Billionaire Triguboff’s Meriton to End Debt Hiatus on Costs
Meriton Pty, Australia’s biggest apartment developer, plans to begin borrowing for the first time in 12 years as the central bank’s interest rate cuts and the entry of overseas lenders reduce debt costs.
“I haven’t borrowed yet, but I will,” billionaire Harry Triguboff, the company’s 79-year-old founder and managing director, said in an interview in Sydney on Sept. 25. “The RBA has cut rates and there’s pressure brought on our money market by foreign banks bringing money here.”
Meriton has been debt-free since 2000, funding its projects through sales of apartments and rental income, said Triguboff, who was born in China to Russian Jewish migrants. The timing and amount of debt funding depends on sales and approvals of new projects, he said.
Australia’s long-term borrowing costs are the cheapest in the developed world relative to short-term rates, as bond investors bet the Reserve Bank of Australia will cut its 3.5 percent benchmark rate by another 101 basis points in the next year. The central bank lowered the overnight cash-rate target by 1.25 percentage points from November to June to help shield the economy from Europe’s debt crisis and slower growth in China.
Four of the seven foreign bank licenses the central bank has granted since 2010 have been to Asian lenders, the RBA said in a March report. Business lending by local and overseas banks has increased by an annualized 6.5 percent after contracting in the past three years, the RBA said this month.
Rivals including Mirvac Group (MGR) and Finbar Group Ltd. (FRI) have reported declines in funding costs. Mirvac, which develops residential and commercial property, said its weighted average cost of debt was 4.6 percent in the year ended June 30, compared with 5.3 percent a year earlier. Apartment developer Finbar’s finance costs fell to 5.9 percent from 6 percent in the period.
Triguboff was born in Dalian, China, in 1933, and spent his early childhood in Tianjin, south of Beijing, among the White Russian Jewish community that had fled the Soviet Union. He began building apartments in 1963 and registered Meriton in 1968.
The company has focused on developments only in Sydney in New South Wales state, Brisbane and the Gold Coast in Queensland, and has no plans to expand further, he said.
Home prices have responded to lower borrowing costs. In Sydney, which accounts for 85 percent of Meriton’s business, prices rose 2.4 percent in the three months ended Aug. 31 from the prior quarter, according to researcher RP Data. In Queensland state capital Brisbane, which contributes 10 percent, they climbed 0.6 percent, the figures show.
Sydney home prices will jump between 3 percent and 5 percent in 2012 and as much as 9 percent in 2013, while Brisbane will see maximum gains of 3 percent this year and 7 percent next year, in line with the average for Australia’s capital cities, according to Sydney-based SQM Research Pty.
“Our blocks in Sydney are doing very well,” Triguboff said. “Brisbane is doing better, but the market has to go up quite considerably before I’d be interested to build more there.”
The closely held developer is building the 81-story Infinity, Brisbane’s tallest residential tower, and completed the 74-floor Soleil, also in the city’s center, this year, adding more than 1,000 apartments.
About 5 percent of Soleil remains to be sold, Triguboff said. Meriton has sold 150 of the 550 units at Infinity, which will be finished by late 2013, and plans to keep 250 as serviced apartments to take advantage of attractive room rates in Brisbane, Triguboff said.
Meriton will start about 2,000 apartments next year, from about 1,700 in 2012, he said. It started 1,167 apartments in Sydney in fiscal year 2012, a 57 percent jump from the previous year. The number of projects by Australia’s top 20 builders was little changed, the Housing Industry Association said.
“We still need interest rate cuts to generate more of a response” in the housing market, said Matthew Hassan, Sydney-based senior economist at Westpac Banking Corp., who forecasts two interest cuts this year, and another in 2013. “We have moved to a point of stability; the question is more about whether we move into a recovery and if so when and how strong.”
Meriton has benefited as peers, including listed groups Stockland (SGP) and Australand Property Group (ALZ), distanced themselves from apartments as financing costs spiked, and the government restricted non-residents to buying only new homes or properties that are not yet completed.
The company continues to see interest from Chinese buyers, who are undeterred by a slowdown in the local economy, Triguboff said. They make up about 15 percent of buyers, the same as a year ago, Meriton figures show.
“So far, they’re coming as before,” Triguboff said. “The Chinese government is quite happy for them to buy, so as not to have a bubble in China.”
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