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Australian Super Ranked Third in the World

Wednesday, October 16, 2013

 

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Australia's $1.6 trillion superannuation system has been ranked as the third best in the world, although it emerged with strong marks around integrity, according to a report looking into the retirement income systems of 20 countries.

Australia was beaten by the retirement savings system in the Netherlands and Denmark, and its super system was described as having a ''sound structure, with many good features, but has some areas for improvement''.

According to the Melbourne Mercer Global Pension Index, Australia's improved score - of 77.8 points, up from 75.7 in 2012 - was ''primarily caused by the introduction of the Stronger Super reforms leading to improved governance and stronger regulation''.

The Stronger Super reforms included requiring super funds to offer a low-cost, default fund for disengaged members.

The report - completed by financial services firm Mercer and the Australian Centre for Financial Studies - said Australia could boost its score by requiring that part of the retirement benefit must be taken as an income stream.

It also recommended increasing the labour force participation rate among older workers, boosting the pension age as life expectancy increases, aligning superannuation access age with the pension age, and removing legislative barriers to encourage more effective retirement income products.

Mercer senior partner David Knox said the ageing population meant Australians needed to change their attitudes towards retirement and that businesses needed to develop more flexible workplaces to take advantage of older workers' skills.

The report, funded by the Victorian government, concluded the global shift from defined benefit pension schemes necessitated a focus on provision of retirement income, rather than wealth accumulation.

The UK's super system was ranked ninth while the US came in at 11.

Read more: http://www.smh.com.au/business/australian-super-ranked-third-in-world-20131007-2v49x.html#ixzz2hHVYPz9P


New Wealth Drivers: SMSF's and China

Monday, October 14, 2013

By: Jon Giann

 

There were quite a few comments on my last piece that i thought were worth fleshing out a bit.

If you missed it, the argument in a nut shell is that self-managed super funds (SMSFs) are now sitting on a massive pile of cash (bigger than Westpac). They have a fairly small exposure to residential property, and surveys suggest they’d like to increase it. If they did, and took advantage of rules that allow them to leverage, we could see a huge surge into property.

First of all, thanks to Greg M for picking up on a mistake. I said that SMSFs could leverage against assets. As he correctly points out they can’t. SMSFs are allowed to borrow to invest, though the exact rules have changed a few times in recent years.

My reading is that it works the same for SMSF as it does for you and I, with certain deposit and loan to valuation ratios enforced by the banks. This means that SMSFs can leverage, but only off cash holdings.

I got a bit lazy with the distinction between cash and assets there. But it doesn’t change the numbers at all. SMSFs have more than enough cash to cover the kinds of property exposure they’d reportedly like, so those quick back-of-the-envelope calculations I did still hold water.

But thanks Greg for keeping me on my toes. It’s good to know my readers won’t let me get away with intellectual sloppiness.

Second, Amanda was wondering that if there was a demand for 700,000 properties from SMSFs, who would fill them? As she rightly says, “they have to fill those houses with tenants to see a return on investment… 700,000 or so more tenants need to be found in a very short time…”

The answer to Amanda’s question is exactly the dynamic that is going to drive prices higher.

If SMSF demand suddenly caused an increase in supply of 700,000 homes, then that’s right, there would be a glut of rental properties, and rental and property prices would fall.

But that’s never going to happen.

It’s funny. I write around 1,000 words per article and some people get a fixation on one single point like the 700,000 homes. The reason I mention it is to highlight how much money is in SMSF’s and what potentially is possible.

Here’s the reality…

As I said, we build about 70,000 homes a year at the moment, so unless we really start cranking up production, it would take ten years to build that many homes.

And as Amanda says, SMSFs are going to want to see a return on their investment. So the most likely scenario is that the SMSFs will just go after existing properties that are tenanted already.

That means they’re going to start competing for the existing investment properties already out there. Maybe some will build off the plan, but typically investors favour established dwellings.

But there’s only a limited number of those. So that means that all this extra demand is just going to jack up the price.

Remember it’s 700,000 properties at current price levels. As the price level goes up, SMSFs will need fewer actual homes to get the exposure they want. Some other investors will cash-out or get squeezed out of the market, and at some point, the market will find a new equilibrium.

I don’t know exactly what that end point would look like, but the only guarantee in that scenario is that prices will be a heck of a lot higher.

My mate John Fitzgerald pointed me to some back-of-the-envelope calculations he did. Now John is worth squillions, and has over 5,000 property transactions to his name. When he talks, I listen.

John agrees with the basic maths I’ve got. But he compares the SMSF appetite to the value of sales. He says that in Australia we sell around $190 billion in residential property each year.

With gearing, he reckons 30 percent of SMSFs alone could buy every residential property sold in Australia, for the next three years!

As he says, almost 3,000 SMSFs are being set up every month! In his mind, it’s a total game changer.

He reckons this is one of the factors that helps explain one of the property market puzzles of recent times. We’ve seen prices, particularly in Sydney growing strongly (if we annualised September’s growth we get something close to 30 percent!).

But credit is only growing at 4.7 percent. How can that be? How can we have a boom without credit growth? That’s never happened before.

He reckons the answer is that there are new buyers in the market that we’ve never seen before. One is SMSFs.

The other is the Chinese.

And he reckons it’s taken the market by surprise, because 6 years ago, neither buyer existed.

As he says, “I look at China and you can take my numbers on SMSF and quadruple them and still not come near the capacity there. John McGrath told me that one of his Sydney auctions in September had 16 registered bidders – all Chinese origin and all cash buyers.”

“The top two house sales in Australia this year were for $52m and $33m, both to the Chinese and both in cash.”

I’ve been saying this for a while too. I don’t think most people realise the kind of wealth machine that China has become.

Before the GFC, to make the top 50 wealthiest list in China you needed $6 million. Today, you need $3 billion. These days, they’re creating 25 billionaires per month!

China’s top 20 percent had $1.4 trillion in bank savings last year. John notes that just 13 percent of that would buy every house in Australia, in one year.

Thanks John. That’s some serious food for thought.

(And I think this probably answer’s Tom’s question from the last post, right?)

We’ve got a cyclical upswing combining with a massive paradigm shift in the make up of the market, with the twin giants of China and the SMSFs letting their presence be felt.

It’s going to be HUGE!

And thanks everyone for the comments. I don’t often have time to respond but I do follow them closely, and I’m always impressed and humbled by the intelligence and knowledge that’s on display.

As I said, it definitely keeps me on my toes. I can’t slack off with you lot around!

Rumours of the Resource Industry's Dealth have been Greatly Exaggerated

Friday, October 11, 2013

By Terry Ryder
Thursday, 03 October 2013

Companies beavering away in the resources industry must know how Mark Twain (who was declared dead by newspapers when he was very much alive) felt when he reportedly said, “the reports of my death have been greatly exaggerated.”  

They must wonder if they have slipped into a parallel universe when the industry they’re working in has been declared dead and buried.  

This is a relevant issue for property investors because of the link between resources activity, jobs creation and consequent demand for real estate in mining towns, regional centres and capital cities.  

There is a fundamental mis-reading of the signals coming out of the resources sector, by so-called analysts and by media.  

Cost-cutting is seen as evidence that the sector is dying. A decline in prices for some commodities, such as coal, is interpreted as death of the industry rather than simply another stage in the volatile resources cycle. A few negative reports out of China are translated into “the resources boom is over because China is slowing down."  

This comment by Rob Neale, CEO of coal miner New Hope, is pertinent: "The international thermal coal market is oversupplied and the industry is suffering to varying extents. We have been in the business for a long time and we have withstood many of these cycles and I would expect to continue to do so."

So is this one from Michael Roche, CEO of the Queensland Resources Council: “The latest export data suggests that Bowen Basin coal producers are responding skilfully to global market realities by reducing costs and increasing volumes to reinforce Queensland's position as a supplier of choice to Asia.”

And this one from Scott Barklamb, executive director of the Australian Mines and Metals Association: “The industry has never accepted a simplistic ‘boom versus bust’ view of the economy.”

And, finally, this comment from Origin chief executive Grant King: “It's not over. Most of the capital still has to be spent in order to deliver these big projects."

So, here are my top 15 reasons why the resources boom is far from over.  

1). The economies that are driving the Australian resources revolution, such as India and China, continue to grow at phenomenal rates. The so-called “slowdown in China” is a myth. The Asian Century is just beginning.  

2). Resources projects currently under construction total $268 billion. That’s $268,000,000,000.  

3). The change of federal government means some unwelcome (to the mining industry) taxes will be eliminated. The new government says it will “re-boot” the mining boom by taking measures to reduce costs. It says there are over 50 major mining and port projects awaiting approval.  

4). BHP Billiton and Rio Tinto are exporting record levels of iron ore and continue to expand. Rio, for example, is expanding its port, rail and mine operations in the Pilbara to lift output to 290 million tonnes per year. Other iron ore miners, like Fortescue Metals and BC Iron, are delivering record production. Demand for cape-size vessels to service Australian iron ore exports has tripled since June.  

5). BHP says the resources boom will extend at least another 15 years. Chairman Jac Nasser says: “We maintain a positive outlook over the long term as the fundamentals of wealth creation, demographics and urbanisation continue to create demand for commodities across Asia and other markets.”

6). Australia is on target to become, within the next five years or so, the world’s biggest exporter of LNG.  

7). The three mega gas projects focused on Gladstone are about halfway through their construction phase while a fourth (the $15 billion Arrow Energy gas project) has recently been approved.  Contractor for all three projects, Bechtel, is hiring at least 100 workers every week - the expected workforce peak is 10,500, which is expected to continue until mid-2014.  

8). Other major resources-related projects in Gladstone include the Fisherman's Landing, Boulder Steel, Gladstone Gas Power Station and the Yarwun Refinery projects. To service these, another workers' camp development application (for 516 rooms) is before Gladstone Regional Council.  

9). Big contracts continue to be awarded in the Surat Basin coal seam gas industry, such as the $1.8 billion contact recently handed to Thiess by QGC.

10). Woodside is proceeding with its $40 billion Browse LNG project WA, contrary to media reports of its death, with its Japanese and Chinese partners agreeing to a floating offshore processing facility. The project is being strongly backed by new federal Industry Minister Ian Macfarlane.  

11). The $9 billion Roy Hill iron ore project in WA has been handing out major contracts, including a $620 million rail works contract to NRW Holdings, a $420 million contract to BGC Contracting and a $1.47 billion contract to Forge Group (for a processing facility). The $7.7 billion West Pilbara Iron Ore project is being planned by Aquila Resources and partner AMCI Investments. Fortescue Metals Group is going ahead with its $3 billion Iron Bridge magnetite project and has announced a $1.25 billion development deal with Formosa Plastic group of Taiwan.  

10). South Australia has announced a $5 billion infrastructure corridor to cater to a projected eight-fold rise in iron ore exports from the state. The Eyre Peninsula has multiple iron ore projects under way or in planning.  

11). The Queensland Resources Council says that the Queensland coal industry is positioning itself for “the inevitable revival of coal demand, driven by China and India”.

12). Multiple coal mining projects, each of them a multi-billion-dollar venture, are gearing for a construction start in Queensland’s Galilee Basin, with proactive support from the state government. They represent investment totalling well over $20 billion.  

13). An economic needs analysis has identified 17 coalmining projects in varying stages of development in the Central Highlands near Emerald. It estimated a mining workforce in the Emerald area rising from 800 in 2012 to 4,150 in 2022. A 600-person FIFO accommodation village is planned. BHP recently officially opened its Dania coking coal mine near Moranbah in Queensland, its seventh Bowen Basin mine in its partnership with Mitsubishi.  

14). Port Waratah Coal Services has just completed a $1.5 billion expansion of its export facilities at the Port of Newcastle, lifting capacity to 145 million tonnes per year. Newcastle continues to be the world’s biggest coal export port.  

15). In addition in Newcastle, major new export port development are happening around Australia. The multi-billon-dollar Wiggins Island Coal Export Terminal project is under way at Gladstone. Stage one construction of WICET is about 65% complete, with coal operations to begin in 2015. Work is under way on Rio Tinto’s Cape Lambert Port B project in WA - it recently handed a $235 million construction contract to Monadelphous Group.

That is a very short list of some of the action underpinning my conviction that the resources revolution in Australia will be thriving – and driving real estate demand around the nation – long after I’m as dead as Mark Twain was thought to be.


Terry Ryder is the founder of hotspotting.com.au and you can contact Terry via email or on Twitter.

Please Help us with Sport's Trivia!

Wednesday, October 09, 2013

 

SPORTS TRIVIA NIGHT!

 Calling All Sports Buffs!

 On Wednesday 30th of October WFS is sponsoring a table for a Sports Trivia Night at the Woden Tradies club. This Trivia will be one like no other. Firstly, the questions will be SPORTS ONLY, with a twist! The trivia will include Sports History, Sports Geography, Sports Music, Sports Literature, Sports Movies, all your favourites, except that they’re all sport!! With lots of great prizes, what is there to lose?

We need help, us accountants aren't so intelligent when it comes to sports.

So anyone with any sports knowledge, wanting a bit of fun and a night out, please come along and lend us your brain.

 Where: Woden Tradies Club

When: 30th of October

Time: 6:30pm for 7pm start

RSVP’s ESSENTIAL

 Please email me on laura@wfscanberra.com.au or call the office on 6162 4546 to book a seat at our table!

20 Reasons to like Rockhampton

Tuesday, October 08, 2013

by Terry Ryder.

 

Most questions I get asked by Investors concern location. That's unsurprising, because that's my business.

But specific locations tend to dominate. Eighteen months ago many were asking about Moranbah. A year ago there were more questions about Gladstone then anywhere else. Over the past six months Perth has dominated.

You may notice the surge in interest in a particular spot usually comes well after the best time to buy there.

Now the focus is switching again. In Queensland, interest in former favourites Gladstone and Mackay is fading, as consumers get the message that those markets are declining, weighed down by over-supply at a time when resources-related demand has eased.

Rockhampton is now attracting attention and I'm getting more and more questions about it. Do I think it's a good place to invest?

The short answer is yes, and here are my Top 20 reasons why I like it.

  1. It has economic diversity and is less reliant on the resources sector.
  2. It’s the admin capital of Central Queensland.
  3. It gets plenty of oomph from its reputation as “the beef capital of Australia”.
  4. It has a military economy, a power station, a university, plenty of tourism and two big abattoirs.
  5. It’s affordable - considerably cheaper than both Mackay and Gladstone.
  6. Several suburbs have median house prices below $250,000.
  7. It’s not hard to find rental returns above 6.5% on houses.
  8. There are plenty of older Queenslanders for those who like to “add value”.
  9. Sales volumes have been rising since late in 2012, with prices starting to follow.
  10. The long-term growth rates are strong, with most suburbs averaging 10% or more annually for the past decade.
  11. Considerable spending on infrastructure is under way or planned.
  12. $250 million is being spent on expanding the hospital.
  13. Plenty is being invested in property development, including shopping centres and industrial estates.
  14. It has a population above 100,000 and is growing steadily.
  15. It services a region with close to half a million people.
  16. Unemployment rates have improved markedly in recent years.
  17. A $1.2 billion export port is in planning (a second port project of similar size was proposed but Xstrata abandoned its plans in May).
  18. Projects like the $600 million development on Great Keppel Island and the expansion of the Keppel Bay marina will help the tourism industry.
  19. Quest Serviced Apartments, which targets locations with growing business traffic, has just opened a new hotel there.
  20. Resources industry workers are settling in the Rockhampton area and going to work on a fly-in-fly-out basis
And here are a couple of things to be cautious about: dwellings approvals almost doubled in FY2013 so investors should keep and eye on vacancies; and it would pay to check the flood maps for signing a purchase contract.

More Reasons for Property Prices to Rise

Friday, October 04, 2013

Housing supply seems to be falling further and further behind demand.

Each year we build fewer and fewer houses. And over the last ten years, growth in the housing stock failed to keep pace with population growth. This is the first time this has happened since WW2!

This has a few really important implications.

The first is that all this talk of a bubble is completely over-blown. (hey? How’s that for a pun? Put that in a Christmas bon-bon.)

Because unless there’s a glut, then there can’t be a bubble, and unless there’s a bubble, then there can’t be a bust. This is one of the most important differences between the Australian story and what happened in America.

We also know that if supply is falling further and further behind demand, then there must be upward pressure on prices. This is as true of housing as it is of any market.

And so this supply shortfall goes a long way to explaining the trend increase in house prices we’ve seen over the past 50 years or so. Not the full story, but a fair bit of it.

And supply doesn’t look like it’s going to come bouncing back anytime soon. This means we can expect to see continued upward pressure on prices.

And all that is true for a given level of demand. But the truth is that there are major structural and demographic changes happening on the demand side that mean the supply and demand gap is getting even bigger.

Which of course means we’ll see bigger and bigger price increases.

So what’s happening on the demand side?

Well, in a nut shell, we’ve seen a bunch of changes that means we need more houses for the same number of people. That means that actual demand for housing is actually growing even faster than population growth, which itself is already growing faster than supply.

Over the past 50 years there have been significant changes in the way we live. Take average family sizes for example. As fertility rates dropped, average family size has been on a steady downward decline for decades now. That means we need more houses to accommodate the same number of people.

At the same time, family breakdowns have split many families in two, effectively doubling that family’s need for housing.

And what’s more, a steadily ageing population has resulted in more people living alone, again meaning we need more dwellings to house the same number of people.

And according to the 2011 census data, of the homeowners aged 70 and over who live alone, 62 percent have a house with three or more bedrooms. That adds up to 238,078 houses with at least three bedrooms occupied by just one person.

Among houses owned by older couples (with at least one partner aged over 70), 82 percent – or 332,752 houses – have at least three bedrooms.

And the Australian population is only getting older, so we’re going to need more and more housing. Some older people might downsize into something more practical, but people are generally reluctant to leave their communities and the family home.

Together, these structural and demographic factors – smaller families, more split families, more older single-person families – mean that the average number of people per dwelling has been on a long-run downward trend for over a hundred years!

That’s what this chart here shows:

 

What’s interesting here though is notice the small pick up between the 2006 and 2011 census. That’s the first rise in at least 100 years!

How do we explain that? Well, I don’t think there’s been any change in Australian preferences. What I think it reflects is tighter economic conditions through the GFC.

As money became tighter, people started share-housing, kids moved back in with their parents, or delayed starting out on their own.

If that’s true, what it points to is even more pent up demand. As economic conditions continue to solidify around the country, people will look to head back out on their own, and the average household size should return to trend.

And ultimately what the downward trend in household size means is that actual housing demand is growing faster than population growth. So if we know that population growth is growing faster than supply, then we know that actual housing demand is growing even faster than supply.

And this of course means more upward pressure on prices.

Of course, the other important factor here is the expansion of investor demand over the past 30 years or so. I’m planning to write a bit more about that later.

And so looking back at the past 30 years, it’s not hard to see demand for housing to live in, combined with demand for housing to invest in, running far, far ahead of supply.

And so when I look at the prices rises we’ve seen, I just don’t see a bubble. The price rises we’ve seen make perfect sense.

And I see these dynamic continuing to drive the market going forward. Unless there’s a slow down in the rate of population growth (unlikely) or an increase in the average household size (very hard to see where that would come from) OR there is suddenly a lot more supply brought to market (how?), then undersupply and growing prices will be the norm for many years to come.

Add to that the lowest interest rates in 50 years and a cyclical upswing out of a prolonged soft patch, and you’ve got all the ingredients of a boom.

Simple as that.

by: John Giaan

Mackay Property Market on the Rise

Tuesday, October 01, 2013

 

It appears the Mackay property cycle is on the up, with respected property commentator Michael Matusik and independent property valuation and advisory group Herron Todd White recently indicating the Mackay market is in the 'recovery' or 'rising market' phase of the property cycle.

Click here to view the attached article for the stats and figures.

Race for Hope - 2 weeks to go!

Friday, September 27, 2013

It’s just over 2 weeks until the annual Race for Hope is set to take place. This year, Race for Hope is a 3km or 8km walk/run beginning at the Kirra SLSC.

By sponsering a runner and/or walker you are helping 100% hOPE raise funds to continue the construction of a nursery (preschool) and purchase a ute for orphaned and underprivileged children in Uganda.

Trishelle and the children will be running in Uganda on the same day and would love your support so if you can’t make it, you can sponsor them here: http://www.mycause.com.au/page/hopekidsuganda

Together we can make a difference to give these children in Uganda a future and a hope.

 

The Future Remains Bright for Mackay, Gladstone and Townsville

Friday, September 13, 2013

There are currently many investors who purchased in regional areas of QLD and have been disappointed by having to accept lower than anticipated rental returns. Negative media about the end of the resources boom have also left these investors thinking that they have made a bad investment choice. However now is not the time to panic.

When you dig deeper into what is actually happening in these regions and look at the longer term the future prospects for cities like Gladstone, Mackay, Emerald, Rockhampton and Townsville remain incredibly strong. We may have passed the peak of the investment stage but we are yet to begin receiving the billions of dollars of income once exporting begins. And we still have some massive projects due to commence that will employ thousands of workers.

Please see the following link to an article from Terry Ryder suggesting that bright days are ahead;

http://m.propertyobserver.com.au/residential/rocky-on-the-rise-as-gladstone-stumbles-terry-ryder-hotspotting-rockhampton-gladstone/2013052261590

The short term over supply of rental properties in Gladstone and Mackay should be absorbed by early next year. It may take awhile for rents to get back to their peak levels but the potential for above average capital growth remains very strong. The Gladstone metropolitan area is fast running out of land that can be developed at an affordable price. Most future development will be around 20 minutes away in Boyne Island/ Tannum Sands or Calliope. While there is more land around Mackay capable of being developed you are no doubt aware of how long it takes for the Mackay council and local developers to bring the land to market. And most land left is either low lying or very hilly, meaning the cost to deliver lots is higher.

We are very confident is the medium to long term prospects for these regions an hope that investors can be patient. If they hang on happy days are ahead.

 

By: Chris Halpin

Who Said Mackay is Over!

Monday, September 09, 2013

 

The train is departing, All aboard!

The Daily Mercury yesterday announced the opening of a BHP Daunia mine and has created over 900 jobs while boosting the economy by $1.4 billion.

Relate this to another story they printed yesterday informing us of another airport upgrade which backs up the recent million dollar refurbishment.

"Mackay's perfectly positioned to be Central Queensland's integrated transport hub, so we're in the sweet spot for the Bowen Basin. Mackay is the capital of the Whitsundays so this is the place that people want to come through."

Now, combine all of this good press with the attached housing boom predicted from the election and we have the perfect storm for buyers to invest in Mackay.

See all three articles here:

  1. Airport Upgrade
  2. Daunia Mine Creates Over 900 Jobs
  3. Abbott will Trigger a Housing Boom

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