Foreign firms dominate mining and property: where are the Aussie investors?

Posted on 27/04/2012  

BY MELANIE STOTT

By all accounts, we’re still smack bang in the middle of the second wave of the GFC. It’s hard to tell when the banks will snap out of it and lighten up, or if property will ever bounce back to dizzy heights – in some areas, even a slight incline would do nicely.

City real estate is flat. Buyers aren’t in a rush. We’re heading into winter: hibernation time for homeowners. Now could be the best time to land bank for the future – whatever it holds.

Well, yes – and no. There have been a few noteworthy and prudent purchases lately, big and small. But very few Australian development companies managed to put boom-time cash aside for a rainy decade, and the banks aren’t letting them forget their mistake.

Now, in key areas like the Sydney and Melbourne CBDs, Australian developers are conspicuous by their absence. Where are they? And why aren’t they hovering like vultures over all these casualties of the GFC that the newspaper real estate pages keep bleating about. Property has never been cheaper, right?

CBRE has pointed out what many already noticed – foreign-owned companies already account for 32% – yes, a third – of all apartments being proposed or built six key markets: Sydney, Melbourne, Brisbane, the Gold Coast, Perth and Adelaide. Nearly 80% of those are just in Sydney and Melbourne.

“We just haven’t seen this level of activity by foreign developers since the building boom of the late 80’s and early 90’s,” says Kevin Stanley, CBRE’s head of Global Research and Consulting.

“Back then, it was mostly Japanese companies buying into offices, shopping centres and hotels. Now, it’s all about Singaporean and Hong Kong developers doing what they do best – apartment blocks.”

In Melbourne alone, there are 5,500 apartments in the pipeline from foreign developers – plus another 5,000 in Sydney.

An oversupply in the making? Don’t hold your breath for a discounted foreign-developed apartment. Unlike most Australian developers who are usually committed to a tight timeframe, Asian-based companies have time – and, obviously, cash – on their side.

UDIA National President Julie Katz says foreign developers work to a 20 to 30 year time horizon. So there’s no rush.

“I think they’ve got long term aspirations. They’ll just hold fire and wait until the market improves. They are willing to take the ups and downs, whereas Australian banks have a shorter term view,” she says.

Ah, the banks. The source of everyone’s woes!

Julie Katz has no doubt the banking sector’s ongoing “jitters”, as she puts it, are the reason so many international players are dancing on Australia’s stage.

“Our biggest concern is that the banks have much higher lending ratios than they have in the past, and they’re making it very tough – not just for individuals to get their housing loans, but for major corporations to get their developments off the ground.”

There are plenty of Australian companies waiting in the wings, but their hands are tied. All because they’re so dependent on the banks.

“They’ve got all their various planning approvals, but they’re waiting on the finance, for them to be able to proceed. And the banks are making it very tough, with their lending criteria, to get that adequate level of finance,” she says.

So it’s the internationals shining brightest through this bit of gloom.

Figures released this week by the Foreign Investment Review Board confirm activity in the property sector has skyrocketed, from $8.7 billion in 2009-10 to $21 billion in 2010-11. If you thought property was a bit tough last year, imagine what it would have been like without $21 billion invested from overseas.

Certainly some of that $21 billion would have bought large sites with the potential to make their new owners much more money, down the track.

All up, the FIRB accepted $177 billion worth of foreign investment last financial year, with almost a third of that sunk into the mining industry.

Which brings us to a whole new foreign-dominated ball game.

In Gladstone, on Queensland’s central coast, the truly massive international firm Bechtel has won all three truly massive design and construct jobs, to provide infrastructure for the impossibly large LNG projects.

Could the projects have been delivered by Australian firms? In a nutshell, no.

Michael Roche, head of the Queensland Resources Council, says there’s no other company in the world that can compete with Bechtel.

“This is a highly specialised area and Bechtel is a world leader, honouring expectations of world-class LNG production facilities. (Bechtel’s off-shoot) BG Group is reporting 95% of its workforce is Australian, about half the capital expenditure until 2014 will be spent in Australia, and about 80% of its operating expenditure will be spent in Australia from 2014 onwards,” says Roche.

“Last financial year, resources companies spent $25 billion in Queensland on wages, goods and services and community contributions. That's one in every five dollars flowing through the Queensland economy. The extraordinary growth of the mining services sector is something that it is rarely reported in Australia, which is a shame when you consider how much time we spend beating ourselves up over the performance of the 'traditional' manufacturing sector.”

Roche rejects notions of hand-wringing about international mining firms sending profits offshore.

“Australia is where it is today as a result of the confidence it has engendered among international companies and investors. Let's also not forget that Australian-based mining and mining services companies are world leaders.

“What we are standing on the cusp of, in Queensland. is another decade of record new investment in the sector that can be translated into decades of sustained resource production. There has never been a period like this in the state or country's history, so the bottom line is that everyone benefits.”

The $177 billion dollars’ worth of foreign investment last year must have gone a long way to helping Australia avoid more of the GFC. But at what long-term cost?

Or, in this age of international bank collapses and crippling European debt levels, is there any point to thinking long-term? Shouldn’t we just be surviving?

Are we doing enough – or anything at all – to ensure Australian developers can even make it on to the playing field?

The UDIA has been calling for lower developer contributions and more streamlined approval processes for as long as anyone can remember. Now, Julie Katz says, the call is desperate and dire.

“At the moment we’re going through a hard patch. There are certain sectors that are doing very well, but other parts of the country have really been affected by perceptions of uncertainty about employment, uncertainty about house prices, and uncertainty about demand.

“There’s certainly a malaise starting to set in. And (yet) the developer contributions are going up and up and up.”

There’s light at the end of the tunnel for Colliers’ Andrew Roubicek, who’s witnessing buoyancy in the Brisbane market. Roubicek says Brisbane offers a rental yield at least a percentage point higher than Melbourne.

He’s also been cheered by the recent purchase of a pre-approved 243-apartment site at Milton, in Brisbane’s inner west, by Australian success story the Walker Corporation.

“They have identified that it is an appropriate time to be developing property in the short term, in the present market,” he says.

It’s a further sign, right now just might be the bottom of the cycle. There’s already growing evidence that confidence – and buyers – are returning, before winter bites.

“Absolutely. We will see (sales) volumes increase. We probably won’t see a lot of price growth, we’ll need to see sales volumes increase before we see price growth, but we do expect to see volumes improve.”

 Well, that is good news.

 ENDS

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