Welcome to this week's Property News and to the end of Week 18 of COVID impacts.
Govt Surplus Goes
The Government had hoped to be announcing a surplus in 2021, however COVID19 has seen all hopes of a surplus disappear for a decade or two with the need for a prolonged period of support costing $850bn. Tighter controls on JobKeeper over the next 6 months are aimed at lessening the burden on Government, however it is likely to force more closures and higher unemployment and lower taxes.
Whilst the measures will cost the Government significantly, Australia continues to have a low level of debt-to-GDP compared to other countries, peaking at 35% in 2021. By comparison the US is circa 107% of GDP, Japan 168%, and the UK 85%.
According to Treasury, the Net GDP is predicted to fall by -3.75% in 2020 before rising by 2.5% in 2021 and the official unemployment rate is forecast to peak at around 9.25% in the December quarter.
It is fair to say that the next 12 months will continue to be very difficult. Consumption (which makes up 60% of GDP) will be curtailed as households income drop. The contraction will shrink demand across all business sectors and the future revenues into property will also shrink.
Vicinity Blows
This week, Vicinity Centres revealed re-valuations of its 60 directly-owned retail properties have resulted in a net valuation decline for the overall portfolio of -11.3% or $1.79 billion. With customer visitation in malls down 30% and retailers closing their doors, it is not surprising that our biggest retail Landlords are already seeing significant drops in values.
Many commentators believe this to be the just the first of 3 downwards revaluations that are likely to occur through the cycle.
The recovery rate of the listed real estate stocks appears to be diverging from the All Ords which is currently -14% off the pre-covid peak, as compared to the AREITs which are -28.6% off the pre-covid peak.
AMP Capital Woes
AMP Capital continue to feel the heat after 2 weeks of front page headlines over the appointment of Boe Pahari to CEO. Boe is a strong strategist and has positioned himself and the AMP Capital Global Infrastructure business exceptionally well over the last 5 years. A sexual harassment claim raised (&settled) by a female subordinate in 2018 wasn't enough for the AMP Board to overlook Boe who was considering to walk or buy out the lucrative Infrastructure business he largely developed in the UK.
The repercussions in AMP Capital Property's business has been significant with many talented men & women in senior leaderships positions questioning the AMP Board over the appointment. This week Carmel Hourigan and 3 other executives left the business, with key investors legitimately questioning the integrity of the brand.
AMP Capital Property are suffering on several fronts with poor investment performance in its core wholesale funds, an out dated and limited range of investment products, and now a disillusioned investment team.
Boe Pahari will no doubt fill the key roles with people who share his vision for the group – a higher margin business with capacity to manage and invest on a global scale. As an ex-employee of the business, I feel AMP Capital needs to shift its culture, however whether the local investment team buy into Boes' vision remains to be seen.
Until next week
Warwick
Related Articles
