Whilst the Australian economy continues on its merry path of record profits and French champagne, this week’s tame consumer price data revealed a catastrophe on the horizon. Yes, the price of bananas fell as we had not had a cyclone and fruit prices generally, fell by 33.8 per cent. But next year (with the Murray–Darling crisis) we can expect food prices to climb back up unless we get plenty of rain, which is highly unlikely. Then if you look at the acceleration of rents which climbed + 1.4 per cent, next year should see the consumer price index well north of 3.00 per cent. The simple truth is that food and rent will continue to climb with the Australian Bureau of Statistics reporting that in the March quarter 2007, rents rose 4.4 per cent.

Last week, one of Australia’s major housing developers, Australand, announced its decision to move away from residential development, blaming poor affordability and a lack of growth prospects. CEO Brendan Crotty, told shareholders at the Company’s AGM, that “Australand intends to gradually reduce its exposure to the residential sector, in a measured way, over the next three years. While some may question this strategy because of the likelihood of a cyclical upturn in residential property during the next two years, it makes more sense for Australand to invest additional capital into sectors that will generate not only similar levels of development profits, but also additional investment property assets”. In other words it is easier to develop commercial properties, sell them to property trusts and deal with one buyer, as against one hundred and fifty apartments and one hundred and fifty purchasers.

Just this week, Mirvac announced that it too, was restructuring its business model after a weaker housing market saw profits fall in the half year for 2007. The number of houses built in NSW dropped in the past year to 29,150 which is well down on the 48,065 in 2002/2003. Then apply the present residential vacancy rate which is at a record low of 1.2 per cent and this will fall below 1.00 per cent by June. Politicians are saying that this mirrors a typical property cycle – absolute rubbish. The problem with politicians is that they are not smart enough to recognise this problem.

Investors will increase rents on an annual basis as most tenants today, are only offered a maximum twelve month residential lease. The irony is that already, there is speculation that governmental rental controls could be introduced. How ironic, as the NSW government has taxed the daylight out of rental properties and shares a very high proportion of the blame for today’s rental crisis.

The latest figures from the Housing Industry Association identify that residential sales in the March quarter 2007 were sixteen per cent lower than the March quarter in 2006. This explains why iconic property development companies are today turning their attention to retail projects which simply provide greater economies of scale.

Australia is now the fourth largest pension market in the world for superannuation. The United States are first, second is the United Kingdom, Luxemburg, then Australia. To understand just how strong this growing market is in terms of assets, it has doubled over the last three years. This then throws light on why certain areas of Sydney are in boom as they cater to merchant bankers. Oh! and when Macquarie Bank announces bonuses in coming weeks, those funds will be invested back into that account called 2088 (Hedge Fund Mosman). Cheers ^__^

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