Yellow Brick Road likely to be the first to respond to the next RBA rate cut

The NSW O’Farrell government is facing an interesting dilemma – does it borrow and risk losing its precious triple-A credit rating or sell off state assets? I’m sure everyone has mixed feelings about which is the smarter alternative, although I must admit I favour losing the triple-A credit rating for one simple reason: it makes the government leaner and meaner.  Business is run under that economic philosophy, so why not the NSW government?

There is nothing wrong with infrastructure funding questions given that in previous governments the taxpayer waste defied all logic, e.g. the failed/aborted Rozelle Metro, for which the previous NSW government wasted $500 million and all for no gain. The O’Farrell government has $53 billion earmarked for transport and roads infrastructure and services over the next four years – Rebuilding NSW: 20-year vision.

You may be surprised to learn that on November 19 to 20 the 4^th Annual NSW Major Projects Conference 2012 is being held, where they will state the obvious. “New South Wales is entering an exciting time of renewal as the challenges to build and exceed beyond its past achievements is reaching critical tipping point. The NSW economy has grown to become the largest and most diverse economy in Australia, contributing one third of the nation’s gross domestic product and is home to 32% of Australia’s population, with even more significant population growth on the near horizon.”

One would be correct in asking why NSW holding is just its fourth annual NSW major projects conference when it should be around the 24^th. The simple answer is that due to "no infrastructure" under the previous government, in all probability it was formed from pure desperation to simply get something happening. City might appear to be down, but it is far from out, which takes me to James Packer’s article – For the good of Sydney, back this plan – a very interesting read, and I back his plan.

The biggest news for the property market this week was Macquarie Group takes Yellow Brick Road into home loans market, which will cause Yellow Brick Road to go  head-to-head with the big four banks. Under the deal, Yellow Brick Road will try to undercut the big banks by offering a 1.15 percentage point discount on all new homes in the first 12 months of the loan. The big four have actively acquired all the second-tier banks to protect their market share, which is approximately 80% of the Australian home loan market. It should also be noted that most of the biggest real estate agencies within Australia bank with Macquarie Bank (us included), so this announcement provides Macquarie Bank with direct access to Australia’s biggest and most successful real estate agencies. I will make a prediction Yellow Brick Road will be the first bank to respond to a rate cut by the Reserve Bank of Australia (RBA).

We predicted last week that the RBA would keep the cash rate at 3.25%, which I believe is directly aimed at what happens in the United States of America following the re-election of Barack Obama – Superman has just 54 days to save the world. The simple reality is that the RBA holds rates but with a loose grip. So the stark reality of the decision is quite simple: RBA keeps its powder dry. Congratulations to the ANZ economists, who have correctly called the RBA’s cash rate announcements seven for 10 thus far in 2012.

Building data still gloomy, outlook brighter although it should be noted that construction activity in Australia has now been in contraction for 29 months. If that is not a warning to the Gillard government then nothing is.  When the economic principle of supply v demand is applied, you don’t have to be Einstein to work out which demographic market is going to benefit.  Australia already is recording the highest ever rental markets, which are  being further driven by the Gillard government decision: Sydney executive rentals stung by Living Away from Home Allowance reform. An idiotic decision that punishes business simply because our elected government is marred by reckless spending deficiencies – decisions are made solely on re-election not economic competence.

Fascinating that 12 months ago, Mosman houses and apartments reached their peak numbers for 2011. The same can’t be said for 2012, with house listings down 32% from 365 days ago. For property voyeurs, this clearly indicates a strong market and it will be interesting to see whether  the house numbers fall below 100. In 2011, Mosman recorded 38 weeks with house volumes below 100, the lowest recording being just 78.

Robert Simeon is a director of Richardson  Wrench Mosman and Neutral Bay and has been selling residential real estate in Sydney since 1985. He has also been writing real estate blog Virtual Realty News since 2000. The RWM real estate model has sold in excess of $1 billion in database sales globally.