United States

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<p><img src="https://counter.theconversation.edu.au/content/82440/count.gif?distributor=republish-lightbox-advanced" alt="The Conversation" width="1" height="1"></p>
<p>GUEST OBSERVER</p>
<p>One of the biggest turnoffs for US investment and workers is also the biggest pet peeve for locals – housing affordability. </p>
<p>Our research finds lifestyle factors are what makes Australia stand out from other international destinations. </p>
<p>We combined 13 in-depth case studies of firms with strong ties between the United States and Australia, a survey of business attitudes on foreign investment, and rigorous economic analysis in our research into the A$1.47 trillion two-way US-Australia investment relationship (A$860 billion of which is US investments in Australia). </p>
<p>Australia undoubtedly benefits from its world-class universities, low sovereign risk and good governance. It also benefits from its strategic position as a gateway to important Asian markets with an internationally mobile workforce. </p>
<p>Yet as innovative and business-friendly as Australia has become in its short history, what makes Australia stand out to international workers is its quality of life.</p>
<p>We found this not only attracts highly skilled and internationally mobile individuals, but it also makes Australia a compelling place for them to settle. Families are drawn to Australia’s good health system, strong schools, low crime rates and unblemished physical environment. These “lifestyle dividends” have been enormous for Australia.</p>
<p>Hard to find a home</p>
<p>The two cities that by most measures attract the majority of foreign talent – Sydney and Melbourne – maintain exorbitant housing prices. This makes the desirable Australian lifestyle unattainable for even highly skilled and highly paid talent. </p>
<p>A prominent international housing affordability index recently released listed Sydney as the second-least-affordable major housing market in the world. The city’s median house price of $1,077,000 is 12.2 times median household income of $88,000. Melbourne was only slightly better as the sixth-least-affordable housing market, with a multiple of 9.5 times median household income.</p>
<p>Some of the most attractive areas for workers relocating from overseas, such as coastal areas in Sydney near to the central business district, are the most expensive. Given the geographic size of cities like Sydney and Melbourne, living further away from these areas may not only be less attractive in terms of amenities, but also involve substantial commuting times. That represents a significant decrease in the quality of life.</p>
<p>There’s significant policy debate in Australia about how best to resolve the housing affordability crisis. The fixes include a combination of increasing housing supply (for example, through land releases and zoning changes) and reducing demand-side drivers (such as negative gearing).</p>
<p>We found that it’s not just public policy on housing affordability that’s affecting investment. The urban environment – ranging from infrastructure and public transport to school systems and cultural attractions – will also face increasing pressure given projected population increases in Sydney and Melbourne.</p>
<p>Innovators have families</p>
<p>For many of Australia’s most remarkable success stories in innovative technology, from Atlassian to Google Maps, what attracted the talent here in the first place is not Australia’s innovative environment as much as their appreciation of Australia’s attractive quality of life, particularly for young families.</p>
<p>One of the businesses we looked at was Amazon Web Services (AWS), the innovative cloud computing division of Amazon.com. It’s responsible for up to a third of global web traffic through its on-demand virtual computing and hosting platforms for businesses, governments and individuals. </p>
<p>Managers at AWS believe that the best locations attract the best employees, which in turn helps attract and retain the best customers. Given Australia’s desirable and family-friendly environment, as well as reputation for early adoption of new technology, Australia encourages this valuable chain reaction.</p>
<p>Attracting one tech giant to Australia also helps other companies. AWS, along with its roughly 1,000 well-paid Australian employees, has helped local companies, like software company Atlassian and online marketplace Freelancer.com, globalise more quickly. </p>
<p>It gave them dramatically more computing power and server capabilities in a cloud format at a fraction of the price of traditional onsite facilities. It’s paid for on a “pay as you go” basis rather than having to guess and buy all IT capacity upfront for a few years ahead.</p>
<p>The government has made it clear it wants an innovation-focused high-skills-based economy. It has laudably embraced an innovation policy while other governments (notably in the US) have not. </p>
<p>It should realise, however, that innovation policies cannot be divorced from other public policies – particularly the sort that ensure that Australian cities are great yet affordable places to live and work. </p>
<p>Ultimately, such policies will be critical for attracting and maintaining increasingly mobile human and financial capital to Australia – the sort that has paid off handsomely for Australia’s economy.</p>
<p><span class="fn author-name"><a href="https://theconversation.com/profiles/jared-mondschein-400243" target="_blank">Jared Mondschein</a> is </span>Research Associate, US Studies Centre, University of Sydney and author for <a href="https://theconversation.com/au" target="_blank">The Conversation</a>.</p>
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jchancellor-FAypfDUnLy

Our lifestyle, not our innovation, attracts US investment to Australia

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<p>Redfin says increasing numbers of United States homebuyers think the presidential election will negatively impact the housing market.</p>
<p>According to a recent survey 27 percent of homebuyers think the election will negatively affect the housing market.</p>
<p>The study was conducted on nearly 1,000 homebuyers across 36 states. </p>
<div id="div-oas-ad-article2">The 27 percent is up from 15 percent just four months ago, according to the report.</div>
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jonathanchancellor-7SQnKwU6yx

Property 101: Presidential election set to unsettle US residential market

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<p>AMP Capital’s Global Direct Property Fund (GDPF) offloaded a multifamily development land parcel in Tampa, Florida for US$11.5 million, delivering an annual return of 58.1 percent over the holding period.</p>
<p>The site was acquired for US$2.5 million in February 2013. The fund’s US investment strategy focuses on acquiring middle-market assets (around $25-65 million).</p>
<p>Located at the southern end of the Tampa CBD on Harbour Island, the multifamily development land parcel is zoned for 340 high-rise residential units.</p>
<p>GDPF purchased both the land parcel and the adjacent class A office building from two different vendors, hoping to unlock the maximum value from the acquisitions.</p>
<p>AMP Capital subsequently sold the land parcel to a US residential developer together with rights to use up to 560 excess parking spaces from the adjacent office building, to be connected via a sky-bridge to be built by the developer.</p>
<p>The fund has retained the office building, hoping to profit from its leasing program and a cyclical recovery in the Tampa office market.</p>
<p>AMP Capital Fund Manager Tim Fallet said that investors had benefited from its disciplined strategy.</p>
<p>“This transaction demonstrates the fund’s entrepreneurial and disciplined approach with a focus on acquiring real estate at a compelling entry price, aggressive business plan execution and strategic marketing to buyers. Over the last five years the fund’s US portfolio has delivered a return of 19.8 per cent per annum," Fallet said.</p>
<p>“We continue to see a strong pipeline of attractive core-plus investment opportunities in select submarkets and sectors across the US where we will look to deploy this capital.” </p>
<p>The fund plans a further round of capital raising.</p>
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prateek24-ezbwHMbNAk

AMP Capital's property fund sells Florida site for US$11.5 million, says annual return 58%

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<p>Moderate growth in the US is expected to continue, but with some strengthening later in the year if, as expected, the new Administration delivers a fiscal stimulus, according to NAB’s latest update.</p>
<p>The President has indicated details of his tax plans will be released in 2-3 weeks.</p>
<p>However, the size of any stimulus is likely to be more limited than the President’s election policies would suggest due to the underlying weak budget outlook.</p>
<p>The US economy continues along the same moderate growth path it has experienced in its recovery from the Global Financial Crisis.</p>
<p>Growth slowed in the December 2016 quarter, following a particularly strong headline result in the September quarter.</p>
<p>The underlying details were reasonable: consumption growth was solid, residential investment resumed growing again and business investment showed some further improvement.</p>
<p>Temporary drags came from a fall in power consumption and the reversal of last quarter’s spike in food exports, although they were partly offset by faster inventory accumulation.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/10/NAB-1.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/10/NAB-1.jpg" alt=""></p>
<p>More positively, business sector readings for the US from the ISM have been trending up in recent months.</p>
<p>In January, the manufacturing ISM moved to its highest level since late 2014 and, while the non- manufacturing ISM declined slightly, it remained at a robust level.</p>
<p>Consumer sentiment has also received a post-election boost, and is back to pre-GFC levels.</p>
<p>The labour market is also in good shape, with strong growth in non-farm employment reported for January 2017.</p>
<p>Nevertheless, there has been a trend slowing in employment growth as the US moves closer to full employment, although it remains strong enough to pull down unemployment over time.</p>
<p>While the unemployment rate rose in January to 4.8%, reversing some recent gains, this was due to a rise in workforce participation.</p>
<p>Further evidence of the strength of the labour market comes from initial jobless claims which are at historically low levels.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/10/NAB-2.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/10/NAB-2.jpg" alt=""></p>
<p>The January employment report also showed a slowdown in wages growth; however, the data are volatile and the trend still appears to be upwards.</p>
<p>Improved consumer and business sentiment since the election, as well as the rise in the stock market, and on-going strength in the labour market are positive signs for the growth outlook.</p>
<p>Measures of future manufacturing capital expenditure intentions have also improved recently.</p>
<p>However one headwind is the appreciation of the US dollar since August which we think has a bit further to go notwithstanding some pull-back in recent weeks.</p>
<p>That said, the manufacturing sector, which is particularly trade exposed, appears to be largely unaffected so far if the ISM survey is anything to go by.</p>
<p>Along with a higher dollar, interest rates have increased which is likely to weigh on sectors such as consumer durables and housing.</p>
<p>Changes in credit conditions overall are threatening to turn into another headwind.</p>
<p>Lending standards for business loans tightened somewhat last year, although the most recent Fed Senior Loan Officer Survey suggests that this process has paused for commercial and industrial loans.</p>
<p>Moreover, credit conditions are starting to tighten for consumer loans.</p>
<p>Balancing this, however, credit spreads (relevant for corporates accessing non-bank finance) have eased.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/10/NAB-3.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/10/NAB-3.jpg" alt=""></p>
<p>Rising oil prices may also hold the economy in check as the US is a net importer of energy.</p>
<p>That said, while a clear negative for household consumption, some businesses will benefit from higher oil prices.</p>
<p>In particular the energy sector but also manufacturers and businesses that provide inputs to the sector.</p>
<p>“Reflecting these various factors, we expect further moderate growth rates in coming quarters before some strengthening later in the year, assuming the President delivers a fiscal stimulus to the economy.</p>
<p>For 2017 we are forecasting GDP growth of 2.1%, and 2.3% in 2018.</p>
<p>We have not made any allowance for the US imposing additional trade barriers or changes that will significantly reduce net immigration.</p>
<p>These represent downside risks to the outlook,” the update stated.</p>
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j.ballantyne1990-6AQqhLzZaK

Higher interest rates to impact housing in the United States: NAB

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<p>The last 12 months has brought a dose of healthy moderation to the US economy, according to Savills’ latest report.</p>
<p>Investors and lenders forced a recalibration of high-flying tech firms and oil and gas prices found a floor.</p>
<p>There seems to be some convergence in residential and commercial property markets as well – pricing in luxury markets is levelling off.</p>
<p>In comparison to the volatility in equity markets, real estate in the US held up very well. Office property sales in the US totalled $124 billion through November of this year, roughly 4 percent below the $129.6 billion in the first 11 months of 2015.</p>
<p>This slight decline comes as no surprise.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/21/Screen%20Shot%202017-02-21%20at%207.35.49%20pm.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/21/Screen%20Shot%202017-02-21%20at%207.35.49%20pm.jpg" alt=""></p>
<p>Many of the trophy assets in gateway markets such as Manhattan and Chicago changed hands in 2014 and 2015, the novelty of the industrial sector has worn off, and there simply are not as many institutional- grade or conversion opportunities in secondary or tertiary markets to keep pace with the gateway markets.</p>
<p>Unlike the fundamentals underlying retail sales and office markets this is not a demand deficiency – it is a supply shortage.</p>
<p>In this sense investment sales are performing a bit like labour markets – investors and top employers have been turning over every stone in every market.</p>
<p>So far, most investors seem to be maintaining appropriate selectivity.</p>
<p>Many are following the demographic upside to Sunbelt markets such as the Carolinas as well as Mountain West markets including Salt Lake City and Las Vegas.</p>
<p>Steady population and job growth and controlled construction activity in these markets leaves some room for NOI growth in the next couple of years.</p>
<p>Europe has seen a similar phenomenon - volume is up significantly in the Netherlands, Spain and Sweden but there are only so many investment grade assets in these markets.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/21/Screen%20Shot%202017-02-21%20at%207.36.00%20pm.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/21/Screen%20Shot%202017-02-21%20at%207.36.00%20pm.jpg" alt=""></p>
<p>The “most-favoured market” status of some gateways is slipping slightly.</p>
<p>Most buyers are showing disdain for gateway markets such as Manhattan and Washington DC, where demand is running short of growing supply.</p>
<p>On the other hand, they have remained active in Boston and Los Angeles, where the life science and entertainment/social media sectors continue to grow.</p>
<p>Boston’s market fundamentals are in fact among the strongest in country and appear as though they have more to run than San Francisco, which has seen a recent spike in sublet supply and drop-off in leasing.</p>
<p>Similarly, Los Angeles has seen its strongest leasing volume in a decade.</p>
<p>Office property sales have surged more than 75 percent during 2016 from 2015 levels.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/02/21/Screen%20Shot%202017-02-21%20at%207.36.11%20pm.jpg" target="_blank">Click to enlarge</a></p>
<p><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/2017/02/21/Screen%20Shot%202017-02-21%20at%207.36.11%20pm.jpg" alt=""></p>
<p>Finally, buyers are acknowledging that some of the traditionally “low barrier to entry” markets that were always seen as a risk due to chronic overbuilding may have matured in this cycle.</p>
<p>Atlanta and Dallas/Fort Worth stand out as markets that are reaping the rewards of a controlled development pipeline.</p>
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United States real estate markets hold up well: Savills

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<p>The changing dynamic of home ownership in the US post-GFC, where Generation Y have transformed into Generation Rent, offers opportunities for Australian investors, says a study by AMP Capital.</p>
<p>The demographic shift leading to a steady decline in home ownership and its implications for real estate investors and the opportunities within the US apartment REIT sector has been dealt with in AMP Capital’s whitepaper, Generation Rent, authored by its Client Portfolio Manager for Global Listed Real Estate Chris Deves.</p>
<p>“The ever-changing consumption pattern of real estate, juxtaposed against its status as perpetual imperative for a functioning society, presents an interesting dynamic and is precisely that which offers a wide range of opportunities for long-term investors,” says Deves.</p>
<p>The rise of the millennial generation and its implications for the residential market in the United States is a case in point, he adds.</p>
<p>“The greater propensity for millennials to rent isn’t necessarily a surprise. After all, this is the same generation that pioneered the ‘sharing economy’, a collaborative approach to consumption, which draws heavily on the notion of renting,” said report author Chris Deves.</p>
<p>Millennials are opting for proximity to nightlife, restaurants and the workplace along with access to shared spaces and amenities, which is translating into greater demand for rented apartments in the urban core, he says. </p>
<p>“As a demographic cohort, the strong willingness of millennials to relocate in the pursuit of new career opportunities necessitates flexibility and mobility, which is also more conducive to renting over owning.”</p>
<p>The paper shows this is an important tailwind for US apartment REITs, which make up roughly 8 per cent of the global listed real estate benchmark or more than US$100 billion of equity market capitalisation.</p>
<p>The development in American dwelling habits is a positive for residential landlords, which in turn is investible via the listed institutional apartment operators. </p>
<p>US-based apartment REITs make up roughly 8 per cent of the global listed real estate benchmark, or more than US$100 billion of equity market capitalisation, the third-largest US sector behind mall and office owners. The apartment REITs are generally of high quality and have seen significant consolidation in recent times – five such REITs have been acquired or have merged during the past three years alone – leaving an investible set of large, well-capitalised companies with seasoned management teams, according to the AMP report.</p>
<p>“This has made apartment REITs attractive for real estate investors with a long-term investment horizon,” Deves said.</p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/19/USHomeOwnership.jpg" target="_blank">Click to enlarge</a></p>
<p> <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/2017/04/19/USHomeOwnership.jpg" alt=""></p>
<p>The assets held by these listed apartment REITs are predominantly located in the urban core where renting is most common. The change towards rentership (and, thus, migration into the city) is a positive for increasingly dense and difficult-to-build-in urban property markets. Additionally, an increasing focus on public transportation links should further benefit the high-quality apartment names.</p>
<p><strong>Enter the Millennials</strong></p>
<p>According to the white paper, the fall in the homeownership rate in the aftermath of the GFC was in part due to the rise in defaults on home loans. Though the default rate has recovered to 4 percent in 2016 from 11.3 per cent in early 2010, the declining trend of home ownership has sustained over the longer term.</p>
<p>Now, America is undergoing a major demographic shift. Millennials – or those born between 1980 and 2004, according to the US Census Bureau – are now the largest share of the American workforce, as depicted in Figure 4. By 2025, Millennials will represent 75 per cent of the American workforce [Source: US Bureau of Labor, 2016]. As the largest source of new demand for housing, be it home sales or rentals, this cohort wields significant influence over the residential real estate market.</p>
<p>The most important trend underlying the Millennial demographic is a greater propensity to rent, particularly in the urban core, at the expense of homeownership. </p>
<p>The movement of the prime renter demographic into the city centre will have an impact on apartment values. Cities have historically had a larger share of renters compared to suburban areas. So it is not surprising to see that the populations of US cities have become increasingly composed of renter households alongside the national increase in renters. Of the 11 largest US cities, nine had more renters than homeowners in 2014 versus just six of these same cities in 2006. </p>
<p>As a result of this migration away from the suburbs and towards the city, the apartment business has become a more attractive full-cycle investment. A bigger pool of renters means a more stable business at a given level of supply; additionally, an increasingly older tenant mix (Millennials rent later into life) should improve affordability ratios and allow for healthier rent increases. </p>
<p>Lastly, because of land and entitlement constraints in dense, urban areas – which will become increasingly more onerous over time – high quality, core product will become scarcer as demand from renter households continues to increase, and thus, should appreciate at a faster pace. </p>
<p><a href="https://www.propertyobserver.com.au/images/2017/04/19/USAptReits.png" target="_blank">Click to enlarge</a></p>
<p><img src="https://www.urban.com.au/images/2017/04/19/USAptReits.png" alt=""></p>
<p>However, millennials won’t rent forever.</p>
<p>“The American dream of home ownership is not dead and buried. Gen Y are just as likely to head for the suburbs as previous generations, and starting a family is often an important catalyst. The key difference is that we are seeing this occur increasingly later in life,” said Deves.</p>
<p>“Cyclical affordability issues and demographic change has and will support demand for apartment rentals in city centres. During the property cycle, the US apartment REITs should therefore be in a stronger position to push rents, and quality management teams with insight into the needs of millennials will be best placed to deliver value for investors of all sizes.”</p>
<p>While the story is similar for Australian millennials, investing in the US could be an ideal way to play this trend for local investors as it offers the largest, highest quality, and most liquid set of listed apartment landlords, according to the report.</p>
<p>“Australian investors should consider a global strategy for listed real estate in order to access these kinds of thematics, which may not be as readily investible in their local market. A global approach also offers geographic diversification for the real estate portfolio,” concluded Dewes.</p>
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As US home ownership declines, opportunity arises for investors: AMP Capital

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<p>Domus Multifamily Real Estate Fund has completed the acquisition of a portfolio of US large-scale multifamily assets with Australian investors in an off-market deal for $168 million.</p>
<p>Domus, a managed investment scheme, teamed up with its investment partner US-based Geringer Capital, has acquired eight large-scale multifamily buildings, with the raising for seven assets fully subscribed and an additional raising for the eighth asset to be completed by August 2017, it said.</p>
<p>Multifamily real estate is any building with five or more separate dwellings held on a single legal title and leased to individual tenants. </p>
<p>The Domus Fund expects to invest in US multifamily assets with below free-market rents and below replacement cost in areas which are poised for growth. </p>
<p>US multifamily has consistently proved to be one of the most secure and stable of all real estate sectors over the long term, according to Domus, which has a long-term acquisition and hold strategy. </p>
<p>The purchase cost and refurbishment came to US$174 million. Domus acquired the assets within the portfolio using floating rate acquisition debt of US$140 million, with the fund raising over US$20 million in equity. </p>
<p>LS Global Advisors, an Australian advisory group, led the local capital raising for Domus in Australia.</p>
<p>“Australian investors are confident because they are investing at a time when home ownership rates in the United States are falling and rentals are rising due to affordability issues plus the prospect of 35 year financing a major drawcard,” said Les Koltai, principal of LS Global Advisors.</p>
<p>In 2013, the Domus US Multifamily Real Estate Fund had plans to test the test Australian investor appetite for American rental property, with a <a href="https://www.urban.com.au/expert-insights/investing/22923-ytc-monday-may-27-us-market-is-definitely-recovering-says-us-fund-domus-seeking-asx-listing" target="_blank">listing on the ASX</a>. But the IPO plans fizzled out in the wake of the US Federal Reserve signalling an end to the quantitative easing policy and its repercussions on markets.</p>
<p>With the recent acquisitions, Domus has again tapped sophisticated Australian investors.<span style="font-size: 12.16px;"> </span></p>
<p>“The multifamily class of assets is unique to the US which accounted for the significant interest from Australians in the raising,” said chief executive of Geringer Capital, Robert Geringer.</p>
<p>The assets are in a range of locations across the western states of the US in Arizona, Colorado, Oregon and Utah. </p>
<p>They provide stable long- term income and have the potential for future capital growth, according to Geringer.<span style="font-size: 12.16px;"> </span></p>
<p class="p1"><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/2017/06/22/Domus2.jpg" alt=""></p>
<p class="p1">One of the advantages of multifamily real estate in the United States is that it can qualify for low fixed rate, long term (up to 35 years) non-recourse US Government insured debt which currently carries an interest rate of 3.25 % per annum. </p>
<p class="p1">The debt facility was provided by Jeffries-LoanCore and arranged by real estate investment bankers Ackman Ziff. </p>
<p class="p1">Domus said it will make improvements to the properties to increase rental income ahead of refinancing with low, fixed rate, long term, non-recourse, US Government guaranteed debt under the HUD Program or other US Government agency debt. </p>
<p class="p1">“Investors liked the attractive returns with a conservatively forecast investor IRR of more than 18%, the repayment of invested capital in approximately 18 months’ time and the USD exposure,” said Les Koltai.</p>
<p class="p1">Each individual property contains between 83 and 269 apartments housed throughout two or three level buildings and spread across well maintained acreage. The portfolio comprises 1,296 individual apartments. </p>
<p class="p1">The purchase price for the portfolio was negotiated off-market by Geringer Capital and is below the estimated replacement cost, said Domus.</p>
<p class="p1">Together with Geringer Capital, Domus will make further large scale portfolio acquisitions which it is actively pursuing ahead of an IPO. </p>
<p class="p1">Domus Investment Management chairman and former head of institutional property lending for the Commonwealth Bank, Peter Barne Australian investors were being offered solid returns underpinned by long term debt capital “which is simply not available in the Australian market”. </p>
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US fund Domus acquires multi-family assets for $168 million with Australian investment 

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<div class="column">EXPERT OBSERVER</div>
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<div class="column">As widely expected, the Fed increased the target range for the federal funds rate by 0.25 per cent to 1.75-2.00 per cent. This was the seventh increase in interest rates of the current monetary policy tightening cycle. The decision by the Fed voters was a unanimous 8-0.</div>
<div class="column"> </div>
<div class="column">The Fed is now forecasting two further rate increases in 2018 (four in total, up from three previously) and three further hikes in 2019. The 2020 projection is for at least one rate hike.</div>
<div class="column"> </div>
<div class="column">Economic growth (GDP) forecasts were increased to 2.8 per cent in 2018, up from the previous forecast of 2.7 per cent. The 2019 forecast was unchanged at 2.4 per cent. Growth is projected to decelerate to 2.0 per cent by 2020 and to 1.8 per cent over the longer run.</div>
<div class="column"> </div>
<div class="column">The unemployment rate is expected to fall to 3.6 per cent in 2018, down from 3.8 per cent in 2018. The unemployment rate is expected to fall further to 3.5 per cent in 2019-2020.</div>
<div class="column"> </div>
<div class="column">Inflation is expected to reach the Fed's “symmetric” 2.0 per cent target this year (previously 1.9 per cent). The Fed expects the core Personal Consumption Expenditures (PCE) deflator (inflation) to increase to 2.1 per cent in 2019 and stay there through to 2020.</div>
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<div class="column">Changes in US monetary policy settings can affect rates in Australia as well as the sharemarket and currency.</div>
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<div class="column"><strong>What happened?</strong></div>
<div class="column"> </div>
<div class="column">The US economy and labour market are firing on all cylinders. The US central bank, the US Federal Reserve, increased the target range for the federal funds rate by 0.25 percentage points to 1.75-2.00 per cent, as expected. Interest rate have increased seven times since December 2015.</div>
<div class="column"> </div>
<div class="column">More interest rate increases are forecast this year and next. Policymakers upgraded their projected number of rate hikes to four this year as unemployment falls further below “full employment” and inflation overshoots its “symmetric” two per cent target.</div>
<div class="column"> </div>
<div class="column">Inflation is gradually increasing after the economy’s seasonal ‘soft patch’ in the March quarter. Annual growth of the consumer price index stands at 2.8 per cent in April, the highest rate since February 2012. A sharp rebound in economic growth to around 3-3.5 per cent is expected during the June quarter on the back of a pick-up in consumer spending.</div>
<div class="column"> </div>
<div class="column">And core consumer prices (excludes food and energy) are already at 2.2 per cent per annum in April. Only the US Federal Reserve’s preferred core personal consumer expenditure deflator (PCE) measure remains below target at 1.8 per cent in April, but that’s expected to breach the two per cent target by year-end.</div>
<div class="column"> </div>
<div class="column">The jobs bonanza in the US continues. A record 92 consecutive months of job gains has pushed the unemployment rate down to 3.8 per cent in May - the lowest level since April 2000.</div>
<div class="column"> </div>
<div class="column">If the current pace of job creation continues, the unemployment rate could potentially fall to 3.5 per cent for the first time since 1969 by year-end. The unemployment rate is well below the US Federal Reserve’s estimate of the non-accelerating inflation rate of unemployment (“NAIRU”) which is currently at 4.5 per cent.</div>
<div class="column"> </div>
<div class="column">And in a further sign that the US is at or close to “full employment”, job openings (JOLTS series) by a record 4.3 per cent in April – job vacancies are now exceeding the number of unemployed workers by a gap of 352,000. In the 12 months through April, the US economy created a whopping net 2.4 million jobs according to Bloomberg.</div>
<div class="column"> </div>
<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/6/14/employment-rate.jpg" target="_blank">to enlarge.</a>
</div>
<div class="column"> </div>
<div class="column"><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/2018/6/14/employment-rate.jpg" alt=""></div>
<div class="column"> </div>
<div class="column">US wages growth has been lacklustre due to structural, technological and demographic changes. However, given reduced spare capacity in the labour market, a gradual increase in wages growth is expected. The annual growth rate for average hourly earnings reached 8-year highs of 2.8 per cent in February, but has since fallen to 2.7 per cent in May. That said, another measure of pay and benefits – the employment cost index for private sector wages increased by 2.9 per cent – the largest annual increase in 11 years. And the National Federation of Independent Businesses (NFIB) has recently reported that a net 35 per cent of businesses are increasing worker compensation – the highest since records began 32 years ago.</div>
<div class="column"> </div>
<div class="column">Click here <a href="https://www.propertyobserver.com.au/images/2018/6/14/wages.jpg" target="_blank">to enlarge.</a>
</div>
<div class="column"> </div>
<div class="column">
<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/2018/6/14/wages.jpg" alt=""> </div>
<div class="column"> </div>
<div class="column">While there are multiple risks to the US economic outlook – increasing inflation, rising budget deficit, record-high government debt, global political turbulence and growing ‘trade war’ concerns – the economy appears set to grow by around 3 per cent this year on the back of stimulus from the Trump Administration’s US$1.5 trillion corporate tax cuts. Should the US expand for another year, it will exceed the 10-year economic boom of the 1990s – the last time US interest rates were higher than their Aussie counterparts.</div>
<div class="column"> </div>
<div class="column"><strong>US Federal Reserve decision</strong></div>
<div class="column"> </div>
<div class="column">Today’s decision by the US Federal Reserve was well telegraphed and uniformly expected by financial markets. The addition of another projected rate hike in the second half of this year has nudged-up the interest rate tightening trajectory.</div>
<div class="column"> </div>
<div class="column">In its press release the Federal Open Market Committee’s (FOMC) reiterated that the pace of economic growth should pick-up, unaffected by a slightly more aggressive pace of rate hikes: “The committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labour market conditions, and inflation near the committee’s symmetric 2 percent objective over the medium term”.</div>
<div class="column"> </div>
<div class="column">The statement removed previous language saying that the main rate would remain “for some time” below longer- run levels. Other changes included a reference of “further gradual increases” instead of “adjustments”. Policymakers also said that “indicators of longer-term inflation expectations are little changed”. Previously, the statement made separate references to survey-based and market-based measures of these expectations.</div>
<div class="column"> </div>
<div class="column">The median path for the fed funds rate was changed in 2018 to include an addition fourth rate hike and one less rate hike in 2020. The FOMC’s Summary of Economic Projections shows the median interest rate projections (the “dot plot”) implies two further 0.25 per cent interest rate increases in the second half of 2018 (to 2.4 per cent, up from 2.1 per cent previously); three 0.25 per cent interest rate increases in 2019 (to 3.1 per cent, up from 2.9 per cent previously); and one 0.25 per cent interest rate increase in 2020 (to 3.4 per cent).</div>
<div class="column"> </div>
<div class="column">The policy-relevant core PCE deflator inflation projections were little changed. Core PCE inflation is expected to lift to 2.0 per cent in 2018, up from 1.9 per cent previously forecast. Projections in 2019 and 2020 were unchanged at 2.1 per cent.</div>
<div class="column"> </div>
<div class="column">The FOMC upgraded its GDP forecasts and lowered its unemployment rate projections. The FOMC projects GDP growth of 2.8 per cent in 2018 (previously 2.7 per cent) and 2.4 per cent in 2019 and 2.0 per cent in 2020 (both unchanged). Meanwhile, the FOMC expects the unemployment rate to be 3.6 per cent in 2018 (previously 3.8 per cent) and 3.5 per cent in both 2019 (previously 3.6 per cent) and 2020 (previously 3.6 per cent).</div>
<div class="column"> </div>
<div class="column">The Fed is targeting a range for the Fed Funds rate and uses the interest on excess reserves rate (IOER) as one of its main tools. With the rate creeping towards the high end of its target range recently, the Fed hiked the IOER rate by 0.20 per cent to 1.95 per cent as “it is intended to foster trading in the federal funds market at rates well within the FOMC’s target range”.</div>
<div class="column"> </div>
<div class="column">The Fed continues to unwind its huge balance sheet. Holdings have declined to around US$4.3 trillion, the lowest since May 2014. A total of US$88 billion worth of US Treasuries have now been “rolled-off” at maturity. Eventually, holdings will be reduced by around US$50 billion per month until a “new normal” balance sheet holding is achieved.</div>
<div class="column"> </div>
<div class="column">US sharemarkets finished lower on the slightly “hawkish” tone of the FOMC’s policy statement. The Dow Jones fell by 120 points or 0.5 per cent with the S&amp;P 500 index lower by 0.4 per cent, while the Nasdaq lost just 8.1 points or 0.1 per cent.</div>
<div class="column"> </div>
<div class="column">US 2-year yields rose by 2 basis points to 2.57 per cent and 10-year yields rose by 1 point to 2.976 per cent. The US Treasury yield curve from 5 to 30 years flattened to levels last seen in August 2007. The US dollar retreated after spiking to session highs. The Aussie dollar did a round trip. The Aussie dollar traded between US75.30 cents and US76.05 cents and was near US75.70 cents in late US trade. Other major currencies fluctuated as investors absorbed the first of three big central bank reports this week.</div>
<div class="column"> </div>
<div class="column"><strong>What are the implications for interest rates and investors?</strong></div>
<div class="column"> </div>
<div class="column">We expect US economic growth to re-accelerate in the June quarter to a growth rate of around 3 per cent per annum, before finishing the year at a pace of around 2.7 per cent. Financial conditions remain accommodative despite a tightening in recent months due to the stronger greenback, rising share market volatility and lifting term premium (the excess return that investors demand for holding a longer-dated bond).</div>
<div class="column"> </div>
<div class="column">The Trump Administration’s fiscal expansion will likely lend support to late cycle US economic growth. The ‘leg- up’ from US$1.5 trillion worth of corporate tax cuts and additional government spending of around US$300 billion is expected to add around 0.5 percentage points to growth in 2018. Robust business investment, strong capital spending plans and firm consumer spending should support continued growth.</div>
<div class="column"> </div>
<div class="column">One of the challenges for Fed policymakers is to determine the full impact of the Trump tax-cut plans. And with US output and the labour market at near full capacity, concerns are building about an overheating economy. Normally fiscal stimulus occurs when economic growth is lacklustre or at recessionary levels.</div>
<div class="column"> </div>
<div class="column">Former Fed Chairman Ben Bernanke said recently that he’s concerned that “in 2020 Wile E. Coyote is going to go off the cliff”, implying a possible US economic downturn after the fiscal stimulus fades and the economy overheats. Further, Mr Bernanke said that “the economy is already at full employment”.</div>
<div class="column"> </div>
<div class="column">The Fed will also be contending with a sharply deteriorating US budget deficit and government debt situation. According to the US Congressional Budget Office, the federal budget deficit ballooned to US$530 billion in the first eight months of fiscal year 2018 up by US$97 million over the same period last year. The deficit is expected to surpass US$1 trillion by 2020 if the current growth rate in government spending continues. The US gross government debt load has breached US$21 trillion or 106 per cent of GDP.</div>
<div class="column"> </div>
<div class="column">The Trump Administration’s fiscal expansion will be funded by an increase in the US budget deficit, resulting in an increase in the issuance of US Treasury bonds. Government debt sales are set to more than double in 2018, lifting net issuance to US$1.3 trillion, the most since 2010, and occurring at a time when the Fed is shrinking its bond holdings (“Quantitative Tightening”). And the Fed’s interest rate hikes will likely expand the budget deficit even further by raising the Trump Administration’s cost of issuance, thereby further increasing the supply of US Treasuries. Rising supply is already weighing on fixed income markets. The 10-year US Treasury yield curve recently rose to a 7-year high near 3.1 per cent.</div>
<div class="column"> </div>
<div class="column">If the Fed meets market pricing expectations for potential interest rate hikes, it will probably succeed in flattening the yield curve further – especially with the term premium curve flat already – then more likely we’ll see further episodic market volatility.</div>
<div class="column"> </div>
<div class="column">Australian investors and businesses won’t escape the increase in US borrowing costs. Rising US Treasury bond yields are dragging their Aussie counterparts higher despite the Reserve Bank’s neutral policy stance.</div>
<div class="column"> </div>
<div class="column">Global interest rates are lifting and so are bank funding costs, pressuring margins. Aussie banks derive around 40 per cent of their funding from overseas. Australian short term interest rates are already near the highest in two years with the 90 day bank bill yield at 2.06 per cent. And there is a risk of home lending standards being tightened, placing additional pressure on banks when it comes to the determination of mortgage rates.</div>
<div class="column"> </div>
<div class="column">The Aussie dollar has remained resilient in the face of growing US interest rate differentials. The improving domestic economic backdrop, lifting commodity prices, firm Chinese economic growth, narrowing current account deficit and pick-up in the terms of trade is lending support to the Aussie. The US’ deteriorating credit quality, including rising debt and deficit and concerns over a sovereign downgrade have the potential to weigh on the greenback.</div>
<div class="column"> </div>
<div class="column">CBA currency strategists expect the Aussie dollar to lift to US78 cents by the end of 2018 and to US80 cents by June 2019.</div>
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<p>Ryan Felsman is a senior economist at CommSec.</p>
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jrobinson-rf4aSBido9

US rates overtake Australia for first time in 17 years after seventh hike: CommSec

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<p>GUEST OBSERVATION</p>
<p>Since President Trump tweeted about imposing new tariffs on China, global equity markets have gone into a tailspin.</p>
<p>Trump’s more recent announcement that the new tariffs would be <a href="https://www.bbc.com/news/business-49287494" target="_blank">delayed</a> has not calmed the markets, with very large falls in most major stock markets.</p>
<p>Another factor particularly spooking the markets in recent days has been the “<a href="https://theconversation.com/vital-signs-amid-talk-of-recessions-our-progress-on-wages-and-unemployment-is-almost-non-existent-121813" target="_blank">inversion of the yield curve</a>” in the United States.</p>
<p>The yield curve is a graph showing the relationship between interest rates earned on lending money for different durations.</p>
<p>Normally, someone who lent to the government or a corporation for one year (by buying a one-year government or corporate bond) would expect to get a lower interest rate than someone who lent for five or ten years, making the yield curve upward-sloping.</p>
<p><strong>An inverted curve slopes down</strong></p>
<p>A simple way to get an idea of the slope of the yield curve is to compare a short-duration government interest rate for a two- or three-year government bond with the rate on a ten-year government bond.</p>
<p>In Australia the ten-year government bond rate has just fallen to a record low 0.891%, only slightly above the three-year rate at around 0.7%.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2019/8/19/the%20conversation%201.png" target="_blank">Click here</a> to enlarge: </em></p>
<p><img src="https://www.urban.com.au/images/2019/8/19/the%20conversation%201.png" alt=""></p>
<p><em>CNBC.</em></p>
<p>In the US in recent days the ten-year bond rate has fallen to the point at which the ten-year rate is below the two-year rate – so the yield curve is inverted.</p>
<p>What has made the markets so nervous is that there has been a yield curve inversion before each of the past seven recessions.</p>
<p>The graph below plots the difference between the US ten-year government bond rate and the US two-year government bond right back to the 1970s.</p>
<p>When the difference is negative (when the ten-year bond rate slips below the two-year bond rate), the line moves below zero.</p>
<p>It has done it just before each of the US recessions, which are also marked.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2019/8/19/the%20conversation%202.jpg" target="_blank">Click here</a> to enlarge: </em></p>
<p><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/2019/8/19/the%20conversation%202.jpg" alt=""></p>
<p>Sometimes the recession follows soon after the line slips below zero, and sometimes there is a delay. Interestingly, in the case of the most recent recession the yield curve inversion was quite small, and began some time before the global financial crisis.</p>
<p>So does correlation imply causation? Reserve Bank deputy governor Guy Debelle said on Thursday that <a href="https://www.afr.com/markets/equity-markets/rba-s-debelle-challenges-us-recession-signal-20190815-p52hc7" target="_blank">this time is different</a>.</p>
<p>We should certainly hope so.</p>
<p>There are good reasons to think that this time it will be different.</p>
<p><strong>No recession this time?</strong></p>
<p>One reason is that although central bank controlled rates are near record lows, most central banks have also announced words to the effect of “doing what it takes” to support the economy. With the markets expecting further rate cuts, long-term rates might simply reflect this rather than expectations of a recession.</p>
<p>Of course, it could be that markets see central banks’ cuts as a sign that they see a recession coming. It’s hard to tell.</p>
<p>Another reason to think it might be different this time is that President Trump pressured the Federal Reserve to cut rates. Many economists think the latest rate cut took place for that reason rather than because of economic fundamentals.</p>
<p>The simple point here is that a lot of things are different this time.</p>
<p>Many economists, like myself, view recent moves by central banks to cut rates as <a href="https://theconversation.com/on-rate-cut-tuesday-here-are-four-reasons-why-the-reserve-bank-shouldnt-jump-116590" target="_blank">unproductive</a>.</p>
<p>The gist of these arguments is that the Australian economy has reasonably strong fundamentals, and any weakness can be better dealt with by measures other than rate cuts. Among them would be measures to boost productivity.</p>
<p>In the US, by contrast, there are indeed reasons to be concerned about a recession.</p>
<p>The trade war with China has already been very destructive, and the political uncertainty of Trump, high debt levels and other structural weaknesses are creating problems.</p>
<p><strong>A US-only recession?</strong></p>
<p>The last time the US entered recession was September 2008. During that quarter global trade fell off a cliff, but in the year that followed Australia’s economy grew by a solid 4%.</p>
<p>Supporting Australia’s economy was a very large Chinese stimulus package that led to very strong demand for Australian resources.</p>
<p>A recession in the US in the next year or two would again lead China to consider all options. Traditionally those options have included much more funding for resource intensive infrastructure.</p>
<p>While that is the most likely path that China would take, it probably has less financial room to supercharge infrastructure than in 2008. That’s enough of a reason for Australians to very concerned if the US goes into recession.</p>
<p>In the end though it is well to remember that Australia’s economy is still in a reasonably strong position compared to others. Unemployment is low, wages growth is higher than it was at 3.1%, public debt is low and other fundamentals are reasonably sound.</p>
<p>But predicting recessions is notoriously difficult.</p>
<p>There are some who have successfully predicted nine of the last two recessions in Australia, and those pundits are very pessimistic now!</p>
<p>I tend to be more of the view that the probability of a recession in Australia in the next year or so is higher than it has been since 2008, but a recession is far from the sure thing that yield curve readers might suggest.</p>
<p><em><strong>Mark Crosby</strong>, Professor, Monash University.</em></p>
<p><em>This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/what-is-an-inverted-yield-curve-why-is-it-panicking-markets-and-why-is-there-talk-of-recession-121975" target="_blank">original article</a>.</em></p>
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What is an inverted yield curve? Why is it panicking markets, and why is there talk of recession?

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<p>An iconic L.A. mansion has come on the market for the first time in decades, with an eye watering price tag of $225 million.</p>
<p>Located at 10644 Bellagio Road, the property spans 8.4 acres and has sixty-four rooms.</p>
<p>It was built in 1938 by famed architect James E. Dolena, and is known as Casa Encantada.</p>
<p><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/2019/11/6/Bellagio%20Road.jpg" alt=""></p>
<p>In 1950, hotelier Conrad Hilton purchased it from its original owner for $225,000.</p>
<p>He then sold it to David H. Murdock for $12.4 million in 1979, and Gary Winnick purchased it for $94 million in 2000.</p>
<p>The mansion and grounds have reportedly hosted some of the most significant social, charitable and political events in the United States, welcoming Presidents and Hollywood royalty alike over its 80 years.</p>
<p>Despite the rapid growth of the city around it, the compound remains without neighbours.</p>
<p><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/2019/11/6/10644%20bellagio%20road%20LA%202.jpg" alt=""></p>
<p>An architectural pool house boasts a professional screening room, formal bar and vistas to the rose gardens and beyond.</p>
<p>Other amenities include a north-south lighted tennis court, a separately constructed basketball court, a full guest house and multiple greenhouses.</p>
<p>Koi ponds and irreplaceable landscaping makes the estate arguably one of the finest in the world.</p>
<p>If the residence is to draw a buyer at its $225 million asking price, it will comfortably become the most expensive house in America.</p>
<p><em>Image: Google Maps</em></p>
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