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Who gets to decide what you want?

When George Washington was a teenager, did he really, really, really want a car?

Unlikely.

In order to want something, you probably need to know it exists. But my guess is that it surely helps if you’ve been marketed to.

One definition of happiness is wanting the things you’re likely to get (or, conversely, not wanting the unattainable). One definition of marketing is persuading the world it wants what you have, regardless of whether they can afford it or not.

We don’t hesitate to motivate employees by marketing them the benefits of being promoted, even if they all can’t possibly get this. We don’t hesitate to tease kids by marketing every conceivable unattainable Christmas gift at them, relentlessly.

Teenage girls are taught what to want by magazines and by peers.

Patients are taught what to want by doctors who prescribe new tests. And doctors are taught to do that by lawyers eager to sue if they don’t. Imagine going home and saying, “the doctor wanted to give me another test, but I said no…”

This cycle of assigned wants is going to get a lot worse before it gets better. The game theory demands it.

And so, once again it seems to come down to a personal decision. If you decide what you want (instead of letting someone else decide for you) perhaps you could choose the things that would actually bring you and your loved ones the satisfaction you can live with.

Posted by Seth Godin on August 31, 2009 | Permalink

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Laughs at mega mansion auction but no sale

Melissa Townsend   |  August 31st, 2009

An animated developer Harry Habul hams it up at the auction

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Pictures: Millionaires mansions

THE auction of one of the Gold Coast’s most opulent mega-mansions seemed more like a friendly gathering in an Italian courtyard than a serious property sale.

The Madison at The Sovereign Islands went under the hammer yesterday but failed to find a buyer.

Six bidders registered their interest, including one overseas phone bidder, but most of the action was between two parties — charismatic local developer Harry Habul was one of them.

The bidding started at $5.5 million and within the first couple of minutes it shot past the $6 million mark.

Bidding stalled at $6.3 million. As Ray White auctioneer Nigel Long enticed the bidders to go higher, Mr Habul told him to keep his pants on.

“Why are you rushing? You’ll get more later. People need to warm up,” he said in a thick Croatian accent.

Mr Long replied he could tap dance or order a few pizzas if it would help.

The bidding continued sporadically in $100,000 increments until Mr Habul re-entered at $6.6 million. After the final call, the auctioneer referred the bid to the owners then put in a bid for $6.9 million on the vendor’s behalf.

Mr Habul was upset by this and demanded to see the owners.

The property was passed in but Ray White Runaway Bay/Paradise Point agent Ali Mian said negotiations were continuing.

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Mr Habul, who has four adult children and has built prestige homes at Sanctuary Cove, seemed adamant the mega-mansion would be his.

“I like everything about it,” he said. “We are going to live here (if we buy it).”

Polish-born owners Richard and Eva Opara bought the European-inspired waterfront mansion for $4.5 million in 2001.

In March, it sold at auction for $7 million to an overseas buyer but that sale fell through.

The Britannic Crescent property, which sprawls over three blocks, was placed back on the market at $8.7 million. Featuring seven bedrooms, 10 bathrooms, a grand ballroom, a dining area for 30 guests, tennis courts, a 10-seat cinema and a replica ceiling painting of Botticelli’s Birth of Venus, there was no shortage of interest.

Among attendees, world-renowned parapsychologist Zandra Marie de Vere said she felt a ‘lot of pressure’ when she walked inside the mega-mansion and said it would not sell yesterday.

“There’s been a lot of happy times here, but there’s also been stressful times,” she said.

While economists expect the Reserve Bank to leave the official cash rate unchanged at a 49-year low of 3 per cent at tomorrow’s monthly board meeting, the central bank has warned it will need to raise the rate to “a more normal” level at some stage.

Loan Market Group executive director John Kolenda said homeowners could expect variable mortgage rates to rise by around 2 per cent over the next 18 months.

“Don’t get accustomed to such low rates and get prepared for eventual rate increases,” Mr Kolenda says.

“Even Reserve Bank Governor Glenn Stevens has warned consumers to allow for a 2 per cent increase in the future which would see variable rates at around 7.8 per cent.

This would still leave home lending rates slightly below historical medium levels of 8 to 8.5 per cent.

But a 200 basis point increase would add about $450 to monthly mortgage repayments, or some $5500 a year on an average home loan of $340,000.

Mr Kolenda said while the surge in rates wouldn’t happen overnight, homeowners should be aware of the potential impact on budgets and lifestyle.

At the same time, home owners should be prepared for major lenders to raise their variable rates independently of any move by the RBA.

Mr Kolenda said a dramatic rise in property prices in markets around Sydney and Melbourne due to a shortage of stock would push the RBA towards increasing rates again.

He said people concerned about increasing interest rates were considering fixed rate loans, although major lenders started lifting rates on fixed rate products several months ago.

“Mortgage holders on variable rates should be trying to repay more than the minimum required on their loan while interest rates were low,” Mr Kolenda said.

“That will prepare them for the inevitable future increases in interest rates.”

THE trendy Sydney harbourside suburb of Rushcutters Bay has the highest residential yield in the country, bucking the typical pattern where units on the city’s outskirts have the best rental rates of return.

The result comes as agents report residential property buyers are looking more closely at rental yields than ever before after recent comments from Reserve Bank governor Glenn Stevens that, despite some housing supply issues, house prices in Australia are higher than they should be.

Located just 2.9km from the central business district of the country’s largest city, units in Rushcutters Bay sell on average for $343,384 and have a residential yield of 7.3 per cent, according to research compiled for The Australian by RP Data.

Caroline Leong, 30, recently purchased a one-bedroom 100sqm unit in the suburb for between $450,000 and $500,000, with the hope of eventually renting the property out for more than $500 a week and buying another home to live in.

“I like the eastern suburbs and Rushcutters Bay was the nicest and most affordable of those areas,” she said.

The research by RP Data looked at the best yields for units and houses throughout Australia that were 15km from one of the country’s major cities and fell within a price range of $300,000 to $1 million.

Kingston Beach in Hobart, Tuart Hill in Perth and Darlington in Sydney all topped the list for houses with the best yields.

Melbourne’s Middle Park and Sydney’s inner western suburbs such as Ashfield and Summer Hill had the country’s worst yields for units.

Angus Raine, chief executive of Raine & Horne, said he believed there was a current trend where people were shying away from buying on the grounds of how much capital gain they would get for their property in the future and they were instead opting to focus on rental returns.

“Appreciation should be about 10 per cent a year and in seven to 10 years you should double your money,” Mr Raine said.

Meanwhile, demand from first-home buyers, eager to capitalise on the federal government’s first-home buyers grant before it is halved to $7000 after September 30, continued to support the market at the weekend.

In Sydney, 73 per cent of properties auctioned were sold, up from a clearance rate of 46 per cent a year earlier. Of homes auctioned in Melbourne, 73 per cent were sold, up from 52 per cent the same weekend last year.

By the end of July more than 137,000 people had taken up the first-home owners grant since it was boosted to $14,000 and $21,000 (for new homes) last October as part of the federal government’s stimulus package.

The take-up of the grant peaked at 20,389 in June but fell last month to 18,939.

WHEN Westfield boss Peter Lowy called an end to the traditional 100 per cent payout to enable the shopping centre giant to build a war chest of retained earnings for strategic growth, he introduced a new regime, not just for the company but the entire Australian listed property trust sector.

It signals a new era of conservatism for the battered and bruised industry as it picks itself up and clears away the debris after another reporting season characterised by massive losses and even bigger asset writedowns and impairment charges.

Back of the envelope notes suggest that in the latest reporting season, LPTs have written off more than $14 billion in asset valuations, with Centro, Dexus, Westfield, Stockland, Goodman and GPT writing off more than $12bn between them.

Most LPTs have either eliminated their distribution altogether or reduced it from 100 per cent. While many investors had assumed this was a one-off while the companies repaired their ravaged balance sheets, Westfield’s decision to reduce its payout to between 70 per cent and 75 per cent from 2010 — to build up retained earnings to an estimated $500 million a year — suggests something more permanent.

And Lowy’s comments that asset values have probably bottomed out spurred Charlie Aitken at Southern Cross Equities to declare that the worst was over for the LPTs. “That’s from the biggest player in the sector and completely contrary to current analyst views,” he said.

“As I scour through the Australian equity market I see no sector where I am more likely to double my money over the next five years than the listed property trust sector. In fact, I see LPTs as a strong buy on a one-minute, one-day, one-week, one-month, one-year and five-year view. After the meltdown comes the melt-up,” Aitken said.

Warming to his theme, he continued: “If there is one sector I am totally maximum el toro on, it’s Australian LPTs. We have made good money in Westfield, GPT and Stockland off the lows; now it is time to make real money in the rest of the sector where the mispricing is even greater. In highly aggressive, absolute return-based portfolios, I would have 30 per cent of my money in Australian LPTs. That’s how bullish I am on this call.”

With gearing levels falling after LPTs raised more than $14bn in fresh equity in the past nine months, and most externally managed LPTs trying to internalise their management rights and abandon their bungled offshore strategies, it won’t be too long before the sector looks like what it was in the early 1990s: low-risk vehicles with 10-15 per cent gearing ceilings.

After a punishing two years, where risky strategies resulted in the death or delisting of some LPTs, massive losses, and billions of dollars of investor cash to save them from collapse, this new-found prudence is the only way they can win back shareholder support.

The recent round of equity raisings has reduced gearing substantially. On UBS numbers, Westfield’s gearing is 34.8 per cent, Stockland’s 20 per cent, GPT’s 21 per cent, CFS Retail’s 25.6 per cent, Goodman’s 34.1 per cent, Dexus’s 28.8 per cent and Mirvac’s 17.7 per cent.

Westfield’s leadership role in reducing distributions from here on, coupled with a decision to raise $US2bn of debt rather than equity, signals the next stage in the LPT cycle: a thawing in credit markets, which means M&A activity will soon return — and not just in the listed sector.

Most LPTs are still trading at a big discount to net asset backing, making it cheaper to buy the trust than the real estate. There is also a growing list of wholesale unlisted vehicles that are desperate to sell assets or be taken over because of liquidity and debt issues.

In the case of the unlisted wholesale property sector, the situation is serious because it hasn’t had the immediate fix of a rights issue that was available to listed vehicles.

This build-up in the property market goes some way to explaining the recent poaching in the investment banking sector. Earlier this month Merrill Lynch poached 10 members of the UBS property team, prompting UBS to poach most of JPMorgan’s real estate team.

To date there hasn’t been much M&A activity due to a poison pill embedded in the debt facilities of most LPTs, which has stopped at least five full-blown takeovers in the sector. This so-called change of control provision, which causes the debt facilities to become immediately due and payable on a change of ownership, would have been used by the banks to take back their money.

But as credit markets slowly thaw, the banks will increasingly overlook this clause and allow the mergers to proceed.

The change of control provisions are understood to have stopped at least two big companies launching a takeover offer for GPT in recent months.

Stockland has set itself up to be in the box seat when credit markets change by taking a cornerstone investment in GPT. With GPT now sorting out its messy joint venture with Babcock & Brown, it won’t be long before the stalking begins.

The other big-ticket takeover target is thought to be Mirvac. It is cashed up and its share register is relatively open after a cornerstone investor, debt-stricken Middle East group Nakheel, recently dumped its 12 per cent stake.

Two years ago the then chief executive of Mirvac, Greg Paramor, was a keen seller after approaching companies including Leighton Holdings and Lend Lease. In December 2007 Lend Lease and Mirvac admitted they were having talks but the deal failed. At the time Mirvac’s shares were trading at $6.20, compared with the current share price of $1.41. It is understood Leighton was also approached but rejected the offer on the basis that Mirvac’s asking price was too high. Leighton has a big stake in listed property group Devine.

In the meantime, Mirvac is looking at buying out the remaining 66 per cent in the $300m Mirvac Real Estate Investment Trust — a trust Mirvac manages that holds a $1bn portfolio.

Then there are the smaller, smashed-up LPTs still to be rationalised. Top of the list are Macquarie and ING, whose external model needs to be overhauled.

As a Melbourne LPT investor said: “After years of excess it is now time for REIT managers to add value by sound property management and astute acquisitions. We still need another phase of rationalisation to clean up the sector. The financial engineering of the past should be abandoned. There will be capital for good managers making EPS-accretive acquisitions through mergers and acquisitions or individual property acquisitions.”

fergusona@theaustralian.com.au

The wrong way first: interview someone for an hour. If you like them, have them interview three or four other people in your organization for an hour each.

You've invested five hours of your team's time, but really you only were looking for approval, because you'd already decided you liked the person enough to work with them for years.

All the evidence we've seen shows that this is a lousy predictor of future performance. And, let's tell the truth… if the first three people love the guy, are you really going to let the fourth, junior person veto him? Or is it just an annoying courtesy?

There are two approaches you can use as an alternative.

First, you can work with someone for months before you offer them a job. Your pool is smaller (freelancers, joint venture partners, interns) but the exposure to how they work is spectacularly different. You don't get the thrill of finding a pearl in the oyster, the "wow, I found the most incredible hire!" bragging rights. Instead, you get exactly what you expect. Organizing for this sort of hiring isn't particularly difficult, particularly in a down economy. Not surprisingly, I've had 100% success doing this.

Second, and with some controversy, you can admit that an hour interview is actually a five minute sniff test followed by 55 minutes of wasted time, multiplied by four colleagues. Tell the truth and switch to five minute interviews.

If you do five minute initial interviews, you can interview 12 times as many people for each job opening. This initial filtering takes precisely as much time as your wasted one-hour approach, but dramatically increases the chance you'll find someone you actually have good pheromone and body language connection with. After the screening, I can only encourage you to do the projects, reference checks and other serious diligence you're probably too exhausted to do after spending all those hours with one person…

This process takes a lot of work, but it definitely works. If you can interview 60 people in a day or two and then have the three best fits do projects, presentations and freelance work for you, you're way ahead of a company that interviewed only three people and fell in love with one.

New figures released by Labor showed by the end of July more than 137,000 people had taken up the grant since it was boosted last October.

But for the first time during that period, monthly breakdowns indicated the amount of people taking advantage of the more generous grant was shrinking.

In June, home owners grant take-up peaked at 20,389 but last month it dipped to 18,939.

The grant was doubled to $14,000 for established homes and trebled to $21,000 for new properties as part of the Government’s first stimulus package.

After September 30 it will be reduced to $10,500 for established homes and $14,000 for new homes until December 31, before returning to its original $7,000 next year.

The drop off in grant applications is being felt in every state and territory.

However, NSW leads the way when it comes to total take up, with almost 50,000 people receiving the grant there in the 10 months to July.

Housing Minister Tanya Plibersek said the grant’s positive impact on the economy was evident in new Australian Bureau of Statistics (ABS) housing finance data.

The data showed the number of loans for new constructions by owners has increased by 55 per cent in the year from June 2008, while the purchase of new homes is up 47 per cent over the same period.

First home buyers made up 27.1 per cent of all new loans for owner occupation in June, one of the highest levels since the ABS started collecting this data in 1991.

“The first home owners boost, combined with lower interest rates, has attracted tens of thousands of first home buyers into the market,” Ms Plibersek said.

“A strong housing market is critical for underpinning confidence and supporting jobs in the Australian economy as we battle the worst global recession in 75 years.”

THERE has been a lot of attention paid to the increased confidence and even the odd fierce bidding war erupting for capital city residential properties.

But so far that heat hasn’t filtered into the Sunshine Coast apartment market.

It’s had another tough quarter, and although sales have increased slightly, there is still plenty for bargain hunters to run an eye over.

Agent PRDnationwide’s latest Sunshine Coast Apartment Report tallies up the June quarter results, finding 69 new units were sold in 35 residential projects.

That’s nine more sales than there were in the June quarter of 2008 and there was a very slight growth of 0.78 per cent in the average median sale price.

PRDnationwide Sunshine Coast director Syd Walker says it’s clear that the present buyers are after a bargain.

“The majority of transactions are being achieved towards the more affordable end of the market, and any luxury apartment sales are being snagged at basically cost price,” he says. “There is still a reasonable over-supply of new unit product on the Sunshine Coast and buyers can afford to be selective and demand some bang for their buck.”

Valuer Herron Todd White says something similar in its July market review, which looked at where to spend $500,000.

It says that the Sunshine Coast market has a lot of properties for sale, and those close to the region’s beaches and tourist precincts should be viewed closely.

“Given the substantial levels of supply we do note that some vendors are reducing asking prices to achieve sales, which will also aid in purchasing good properties around this $500,000 level,” says HTW.

As always, price is the crucial factor for buyers.

PRDnationwide’s report found that 29 per cent of the sales were struck at less than $450,000 and a further 25 per cent were within the $550,000 to $649,000 range.

For buyers who can afford to spend a little more, that might be where the value lies, Walker says.

The slightly more expensive apartments often offer far more in quality and value, as there tends to be less buyer interest.

“Spending an extra $50,000 for a third bedroom in a struggling market is certain to pay off when the market returns,” Walker says.

During the quarter, 37 sales were new two-bedroom apartments, and 25 were three-bedroom apartments. But in a further testament to just how price-conscious buyers are, there were no new four-bedroom or penthouse apartments sold during the period.

The most active sales areas for new units were at the southern end of the Sunshine Coast at Caloundra, Pelican Waters and Kawana Island.

Together they accounted for 43 per cent of the sales.

There are still 29 months of new unit supply, a sizeable drop from the 60.9 months in June 2008. But in the new, harder economy, and with the fractured confidence and tighter hip pockets of those who traditionally move north, it could take up to two years to be absorbed.

But supply has fallen for the fourth straight quarter and Walker says that will continue, with few new projects planned as developers struggle to get finance and build to a cheaper price point.

majellacorrigan@optusnet.com.au

Each week, well known real estate industry expert, Anthony Toop, releases his views, opinions, observations and predictions of the South Australian real estate market, as well as talks about the latest on his national award winning company, Toop&Toop Real Estate. Anthony is happy to answer any questions you may have, simply visit www.asktoopie.toop.com.au to submit them.