly re-emerging non-mining sector,” the agency said.(here)

And note this is also optimistic because it appears a lot of companies are fiddling the books - misstating their accounts to paint a more healthy picture (see this announcement by ASIC about its concerns of what is essentially degrees of fraud, or at least not complying with the spirit of accounting rules and principles).

 Part of the blame must surely lie with the resource curse - the substitutional effects the mining and resources economy has on the rest of the economy and a point well made in Britain's Telegraph:

The country is exhibiting clear signs of the “resource curse” as other sectors of industry whither on the vine, literally in the case of struggling vineyards. The beautiful wine-growing region of Hunter Valley is being “ripped apart” by coal mines, according to local activists. (here)

Pure comedy

"He says bank directors have assured him that lending standards are being maintained"

Of course they are : )

So said chairman of the bank regulator, APRA, John Laker in a lecture.  John is to be commended for paying attention to risk of deterioration in lending standards as Australia's property boom explodes, but based on history how successful will he be? Link here. 

And in case you had any doubts as to how sensible Aussie banks are now being how about one which has chosen to expand into a sector which is facing the worst decline in a half century? 

Commonwealth Bank of Australia (CBA) is stepping up lending in shipping, a top bank official said, just as European rivals cut capital exposure to the seaborne sector.

Shipping has weighed heavily on its financiers, with the industry facing one of its worst downturns in decades.

Ship owners ordered large numbers of new vessels between 2007 and 2009, just as the global economy sank into its biggest crisis since the 1930s.

CBA, Australia's top lender by market value, is one of a few banks looking to expand its presence in shipping as it scents opportunities for business (here).

You couldn't maersk this up!

 (For those who missed the pun)

A bank on the edge

Some interesting notes from Bank of Queensland, recovering from the first loss of an Aussie bankin two decades.  Good times ending anyone?

Bank of Queensland (BoQ) says it will be at least another year before it sees any benefits from a lower Australian dollar.

    While BoQ returned to profit in the year to August, after becoming the first Australian bank in two decades to incur a loss, it is taking a cautious approach to the year ahead.

    The bank is heavily exposed to the tourism industry sensitive Queensland economy, which in turn is influenced by movements in the exchange rate (here).

And interestingly there's a foretaste of the schemes Aussie banks will resort to when times get really tough (no different to Spanish banks in fact who put some tax credits into assets on their balance sheet):

    Meanwhile, the bank said it will team with other smaller lenders to lobby the federal government for changes in the banking sector, which is dominated by the big four players. 

The great withdrawal

Does anyone remember the late 90's when banks were fleeing their communities in savage cost cutting exercises? With the raging of the radio shock jocks as bank chiefs were quoted asking what people were complaining about (and this was before online banking had taken root)?

Well the shrinking of Aussie banking is starting again, this time at the fringes of the (now slowing) mining boom:

In order to lessen the chance of borrowers defaulting on their loans, Australia’s major banks are reassessing their exposure to risky mining towns as rental yields in some areas have become “not sustainable”.

During the height of the resources boom, demand for home loans and rental properties was enormous, however, as construction spending declines and the miners become more cost-effective with less working capital, that demand for accommodation drops making yields unsustainable (here).