The Australian economy continues to deteriorate

Top end caught flat-footed as property slump worsens

Melbourne's rich and famous are facing losses of up to 25 per cent in the luxury apartment market as the top-end property slump worsens

the Australian,

6 May, 2012

Prestige areas, including Toorak, Brighton, East Melbourne, Southbank and St Kilda Road, where hundreds of $1 million-plus apartments have been for sale, have been hit hardest over the past year, according to research by Australian Property Monitors.

Owners of some of the most expensive penthouses and flats in the city are having to slash their asking prices by millions in some cases to close deals. Others have had to sell for well below what they paid, even after years in the exclusive buildings.

Industry sources say Lleyton Hewitt is one to feel the pinch, cutting the asking price for his St Kilda Road penthouse from $15 million to $10 million. The tennis champ bought the 19th-floor of the Yve development for $8.32 million in 2004, and spent nearly four years fitting it out.

The tough conditions, blamed on a glut of luxury apartments and jitters about the economy, are set to get worse as more than 13,000 new inner-city apartments hit the market.

Andrew Wilson, senior economist at the Fairfax-owned analysts APM, said the top-end apartment market was facing a ''convergence of negative factors''.

''The popularity of penthouse, inner-city living has certainly dropped off sharply since the heady days of the boom before the global financial crisis,'' he said.

''Subdued performance for the sharemarket, the slowdown in the wider property market and signals that Victoria has one of the worst performing economies on the mainland - it's all happening at once.''

Jean-Pierre Heurteau paid about $3.23 million in 2006 for an off-the-plan, two-bedroom apartment in the Lucient building on St Kilda Road.

The interior decorator hoped to get at least $2.9 million for the 14th-floor flat when it was listed last year, but had to settle for $2.81 million.

''It's the times,'' he said. ''I don't think it was because the apartment was wrong or bad, the apartment was fabulous. It's just the way it is.''

Valuer John Sommers, of McRae Property, said many owners were learning the hard way that off-the-plan apartments are often sold at prices that had little to do with their actual value, and could take years to show any meaningful capital growth.

''The price that's paid is a reflection of what the developer needs to make out of the project to make it all stack up,'' he said.

''It's not just at the top end, it's apartments in those locations in modern buildings.''

In one example, a four-bedroom apartment in Docklands was bought for $3.5 million in 2004 and sold late last year for the same price. Melbourne's median unit price rose 44 per cent over the same period.

Buyer's advocate Mal James said a big issue for the $1 million-plus apartment market was that buildings were always facing competition from the ''next best thing''.

''The demand is there initially because they are new and exciting, but in two or three years yours isn't new and exciting, then demand is lower,'' Mr James said. ''I also don't think it means the market is falling apart because someone tried and failed to get some big number.''

Agents argue that statistics purporting to measure the prestige property market are ''alarmist'' and ''misleading'' because they are based on few sales.

Icon Property's Robert Mitchelson said that while there was no doubt the market was ''tough'', deals were still being done and some buyers were now wanting to get back into the market because of the recent price falls.

Analysts Charter Keck Cramer estimate that 49 new buildings with about 13,100 apartments are under construction or being marketed for sale in the CBD, Southbank, St Kilda Road and Docklands.

It is Budget Day in Australia today.

This article points out how bad things have got.

Few measures for business to cheer in a tougher trading environment

AUSTRALIAN businesses endured a much tougher trading environment last month, and economists doubt today's budget will contain much to reverse the trend.

The Australian,

7 May, 2012

Reported profitability, export volumes and trading conditions slumped last month, according to a National Australia Bank monthly business survey. Conditions deteriorated across all industries, especially for transport and utilities firms.

Based on a survey of 400 firms, use of available production capacity fell to 79.4 per cent, the lowest level since the middle of 2009.

"Mining continued to outperform all other industries, while manufacturing conditions remained worryingly low," the survey's authors said.

Peter Anderson, head of the Australian Chamber of Commerce and Industry, told The Australian businesses needed to be realistic about what to expect from the budget given the government's desire to forecast a surplus.

HSBC's chief economist Paul Bloxham agreed, saying there would be little to cheer about.

"There's likely to be no room for treats or extra spending for businesses," he said. "Nevertheless, the government's reported decision to boost payments to families in lieu of the education tax refund might lead to a bit more consumption spending, which might help.

"Not going ahead with the carbon tax would be the single best thing the government could announce," Mr Anderson said, adding it was unlikely, "but we are looking forward to confirmation of the one percentage point cut in company tax."

The company tax rate is expected to fall to 29 per cent on July 1, but the measure is not legislated. The opposition opposes the cut because it is linked to revenue from the minerals resource rent tax, which it also opposes.

Mr Anderson said he worried the government might pay for the cut by reducing R&D incentives.

"Apart from measures already announced, such as a $5000 deduction for new car purchases and the likely introduction of 'loss-carry backs', businesses should not be expecting too much this budget," said Brian Redican, an economist at Macquarie Bank.

James McIntyre, an economist at Commonwealth Bank, said small businesses in particular would welcome new loss provisions, which are expected to allow firms to offset losses and prior tax paid up to a nominal cap.

"But big businesses will be worried about how the measure is going to be paid for," he said. The Business Working Group, which recommended "loss carry-backs", also suggested scrapping mining firms' ability to deduct prospecting and exploration costs immediately, which could save up to $1.2 billion across four years.

Mr Redican said that rumoured public-sector cuts of up to 30 per cent in some federal departments could spell trouble for businesses in the ACT. "Big public-sector job cuts would hit local cafes and restaurants, even stationery suppliers to government departments," he said.

The Business Council of Australia has argued for a cap on government taxes at 23.7 per cent of GDP, as lower taxes tend to foster quicker economic growth, which is good for business. The government expects tax receipts to be 22.6 per cent this financial year, but projects they will rise to 24 per cent in 2014.

"Maintaining an explicit cap for the level of taxation as a share of GDP as a discipline to the size of government is an essential element of keeping Australia competitive," the BCA said in its pre-budget submission.