Millionaire Sydney Homes Aid RBA Drive as Mining Slows

Billionaire Developer Walker Says Sydney Home Market ’Too Hot’
A residence stands on a street known as "Mansion Street" in the eastern suburb of Bellevue Hill in Sydney, Australia. Photographer: Jack Atley/Bloomberg

The go-ahead for multimillion-dollar harborside apartments in Sydney’s biggest property development in a century reflects confidence the Reserve Bank of Australia’s interest-rate cuts will heat up construction just as the nation’s mining boom cools.

Lend Lease Group, the nation’s largest developer, applied last week to build 159 units at Barangaroo South as part of a A$6 billion ($6.3 billion) project. Early signs of a residential revival contrast with pessimism in the resource industry, where BHP Billiton Ltd. has shelved an estimated $55 billion in mining and port-expansion plans as commodity prices weakened.

RBA Governor Glenn Stevens, who carried out the developed world’s steepest rate reductions since October 2011, is aiming to rebalance Australia’s two-speed economy, where mining regions thrive and manufacturers, builders and retailers struggle. He’s telegraphing lower borrowing costs to maintain job growth and extend a 21-year run without a recession.

“Growth in the resource sector will start to cool off following the peak in the investment boom over the next 12 to 18 months and to pick up the slack you’re going to have to see residential construction increase,” said Tom Kennedy, an economist in Sydney at JPMorgan Chase & Co.

The central bank’s board lowered the overnight cash-rate target by 1.5 percentage points since Nov. 1, 2011, to 3.25 percent. Still, the number of Australian construction jobs fell by 70,200 to 978,000 in the 12 months through August, helping lift the unemployment rate to a 2 1/2-year high of 5.4 percent. Mining employment gained by 44,600 over the same period to 271,000, according to government figures.

December Meeting

Traders are pricing in a 67 percent chance of another reduction Dec. 4 to 3 percent, swaps data compiled by Bloomberg show. That would match the half-century low of 3 percent at the height of the 2008-2009 global financial crisis. In response to that rate and government handouts of as much as A$21,000 to buyers, house prices surged an annual 19 percent in the first quarter of 2010.

Swaps data compiled by Bloomberg indicate a 62 percent chance that the RBA cash rate will be at a record 2.75 percent or lower by May.

At Barangaroo, a defunct stevedoring terminal that developers are modeling after London’s Canary Wharf, the plan calls for apartments, offices, a park, restaurants and a casino. One-bedroom apartments will go for about A$1 million and the penthouse is valued at A$8 million to A$10 million, said Justin Brown, chairman of residential projects at CBRE Group Inc.

Tentative Signs

RBA board members said in minutes of their Nov. 6 policy meeting that “there were tentative indications that housing activity may be reaching a turning point.” Borrowing costs were left unchanged at the meeting.

A government report today showed the value of private residential construction rose 0.9 percent in the three months through September, the first gain in six quarters.

Elsewhere in the Asia-Pacific region, a government report showed Philippine gross domestic product rose 7.1 percent in the third quarter from a year earlier, faster than the 5.4 percent median growth forecast of 22 analysts surveyed.

The Bank of Thailand will keep the benchmark interest rate unchanged at a policy meeting today, 16 of 19 economists surveyed by Bloomberg forecast.

South Korea’s current-account surplus narrowed in October to $5.8 billion from a revised $5.9 billion in September, according to a report from the Bank of Korea.

German Inflation

In Europe, German consumer prices probably fell in November from the previous month, according to the median estimate in a survey ahead of data due today.

In the U.S., a Commerce Department report may show new-home sales were little changed from a month earlier at a 390,000 annual pace in October, a survey of economists showed. The Federal Reserve will release its so-called Beige Book, a regional snapshot of the nation’s economy.

In Australia, housing data in the past month have shown signs that a two-year slide in home prices is stabilizing.

Home-loan approvals rose in September for a second month and home prices advanced in the three months through September, the first back-to-back quarterly increase since 2010. New-home sales declined for a third straight month in September, while home-building approvals surged for a second straight month on apartment and renovation projects.

Easing Considered

“Members considered that further easing may be appropriate in the period ahead,” the RBA minutes released Nov. 20 showed. “While a gradual recovery in both dwelling and other business investment was anticipated, assisted in part by the lower level of interest rates, there was also uncertainty about the timing and magnitude of this pick-up.”

The RBA, in its quarterly monetary policy statement released Nov. 9, reduced the 2013 growth forecast as lower investment in iron-ore, coal and natural-gas projects and the government’s pledge to deliver an election-year budget surplus restrain the economy.

The central bank predicted a peak in resource spending at about 8 percent of gross domestic product from a prior 9 percent. Prime Minister Julia Gillard’s bid for a A$44 billion budget swing back to the black “appears to be weighing on growth over the second half” of this year, the report showed.

Weaker commodity prices and an elevated currency prompted mining companies including BHP and Fortescue Metals Group Ltd. to put off projects and cut jobs in recent months.

The nation’s currency has remained resilient even as commodity prices eased, averaging about $1.03 in the past two years, compared with 73 cents in the prior decade.

Slower Expansion

The Organization for Economic Cooperation and Development echoed the RBA’s view in a report yesterday. GDP will rise 3 percent next year, still the group’s fastest-growing developed economy, down from 3.7 percent projected in May, the OECD said.

Consumers may be emboldened by a stock market that has risen in the past four straight months. Australia’s benchmark 10-year government bond yield has risen 29 basis points this quarter, the biggest gain among 24 developed markets tracked by Bloomberg, reflecting prospects the RBA has stimulated the economy sufficiently to leave rates unchanged.

“Household demand will need to fill a large part of the gap to be left by the forecast decline in mining investment,” said Paul Brennan, a senior economist in Sydney at Citigroup Inc., which is predicting a rate cut in the first quarter next year.

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