Peter Verwer |
Thursday, 11 December 2008 1:00 AM |
One Comment
The Australian economy is slowing from 100 to around 40 kilometres an hour.
It’s premature to organise a wake for the marketplace that has delivered Australians a record run of prosperity. Nevertheless, the property sector is sustained by growth. In fact, our sector exists to service growth.
Forty kilometres an hour for the rest of the economy is pretty much neutral for property investors, and negative for the construction sector. No one doubts the tough times ahead.
The Property Council has developed a 3R’s Strategy in response to the current market turbulence:
Restore trust
Rev-up reform
Re-connect the marketplace
Restore trust
Markets are based on trust and confidence. That’s why the property sector needs a code of practice that sets out voluntary principles of corporate practice and standards for performance reporting.
A code of itself won’t restore trust, but it is an essential first step. The property sector brand has taken plenty of hits over the past year.
And while we can point to property investments that have delivered on the core promise of stable wealth creation, there have been notable and high profile failures. The collateral brand damage is sector wide.
Consequently, we need a strategy that will restore the confidence of a diverse mix of stakeholders, including investors, asset consultants, bankers, the media, and mums and dads. While that confidence will inevitably return as the market reprices itself, we can speed up the recovery of trust by improving market transparency.
At present there are dozens of ways to measure everything from gearing levels, to environmental and social performance, to the corporate bottom line itself.
A code of practice would create a common language of reporting based on best practice principles. One model for a code is the ASX corporate governance guidelines. Another is the UK-based Association of Real Estate Funds’ code of practice, which is endorsed by the 60 largest British property firms.
In the UK, the property funds provide quarterly data on industry dynamics using the standards outlined in their code. For instance, data on redemptions, new money, net capital flows, bid-offer spreads, rolling income, capital and total returns, and risk-return profiles.
The data is collected by an independent third party and published at an industry wide (aggregate) level, thereby preserving total confidentiality.
As the data is collected on the basis of an agreed standard (a common language), it is more meaningful.
The proposed Australian code could comprise:
- A model financial reporting standard that is both compliant with the evolving IFRS standard and the Real Estate Equities Securitisation Alliance – a global network of property industry advocates
- A model net operating income definition, similar to a US-style funds from operation (FFO) concept
- A model corporate responsibility reporting template consistent with the Global Reporting Institute G3
- Leading practice principles and standard approaches to distribution arrangements, gearing, valuations, unit turnover and the like.
The Property Council also proposes to update and launch an online version of Build Your Wealth, our own mum-and-dad guide to property investment.
Rev-up reform
Tough times make a case for government reform better than the years of easy growth.
Governments need to cut taxes, slash red tape and invest in growth.
This is the Property Council’s core agenda. The NSW Government mini budget did its best to lock in higher business and community costs, with its massive increases in business taxes and new charges masquerading as environmental measures.
According to the NSW Government, it seems euthanasia is the cure for all ailments from the common cold to cancer.
However, it also makes the short-term challenge clear. Lower the land tax rate back to 1.6 percent and slash unnecessary levies. Lower taxes stimulate the economy. Smart governments understand this argument, just as they did when scrapping the NSW vendor duty, halving the Victorian land tax rate over the past four years, and trimming Western Australian land tax by 10 percent last month.
Re-connect the marketplace
The market has become more specialised and disconnected over the past decade.
There is an urgent need to persuade market movers and makers to talk to each other in a common language.
Bankers, asset consultants, the super industry and property securities people are important candidates for closer dialogue.
Already, at the request of the nation’s biggest valuation companies, we have established a home within the Property Council to explore opportunities to modernise valuation practices. A similar frank dialogue is underway with other key stakeholders.
The 3R’s Strategy is not a game plan for the big end of town.
In working to restore trust, the Property Council is pursuing its core business – helping members make the most of their own talents and opportunities.
Peter Verwer |
Thursday, 11 December 2008 1:00 AM |
One Comment
