Amp Capital

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GUEST OBSERVER
With no major economic developments in the last month, September quarter inflation due later this month and new Governor Philip Lowe at the helm presumably wanting to demonstrate a degree of policy continuity it was no surprise to see the Reserve Bank of Australia leave rates on hold at 1.5 percent at its October meeting. 
While Philip Lowe did make a few changes to the RBA’s post meeting Statement these don’t appear to signal any major changes in the RBA’s economic forecasts. In short the RBA continues to see the global economy continuing to grow at a below average pace, financial markets functioning effectively, the Australian economy continuing to growth, inflation expected to remain low and an appreciating $A complicating the adjustment in the economy. 
Two areas where there were more substantial changes in commentary were in relation to the labour market and the housing market. In terms of the labour market the RBA has highlighted significant variation across the country  in jobs growth and the divergence between part time and full time employment but seems reasonably relaxed about the employment outlook. 
On the housing market the RBA remains relatively sanguine but has acknowledged a strengthening in some markets recently (presumably Sydney and Melbourne), suggesting that it may be becoming a bit less relaxed.
The RBA seems to remain comfortable in waiting for the surge in apartment supply to cool property prices. Given the recent rebound in auction clearance rates, Sydney and Melbourne property prices continuing to growth solidly after huge gains over the last four years (6 percent in Sydney, 40 percent in Melbourne) and the risk that the apartment building boom will go way beyond the point of being healthy, my view remains that the RBA is a bit too relaxed about home prices and at least a bit of “jawboning” would be appropriate at present.
The fact that the RBA did not repeat its July meeting reference to upcoming inflation data – with September quarter inflation data due later this month – suggests that unlike in July its bias on interest rates is neutral.
However, we remain of the view that the RBA will cut rates again at its November meeting when it reviews its economic forecasts after the release of the September quarter inflation data in late October. The near term risks to inflation are on the downside thanks to competitive pressures globally and record low wages growth domestically and the $A is still too high and at risk of further appreciation given the Fed’s endless delays in raising rates again.
However, with economic growth holding up very well, commodity prices and national income looking like it has bottomed and the new Governor perhaps preferring a period of stability, this is a close call and is critically dependent on seeing a lower than expected September quarter inflation result. Either way a cut in the cash rate to 1 percent or below and the adoption of quantitative easing remains very unlikely in Australia.
<a href="https://www.propertyobserver.com.au/https://plus.google.com/110172465327488162875?rel=author" target="_blank">SHANE OLIVER</a> is head of investment strategy and economics and chief economist at <a href="https://www.ampcapital.com.au/home" target="_blank">AMP Capital</a> and is responsible for AMP Capital's diversified investment funds.
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RBA a bit more realistic on the property market: Shane Oliver

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<div class="column">Expert Observation by Dr Shane Oliver, head of investment strategy and chief economist of AMP Capital</div>
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<div class="column">As we’ve seen recently growth assets like shares have periods of bad short-term performance versus bonds &amp; cash. But they provide superior long-term returns which is essential to grow retirement savings. It makes sense for superannuation to have a high exposure to them. The best approach is to simply recognise that super and investing in shares is a long-term investment.</div>
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This is an update of a note I wrote last November, but after the recent plunge in shares and the associated ten per cent or so loss in balanced growth superannuation funds through the March quarter, it’s particularly relevant now. When share markets plunge as they did into March the standard questions are: What caused the fall? What’s the outlook? And what does it mean for superannuation? The correct answer to the latter should be“nothing really, as super is a long-term investment and share market volatility is normal.” This may sound like marketing spin. But, except for those who are into trading or are close to or in retirement - shares and super really are long-term investments.
<h2>Super funds, growth assets &amp; compound interest</h2>
Superannuation is aimed (within reason) at providing maximum (risk-adjusted) funds for use in retirement. So typical Australian super funds have a bias towards shares and other growth assets that grow in value with the economy, particularly for younger members, and some exposure to defensive assets like bonds and cash to avoid excessive short-term volatility. These approaches aim to make the most of the power of compound interest which sees returns build on returns over time. The next chart shows the value of a $100 investment in Australian cash, bonds, shares and residential property from 1926 assuming any interest, dividends and rents is reinvested along the way.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_1.jpg" alt="" width="460" height="276">
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As return series for commercial property and infrastructure only go back a few decades I have used residential property as a proxy. Over the period shown since 1926 cash has returned 5.4 per cent per annum, bonds 6.9 per cent pa, property 10.7 per cent pa and shares 10.9 per cent pa. Because shares and property provide higher returns over long periods the value of an investment in them compounds to a much higher amount over long periods. So, it makes sense to have a decent exposure to them when saving for retirement. The higher return from shares and growth assets reflects compensation for the greater risk in investing in them – in terms of capital loss, volatility and illiquidity.
<h2>
But investors don’t have 90 years?
</h2>
But while the above chart covered more than 90 years of returns, our natural tendency is to think very short term. Particularly so in times of uncertainty like now. And this is where the problem starts. On a day to day basis shares are down almost as much as they are up. See the next chart. So, day to day, it’s pretty much a coin toss as to whether you will get good news or bad on shares. But if you just look monthly and allow for dividends, the historical experience suggests you will only get bad news around a third of the time. If you go out to once a decade, positive returns have been seen 100 per cent of the time for Australian shares and 82 per cent for US shares. So while it’s hard given the bombardment of financial news these days it makes sense to look at your returns less because then you are more likely to get positive returns and less likely to make rash decisions based on short term bad news.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_2.jpg" alt="" width="459" height="280">
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This can also be demonstrated in the following charts. On a rolling 12 month ended basis the returns from shares bounce around all over the place compared to the relative stability of cash (and bonds). See the next chart.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_3.jpg" alt="" width="456" height="269">
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However, over rolling ten-year periods, shares have invariably outperformed, although there have been some periods where returns from bonds and cash have done better, albeit briefly.
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Pushing the horizon out to rolling 20-year returns has almost always seen shares do even better, although a surge in cash and bond returns from the 1970s/1980s has seen the gap narrow. Over rolling 40-year periods – the working years of a typical person – shares have always done better.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/14_5.jpg" alt="" width="465" height="241">
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This is all consistent with the basic proposition that higher short- term volatility from shares - often reflecting exposure to periods of falling profits and a risk that companies go bust - is rewarded over the long term with higher returns.
<h2>But why not try and time short-term market moves?</h2>
The temptation to do this is immense. With the benefit of hindsight many swings in markets like the tech boom and bust, the GFC and maybe in the years ahead the current episode look inevitable and hence forecastable and so it’s natural to think “why not give it a go?” by switching between say cash and shares within your super to anticipate market moves. Fair enough if you have a process and put the effort in. But without a tried and tested market timing process, trying to time the market is difficult. A good way to demonstrate this is with a comparison of returns if an investor is fully invested in shares versus missing out on the best (or worst) days. The next chart shows that if you were fully invested in Australian shares from January 1995, you would have returned 8.5 per cent pa (with dividends but not allowing for franking credits, tax and fees).
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If by trying to time the market you avoided the 10 worst days (yellow bars), you would have boosted your return to 11.7 per cent pa. And if you avoided the 40 worst days, it would have been boosted to 17.1 per cent pa! But this is not easy as many investors only get out after the bad returns have occurred, just in time to miss some of the best days. For example, if by trying to time the market you miss the 10 best days (blue bars), the return falls to 6.3 per cent pa. If you miss the 40 best days, it drops to just 1.9 per cent pa.
The following chart shows the difficulties of short-term timing in another way. It shows the cumulative return of two portfolios.
• A fixed balanced mix of 70 per cent Australian equities, 25 per cent bonds and five per cent cash;
• A “switching portfolio” which starts off with the above but moves 100 per cent into cash after any negative calendar year in the balanced portfolio and doesn't move back until after the balanced portfolio has a calendar year of positive returns. We have assumed a two-month lag.
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Over the long run the switching portfolio produces an average return of 8.6 per cent pa versus 9.9 per cent pa for the balanced mix. From a $100 investment in 1928 the switching portfolio would have grown to $185,869 compared to $595,510 for the constant mix.
<h2>Key messages</h2>
First, while shares and other growth assets go through periods of short-term underperformance relative to bonds and cash, they provide superior returns over the long term. As such, it makes sense that superannuation has a high exposure to them.
Second, switching to cash after a bad patch is not the best strategy for maximising retirement savings and wealth over time as it locks in the loss with no hope of recovery.
Third, the less you look at your investments the less you will be disappointed. This reduces the chance of selling at the wrong time or adopting an overly cautious stance.
The best approach is to simply recognise that super and investing in shares is a long-term investment. The exceptions to this are if you are really into putting in the effort to getting short- term trading right and/or you are close to, or in, retirement.
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Why super and growth assets like shares have to be seen as long-term investments: Shane Oliver

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Expert Observation by Dr Shane Oliver, head of investment strategy and chief economist at AMP Capital
The Australian March quarter Consumer Price Index showed headline inflation rising by 0.3 per cent over the quarter with annual inflation up by 2.2 per cent which was higher than market expectations of a 0.2 per cent quarterly increase or 1.9 per cent over the year.   The RBA’s preferred measure of “core” inflation, as measured by the “trimmed mean” index rose by 0.5 per cent or 1.8 per cent, also above market expectations of a 0.3 per cent increase or 1.6 per cent over the year.   Usually the inflation data is a key component of the Reserve Bank’s policy deliberations but its importance has been reduced (for now) as the impacts of the coronavirus on the economy takes hold.  
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2020/4/29/15_1.jpg" alt="" width="443" height="280"> 
In a pre-coronavirus world, today’s inflation data would have given the Reserve Bank confidence that its low interest rate settings were making inroads into lifting inflation, with underlying inflation showing its strongest quarterly rise since early 2018.
However, this has all changed because from the impacts of COVID-19 and associated shutdowns to economic activity. Inflation is expected to go backwards in the near-term (i.e. deflation) from the impacts of the virus and low inflation could persist for a while if the economic recovery is slower than expected.
The key points from the March quarter inflation data are: 
<ul>
<li>The largest upside surprise was from higher food prices, from drought and bushfire impacts (bushfires increased transport costs for some fresh produce). The largest price rises were in fruit and vegetables (+6.0 per cent) and meat and seafood (+2.05). Covid-19 panic buying was evident towards the end of March for products like rice and pasta which lifted the prices for these items. 
</li>
<li>Tobacco prices rose by 2 per cent from the tobacco tax excise increase.  
</li>
<li>There were less signs of discounting in the March quarter in clothing &amp; footwear but this is likely to be reversed in the June quarter as stores try to increase sales in the current environment. 
</li>
<li>The early signs of Covid-19 impacts were evident in higher prices for non-durable household products (up by 3.4 per cent) with rises for things like toilet paper, soap, hand sanitiser. Most of these increases are unlikely to be sustained as the surge in demand for such items has simply brought spending on them forward. 
</li>
<li>Health costs rose (+1.7 per cent) due to the way the Pharmaceutical Benefits Scheme works, which usually see seasonal rises in prices for pharmaceutical products and in medical and hospital services in the March quarter. 
</li>
<li>A large fall in fuel prices (-6 per cent) from a lower oil price reduced transport costs. Expect even lower fuel prices in the June quarter given the collapse in the oil price over recent weeks. 
</li>
<li>Recreation prices fell by 1.7 per cent (mainly due to holiday travel and accommodation) which is a usual seasonal effect after the peak holiday period in the prior quarter. There were no signs of Covid-19 impacting travel prices because the social distancing restrictions only came into effect in late March and also because the ABS would have measured the cost of travel done in March at the time it was booked which wouldn’t give enough time for price discounts to be evident. 
</li>
<li>Education prices rose by 2.6 per cent from the usual rises in school feels in the March quarter. 
</li>
<li>Insurance and financial services prices were up by 0.7 per cent over the quarter.</li>
</ul>
 
Implications
Looking ahead, June inflation is expected to be negative in Australia, possibly as weak as -2 per cent quarter on quarter or -0.5 per cent year on year which would be the biggest fall in annual consumer prices since a 1.3 per cent decline over the year to the June quarter in 1962.
Petrol prices (in Australia) are already down by around 35 per cent compared to the March quarter, childcare prices will fall sharply as a result of the Government subsidy up until the end of June, rents are declining, many government charges are seeing price freezes or rebates, some non-government education providers are providing discounts, communication costs will decline due to providers offering larger internet plans with no extra costs (recorded as a price fall by the ABS), finance and insurance costs are being cut and retailers are discounting in areas of weak demand.
While there might be some offset from higher food prices given supply constraints, below-capacity economic activity and much higher unemployment will likely keep inflation weak and well below target for several years.Inflationary pressures could rise once economic activity recovers, spare capacity is used up and unemployment falls below full employment levels helped by significant monetary and fiscal stimulus, but this is unlikely to be the case until sometime after 2022. As a result the RBA’s cash rate is likely to be stuck at 0.25 per cent for the next three years at least.
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March quarter inflation higher than expected but irrelevant given the Covid-19 disruption: Shane Oliver

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Kylie O'Connor has been promoted the lead role at AMP Capital's real estate division, and she will join the investment firm's leadership group.
Ms O'Connor is currently AMP Capital Real Estate's Chief Operating Officer and Managing Director of Separate Accounts.
She will replace Carmel Hourigan who is leaving the business.
As Head of Real Estate, Ms O'Connor will lead the team managing more than A$28 billion of commercial real estate on behalf of institutional and retail investors across equity and debt investment solutions.
This includes the management of AMP Capital's integrated fund, investment, development and property management platform, as well as its strategic global partnerships.
"Highly regarded by our clients, our team and within the industry, she's ready to lead the next phase of growth for our real estate business," said AMP Capital CEO, Boe Pahari.
"Kylie has a deep breadth of both commercial and real estate investment experience and will bring a strong focus on delivering investment outcomes for our clients. I also value her contribution to the wide and diverse views in the leadership group."
Ms O'Connor joined AMP Capital in 2015 as Fund Manager for AMP Capital Diversified Property Fund, before taking on the role of COO in 2018. She has 25 years' experience in property funds management and has been involved in the delivery of several large development projects on behalf of wholesale investors.
Prior to AMP Capital, she held a number of senior fund management, audit and advisory roles at Lendlease and Arthur Andersen.
"I'm pleased to be appointed to lead this first-class real estate business and join Boe's leadership team. With over 60 years' heritage in managing iconic real estate for local and global investors, we have an excellent foundation of depth of talent, premium assets and great client relationships on which to grow the business," Ms O'Connor said.
"While COVID 19 has created challenges for the industry, we're constantly engaging with tenants, customers and investors to find the right outcome, and I'm confident in our ability to deliver for our clients, our people and our shareholders."
Also announced Luke Briscoe will take on the role as Chief Operating Officer, Real Estate, reporting to Ms O'Connor, where he will oversee the operations of the business while seeking opportunities to enhance the real estate platform.
Mr Briscoe held the position of Managing Director, Office &amp; Logistics for the past five years and as Chief Operating Officer will also lead its circa $10 billion separate accounts business. Ms O'Connor will report to Boe Pahari and join AMP Capital's leadership group effective immediately.
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j.ballantyne1990-6AQqhLzZaK

Kylie O'Connor to lead AMP Capital's real estate division

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AMP Capital has sold the Mt Ommaney Shopping Centre in Brisbane for $416.25 million struck on a capitalisation rate of 6.25%.
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It was bought by a joint venture between Federation Centres and US-based TIAA Henderson Real Estate for $416.25 million.
The purchase marks TIAA Henderson Real Estate’s first foray into retail property in Australia.
With over $18 billion in assets, TIAA Henderson Real Estate will own 75% and Federation Centres will own 25%, as well as provide ongoing property ­management.
AMP’s Australian Core Property Portfolio sold the 2010-redeveloped 57,000-square-metre centre having acquired it in 1980.  
Colliers International’s Lachlan MacGillivray negotiated the sale.
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Mt Ommaney Shopping Centre sold by AMP for $416 million

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The financial services group AMP has appointed Adam Tindall to succeed Stephen Dunne as managing director of its AMP Capital division.
Adam Tindall will assume the role following Stephen Dunne’s upcoming retirement.
Adam Tindall is currently AMP Capital’s chief investment officer, property. 
He will start in his new role in October 2015 after a period of transition alongside Stephen Dunne.
AMP Capital is a specialist investment manager that manages over $160 billion across a range of asset classes including equities, fixed interest, property and infrastructure.  
Adam has 28 years of experience in the property industry, joining AMP Capital Property in 2009 from Macquarie Capital.
Prior to this, Adam spent 17 years with Lend Lease, ultimately working in various business leadership roles including chief executive officer, Asia Pacific for Bovis Lendlease.
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AMP Capital appoints Adam Tindall as MD

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AMP Capital will commence the first stage of a $130 million development at Crossroads Logistics Centre in Sydney’s south west.  
This follows Cosentino Australia choosing to partner with AMP Capital at the new industrial hub.
The development is located at Casula, next to AMP Capital's Crossroads Homemaker Centre as well as Costco.
Crossroads Logistics Centre offers industrial tenants purpose-built facilities to suit their specific needs.
It is owned by investors in the AMP Capital Diversified Property Fund (ADPF) and once complete will accommodate approximately 79,000 sqm of high quality warehouse and office space across three separate precincts.
Prime Constructions, an experienced and highly regarded industrial builder, has been appointed as construction partner.  
The Cosentino building is targeted for completion in the first quarter of 2017.
Cosentino Australia is wholly owned by the Cosentino Group, a global family-owned company headquartered in Spain that produces and distributes high-value innovative surfaces for architecture and design. 
It has committed to a 12,500 sqm facility to house their Australian distribution centre and showroom.  
AMP Capital Managing Director Office and Industrial Luke Briscoe said securing a quality tenant such as Cosentino reinforces the appeal of the development, including the strategic location at the cross roads of the M5 and M7, as well as the tailored design of the facility to meet their business needs.
“We welcome Cosentino as a major customer in our portfolio.
"Crossroads is an exciting development for AMP Capital, our investors and future tenant customers”, Mr Briscoe said.
AMP Capital Diversified Property Fund Manager Kylie O’Connor said this development was consistent with the fund’s investment strategy to maximise fund performance through the development of its existing assets.
“I am very pleased to announce the commencement of this important industrial development which will improve the quality of our portfolio,” she said. 
“Once complete, Crossroads Logistics Centre will become the cornerstone of our industrial and logistics portfolio as we look to deliver superior investment returns for our clients.
“The development of Crossroads Logistics Centre follows the fund’s recent acquisition of a $250 million prime Sydney industrial portfolio, continuing our deliberate strategy to increase exposure to the industrial sector.”
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AMP Capital announces major industrial development in Western Sydney

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Housing matters a lot in Australia. Having a house on a quarter acre block is part of the "Aussie dream".
Housing is a popular investment destination and the housing cycle is a key component of the economic cycle and closely connected to interest rate movements.
But in the last 15 years or so it has taken on a darker side as a surge in house prices that started in the late 1990s has led to poor affordability and gone hand in hand with surging household debt. Reflecting this, predictions of an imminent property crash bringing down the Australian economy have been repeated ad nauseam since 2003.
The big picture view on Australian residential property is well known. First, Australian housing is expensive.
According to the 2016 Demographia Housing Affordability Survey the median multiple of house prices in cities over 1 million people to household income is 6.4 times in Australia versus 3.7 in the US and 4.6 in the UK. In Sydney it’s 12.2 times and in Melbourne it’s 9.7 times.
The ratios of house price to incomes and rents are at the high end of OECD countries and have been since 2003.
Second, the surge in home prices has gone hand in hand with a surge in household debt, which has taken Australia’s household debt to income ratio from the low end of OECD countries 25 years ago to now around the top.
This can be seen in the next chart which shows the deviation in the house price to income ratio against its long term average for Australia against the ratio of household debt to income.
The shift to overvaluation and high debt mostly occurred over the 1995-2005 period.
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Surging%20house%20prices.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Surging%20house%20prices.jpg" alt="">
While it’s common to look for scapegoats to blame for high home prices and debt the basic driver looks to be a combination of the shift from high to low interest rates over the last 20-30 years which has boosted borrowing and buying power and the inadequacy of a supply response (thanks to tight development controls, restrictive land release and lagging infrastructure) to suppress the resultant rise in the ratio of prices to incomes.
The following chart shows a cumulative shortfall of over 100,000 dwellings relative to underlying demand had built up by 2014.
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Home%20construction.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Home%20construction.jpg" alt="">
The surge in prices and debt has led many to conclude a crash is imminent. But we have heard that lots of times over the last 10-15 years. Several considerations suggest a crash is unlikely.
First, we have not seen a generalised oversupply and at the current rate we won’t go into oversupply until around 2017-18.
Second, despite talk of mortgage stress the reality is that debt interest payments relative to income are around 2004 levels.
Third, Australia has still not seen anything like the deterioration in lending standards seen in other countries prior to the GFC.
In fact in recent years there has been a decline in low-doc loans and a reduction in loans with high loan to valuation ratios.
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Tightening%20lending%20standards.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Tightening%20lending%20standards.jpg" alt="">
Finally, it is dangerous to generalise. While property prices have surged 60% and 40% over the last four years in Sydney and Melbourne, they have fallen in Perth to 2007 levels and have seen only moderate growth in the other capital cities.
To see a property crash – say a 20% plus average price fall – we probably need to see one or more of the following:
<ul>
<li>A recession – much higher unemployment could clearly cause debt servicing problems. This looks unlikely though. 
</li>
<li>A surge in interest rates – but rate hikes are unlikely until 2018 and the RBA knows households are more sensitive to higher rates, so it’s very unlikely rates will reach past highs. 
</li>
<li>Property oversupply – as noted above this would require the current construction boom to continue for several years.</li>
</ul>
However, the risks on the supply front are clearly rising in relation to apartments where approvals to build more apartments are running at more than double normal levels.
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Apartment%20surge.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Apartment%20surge.jpg" alt="">
Due to the rising supply of units, vacancy rates are trending up and rents are stalling, making property investment less attractive.
Nationwide price falls are unlikely until the RBA starts to raise interest rates again. This is unlikely before 2018, at which point we are likely to see a 5% or so pullback in property prices as was seen in the 2009 and 2011 down cycles.
Anything worse would likely require much higher interest rates or recession both of which are unlikely. However, it’s dangerous to generalise:
<ul>
<li>Sydney and Melbourne having seen the biggest gains are more at risk and so could fall 5-10% around 2018.</li>
</ul>
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Divergent%20property%20market.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Divergent%20property%20market.jpg" alt="">
<ul>
<li>Price growth is likely to remain negative in Perth and Darwin as the mining boom continues to unwind but this should start to abate next year. 
</li>
<li>The other capitals are likely to see continued moderate growth and a less severe down cycle in or around 2018. 
</li>
<li>But units are at much greater risk given surging supply and this could see unit prices in parts of Sydney and Melbourne fall by 15-20% as investor interest fades as rents fall.</li>
</ul>
Slowing momentum in building approvals points to a slowdown in the dwelling construction cycle ahead.
While this might be delayed into 2017 as the huge pipeline of work yet to be done is worked through, slowing dwelling investment combined with a slowing wealth affect from rising home prices mean that contribution to growth from the housing sector is likely to slow.
However, as this is likely to coincide with a fading in the detraction from growth due to falling mining investment and commodity prices it’s unlikely to drive a slowing in the economy.
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Dwelling%20investment%20to%20slow.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Dwelling%20investment%20to%20slow.jpg" alt="">
However, a likely decline in rents (as the supply of units hits) will constraint inflation helping keep interest rates low for longer.
There are several implications for investors:
<ul>
<li>Firstly, over the very long term residential property adjusted for costs has provided a similar return to Australian shares. Its low correlation with shares, lower volatility but lower liquidity makes it a good portfolio diversifier with shares. So there is clearly a role for property in investors’ portfolios.</li>
</ul>
<a href="https://www.propertyobserver.com.au/images/2016/10/20/Long%20term%20asset.jpg" target="_blank">Click to enlarge</a>
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2016/10/20/Long%20term%20asset.jpg" alt="">
<ul>
<li>Secondly, there remains a case to be cautious regarding housing as an investment destination for now. It is expensive on all metrics and offers very low income (rental) yields compared to other growth assets. This means a housing investor is more dependent on capital growth. 
</li>
<li>Thirdly, these comments relate to housing in aggregate and right now it’s dangerous to generalise. Apartments in parts of Sydney and Melbourne are probably least attractive but for those who want to look around there are pockets of value. 
</li>
<li>Finally, investors need to allow for the fact that they likely already have a high exposure to Australian housing. As a share of household wealth its nearly 60%. Once allowance is made for exposure via Australian shares it’s even higher.</li>
</ul>
Shane Oliver is head of investment strategy and chief economist at <a href="https://www.ampcapital.com" target="_blank">AMP Capital</a>.
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Sydney and Melbourne property price could fall 5-10%: Shane Oliver

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Exchange Tower has bucked the market trend with its leasing activity in Perth's challenging office market.
The vacancy in the building has dropped below 15%, an improvement from the rate of more than 37% earlier this year.
Exchange Tower is a 40-level, premium-grade office tower located just off St Georges Terrace in the heart of the Western Australian capital and in close proximity to Elizabeth Quay and Perth’s major shopping malls.
As part of the ongoing investment in Exchange Tower by joint owners the AMP Capital Wholesale Office Fund (AWOF) and Western Australia-based property investor Primewest, works have commenced for a significant refurbishment of the ground floor lobby with plans underway for upgrades of the forecourt and lifts.
The world’s sixth largest accounting group, RSM, has committed to lease 3,281 square metres of space over three high-rise levels in Exchange Tower and will also take signage rights after negotiating a long- term lease in the building.
RSM’s move is one of four major new deals in Exchange Tower, with international engineering group ARUP, multinational technology company Fujitsu and national law firm Moray and Agnew also relocating to the building.
ARUP is leasing 1,500 square metres of space on level 14, Fujitsu is taking 1,309 square metres on level 9 and Moray and Agnew is leasing 1,092 square metres on level 30.
Other recent new tenants include Quayside Chambers, Viva Energy and WTP. The moves follow a targeted leasing campaign managed by Ian Edwards, Knight Frank.
Exchange Tower is already home to some of Perth’s leading commercial and public institutions including Patersons, Morgan Stanley, Bell Potter, Allen &amp; Overy, Bain, Ministerial &amp; Parliamentary Services, Mitsubishi, Mitsui and Knight Frank.
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Perth’s Exchange Tower secures key leasing deals in tough market

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AMP Capital's managing director of shopping centres Bryan Hynes is stepping down after just over nine years in the role.
In his time in the top job Hynes has grown AMP Capital's shopping centres portfolio from $4 billion to $10 billion.
The portfolio now has 27 centres throughout Australia and New Zealand which generates more than $7.9 billion in annual sale.
Hynes had spent 18 years at AMP Capital, holding senior roles including Warringah Mall general manager and head of retail asset management.
As of January 1 2017 AMP Capital's head of shopping centre development Mark Kirkland will take over the role.
AMP Capital's global head of real estate Carmel Hourigan said that Marks skill set will help the company target their next phase of growth.
“With 27 years of major project experience in the property sector, 24 years of which have been focused on retail, Mark brings an impressive skill set to take our Shopping Centres business to the next phase of growth. 
“Mark has been instrumental in the successful delivery of Pacific Fair and Macquarie Centre and has contributed heavily to the efforts we have undertaken to maximise the value of the existing portfolio and enhance performance for our investors.
“Now that AMP Capital has delivered these successful developments on the east coast and will be turning our attention to developments in Western Australia, it is the right time to refocus the business under new leadership and I am pleased we have such a strong internal candidate in Mark. 
She also acknowledged Bryan's contribution over the last nine years.
“I would like to acknowledge Bryan’s significant contribution to our business, most recently leading the team in the delivery of award-winning developments at Pacific Fair and Macquarie Shopping Centres. 
"I would like to thank Bryan for the legacy he has created and his efforts in ensuring AMP Capital is best positioned to capitalise on opportunities within the real estate market.”
  
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