An assessment of development funding for new housing post GFC in Queensland, Australia

Purpose: The purpose of this paper is to identify changes in bank lending criteria due to the GFC and to explore the associated impacts on new housing supply in Queensland, Australia. Design/methodology/approach: This research involves a survey of each of Australia’s big four banks, as well as two prominent arrangers of development finance. Data on key lending criteria was collected: Pre GFC, during the GFC, and GFC recovery stage. Findings: The GFC has resulted in a retraction of funds available for residential development. The few institutions lending are filtering out only the best credit risks by way of constrictive loan covenants including: low loan to value ratios, high cash equity requirements, regional “no go” zones, and demonstrated borrower track record. The ability of developers to proceed with new housing developments is being constrained by their inability to obtain sufficient finance. Research limitations/implications: This research uses survey data, together with an understanding of the project finance process to extrapolate impacts on the residential development industry across Queensland. No regional or sub-market analysis is included. Future research will include subsequent surveys to track any loosening of credit policies over time and sub-market sector analysis. Practical implications: The inability to obtain project finance is identified as a key constraint to new housing supply. This research will inform policy makers and provide important quantitative evidence of the importance of availability of development finance in the housing supply chain. Social implications: Queensland is facing a supply shortfall, which if not corrected, may lead to upward pressure on house prices and falling housing affordability. Originality/value: There is very little academic research on development funding. This research is unique in linking bank lending criteria to new housing supply and demonstrating the impact on the development industry.

The Profiling of Property, Plant & Equipment (PPE) Contributions in Australia and Malaysia Public Listed Construction Companies

The purpose of this paper is to study the profiling of property, plant and equipment (PPE) contributions in Australia and Malaysia construction companies. A company’s worth is usually based on the listed share price on the stock exchange. In arriving at the net profit, the contribution of PPE in the company’s assets is somehow being neglected. This paper will investigate the followings; firstly the level of PPE contribution in the construction firms by comparing the PPE contributions to the company’s asset as a whole which includes fixed (non-current) assets and current assets. This will determine the true strength of the companies, rather than relying on the share prices alone. Secondly, the paper will determine the trend of company’s asset ownership to show the company’s performance of the PPE ownership during the period of study. The data is based on the selected construction companies listed on the Australian Stock Exchange (ASX) and Malaysian Stock Exchange, known as Bursa Malaysia. The profiling will help to determine the strength of the construction firms based on the PPE holding, and the level of PPE ownerships in the two countries construction firms during the period of study.

An analysis of NSW rural property market : 1990-2010

Rural property in Australia has seen significant market resurgence over the past 3 years, with improved seasonal conditions in a number of states, improved commodity prices and a greater interest and purchase of rural land by major international corporations and investment institutions. Much of this change in perspective in relation to rural property as an asset class can be linked to the food shortage of 2007 and the subsequent interest by many countries in respect to food security. This paper will address the total and capital return performance of a major agricultural area and compare these returns on the basis of both location of land and land use. The comparison will be used to determine if location or actual land use has a greater influence on rural property capital and income returns. This performance analysis is based on over 40,000 rural sales transactions. These transactions cover all market based rural property transactions in New South Wales, Australia for the period January 1990 to December 2010. Correlation analysis and investment performance analysis has also been carried out to determine the possible relationships between location and land use and subsequent changes in rural land capital values.

UK pre-pack reforms : pause for thought in Australia?

On 31 March 2011 the UK Government announced new measures to regulate the use of pre-packaged sales in administration. The legislation is not expected until later in 2011, but the announcement heralds a shift in regulatory attitudes towards pre-packs in the UK which should give all local pre-pack advocates pause for thought when considering the merits of embracing the procedure in Australia. In the Jan-March 2011 edition of the Australian Insolvency Journal, an interesting article by Nicholas Crouch and Shabnam Amirbeaggi extolled the virtues of pre-packs and called for “legislative reform to embrace pre-packs” in Australia. By way of reply (and in a spirit of constructive debate) this article respectfully contends that while pre-packs certainly have their place in preserving business value in certain circumstances, Australia should be careful not to sleepwalk into adopting a procedure which legitimises phoenixing at the expense of creditor confidence and participation in our insolvency regime.

Will Queensland tort reform change valuation practice and valuers liability

It has been common practice over past property boom and bust cycles in Australia for financial institutions and property owners who have suffered a loss in the property downturn to sue valuers for negligence. Damages claimed are based on the price differential between the valuation at or nearing the peak of the market and the subsequent sale in the market downturn. However, the context of valuers liability has become increasingly complex as a result of statutory reforms introduced in response to the Review of the Law of Negligence Final Report 2002), in particular the introduction of Civil Liability Acts introducing proportionate liability provisions. Legislative reforms have had some positive outcomes for Valuers, however valuers need to continue to maintain high ethical standards, independence and professionalism in valuation practice.

Education on plant and machinery valuation for the real market : Malaysian practicality

The purpose of this paper is to determine and discuss on the plant and machinery valuation syllabus for higher learning education in Malaysia to ensure the practicality of the subject in the real market. There have been limited studies in plant and machinery area, either by scholars or practitioners. Most papers highlighted the methodologies but limited papers discussed on the plant and machinery valuation education. This paper will determine inputs for plant and machinery valuation guidance focussing on the syllabus set up and references for valuers interested in this area of expertise. A qualitative approach via content analysis is conducted to compare international and Malaysian plant and machinery valuation syllabus and suggest improvements for Malaysian syllabus. It is found that there are few higher education institutions in the world that provide plant and machinery valuation courses as part of their property studies syllabus. Further investigation revealed that on the job training is the preferable method for plant and machinery valuation education and based on the valuers experience. The significance of this paper is to increase the level of understanding of plant and machinery valuation criteria and provide suggestions to Malaysian stakeholders with the relevant elements in plant and machinery valuation education syllabus.

Sale of Businesses in Australia (2nd ed.)

The greater volume of businesses sold in Australia each year are small to medium enterprises. The administration of business contracts presents far different challenges than, for example, contracts for the sale of goods alone or contracts for the sale of land. The subject matter comprises both real and personal, and tangible and intangible property. Other considerations that do not affect those other commonplace contracts include dealing with employees who are both remaining and departing, taking account of restraints of trade, and the phenomena of the passing of property being different in respect of different forms of property being transferred in the same contract. In keeping with the format of the previous edition, the book is written with the busy practitioner in mind. It deals with the formation of business contracts, all aspects of disclosure both contractual and statutory, the role of agents, and detailed consideration of the different types of subject matter of small business contracts including, the lease of the premises, intellectual property, goodwill, licences, book debts and plant and equipment. It has up to date treatment of income tax implications of the sale and the impact of the latest Commonwealth legislation on dealing with employees of a business on sale. Consistent with the last edition, the book has chapters on time of the essence and completion, personal securities, restraint of trade clauses, special conditions and remedies for breach by both parties and misleading or deceptive conduct by the seller. In relation to personal securities, whilst the current State and Territory based law on Bills of Sale and other Chattel Securities has been the subject of commentary, the proposed national reform agenda has also been commented upon although that legislation is not due until May 2010 at the earliest

Commercial developments in airport precincts : lease and valuation issues : preliminary study

Over the past 30 years the nature of airport precincts has changed significantly from purely aviation services to a full range of retail, commercial, industrial and other non aviation uses. Most major airports in Australia are owned and operated by the private sector but are subject to long term head leases to the Federal Government, with subsequent sub leases in place to users of the land. The lease term available for both aviation and non aviation tenants is subject to the head lease term and in a number of Australian airport locations, these head leases are now two-thirds through their initial 50 year lease term and this is raising a number of issues from a valuation and ongoing development perspective. . For our airport precincts to continue to offer levels of infrastructure and services that are comparable or better than many commercial centres in the same location, policy makers need to understand the impact the uncertainty that exists when the current lease term is nearing expiration, especially in relation to the renewed lease term and rental payments. This paper reviews the changes in airport precinct ownership, management and development in Australia and highlights the valuation and rental assessment issues that are currently facing this property sector.

The emerging framework of cross-border insolvency in and around Australia : Saad Investments, Japan Airlines and Lehman Brothers – part one

Recent decades have witnessed a global acceleration of legislative and private sector initiatives to deal with Cross-Border insolvency. Legislative institutions include the various national implementations of the Model Law on Cross-Border Insolvency (Model Law) published by the United Nations Commission on International Trade (UNCITRAL).3 Private mechanisms include Cross-Border protocols developed and utilised by insolvency professionals and their advisers (often with the imprimatur of the judiciary), on both general and ad hoc bases. The Asia Pacific region has not escaped the effect of those developments, and the economic turmoil of the past few years has provided an early test for some of the emerging initiatives in that region. This two-part article explores the operation of those institutions through the medium of three recent cases.

The emerging framework of cross-border insolvency in and around Australia : Saad Investments, Japan Airlines and Lehman Brothers – Part Two

Recent decades have witnessed a global acceleration of legislative and private sector initiatives to deal with Cross-Border insolvency. Legislative institutions include the various national implementations of the Model Law on Cross-Border Insolvency (Model Law) published by the United Nations Commission on International Trade (UNCITRAL).3 Private mechanisms include Cross-Border protocols developed and utilised by insolvency professionals and their advisers (often with the imprimatur of the judiciary), on both general and ad hoc bases. The Asia Pacific region has not escaped the effect of those developments, and the economic turmoil of the past few years has provided an early test for some of the emerging initiatives in that region. This two-part article explores the operation of those institutions through the medium of three recent cases.

Assessment of the application of contingent valuation theory to bio-sequestered carbon

The issue of carbon sequestration rights has become topical following the United Nations Convention on Climate Change (United Nations 1992 at page 1414) and the subsequent Kyoto Protocol (United Nations Climate Change Secretariat 1998) which identified emissions trading as one of the mechanisms to reduce greenhouse gas emissions. Australian states have responded by creating a legal framework for the recognition of rights to bio-sequestered carbon. There is a lack of uniformity in the approach of each state to the recognition of these rights, which vary from the creation of new and novel interests in land to the adoption of more traditional rights such as a profit a prendre. Rights to bio-sequestered carbon are likely to have an impact on the utility, marketability, value and financing of rural land holdings. Despite the creation of the legal framework for recognition of rights to sequestrated carbon, there has been a delay in the introduction of a formalised carbon trading scheme in Australia. In the absence of an established carbon market, this paper addresses the applicability of contingent valuation theory to assess the value of bio-sequestered carbon rights to a rural land holder. Limitations and potential controversies associated with this application of contingent valuation theory are also addressed in this paper.

Destination brand equity for Australia : testing a model of CBBE in short haul and long haul markets

The study of destination brand performance measurement has only emerged in earnest as a field in the tourism literature since 2007. The concept of consumer-based brand equity (CBBE) is gaining favour from services marketing researchers as an alternative to the traditional ‘net-present-value of future earnings’ method of measuring brand equity. The perceptions-based CBBE model also appears suitable for examining destination brand performance, where a financial brand equity valuation on a destination marketing organisation’s (DMO) balance sheet is largely irrelevant. This is the first study to test and compare the model in both short and long haul markets. The paper reports the results of tests of a CBBE model for Australia in a traditional short haul market (New Zealand) and an emerging long haul market (Chile). The data from both samples indicated destination brand salience, brand image, and brand value are positively related to purchase intent for Australia in these two disparate markets.

The valuation accuracy of multiples in mergers and acquisitions, and their association with firm misvaluation

This study explores the accuracy and valuation implications of the application of a comprehensive list of equity multiples in the takeover context. Motivating the study is the prevalent use of equity multiples in practice, the observed long-run underperformance of acquirers following takeovers, and the scarcity of multiplesbased research in the merger and acquisition setting. In exploring the application of equity multiples in this context three research questions are addressed: (1) how accurate are equity multiples (RQ1); which equity multiples are more accurate in valuing the firm (RQ2); and which equity multiples are associated with greater misvaluation of the firm (RQ3). Following a comprehensive review of the extant multiples-based literature it is hypothesised that the accuracy of multiples in estimating stock market prices in the takeover context will rank as follows (from best to worst): (1) forecasted earnings multiples, (2) multiples closer to bottom line earnings, (3) multiples based on Net Cash Flow from Operations (NCFO) and trading revenue. The relative inaccuracies in multiples are expected to flow through to equity misvaluation (as measured by the ratio of estimated market capitalisation to residual income value, or P/V). Accordingly, it is hypothesised that greater overvaluation will be exhibited for multiples based on Trading Revenue, NCFO, Book Value (BV) and earnings before interest, tax, depreciation and amortisation (EBITDA) versus multiples based on bottom line earnings; and that multiples based on Intrinsic Value will display the least overvaluation. The hypotheses are tested using a sample of 147 acquirers and 129 targets involved in Australian takeover transactions announced between 1990 and 2005. The results show that first, the majority of computed multiples examined exhibit valuation errors within 30 percent of stock market values. Second, and consistent with expectations, the results provide support for the superiority of multiples based on forecasted earnings in valuing targets and acquirers engaged in takeover transactions. Although a gradual improvement in estimating stock market values is not entirely evident when moving down the Income Statement, historical earnings multiples perform better than multiples based on Trading Revenue or NCFO. Third, while multiples based on forecasted earnings have the highest valuation accuracy they, along with Trading Revenue multiples for targets, produce the most overvalued valuations for acquirers and targets. Consistent with predictions, greater overvaluation is exhibited for multiples based on Trading Revenue for targets, and NCFO and EBITDA for both acquirers and targets. Finally, as expected, multiples based Intrinsic Value (along with BV) are associated with the least overvaluation. Given the widespread usage of valuation multiples in takeover contexts these findings offer a unique insight into their relative effectiveness. Importantly, the findings add to the growing body of valuation accuracy literature, especially within Australia, and should assist market participants to better understand the relative accuracy and misvaluation consequences of various equity multiples used in takeover documentation and assist them in subsequent investment decision making.