September 2010

Whilst our primary objective has always been assisting our investors purchase excellent buy-to-let deals with the view towards longer-term income generation, there are those investors that also want to use property as an asset class to build up their shorter-term capital. We believe that this has been as a direct result of the tightening of the banks lending criteria over the past few years and the inability of investors to secure 100% mortgage bonds.

With this in mind a number of our investors are currently partnering with us towards doing more speculative-type deals, where we manage the overall process, and thus minimise the risks. With our vast experience in “flipping” properties, we have been able to ensure that we buy low and sell high. This often is accompanied by renovation that takes an average or even below-average property and turns it into a premium product in a very short space of time. YDL partners our investors through the entire process, from initial purchase to registration of transfer of the final sale.

Should you be interested in booking a consultation, where we’ll show you actual examples of projects we have recently undertaken for our investors, why not give us a call on 011 465 7356, or click here to book your free consultation. Please find below some examples of recent Property Partner Programme deals.

The immediate impact has been to showcase South Africa to the world, which by all accounts has been a fantastic success. Not only in terms of the soccer, stadiums and our great hospitality, but equally importantly our infrastructure like roads and airports and the massive variety of entertainment in all seasons! It’s unlikely that visitors arrived with tickets for the soccer and left with a ‘title deed’ under their arm, but there is a good chance that many visitors will return to our shores in the future and that’s when we may see them investing in leisure property.

“For South Africans however, the current market continues to offer good value in terms of property prices. There is no doubt that the market has turned and that prices are rising in nominal terms and because of our low inflation rate, in real terms as well. Prices still have some way to go to reach the levels seen at the height of the boom in 2007 and in that sense, it remains a buyer’s market. In addition the banks remain cautious about lending - making the recovery in property prices and the volume of sales slower than it should be. Bank lending and not lower interest rates remain one of the biggest challenges to the recovery of the property market. But Jawitz cautions buyers who are continuing to sit on the sidelines that price growth, even if in single digits, is likely for some time to come and that that now is the time to be decisive and get into the market. Markets can and do change before you know it and at some point, sellers are going to start to ‘licking their lips’! says Jawitz.

Jawitz says that despite high levels of indebtedness, the recovery in the overall market seems to be from the bottom up with greater demand, volume of sales and price growth seen at the bottom of the price market rather than at the top.

If you can afford the repayments and have a deposit, now is as good a time to buy as you get in terms of prices and interest rates. Even if you are borrowing at prime, ten percent in South African terms is not bad at all. Buyers at the lower and middle end of the market are also of necessity buyers – growing families, “just got married” – and are less concerned about longer term issues such as emigration.

At the upper and luxury end of the market, longer term issues and especially factors such as the economy and business confidence play a bigger role in the buying decision. If you are in a home worth five million then upgrading to a bigger more expensive home can probably wait. Stock market volatility and the global economy have a far greater impact at this end of the market says Jawitz.

These factors, in addition to the strong rand, have also influenced foreign buying in South Africa. Nevertheless, on average there is relatively good value for international buyers - especially the coastal leisure market which has been hardest hit over the last 2 years. Areas such as Plettenberg Bay and Knysna where demand is still sluggish have real opportunities with a large choice of properties on the market.

Jawitz is optimistic about the residential market going into 2011. I am not a big believer in ‘hoping’ that prices will continue to rise in 2011. I think the fundamentals are in place. Economic growth, good infrastructure, a low interest rate environment and good value. In addition, the banks will continue to gradually loosen their lending criteria. “Demand is likely to increase and prices will continue to move upwards in nominal and real terms if inflation remains more or less at current levels. These factors will impact positively on the SA residential property market,” he says.

• The recovery in the South African economy accelerated, with real GDP growing at a seasonally adjusted annualised rate of 4,6% in the first quarter of 2010, from 3,2% in the preceding quarter. Real economic growth is forecast at 3,3% this year, after a contraction of 1,8% in 2009.
• Household finances improved further in the early stages of the year, but many households are still plagued by a relatively high level of debt in relation to disposable income. The ratio of households’ debt to income is expected to remain at around 78% in the rest of the year.
• Residential property market conditions continued to improve up to mid-2010, with house price growth increasing further in both nominal and real terms.
• In the affordable segment of the market the average price of a house increased by a nominal 2,6% y/y to a level of R296 100 in the second quarter of 2010, declining by 1,9% in real terms.
• Middle-segment house price growth averaged a nominal 14,4% y/y in the second quarter of 2010. This brought the average price to a level of R1 075 600 in the quarter. House prices in the middle-segment increased by a real 9,4% y/y in the second quarter of the year.
• The average price of luxury houses dropped by a nominal 1,8% y/y to a level of about R4,4 million in the second quarter of the year. In real terms prices of houses in the luxury segment were down by 6,1% y/y in the second quarter.
• At geographical level house prices increased further in nominal terms on a year-on-year basis in the second quarter of 2010, while in real terms prices were slightly down in some areas compared with a year ago.
• After some deterioration in the affordability of housing in the second half of 2009 on the back of rising house price growth while growth in household income remained under pressure, affordability did not deteriorate further in early 2010. This is based on the latest trends in the ratios of house prices and mortgage repayments to household disposable income.
• Taking into account house price developments in the recent past, year-on-year price growth appears to be near an upper turning point, largely as a result of the base effects of a recovery in house price growth in the second half of 2009. This is expected to impact the trend in price growth in the second half of this year.
• Nominal house price growth of around 10,5% is forecast for 2010, after prices declined by a marginal 0,2% in 2009. Based on the outlook for nominal house price growth and a projected average consumer price inflation rate of about 5% in 2010, real price growth of between 5% and 5,5% is forecast for this year.

Click here to download the full report.

Despite the buy-to-let market not setting the world alight, agents nevertheless point towards some improvement in rental market fundamentals in 2010. Noticeable is an increase in estimated average gross yields on rental properties, according to agents surveyed, and thus a rise in the percentage of properties where agents believe that the rental income can cover 100% or more of a 100% bond repayment. This is mildly better news for those buy-to-let buyers that utilize credit, although such properties don’t yet constitute the majority. This improvement seems to correlate with Rode data that indicates some renewed flat rental inflation in 2010 after a 2009 slump.

Perhaps ironically, these gradual improvements in the fundamentals that underpin the buy-to-let market are probably partly the result of a lack of new rental stock coming onto the market due to weak buy-to-let buying. Such is the nature of cycles.

So why no significant buy-to-let market improvement yet, if yields are turning for the better? Probably because a significant portion of the household sector is still under financial pressure following the recent recession, and it has high levels of indebtedness to work off. In addition, we believe that many would-be buy-to-let investors focus more on capital growth than on income stream alone, and while the rate of house price increase has shown some recovery in 2010, this improvement has not been fantastic to date.

So, should potential buy-to-let buyers be buying with more enthusiasm? Well, firstly, while the rental market fundamentals appear to have been improving, suggesting an improving environment for the potential buy-to-let investor, the improvement appears mild at best. We are NOT giving advice either way, but do suggest that there are some important factors to consider for the potential buy-to-let buyer:

• With early signs of slower economic growth ahead, salaried individuals should be careful not to rely too heavily on future potential discretionary rewards to fund expenditure commitments, as in many industries these can fall away in tougher times.
• Even should one stumble upon a property where 100% of the bond repayment can be covered by the rental income that the property can or does achieve, remember the additional costs that must be covered, including assessment rates and various maintenance costs to name but two.
• Tenants don’t come without risks, and the risk of default on rental payments, and vandalism of property in some instances, can be an issue for a landlord.
• Finally, while inflation numbers don’t show any major risks to inflation or interest rates in the near term, the future as always is a less than certain place. By historic standards, SA’s interest rates appear to be at a relatively low part of the interest rate cycle. When at such low points, we believe it wise to do scenario planning. The past two interest rate hiking phases were by 4 and 5 percentage points respectively. So perhaps, as a rule of thumb, it would be prudent to at least calculate one’s bond repayment value should rates be 4-5 percentage points higher. How much of the bond repayment would be covered by the rental income stream under such a scenario? Would a buy-to-let property then be affordable? If not, perhaps re-consider.

Click here to download the full report.

The 2010 World Cup has come and gone. It has brought many potential long term benefits for SA, emanating from dramatically improved perceptions of the world regarding the organizational capabilities of the country. However, these are longer term matters, and the World Cup cannot be expected to do much for the short term fortunes of residential property.

The FNB Estate Agent Survey for the 2nd quarter of 2010 showed agents pointing to weaker demand than that of the previous quarter. Of concern, too, was a sharp up-tick in the estimated average time of a property on the market, from a previous quarter’s 12 weeks and 4 days to 17 weeks and 1 day. This suggests that price levels have got further out of touch with reality. The implications could be that prices begin to come under pressure, and indeed in June we have seen a slowing in the pace of acceleration in house price growth.

Primary residential demand continues to dominate even more than usual, as non-essential spending remains on the backburner in financially tough times.

Regarding the near term future, estate agents’ expectations have also deteriorated in the most recent survey.

We are of the opinion that this probably signals the start of a weakening trend in the residential property market, with signs of a slowing economy, as well as due to a lack of further interest rate stimulus following the 5 percentage points’ worth of rate cutting that took place from December 2008 to August 2009.

While the FirstRand base case is for a mild slowdown in economic growth, but positive growth nevertheless continuing, we nevertheless believe that the risk of a so-called “double-dip” recession remains high, given the vulnerability of some highly-indebted developed economies as well as a high level of indebtedness in our own household sector. This implies that, at best, we see house price inflation continuing in the coming years, but receding back into single-digit territory by 2011. This scenario would, however, assume no recession. Given the fragile nature of our household sector, due to having made little progress in reducing its high debt-to-disposable income ratio, along with an already unbalanced (demand versus supply) residential market, we believe that any recessionary conditions would bring about another bout of national house price decline.

For the SARB, setting interest rate policy could be challenging in the times ahead. The US example of the past decade has perhaps shown us that, when interest rates move to abnormally low levels, the pain merely gets delayed, and when rates rise by abnormal magnitudes thereafter, the pain on the household sector and the housing market can be particularly severe.

So, while it is tempting to wish for more interest rate cutting in order to alleviate pain in tough economic times, we will need to consider the implications at a later stage when, ultimately, interest rates rise.

At present, we are of the opinion that the SARB has a nicely balanced interest rate stance from a property point of view, having given significant relief to those with debt, but not stimulating strong new household sector borrowing growth. While it may be tempting to wish for strong borrowing growth, we believe that it would be far better in the long term for credit growth to remain slow, and for SA’s high household debt-to-disposable income ratio to be worked down to significantly lower levels. That would provide more of a buffer against any unwanted shocks, something which is sorely lacking at present.

Click here to download the full report.

Public information on property deals is becoming digitally available to everyone. It’s a revolution that is speeding up business and market knowledge.

Growing transparency is helping to expose corruption and fraud, and limits opportunities for these crimes. But it is also revealing personal information that most people believe is private.

Korbitec, a provider of digital documentation and property information, has taken over Naspers’s property consumer portal, Property24, and become a 51% subsidiary of SA’s media giant.

This makes its data, drawn from the public domain, more accessible. Anyone with access to the Internet can now get details of property transactions and other data that has been available digitally to specialists for some years.

If the buyer or seller is a company or close corporation, the names of its directors or members are available through the Companies & Intellectual Property Registration Office. That information makes residential or business addresses from municipal databanks accessible, as well as zoning information on the property and other data from the surveyor-general.

Korbitec subsidiary Windeed processes this data further. Key in someone’s name and ID number, and Windeed’s proprietary Spider Search will throw up every property transaction, company or close corporation that the person has been involved in — and details of other people connected to the property or companies.

Korbitec was launched 12 years ago, supplying software that speeded up property transfers and mortgage registration for conveyancing lawyers. The supply of property data to them and to the public is an obvious growth area.

Journalists, police detectives, prosecutors and non government organisations investigating corruption don’t need to approach five or six government bodies for information. They can almost instantly trace and identify politicians or government officials involved in property deals dating back years.

However, several government organisations in possession of data are still not digitised, including the high court master’s office, which holds information on trusts, and the department of justice’s court records.

Other data that was public is no longer available. eNatis, the motor vehicle registration system, has been removed from the public domain because of fears that hijackers can use it.

Credit information is also restricted by the National Credit Act to people who have permission from the person whose information they are seeking. But such information is available on many sites, including Property24, and it is difficult to prevent unauthorised use.

Korbitec also holds data supplied by its main clients, such as lawyers and banks.

“But we supply only information already in the public domain to the consumer market,” says Korbitec CEO Dawie Verryne.

The deeds office also provides access to ante nuptial contracts and details of private property owners’ home loans.

Making these details and home addresses available on the Internet seems one step away from placing them on Facebook. Such social networking sites intrigue Verryne. “If you see what people place on these sites, it points to a trend towards making public what was previously private,” he says.

But like other suppliers of information, Korbitec restricts sensitive data.

“We also take a conservative approach and don’t include ante nuptial contracts and bond information in our data,” says Lightstone CEO Anthony Miller, who supplies house resales data to Property24.

The need for more efficient business and overcoming corruption probably justifies making data widely available. But expect growing objections to the publication of private information.

By Ian Fife - Original article here.

Annual capital growth in the mainstream UK market sits at 6.6% having dipped from a double-digit peak of 10.5% in April. The simultaneous impact of weakening buyer demand and the increased level of property for sale continues to affect pricing.

Click here to download the full report.

That was almost the headline that I was expecting to see yesterday, after several days of the absolute worst negativity I have ever heard about the U.S. real estate market.

And everywhere I went, people seemed to be in mourning about it.

It began on Monday, when the NY Times published an article entitled "Housing Fades as a Means to Build Wealth, Analysts Say".

The article quotes Stan Humphries, chief economist for Zillow.com, who says that real estate may no longer appreciate in value, and if it does, it will only keep up with the inflation rate.

Another analyst, Dean Baker, of the Center for Economic and Policy Research, predicted that it will take 20 years to recoup the $6 trillion of housing wealth that has been lost since 2005.

Mr. Baker even went so far as to say, "People shouldn't look at a home as a way to make money, because it won't."

Hmmm, reminds me of the lyrics from a hit song of 30 years ago:

"Who needs a house out in Hackensack... Is that all you get for your money?"-- Billy Joel, "Moving Out (Anthony's Song)", 1977.

Was Billy Joel ahead of his time...?

Also on Monday, Mark Zandi, chief economist at Moody's, told CNBC that the U.S. housing market is now in a double-dip recession.

Zandi's comments were made the day before the existing home sales report came out -- a report that was even worse than Zandi's very negative prediction.

Zandi was looking for an annualized 4 million units to be sold (i.e. closed), and the actual number came in at 3.83 million, the lowest level since May, 1995. Sales were off over 27% from June.

One reason for the lousy numbers: There is a tug-of-war going on right now between buyers and sellers. Buyers are making low ball offers on owner occupied homes, because they see similar homes in foreclosure selling for a lot less.

However, not all buyers have the means, nor want to deal with the repairs and improvements necessary in buying foreclosures. They just want to have their cake and eat it too!

"I'll give ya fweee dollas for ya howse!"

What the buyers may not understand is that most sellers today have little to no equity left in their homes after paying closing costs and Brokerage commissions. And they are in no position to come to closing with open checkbooks if the sale nets less than what they still owe.

So neither side wants to budge.

On Wednesday, the funeral procession music was deafening when it was reported that the July new home sales plunged 12.4% from June, and 32.4% from a year ago.

Like Tuesday's news, this was also worse than the economists expected. In fact, their forecast was for a slight rise in sales!

"Oh boy, looks like I blew another call..."

Many buyers, after reading all of the doom and gloom in recent weeks, are waiting to see if prices and interest rates go even lower. This creates a self-fulfilling prophecy in which inventory piles up, and that drives prices even lower.

Right now, nationwide inventory levels are averaging anywhere from 9 to 12.5 months, which is way above the historical norm, and needs to come down if prices are to stabilize.

But in time, the slow market may force that to happen anyway. If prices continue lower, and homeowners run out of equity, the only homes left on the market will be short sales and foreclosures.

It's ironic is that these gloomy economists were also the ones saying that the housing market could continue going up indefinitely in 2006. Now their forecasts are the exact opposite!

Oh, how I love when markets hit their extremes!

The story gets even "better". Late last week, Reuters ran an article with the title, "One-Fourth of Renters Say They Will Never Buy a Home".

This was based on a survey done by Trulia.com, in which they reported that 27% of all current renters do not plan to ever buy a home. And those numbers have been steadily increasing.

This was not totally unexpected. As I wrote in my Tycoon Report article a few weeks ago, the number of renters is expected to rise significantly in future years, as home ownership levels decline.

Recently, I was given a rental listing by a local landlord. The tenant that was ultimately selected by the owner had an excellent credit history, until severe medical problems and a higher re-setting Adjustable Rate Mortgage (ARM) on the home he bought in 2006, forced him into foreclosure.

When I interviewed him, I asked if he thought he would buy a home again in a few years when his credit improved. His answer? "No way. I am done with owning a home. I don't ever want to go through that experience again !"

So I was not shocked to read the Reuters article. And as a landlord with multiple properties, I am happy to know that the supply of renters will remain high well into the future.

But I think these people are absolutely wrong to fear buying a home again.

Certainly, home ownership is not for everyone. For example, people whose jobs require them to travel extensively, or to relocate every few years, are definitely better off renting.

And some people don't like the maintenance that goes along with owning a home. But why spend hundreds of dollars a month on condo association dues, or pay the landlord far more than it costs to hire workers to maintain the home?

The fact is that most renters will never build wealth, because every penny they spend on rent goes into the landlord's pocket, and never builds any equity for them.

I have heard more than a few renters say, "I just don't want a mortgage". Oh really? My response is, "You are still paying a mortgage, you are just paying your landlord's mortgage!"

You know, Realtors often tell their customers ...

"In 30 years when your mortgage is paid, you will never have to pay anything other than taxes and insurance to live in your home."

Of course, most people never stay in the same house for 30 years.

But now, with prices back to 1990's levels and interest rates at historic lows, it's the 15 year mortgage that is the screaming deal of the century, regardless of where prices go in the near term.

Because if you rent a house or apartment for the next 15 years, and your landlord decides to sell (maybe because you just paid off his entire mortgage), you are then out on the street with zero equity.

Meanwhile, your landlord will make $50,000, $100,000, or $200,000 on the sale of the property, for which he only put 20% down.

The other 80% was completely paid by you!

So who's the one building wealth?

It strikes me that the myopia today surrounding the housing market is the same mentality that was pervasive at the Nasdaq market bottom in 2003, and the S&P 500 in March, 2009.

This mentality is spelled F-E-A-R and it's amazing how it can turn the most level headed investors into quivering wet noodles!

Meanwhile, the "people in the know" are quietly buying assets at bargain basement prices, initiating the creation of their wealth over the next decade or two.

"But I can't buy now, what if the market NEVER comes back?"

With all the bad news out there, I know that a lot of readers are skeptical, so let me share with you with an example of what I mean about wealth building:

Tommy Tenant is scared to death to buy a house. He tells people, "If I buy a house, I know it's gonna lose money. And I hate painting and all that other stuff, so I'll just rent a house."

Meanwhile, Larry Landlord buys a $100,000 rental property, with $20,000 down, and finances the rest over 15 years at the current investor market rate of 4.625%. His Principal and Interest is $617.12 a month, and his taxes and insurance are $175, for a total payment (PITI) of $792.12.

He rents the home to Tommy Tenant, who pays him $1000 per month to live there for the next 15 years. Over time, Tommy's rent should go up, but so will Larry's taxes and insurance, so let's just call that even for Larry.

Tommy, because of his fears, will pay Larry a total of $180,000 over the 15 years, and that's with NO RENT INCREASE! It's probably closer to $200,000, if you figure a standard rent increase of approximately 3% each year.

Over the 15 years, Larry will pay about $142,000 for his mortgage, taxes, and insurance, yet will receive $180,000 from Tommy in rent, and then have the full equity of whatever his home sells for at that time.

Larry will have $38,000 in cash flow over 15 years ($180,000 rent minus $142,000 in expenses), so that whatever maintenance costs Larry has over time, Tommy Tenant will still pay every dime of it!

Now suppose Tommy bought that house instead of renting:

If Tommy had bought this house with a 15 year mortgage, his owner occupant interest rate would be about a half percent lower than on Larry's investment loan.

So with the same 20% down, and a current approximate interest rate of only 4.125%, Tommy would be paying $596.77 a month, plus $175 for taxes and insurance.

Tommy's taxes would be lower in a state with homesteading, but his home owner's insurance would be higher than Larry's dwelling insurance, so let's also call that a wash.

So Tommy's monthly total mortgage payment (PITI) would be only $771.77 -- far less than the $1000 or more he will pay per month to Larry.

Over 15 years, Tommy will pay only $138,918 for his total mortgage, or about $41,000 LESS than he will give to Larry.

In addition, it is possible that he will pay enough in taxes and interest to qualify for itemized deductions, saving him additional money on his income taxes.

Even if he decides to rent after the 15 years are up, he could cash in on plenty of equity by selling the house.

But instead, timid Tommy will pay more in rent than he would with a mortgage, will have zero equity, and zero tax deductions to show at the end of 15 years.

This is why long term renters rarely build wealth for themselves, and also why despite all of the extreme pessimism about the U.S. housing market, I am still very bullish on it long term, both as a home owner and real estate investor.

In fact, there's so much fear out there, it feels like a contrarian indicator.

It's funny -- people always pay lip service to "buy low, sell high", but when push comes to shove and the marketplace is ripe with fear (like it is RIGHT NOW), most people are still too afraid to buy!

SO HOUSING IS DEAD, HUH?

Yeah, housing is dead, the mainstream media will make sure that the little guy remains in mourning indefinitely, and landlords everywhere will be "crying" all the way to the bank every month when they deposit their rents!

"Sob, weep, another long term tenant who won't buy a house!"

Want to learn how you can cry all the way to the bank like this guy?

By Tycoon Report - Original article here.

Concern that Australia's property market is overheating is prompting investors in US dollar-denominated bonds issued by the country's biggest banks to demand a higher relative yield - a shift which may have implications for local interest rates.

The spread between Westpac's $US2 billion ($2.23 billion) of five-year notes and similar-maturity Treasuries widened to 144 basis points yesterday from 137 basis points when sold on July 26, Citadel Securities prices show. The cost of credit-default swaps tied to Sydney-based Westpac and its three largest peers jumped at least 59 per cent this year, outpacing the benchmark Australia Markit iTraxx index's 47 per cent increase.

House values in Australia surged 18.4 per cent in 2010, causing Nobel-winning economist Joseph Stiglitz to say this month that the nation's property inflation gives "cause for concern." A report out today indicated house prices were basically stable in July.

Westpac, National Australia Bank, Commonwealth Bank and ANZ Bank accumulated $798 billion of mortgage debt, almost 66 per cent of their combined loans, according to their banking regulator.

"We don't have the same type of bets on we would have had four years ago," said Tom Farina, a director at Deutsche Insurance Asset Management in New York, who helps manage $US188 billion. While Australian homeowners may not be facing a US-style meltdown, "we're certainly hitting some lofty leverage levels from a valuation perspective," he said.

Australia's banks late last year raised interest rates by more than the Reserve Bank, citing rising funding costs. The extra rate rise, though, sparked a furore, including from politicians. Should the banks face increasing funding costs, they may again seek to pass on the extra cost to borrowers.

Four pillar banks

The so-called Four Pillar banks, named for a law that forbids them from merging with each other, have raised more than $US102.5 billion from bonds in the US currency since the start of 2008, or about 46 per cent of their total sales, Bloomberg data including issues by units show.

The lenders, facing regulatory reforms that favor long-term capital over short-dated funding, may need to sell $162 billion of bonds in the 2011 financial year, 80 per cent more than their annual average for the five years to 2007, Morgan Stanley analysts led by Viktor Hjort said last month.

Spreads widen

Spreads on bonds issues by Australian financial companies have widened to 215 basis points on average from 209 on June 11, while the gap for bonds issued by similar borrowers around the world have narrowed to 224 from 256, according to Bank of America Merrill Lynch index data.

Home prices in Melbourne and Sydney climbed 24 per cent and 21 per cent in the year to June as Australia continued almost two decades of uninterrupted economic growth, statistics bureau data show.

Australia's ratio of household debt to disposable income was 157 per cent as of March 31, central bank data show. It was 133 per cent in the US before the housing collapse began in 2007, according to the Federal Reserve Bank of San Francisco.

'Collateral damage'

"I'm not persuaded by arguments that houses are sustainably priced, I'm not persuaded by the view that debt is not a problem, and I'm not persuaded that policy-makers could prevent collateral damage to banks," Gerard Minack, chief strategist for global developed markets at Morgan Stanley's Australian unit, wrote in an August 17 report. "Dodging the worst of the global financial crisis didn't demonstrate that there's no bubble, in my view it just showed we dodged the prick."

Rising borrowing costs are a "revenue headwind" and may remain inflated for 18 months, Gail Kelly, the chief executive officer of Westpac, said when the lender reported quarterly earnings this month. They will be "permanently" higher, said Mike Smith, ANZ's Melbourne-based CEO.

Omega Global Investors, a fund management firm based in Melbourne, bought Macquarie Group Ltd. bonds in July and August from US and European investors concerned about a housing slowdown, according to Investment Director Mat McCrum.

"Australia's increasing population and limited supply make the market very different from the US and Europe," McCrum said in a telephone interview.

Housing shortage

Australia, a nation of 22.4 million, faces a housing shortage and needs to build about 420,000 more homes in the next decade than it did in the last, according to Harley Dale, chief economist at the Canberra-based Housing Industry Association.

The median cost of an urban home was $465,000 in July, research by real estate monitoring company RP Data show. The median price of a new home sold in the US that month was $US204,000, while sales unexpectedly dropped to the lowest on record, according to Commerce Department data published Aug. 25.

National Australia Bank priced $US1.25 billion of three-year bonds in January to yield 87.5 basis points more than Treasuries, the data show. The spread has since widened to 126 basis points, according to HSBC Holdings Plc.

Credit swaps

Investor demand for corporate debt globally will support Australian bank bonds, said Mark Kiesel, global head of corporate bond portfolio management at Pacific Investment Management Co. The Newport Beach, California-based firm oversees the world's biggest bond fund and is among the largest holders of Australian bank debt.

While that may benefit the securities, "when we look around the world, the most attractive banks from a valuation perspective are US and UK banks," he said.

Investors have allocated $US480.2 billion into debt mutual funds in the two years ending in June, according to data compiled by Bloomberg and the Washington-based Investment Company Institute.

Bank of America Corp., rated three grades lower than ANZ at A by Standard & Poor's, priced $US1.5 billion of five-year bonds on Aug. 17 to yield 230 basis points more than Treasuries, according to Bloomberg data.

Similarly-rated Royal Bank of Scotland Group Plc, the UK's biggest state-owned bank, sold $US1.5 billion of 2013 notes at a 265 basis point spread, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

By Bloomberg News - Original article here.

A commentary in the People's Daily, the newspaper of China's ruling Communist Party, said shrinking transaction volumes suggested that "housing prices will start to show clear drops."

"The results of real estate adjustment will become clearer, and there will be more new projects that follow market trends and are reasonably priced, entering the market at a relatively low price," said the commentary.

The Chinese government cracked down on property speculation earlier this year, raising mortgage down-payments and curbing lending to developers, because it feared that soaring prices could lead to a bubble that might suddenly pop. Price rises have slowed in recent months and industry insiders expect outright declines soon.

Wang Shi, chairman of Vanke (000002.SZ), the largest listed Chinese developer, was quoted by local media last week as saying housing prices in top-tier cities would fall by 10-15 percent.

If the property market defies the cooling efforts, then policymakers should respond with more steps, said the People's Daily, calling the issue a test for government credibility and its efforts to improve people's livelihoods.

"If the adjustments fail to show results for some time, further measures should be launched at an appropriate time," it said.

China should "maintain an appropriate scale of investment in the property sector to expand supply," a government think-tank, the State Information Centre said in a report published in the China Securities Journal on Tuesday.

"Simply suppressing investment" would merely lead to higher housings prices, said the Centre in a report on fixed asset investment.

By Chris Buckley - Original article here.