Tuesday, 1 April 2008 Entries

J'Accuse Blues

The PCCBEC condemns the Property Council for the following transgressions.

The Property Council has questioned many unchallengeable doctrines of the planning system. Its Top 10 Myths and Fallacies of Urban Growth in Australia is a blatant attempt to create debate in areas of discussion that have been finalised to our satisfaction.

For instance, the Property Council says there is evidence that outer metropolitan development is better for our planet than urban consolidation.

In point of fact, we can only agree with our colleague at the Planning Institute of Australia who said, “There is plenty of real research that has been done on the unsustainability of urban sprawl.” We stress the word’s ‘real research’. We also note the Property Council’s failure to utilise approved words such as ‘sprawl’.

Clearly, we already have all the research we need and can see no reason for more.

We cannot overlook the Property Council’s outrageous abuse of data from the Australian Conservation Foundation’s recently published Social Atlas [Conservation Atlas].

The findings from the Social Atlas show that the eco footprint of families (and therefore homes) in outer metropolitan areas is far lower than for families in city centres and inner suburbs. It is true that this finding holds for every city in Australia and takes into account the almost universal use of cars in these fringe and sprawl zones.

However, the Property Council totally ignores the main reason for the superior environmental performance of the sprawlburbs: that’s where the poor people live. Of course, they consume less.

The Property Council’s claim that “the planet is blind to the socio economic status of individuals and families” is transparently designed to challenge an accepted truth – sprawl is bad because it is sprawl.

We feel no need to respond to the Property Council’s call for public debate. Nor will we be blindsided by calls for a comparison of different research methodologies. We already possess the findings we need.

Consequently, we order the Property Council to purchase one million tonnes of carbon offsets as punishment.

Secondly, the Property Council opposes the mandatory disclosure of a building’s environmental performance on a regular basis.

We have already modified our position on this issue as our preference is daily disclosure by notice in the foyers of all buildings.

In typically hysterical fashion the Property Council says this reasonable measure equates to a BAS (business activity statement) for carbon. It says that an hour and dollar spent on reporting paperwork is an hour and dollar lost to meaningful greenhouse gas reduction programs.

They claim that there is no evidence that mandatory disclosure has ever saved a single tonne of carbon and that even the Danish Government recently scrapped their disclosure regime as an unqualified waste of time. (Note: The PCCBEC will investigate why our Danish colleagues have indulged in such aberrant behaviour).

As usual, the Property Council misses the point: mandatory disclosure sounds good.

In fact, it doesn’t go far enough.

We can only agree with the RAIA’s brains trust – Archicentre – when they say it should be illegal to sell homes that have not been refurbished and certified to a higher standard, irrespective of the financial capacity of the owner.

These are critical times for the planet and so environmental issues must outweigh equity.

The Property Council and its running dog chief executive has accused several professional bodies of hypocrisy on this count.

It says that if owners must declare their eco footprint then so must professional firms. It says that we are Janus-faced (not an approved word) and that we demand an ethical performance standard of others that we refuse to apply to ourselves. It says that we tell others what they must do without applying the same principles to ourselves. It says we are “musturbators”.

This is cruel and hurtful.

The Property Council does not understand that we are too small to make a difference! Besides, it would tie us up in needless red tape.

We order the Property Council to purchase a further million tonnes of offsets for this transgression and a further 10 million tonnes for being so horrid.

Peter Verwer | Tuesday, 1 April 2008 10:00 AM | Add Comment

Organised chaos

When I took on the challenge of moving abroad to work in Shanghai two years ago, I had no real idea what was in store. My task was to build an agency retail business in a market where second tier cities have populations that outstrip the whole of Australia and a retail sector that was powering ahead in a league of its own.

While I have been back in Australia for only a few months now, it’s surreal looking back on the whole experience, and one that I am sure many other ex-pats will identify with.

Fresh off the boat, I dived into a culture that was vastly different from my life in Melbourne. Stepping in as an outsider to take over the running of a business can be tough at the best of times. But when you throw in cultural differences, language barriers, traffic chaos and unusual food, the challenge is even greater.

Where’s my dictionary?

When I first arrived, one of the most difficult parts of the experience was the language barrier. I did not know any Mandarin, yet probably 70 percent of the business meetings I attended were in Mandarin and/or Cantonese. Luckily my assistant was fluent in both as well as English, so her role quickly expanded to include interpreter.

By the time I left I knew enough Mandarin to get by, but would still find myself in tricky situations with taxi drivers who either looked at me like I was from another planet or dropped me at completely the wrong place. Who knew that asking “take me home” would leave you stranded in an old part of the city 10km away, all because I got the tone of the word wrong.

I thought relationships were a big part of the industry here, but it has nothing on China, which places even greater importance on the bond between your peers. Of course it was my number one priority to build a strong team when I arrived. But this wasn’t as easy as I thought it would be. The cultural differences in the workplace are significant. They asked themselves “Who’s this lawai? (Chinese slang for foreigner) and what does he know?”

Once you build relationships and establish trust in China, people will open up to you, but before that it can be like extracting teeth – with no happy gas.

On the lighter side of work life, as many people know, the Chinese have the option of using either their Chinese first name or their “western” name in the workplace. So when I first arrived I found it a little weird introducing my clients to the likes of Winky, Fauna, Cinderella and Chocolate. But by the time I left it felt quite normal.

Watch out for the…!

Living in a city of 22 million people is an experience in itself. The street theatre was incredible, but the problem was most of it wasn’t meant to be ‘theatre’. On any given morning as I would walk to the office there would be people walking backwards clapping their hands wearing their pyjamas – apparently a common form of exercise – guys selling dumplings out of rusty, old, 44-gallon drums next to a shoe shine man, all within metres of the doorstep.

The streets have a controlled chaos, a bit like one big dodgem car ride. Along with cars there were motorbikes, scooters, pushbikes and buses appearing from all directions cutting each other off – street crossings seemed to mean nothing there.

Footpaths were as good as the road for most vehicles. My scariest experience was when I was run over by a “stealth” scooter. These electric scooters make no noise so I didn’t hear him coming up behind me on the footpath. I was relatively unharmed but pretty shaken, while he just kept going!

I later inadvertently discovered the secret to clearing a path when I bought a Golden Retriever. Chinese people are generally wary of dogs and many would make a detour around me to avoid Lola.

Third floor please

You’d never think that catching the lift at the office could be an unexpected experience.

Elevator etiquette doesn’t exist; it’s every man for himself. Everyone seemed to arrive at exactly 8:55am, which resulted in about 300 people bustling to get into a lift at the same time. The same thing would happen at lunchtime right on 12 noon.

Mobile phone etiquette was somewhat different too. In meetings phones would be going off left, right and centre and people would answer.

One night my wife and I went to the opera. There seemed to be a light show in the audience where mobile phones and cameras were flashing and buzzing the entire time. Theatre staff would walk around holding fluorescent batons with “quiet, no phones, no cameras” in Chinese written on them and shouting at people to be quiet.

Round the clock

Life at home was interesting too. It seems there was a mobile man for everything.

I bought a barbeque when I first arrived and took the gas bottle down to the petrol station to be filled. This was another occasion where I was looked at like I had two heads, as it was clear this wasn’t the system they used in Shanghai. It took me three months before I found out that the “gas man” rides around on a bicycle with gas bottles on the back – a risky exercise at the best of times, let alone in Shanghai traffic.

Every home had their own water coolers and every week the “water man” would deliver water barrels, carrying 20-30 at a time on the back of an old bike.

Life runs 24/7 in Shanghai, with one kind of life running during the day and a whole other one running at night.

At 10.00pm one night we received a knock at the door. After much confusion, we established the “visitor” was there to read our electricity meter.

The city of opportunity

Shanghai is certainly a city of extremes, which I grew to love. Leaving was one of the hardest things I’ve ever had to do. Coming home, I’ve got a whole different view on the world. I’ve realised how isolated Australia is and how much impact the growth of China could have on Australia and how we can benefit from it. I am looking forward to seeing the results.

The opportunities, scale and pace of business is incredibly exciting in Shanghai. It was an experience I would definitely do all over again and one which I certainly recommend to anyone who has the opportunity.

Nathan Clark | Tuesday, 1 April 2008 9:15 AM |

Bledisloe: Breathe it in

What a spectacle the fourth Bledisloe Cup will be this year on November 1, in front of a crowd of 90,000 people at Hong Kong Stadium.

Hong Kong has hosted the best annual rugby event, the Hong Kong Sevens, for as long as I can remember, and for those that have attended a Sevens, there won’t be much to remember at all.

It is a weekend of festivities enjoyed in the spirit that is rugby. The benefits will be two-fold – not only are we supporting and growing the game in Asia, but financially it will be a huge windfall for all unions involved. This will only be the start of Bledisloe Tri Nations games being played throughout Asia and United Arab Emirates in the future.

Congratulations to the ARU and Western Force for finally standing up to poor off-field behaviour. It is no surprise there is a correlation between team behaviour and performance and unfortunately the recent results in Australian Rugby have not been good.

Whilst it is never easy to sack someone, Matt Henjak had been given enough last chances. It makes my last nine lives look thin. Above all this, a precedent has been set and a line drawn in the sand. Unfortunately the off-field behaviour of all sporting codes has been sullied. The Wallabies once had a fine off-field reputation and John O’Neill will be keen for that to return very quickly. He has barely been back in the job for nine months and already O’Neill has made a big impression on the game, both domestically and internationally.

First he has disbanded the national competition, Australian Rugby Championships (ARC), after only one season in existence. While showing all the right on-field criteria, after a disastrous domestic season, the Australian Rugby Union (ARU) could not afford to prop up a competition that lost $8 million in three short months. The ARC filled the gap between club and Super 14s rugby, provided an opportunity for young players to show their wares and, best of all, was played as an open, free flowing, spectacular game. This competition showed enough promise that I believe it will come back in the future in a revised format when the ARU is financially secure.

After the Wallabies have given little to the Australian public over the last couple of years, O’Neill has had enough and appointed the first foreign coach in the history of Australian Rugby, and who would have thought he would be from across the Tasman? This strategy is not new to O’Neill as he appointed a foreign coach to the rival sporting icon The Socceroos. Robbie Deans was head and shoulders above the rest as the best candidate and we applaud the decision. We can only hope he will be as successful as O’Neill’s other appointment, Gus Hiddink.

Finally the new Super 14 rules are a breath of fresh air. The players are fitter and more dynamic, making the game much more enjoyable to watch as opposed to last year’s Rugby World Cup.

Jason Little | Tuesday, 1 April 2008 9:00 AM |

High speed correction

The UK direct property market, once the standout on the international property investment menu, is now leading the global property market correction. This high profile collapse is even more notable for the speed at which the re-pricing has occurred.

The IPD Index, which has been tracking commercial property returns in the UK since the 1970s, shows UK commercial property values fell 2.0 percent in January after being down 8.7 percent in the December quarter 2007, and more than 16 percent in the past year. According to IPD, the December quarter recorded the largest quarterly decline in capital values in the history of the index – surpassing movements in the early 1980s and 1990s corrections.

There are many reasons put forward why the UK has been so badly affected. Clearly the UK markets were severely overheated, fuelled by a wall of equity from investors seeking assets that feed off debt supplied by banks fighting for market share at LTV levels much higher than we are used to in Australia. Hindsight is a wonderful thing – but a correction was inevitable.

However, the sheer velocity of change was driven by:

• Pricing signals from the listed market – UK REITs, which have only been up and running for a year, had been trading for most of their short life at 30 percent plus discounts to net tangible assets
• The IPD index is published monthly, giving a more timely snapshot of the market, notwithstanding it is appraisal-based
• The UK has a very sophisticated and growing derivatives market, which at the end of the day provides another pricing signal to sentiment in the direct property markets
• The large number of open-ended unit trusts owning property that had poorly conceived redemption facilities, which when sentiment turned and investors wanted out, forced many managers to place redemption freezes – intensifying the negative sentiment in the market.

As we are witnessing in the broader capital markets, sentiment plays a major role in investment markets and the property sector is not immune. Sentiment remains negative in the UK, although after the fall from grace in 2007, some leading market commentators are predicting a turn around in second quarter 2008. It’s a brave person to call that the bottom is near, but for those cashed up investors, some of the best buying opportunities in more than 20 years may be just around the corner.

UK debt – refinancing remains a risk

De Montfort University’s (DMU) six monthly UK bank lending study, released at the end of 2007, highlighted just how much the UK commercial property market became dependent on debt. Since 2003, outstanding debt secured against UK commercial property increased by a staggering 55 percent from £120 billion (A$264 billion) to £187 billion (A$411 billion).

Interestingly, the DMU survey estimates that 23 percent of this debt is up for refinancing in the next two years. Those borrowers who took advantage of plentiful and cheap short-duration debt, with the view to refinancing off higher property values, may well find themselves in zero or negative capital positions.

Property derivatives – a market on the rise?

Derivatives for direct property are a recent innovation in Australia, and I am sure not fully understood by many in our industry.

The UK has led the way with a sophisticated and now quite deep market in place. Recent reports in the UK put the volume of UK property derivatives trades in the UK in 2007 at more than £7 billion (A$15.4 billion), up from £3.6 billion (A$8.0 billion) in 2006.

In January 2008, almost £1 billion (A$2.2 billion) of property derivatives were traded. Clearly, either speculators are punting on when the UK recovery will occur or investors are seeking more sophisticated ways to manage the increasing risk in their property portfolios created by the uncertainty in the market.

With these sorts of volumes, property derivatives for direct property are here to stay. It will be interesting to see over time whether they become a hedge funds dream or a new market in which to wreak havoc – just look at their impact on the listed REIT sector over the past three to six months.

Australia’s safe haven status: on the nose?

As the fall-out in the northern hemisphere gained momentum last year, Australia was widely seen by investors in this part of the world as a safe haven. Our REIT sector was holding up (many of the REITs were trading at premiums to NTA and had strong growth prospects) and both our economic and underlying property fundamentals looked good.

How a few months can change things – D-day was December 17 when Centro shocked the market with its announcement that it was having issues refinancing its debt. All of a sudden, the Australian property market was not immune to what was happening around the world. The reaction of investors and hedge funds was swift – just look at the pressure the entire REIT sector has been under – down more than 20 percent in three months.

As one European pension investor, who has investments in both Australian listed and unlisted property funds, said to me recently “Australia has gone from one of my major ‘safe haven’ picks to a higher risk property market.”

His reasoning: capital has again started to think about the meaning of risk-adjusted returns. The fallout from Centro and other stocks such as MFS and Allco/Rubicon has savaged investor confidence, Australian banks are now on notice that they are well and truly exposed to the fallout from the credit crunch and will undoubtedly put tougher lending criteria in place, and with the RBA serious about further interest rate rises, pressure is undoubtedly going to be put on property cap rates, given Australian cap rates are now below the risk free rate.

While one pension fund investor does not make a market, if his logic is adopted by other global investors, then global equity and debt capital will become increasingly discerning about Australia, and I’m afraid we have yet to see the full fallout from this.

Adrian Harrington is chief executive officer, funds management UK and USA at Mirvac.

Adrian Harrington | Tuesday, 1 April 2008 8:00 AM |