Pete Wargent blogspot

Co-founder & CEO of AllenWargent property buyers agents, offices in Brisbane (Riverside) & Sydney (Martin Place) - clients include hedge funds, resi funds & private investors.

4 x finance/investment author - 'Get a Financial Grip: a simple plan for financial freedom’ (2012) rated Top 10 finance books by Money Magazine & Dymocks.

"Unfortunately so much commentary is self-serving or sensationalist. Pete Wargent shines through with his clear, sober & dispassionate analysis of the housing market, which is so valuable. Pete drills into the facts & unlocks the details that others gloss over in their rush to get a headline. On housing Pete is a must read, must follow - he is one of the better property analysts in Australia" - Stephen Koukoulas, MD of Market Economics, former Senior Economics Adviser to Prime Minister Gillard.

"Pete Wargent is one of Australia's brightest financial minds - a must-follow for articulate, accurate & in-depth analysis." - David Scutt, Business Insider, leading Australian market analyst.

"I've been investing for over 40 years & read nearly every investment book ever written yet I still learned new concepts in his books. Pete Wargent is one of Australia's finest young financial commentators." - Michael Yardney, Australia's leading property expert, Amazon #1 best-selling author.

Invest in Sydney/Brisbane property markets, or for media/public speaking requests, email pete@allenwargent.com

Monday, 29 August 2016

Significant Investor Visa interest dampened

Lucky 888?

According to the Department of Immigration and Border Protection, the significant investor visa (SIV) programme is designed to be:

"...a pathway to provide for significant migrant investment into Australia under the Business Innovation and Investment visa programme.:

From the inception of the SIV programme in November 2012 until 30 June 2015 there had been some 2,573 applications lodged, but only 879 visas actually granted.



There can necessarily be a lag between application lodgement and visas being granted.

The service standard is 6 to 9 months for the Business Innovation and Investment category.

The latest available statistics from the Department of Immigration and Border Protection (DIBP) showed that 495 of the outstanding applications lodged prior to 1 July 2015 have now been granted.

A further 20 applications lodged after 1 July 2015 have also been granted in the financial year to 31 May 2016.

This means that the May 2016 data reported a total of 515 SIVs issued for the 11 months for the financial year to date.


The geographically segmented figures show that high net worth applicants are overwhelmingly focused on Melbourne, and then Sydney...with daylight third. 

This reflects that Melbourne and to a somewhat lesser extent Sydney have been the two key destinations and markets of interest for Chinese investors since around 2012.

Indeed, the Foreign Investment Review Board (FIRB) Annual Report showed that real estate applications tripled in two years, driven overwhelmingly by a deluge of Chinese investors into Victoria, New South Wales, and Queensland. 

The DIBP statistics for the top five source countries show that more than 90 per cent of applicants for SIVs have also been Chinese. 


The wrap

Since the commencement of the significant investor visa programme in 2012 there have now been a total of 1,397 SIVs granted, leading to just a shade under A$7 billion of investment in complying assets.

It's difficult to say what the expected take-up for the SIV ever really was, but fewer than 1,400 visas sounds suspiciously like a fizzer to me (albeit the composition and destination of applicants says something of note about where capital invested in Australia is coming from and where it is headed to).

Previously SIV investors were opting to drop money into passive investments such as qualifying government bonds and residential real estate schemes - not really what Australia needs more of, tbh! - which led to a much-needed reassessment of the requirements for complying investments.

Unfortunately interest in SIVs has been dampened since following consultation with stakeholders the rules were amended to require a greater share of the $5 million required investment to hit up venture capital products (at least 10 per cent) and emerging companies (minimum 30 per cent), investments that are typically associated with a higher risk of loss, whether perceived or real.


Source: DIBP

The most timely available statistics for expressions of interest, invitations, and applications lodged suggest only a modest ongoing flow of interest in the SIV.

Requiring wealthy Chinese with A$5 million to invest in venture capital projects and emerging companies is a fabulous idea...on paper.

In reality, however, this may be too ambitious and result in the killing off of SIV applications given that wealthy foreigners are unlikely to be familiar with the products and ventures in question, and therefore remain understandably reluctant to commit.

It wouldn't be a surprise to see the rules amended again or relaxed to allow Chinese investors to provide project funding (not passive investment) for residential and commercial real estate developments, or for infrastructure projects.

Housing starts to fall in 2017 & 2018

New dwelling sales decline

So believes the Housing Industry Association (HIA).

And looking at the new dwelling sales figures for July 2016, they are probably right.

"The cycle has peaked" reported the HIA.

"In all likelihood we will experience sharper falls in new home construction in both 2017 and 2018".

Private new dwelling sales fell by 9.7 per cent to record their weakest monthly result since 2014.


Source: HIA

2016 will be a record year for housing starts in Australia, but "the situation could look very different next year" in the words of the HIA.

The building approvals figures for July are due out tomorrow.

Sunday, 28 August 2016

Coal rallies hard

Coal price booms

A spectacular rally in coal prices has led to some equivalently spectacular price action on the share markets.

Whitehaven Coal (WHC) blazed from a low of 36 cents earlier in the year to above $2.00, before easing back for a Friday close of $1.84.


Civil and mining contractor NRW Holdings (NWH) has a number of key coal contracts - including with Middlemount and Rio Tinto - and has been more than 15-bagged from 4 cents to 62.5 cents.


In the year to 30 June 2016 NWH reported revenues of $288 million and EBITDA of $47.4 million.

Despite an order book swelling to $1 billion, the company did not announce a final dividend, instead opting to pursue a significant reduction in net debt, with a target of clearing all debt balances within 30 months.

With the outlook for resources sector stabilising and infrastructure taking off, the market recognises improved tender opportunities for service providing companies.

Index weights

While iron ore has been a top performer in 2016 to date, a number of analysts, including from Westpac, expect that this strength will not last until the end of the year due to oversupply.

Coking coal on the other hand has rallied by nearly 25 per cent in August to be up by a tearaway 73 per cent since the middle of February. 

The Reserve Bank of Australia (RBA) will release its Index of Commodity Prices for the month of August this week. 

In July the index increased by 4.1 per cent since it is reported in monthly average terms.


However, if it was reported using spot prices for the bulk commodities, the index would have increased by 8.3 per cent in July, to actually be 3.5 per cent higher over the past year. 

Given the likely downward pressure on iron ore prices, the outlook for coal, oil and LNG - and to some extent gold - will be crucial to the resources revenues and national income. 

Saturday, 27 August 2016

Weekend reads: Must see articles of the week

Summarised for you here over at Property Update (or click the image below).


If daily commentary is more your thing, fear not - you can subscribe for the free daily commentary right here too.

Thursday, 25 August 2016

Three capital cities are adding more than 80 per cent of jobs

Employment growth

The Detailed Labour Force figures released by the Australian Bureau of Statistics today showed that Australia added just over 220,000 jobs over the year to July 2016, bringing total employment close to breaking through the 12 million barrier. 



That's a good headline result, but with part time employment employment rather too dominant.

Unemployment easing

Sydney has the lowest unemployment rate of the main capital cities at 4.7 per cent, and is also home to the lowest sub-regional annual average unemployment rates, with its eastern suburbs clocking in at 2.7 per cent, and the northern beaches 2.8 percent for the year to July. 

These figures underscore the ongoing strength of the New South Wales economy.

Annual average unemployment rates continue to trend down in Greater Melbourne (5.9 per cent) and Greater Brisbane (where the rolling annual figures show unemployment shaping all the way down from 6.3 per cent to just 5.6 per cent since 2014). 


Greater Adelaide has been hovering at the highest annual average unemployment rate of 7.3 per cent.

Regional markets are experiencing mixed fortunes, with Townsville recording one of the highest annual average unemployment rates over the past year at 9.7 per cent. 


Mandurah (10.6 per cent), Cairns (8.6 per cent) and Ipswich (8 per cent) represent some of the other regions where average unemployment rates have been too high for comfort over the past year. 

On the other hand, some regional markets such as Geelong - which comfortably wins the most improved award - have fared very well over the past year, with more than 20,000 jobs added on a net basis, and a substantial decline in the annual average unemployment rate to just 5.4 per cent. 

WorkSafe jobs would be part of this, but since labour force figures represent where people usually reside rather than where they actually work, it's likely that many of these 'new' jobs are based in Melbourne, with folks opting to commute from a cheaper location.

Where are the jobs?

Greater Sydney (+61,500) and Greater Melbourne (total employment +84,700) have continued to add the bulk of jobs over the past year, while parts of the regional New South Wales (+29,400) economy have fared reasonably well. 

Excluding Geelong, however, regional Victoria is going backwards. 


Total employment in Greater Brisbane (+30,800) continues to grow robustly, with inner city Brisbane having one of the lowest unemployment rates over the past year at just 3.7 per cent, but there's not much of note happening elsewhere. 


Over the past year two in three jobs have been created in Sydney and Melbourne, and more than 80 per cent of employment growth has been seen in three most largest capital cities, being Greater Sydney, Melbourne, and Brisbane.


The wrap

Overall, the three most populous cities are accounting for such a high share of employment growth that unemployment rates are low in historical terms.

Moving around the country, however, it's clear that there is oodles of spare capacity as the resources sector comes off. 

In the absence of significant inflationary pressures, Commsec is pencilling in another interest rate cut for November, while the cash rate futures implied yield curve doesn't bottom out until the fourth quarter of 2017.