Wednesday, October 29, 2014

Becalmed by SALM

The Australian Department of Employment have updated their Small Area Labour Market (SALM) data up to the June quarter. Conus has posted updates on this for NQ LGA's. Small Area Labour Market data for the Far North ; Updated Small Area Labour Market graph

I confess to being becalmed by this for a few days while trying to get my head around the data and methodology. This latest update on the series has been delayed and is now based on the updated SA2 geographical areas, and also finally updated for the 2011 census.

The Structure Preserving Estimation (SPREE) methodology here is based on data from Centrelink, ABS labour force survey, and the 2011 census:  "The purpose of SPREE is to produce small area labour market estimates that reflect the regional disparities of the Centrelink data, while being consistent with the ABS Labour Force Survey estimates."

There is further detail provided at DoE. However to get to the outcomes for Cairns I have taken the unemployment rate data for the small SA2 areas within the SA3 areas of Cairns-North and Cairns-South which comprises what we understand as the urban area of Cairns for June quarter 2014. The larger Cairns SA4 region is reported monthly by the ABS labour force survey and includes Cassowary Coast, Tablelands, and Douglas.


I don't think there are many surprises there. The new SA2 data series only goes back to Dec quarter 2012 so to concentrate on the subsequent period the change in the 18 months up to the latest June 2014 quarter is this:
The largest falls have tended to be in areas of the highest unemployment but not exclusively. Perhaps to be expected. The largest move here is in Cairns City itself which I suspect also has a highly mobile population.
Just outside this geographic zone there was a big fall in Yarrabah although still at very high levels. This was replicated around communities on the Cape but not universally indigenous with an opposite move down on Palm Island.
The unemployment rate is defined as the level of unemployment as a proportion of the labour force consistent with ABS methodology. However unemployment itself is derived differently by "apportioning the level of unemployment at the SA4 level, as published by the ABS, across each of the SA2s within that region in accordance with the distribution of Centrelink Newstart and Youth Allowance (other) beneficiaries, benchmarked by ABS unemployment estimates by age, sex and marital status at the Greater Capital City Statistical Area (GCCSA) level."
This is the change in the SALM number unemployed for the SA2 areas over the 18 month period:

As we know, or should, the trend decline in the ABS unemployment rate for Cairns SA4 over this period has also been accompanied by a lower participation rate and lower estimate of aggregate employment. The SALM methodology takes SA2 participation rates from the 2011 census and ABS population estimates to then allocate a weighting for each SA2 labour force within the larger ABS SA4 for Cairns Region. 
The SALM methodology advises against directly inferring employment. So to ignore employment and just use the labour force numbers provided from SALM which are then used with unemployment to derive the unemployment rate these are the relative declines for Cairns SA2: 

What does it all mean? I would advise it is time for another vino! Although it did cause me to quickly look for some Centrelink data and while the most easily available was only the 9 months to June 2014 for Newstart and Youth Allowance there are some quite significant changes in that period between the largest LGA's in Queensland:

Cairns would still remain well above Townsville and Mackay relative to population for total numbers.

Property investment boom from Singapore

In previous posts on the developer behind the high density Cairns CBD unit proposal I made some comments on debt and the low interest rates available in Singapore: A quick look at Aspial Corporation; Billionaires getting cheaper!

So it was of interest to see this report at Bloomberg: Singapore Landlords Build World Empires With Bond Sales
Singapore developers have spent more than $9.8 billion on foreign purchases this year, almost double the same period of 2013, snapping up real estate from malls in Beijing to luxury apartments in Sydney and London. The island’s house prices fell 0.7 percent in the third quarter and shop values dropped 0.2 percent, the Urban Redevelopment Authority said last week.
Property companies’ “upside potential is limited in Singapore amidst an increasingly challenging operating environment,” said Yvonne Voon, an equity analyst at Credit Suisse in Singapore. “The lower cost of funds in Singapore has allowed local corporates to bid more competitively for overseas acquisitions, particularly in higher-yielding markets like Australia and the U.K.”
Not any criticism of Aspial or the project proposal but something I would keep a watch on in coming years.

Sunday, October 26, 2014

Reinsurance and FNQ

Yes! Thank you Frances Coppola for the link: Reinsurance and the Liability Insurance Crisis
ABSTRACT: Insurance-industry accounts of the liability insurance crisis of the mid-1980s often cite disruption of supply in reinsurance markets as an important contributing factor. Economic theories of the crisis have not explored this explanation for the severity of the crisis. This article investigates the extent to which events in reinsurance markets affected liability insurance market outcomes. It documents significant shocks to reinsurance supply in the early 1980s and finds evidence of subsequent disruptions to the price and availability of reinsurance. Regression analysis of liability insurance profitability over the time period supports the hypothesis that problems in reinsurance markets played an important role in the crisis. Copyright 1992 by Kluwer Academic Publishers
A wonky post for some relevance for FNQ in recent years beyond the pathetic populism from our media and Warren Entsch!

Frances Coppola @Frances_Coppola               
Reinsurance spirals develop when everyone is trying to lay off risks. Eurodollar spiral I wrote about was the same - everyone avoiding risk

Rents & Poverty

An interesting report at the SMH: Sydney's tale of property and poverty
Rural Tasmania, where unemployment rates are high and economic opportunities limited, had the nation's highest poverty rate at 16 per cent. But Sydney's poverty rate was not far behind at 15 per cent. That's well above the national average of 13.9 per cent and the highest of any other Australian capital. And there's a twist to Sydney's poverty story. The norm is for state capitals to have lower poverty rates than the rest of the state. Brisbane's rate, for example, is 1.5 per cent below the rest of Queensland and Hobart's rate is 2.2 per cent lower than the rest of Tasmania. But in NSW the reverse it true; Sydney's poverty rate is 1.2 percentage points higher than the rest of the state.
So why is the poverty rate in a place with the wealth and economic dynamism of Sydney similar to regional Tasmania? You've probably guessed the two-word answer: housing costs.
This is derived from the recent ACOSS Poverty in Australia Report 2014.
ACOSS chief executive, Cassandra Goldie, said high housing costs are a "unique factor" contributing to Sydney's higher than average poverty rate. "We've just been through a period of very rapidly escalating rents in Sydney and those who are in poverty are much more likely to be renters than owners or purchasers," she said. "It's a huge factor driving poverty in Sydney."
It was noted in my previous post Cairns rents fit for a King that rents in Cairns were now higher than Townsville and Mackay based on the most recent RTA bond data. Cairns also has lower median incomes than either of those as well as a larger proportion of renters. A similar comparison to the ACOSS report could be interesting particularly if rents increase further relative to inflation.

Statement regarding Aquis

Statement regarding Aquis from Mr David Ford, Commissioner for Liquor and Gaming:

I have noted the comments in media articles regarding the probity investigation currently being undertaken by the Office of Liquor and Gaming Regulation (OL...GR) into Aquis Casino Acquisitions Pty Ltd (Aquis), and its associates, regarding the proposed purchase of the Reef Hotel Casino in Cairns. It is essential that the importance and process of this investigation is properly understood.

This investigation is being conducted in accordance with well established and internationally recognised principles and its proper completion is a critical underpinning of the strength and reputation of the casino regulatory environment in this state. This has been a key requirement in the Queensland casino legislation since the Casino Control Act was passed in 1982.

The OLGR probity investigation into Aquis commenced on 5 March 2014 after receiving a formal request to do so, and certainly not the 12 months ago quoted in media articles.

Given that these matters are by their very nature complex and intrusive, the length of any investigation is critically dependant on the availability of information and the cooperativeness of the applicant. Although significant progress has been made in the investigation, important financial information, including issues around its equity funding and future cash flows, remains outstanding from Aquis.

In addition, discussions with the Queensland Police Service and through them with international policing agencies, to finalise consideration of the reputation and criminal history of Aquis and its associates are yet to be finalised.

On 12 September Aquis formally advised that they had set the date, 28 November for the matter to be finalised. They were made aware of the difficulties this date would impose on the probity process and the very real risk that the process, and the necessary government approvals, would not be able to be completed by this date.

The nature of casinos has made them targets for organised crime, both in their ownership and as a means of laundering ill-gotten gains. While this has never been an issue in Queensland it is important that the regulatory processes work to eliminate these risks as far as is possible.

Casino approval processes in Queensland are also subject to scrutiny by regulatory agencies throughout the world. A failure to adequately undertake probity investigations will reflect not only on the Queensland regulatory framework, but on the casino operators already licensed within this state, with potential consequences for them in other jurisdictions and in the eyes of their shareholders.

Obviously, there are a number of factors which affect the length of probity processes including whether the applicant has been similarly licensed elsewhere, their corporate structure and source of funds. I would note that Aquis has had little corporate history in Australia, has not been similarly licensed elsewhere and is sourcing a significant proportion of its funds from offshore.

The OLGR is well aware of the need for a timely response in a commercial transaction such as this and will continue to engage with Aquis to finalise the matter as quickly as possible.
- Sourced from the FB page of the Member for Cairns. Some extraordinary comments from people who either don't understand the issues or don't consider any kind of probity or ethical consideration relevant at all.

Saturday, October 25, 2014

Pigs may fly at Wongai

It is now past three years since I posted scepticism on the viability of a Cape York Coal Rush? Gene Tunny at QEW also suggested that those with environmental concerns maybe shouldn't worry too much: Don’t expect Cape York coal mining any time soon.

So it was with interest that I noted this week the list of projects for FNQ included the $500 million Wongai coal project north of Cooktown on Cape York. A rather modest project at 1.5 mta coking coal for the capex. Back in the coal rush days, only a month after the 2012 landslide election result, the new Guvmint gave it a priority project status with the Co-ordinator-General. The terms of reference for the EIS were posted in July 2012, and since then nothing.

Without delving too deeply the proponent is Aust-Pac Capital, as trustee I think for Wongai Trust which apparently is associated with indigenous landholder groups including connections to Balkanu and Gerhardt Pearson. They have subsequently entered into a farm-in arrangement with Bounty (ASX:BNT) who gain a share for doing further work including the EIS. Bounty would look to be a contract miner which has sort of run out of contracts now that coal mining has turned down. They do however have experience in underground mining and some equipment in a shed in Mackay.

With things tough in coal Bounty has done some corporate restructuring and issued a prospectus to raise up to $4.5 million to fund the Wongai project work and EIS. The prospectus was extended twice but then closed after failing to raise the minimum required funds. Unsurprisingly punters were reluctant to contribute their money to this project. Bounty has announced they are now in discussions regarding other financing options.

Surely there is a Chinese billionaire or two out there with a few million cash to spare?

Links: Conservationists fear Bounty Mining coal mine on Cape York could destroy Great Barrier Reef

Friday, October 24, 2014

Dalton deception on Aquis

A slow start to the day so have only just caught up with the latest Cairns Post headline splash on Aquis: Fung threatens to walk away

I may make further enquiry and update later but the following commentary from business editor and chief Aquis advertorialist Nick Dalton is noted:
It is understood he is getting increasingly frustrated with the delays in probity investigations. By comparison the $70m takeover of Jupiters Townsville casino by tourism identity Chris Morris took about eight months from January to last month. Mr Fung announced his bid for Reef casino on ­November 13 last year, nearly 12 months ago.
I posted the following comment which promptly made it through the Post's own probity process despite being blocked from comment at their FB page:
The comment here by Nick Dalton that Fung has been delayed longer than the Townsville process is NOT correct. Fung may have announced a proposal to bid last year but the formal offer and bidders statement with Reef was not until 21st March 2014. That is 7 months which is less than Townsville. These timeframes are also similar to the probity process for the Packer proposal in NSW which has since become controversial for being rushed. There were tenders for private consultants to assist some months ago I believe. The process has not been unusually delayed at all and to suggest so is misleading and deceptive.
Meanwhile the market response to the threats to walk away has been almost zero from the 18% of holders yet to accept the offer. There are two brave buyers listed at $4.15 and $4.16 and several sellers from $4.18 upwards with no turnover yet today. The takeover offer is at $4.35.

Also don't forget that the probity clearance includes the Canberra Casino under ACT jurisdiction with the investigation being undertaken jointly.

Thursday, October 23, 2014

Who says?

I did manage to catch up with this weeks Wednesday Businessweek edition of the Cairns Post. This included the regular "myview" contribution, this time from Brett Moller of CCIQ on asset leases. Below that was the regular "briefcase: businessweek says" editorial which was on Aspial, presumably from Nick Dalton and complements his other yarn on Aspial.

So I was slightly confused to see a different format being shared around Facebook, including Aquis Casino, representing the "briefcase" as the opinion of Brett Moller.

I can't find a link or source to this second format? Surely it wouldn't have been altered to misrepresent? Howie has been known to make such mistakes in the past.

Billionaires getting cheaper!

I posted recently on Aspial, the Singapore property developer expanding into apartment developments in Australia. A few days ago the company featured in The Australian: Singapore-based Aspial eyes local apartment pipeline
Singapore-based Aspial Corporation, headed by billionaire businessman Koh Wee Seng, has amassed six sites in Australia since January, delivering a development pipeline of 5200 apartments, it has revealed in an investor briefing. The secretive developer has bought a number of sites along the eastern seaboard, but has made few public comments about its development intentions.
Not to be left out Nick Dalton picked it up and skilfully paraphrased Singapore developer Aspial briefs investors on its major project in Cairns
Singapore-based Aspial Corporation, headed by billionaire businessman Koh Wee Seng, has revealed its project in Cairns is the firm’s biggest in Australia. But the secretive developer has not mentioned buying a second site in Cairns.
Koh Wee Seng  is listed at #37 on the Forbes Singapore list with a net worth of $720 million. I can't find any reference elsewhere to him being a billionaire. Never mind, either billionaires are deflating, or close enough is good enough apparently, or perhaps even they were confused with his wealthier sibling.

I don't know either how Aspial could be described as secretive. The projects in Cairns and Melbourne Southbank have been extensively reported. The company is listed on the Singapore Stock Exchange and company announcements and financial information are easily searched. The investor briefing referenced above as the basis for these stories can be found here:

The Australian development projects are the same as I listed from the Aspial annual report in a previous post: A quick look at Aspial Corporation

Wednesday, October 22, 2014

No G20 boost at Airport

Passenger numbers at Cairns Airport in September don't appear to show any particular boost from the G20 talkfest. September also includes the start of school holidays. Domestic numbers were up by 2.7% on the previous year. However this continues a trend to slower growth with the rolling 12 month average now dipping below 4% for the first time since 2010.

Growth is now more in line with domestic trends being reported at other major airports. The slower growth is also consistent with the renewed capacity discipline from the airlines. Total flights and seats (international & domestic) were down by 2.5% and 1.4% respectively on the previous year.

International passenger numbers were down by 5.1% on the previous year but there is a note that volcanic ash in Japan may have reduced these numbers by an estimated 5%. So that may even be a slightly improving outlook at international from previous heavy falls or it could be that G20 blip.

Sunday, October 19, 2014

Cairns rents fit for a King

Residential Tenancies Authority rental bond data for the September quarter shows Cairns surging past both Townsville and Mackay to take the crown for most expensive rentals of the North Queensland regional cities.

The components of the rental market vary in each city. Cairns has a higher proportion of units than Townsville which is higher again than Mackay.  The dominant components in all are 2 bedroom units, 3 bedroom houses and 4 bedroom houses. The pattern in the graph above is replicated in the other components with the current status in the September quarter:


This RTA data is for new rental bonds during the quarter so would represent the most recent state of the market but not the full stock of rental bonds which would be expected to lag any movement. RP Data have released their September rental update which does show some differences although with the same patterns replicated: RP Data National September Quarter Rental Review 2014

This also shows dramatic falls in Mackay but with unit rents there still above Cairns. I have sent a query to RP Data to clarify their data. The RTA rents I have graphed above also match the current asking rents displayed at SQM Research.
Mackay and Townsville both have a higher proportion of 3br in their unit mix while Cairns has a relatively higher proportion of 1br which could also shift the median when the sector is aggregated as RP Data have done. New stock may also have a disproportionate influence on new rentals.
Housing news this week though was the state pitching in $9 million for land development infrastructure in the southern corridor: First stage of Edmonton’s Mt Peter residential mega-development gets go ahead by State Government
Which seems slightly asymmetrical with the Aquis world view in their response to submissions released last week:
Currently the majority of the residential growth (and employment) is planned to be accommodated in consolidated densification in the central suburbs and around Edmonton as well as in the urban expansion area known as Mt Peter located between Edmonton and Gordonvale to the south.
Given the location of employment north of the city and residential growth south of the city, the creation of travel demand through the southern and central suburbs will expose the existing constrained transport corridors to increased congestion and extended travel delays.
Given the nature of Cairns as a linear city consisting of urban development on a narrow coastal plain between mountain ranges to the west and the Coral Sea and Trinity inlet to the east, there is limited capacity to upgrade transport corridors to accommodate the travel patterns that would result from persisting with the current planned settlement pattern.

Note: The state electorate of Cairns has one of the highest proportions of renters in Queensland.

Saturday, October 18, 2014

Fung gets heavy on probity

Aquis has extended its offer for Reef Casino Trust as reported at the Cairns Post: Cairns Reef casino takeover by Aquis developer sets firm new deadline for action. Extensions in takeover bids are not at all unusual. The bid was to expire 31 October but has now been extended to November 28 to allow two principal conditions to be satisfied.

Acceptances are now at 81% with 90% a condition which allows compulsory acquisition of any stragglers. Presumably the acceptances include the 71% holdings of Accor and Casinos Austria. This really shouldn't be any problem as posted previously it doesn't really make sense to accept before other conditions are fulfilled as you don't get paid anyway and lose control of the ability to sell on market should you subsequently wish.

This leaves the probity requirement and regulatory approvals from the Office of Liquor and Gaming. Which is where it gets more interesting because if we take Mr Fung at his word he is implicitly threatening to walk away from Reef, and possibly Aquis, if he doesn't get his probity clearance in the next month.
Aquis is considering its position if the Queensland gaming regulatory approval conditions are not satisfied by 21 November 2014. If such approvals are not obtained by such time, Aquis is currently minded to not further extend the Offer beyond 28 November 2014 although Aquis reserves its right to do so. If this final regulatory approval condition remains unsatisfied at the end of the Offer Period, the Offer will lapse and no RCT units will be purchased pursuant to the Offer.
The ASX announcement stresses that the Reef offer is a separate transaction to the Aquis proposal although a "valuable stepping stone". There is a somewhat stronger emphasis on this in the reported comments from Fung in the Cairns Post where the Reef is “a necessary and fundamental step in the group’s plan to ­develop the $8.15 billion Aquis integrated resort at Yorkeys Knob”. This is also what the ACCC was told.

Similarly, comments on the probity investigation are also rather more opinionated:
He said “in our view the extension provides ample opportunity for OLGR (Office of Liquor and Gaming Regulation) to complete their investigations and advise us of the outcome.”
The ASX announcement states that Aquis considers it has made good progress with regulatory approvals. Would he really pull the plug if a probity inquiry was not completed to his own schedule? It is suggestive of some tension between Aquis and the State Government as also indicated in recent media reports. I'm not sure that making threats around a probity inquiry is what I would call appropriate but then maybe I have different standards.

He could have been watching too many Godfather movies or that's just the way they do it in Hong Kong, where there has also been a lot of political turbulence of late. The comrades responded to the democracy protests by summoning the HK business elite to Beijing in a move straight from the George Orwell playbook: Trouble in Hong Kong: Beijing summons tycoons

Tony Fung missed out on the exclusive list of seventy invitees. Perhaps he was busy that day?

Source: South China Morning Post

Note: A previous post on a questionable business deal associated with Tony Fung was sourced from well know HK shareholder activist and ex investment banker David Webb who has supported the HK protesters: Admiralty address

Friday, October 17, 2014

Regional employment mixmaster

Amidst the ABS labour force the regional numbers for September probably didn't contribute a great deal new to the jigsaw: Regional jobs data shows Cairns improvement stalled

Perhaps more interesting are the regional comparisons. Conus Trend unemployment rate in Townsville is now up at 9.9% compared to 7.5% in Cairns, although the participation rate in Townsville is significantly higher.

Further down the coast Mackay threw up 8% as the raw unemployment rate. The Conus Trend currently has this nudging up to 5.6% which is the highest in 5 years. The RTA also released rental bond data this week with the median 2 br unit rent in Mackay plunging 20% since the September quarter last year. I will massage and post this later but Cairns now tops the list for the highest rents of the North Queensland tropical cities.

Conus has also updated the trend youth unemployment rate for Cairns at 21.5% after the raw number spiked higher. I'm sure we can expect some headline hyperbole on this but additional caution must be taken as the sample numbers for these sub-sectors can be extremely small. My favourite male and female sub-sectors continue to exhibit a possible anomaly with a divergence still between the male and female unemployment rates for Cairns and the female proportion of total employed around historic highs.

Queensland Government Statistician summary for September. These also provide part-time and full-time numbers although as far as I'm aware these just pro-rata the state data based on a previous split from the census, so should be ignored as potentially misleading at a regional level.
Note: The Government Statistician numbers use a 12 month rolling average. Pete has provided some background on how this varies from the trend at Conus: Comparing Trend to the 12 month average 

Thursday, October 16, 2014

Exchange rates, airfares and tourism

The tourism deficit responds to a weaker $AUD: Qantas Warns Weaker Aussie Will Trim Visitors’ Air Fare Discount
Visitors to Australia will get a smaller airfare discount compared to outbound travelers as a weakening currency makes the country a cheaper holiday destination, according to Qantas Airways Ltd. (QAN)
The carrier’s international unit will probably earn closer to half of its sales from local purchases and half from overseas as the Australian dollar weakens, Chief Financial Officer Gareth Evans said at a conference in Sydney yesterday. It’s currently making only about 35 percent of revenue offshore, he said, as the strength of the currency raises the cost of holidaying in the country and turns off inbound travelers.
“We are already seeing some shifting in demand” as a result of the Aussie’s fall from a record $1.1081 in 2011 to about 88 U.S. cents at present, he said. If the currency falls to between $0.80 and $0.85, the carrier “will see much stronger demand coming out of the U.S. and Europe.”
Differing levels of international demand mean airlines often have to discount tickets to fill flights departing from more subdued markets. At A$1,932 ($1,703), the cheapest fares from Sydney to London Heathrow on Qantas’s online booking site cost about 20 percent more than the 887-pound ($1,419) lowest-priced tickets in the opposite direction for travelers departing Nov. 15 and returning a week later.
Also positive feedback from Mantra who have a significant presence in FNQ:
The decline of the Australian dollar, along with cheaper air tickets, was stimulating inbound tourism, Bob East, chief executive officer of hotel operator Mantra Group Ltd. (MTR), said on a panel at the Citigroup Inc. event. It is fueling greater inbound business, we have no doubt,” East said. 

Wednesday, October 15, 2014

Perpetual Petrol Price Perplexity

The Cairns Post has run again on the always contentious issue of petrol prices: Petrol rivalry needed to curb fuel hike in Cairns and Far North Queensland

The perplexity on petrol prices is even more perplexing because of the number of inquiries there have been and the amount of information that is freely available. You can find lots of information on petrol prices at the Australian Institute of Petroleum, which is sourced from Motor Mouth.

The wholesale price structure is actually quite transparent and is derived from a benchmark for refined products out of Singapore. Obviously more remote locations will pay more at the retail level. Beyond that some concerns on regional retail prices related to regional competition are more valid. These are the 40 week average graphs from AIP for Cairns and Townsville:

Cairns has historically had higher prices but they also tend to be less volatile than Townsville and lag any moves which would seem to me to be indicative of an absence of competition. I don't have access to longer term data but think when I looked at this previously a few years ago Cairns also lagged on any upward move but could be wrong on that so would have to check.

The larger scale and most competitive markets in SEQ apart from being cheaper exhibit entirely different price characteristics to the regions. This is the 40 week average for Brisbane but is also replicated by Gold Coast and Sunshine Coast:

Increased competition will also increase volatility which then becomes another source of perplexity for the populace, particularly on talkback radio and facebook forums!

Meanwhile among the regions the most curious of all in recent months has been the retail petrol price in Ayr. Not only is it below Townsville but has the lowest premium to SEQ in the state by a not insignificant amount:


What the hell is happening in Ayr? I did send a query recently to Motor Mouth and also to the local Ayr Advocate with no response. Perhaps I should have sent the query to the Burdekin Herald?

Update: There is feedback that there have been two new petrol stations open in Ayr. Maybe something to keep a watch on.

Tuesday, October 14, 2014

No chance of an average cyclone season?

Cairns Post: 2014-15 tropical cyclone outlook: only one cyclone to cross Australia’s east coast
THERE’S good news for people living in cyclone-prone areas of Australia, with fewer tropical cyclones predicted this season.
The report then goes on to cite a 66% chance of fewer cyclones than normal/average in Australia predicated on near El Nino climate conditions over recent months, before quoting a Bureau of Meterology (BOM) spokesman:
In past El NiƱo years, there has been at least one cyclone to cross the Australian coast, he said, warning that even one can cause significant damage and be potentially fatal.
"At least one" does not appear to be exactly the same thing as "only one"? This has all been based on the 2014–15 Australian Tropical Cyclone Outlook. There has been some modelling uncertainty over the probability of an El Nino event for some months now.

The BOM have been careful to quote only probabilities, not predictions, unlike the media reports. The 66% chance of fewer than average cyclones is balanced by a 34% chance of more than average cyclones. Which makes me wonder what happened to the probability of just an average number of cyclones?

Never mind the BOM probabilities above are for Australia which is broken down into five regions, the probabilities are even more average for FNQ and the Coral Sea:
The eastern region outlook indicates a near average tropical cyclone season is most likely (42% chance of above average, 58% chance of below average. About a quarter of tropical cyclones in the eastern region make landfall. Forecast accuracy in this region is low.
So it all looks pretty average to me!?!

Note:  There are on average 25% fewer cyclones each season in the northern region than there are in the eastern region. Perhaps this could explain at least some of why it is valid for risk based property insurance premiums to be cheaper in Darwin than they are in Cairns!

Monday, October 13, 2014

The costs of bad council decisions

The proposed Cairns CBD Aquarium is yet another project where media PR bullying has overcome sound decision making in Cairns. Gavin King:
Just heard some exciting news about the Cairns Aquarium with the project receiving final building permits today for the piling and slab construction stage. This means the project is on target to turn the first sod on its CBD site in November.
I welcome the project. Not sure on the location, and thetparking aspect has been more contentious though. This project was approved despite not meeting car parking requirements in a location well known to be a problem already. Note to the new Hilton owners of immediately adjacent Doubletree ex Holiday Inn. The overwhelming feedback at a seminar last Thursday morning at your venue was that nobody wanted a repeat seminar at your venue because they couldn't park within cooee!

Sunday, October 12, 2014

There is truth, and then there is Warren Entsch

The black dog roaming Parliament House:
"Whenever I hear of anyone in crisis or with conflict in their lives I am the first person to go support them."

Labor has called for opposition whip Warren Entsch to be sacked over his refusal to grant government MP Michelle Rowland leave from parliament to care for her sick child.
I had the misfortune to attend a strata seminar last Thursday night where Warren spoke for an hour on his achievements with insurance. Serious delusion or incorrigible liar? My iPhone recording came out OK though so will review and comment later.

Saturday, October 11, 2014

A quick look at Aspial Corporation

The decrepit, degraded, budget constrained Australian Bureau of Statistics begrudgingly released regional building approvals this week. You can find an update on this at Conus: Building Approvals continue to strengthen in the Far North

The big news in Cairns was that a number above zero appeared in the "other residential building" column. This is such as unit and apartment dwellings. There were six (6). This is the first in Cairns (ex 4 in Douglas) since a duplex in Bentley Park back in August 2012. A look at the SA2 data indicates these latest approvals were comprised of 3xWoree + 3xFreshwater. Big stuff.

If you have been following the trends in national building approvals the key driver has been the more volatile high rise unit sector in the capitals. A sector entirely absent in Cairns since the GFC. Also a sector which has attracted some attention as the focus for foreign investment particularly from China. Which brings us to Aspial Corporation.

Aspial is the Singapore company behind the proposed high density development on the vacant Spence St land opposite Cairns Central. Listed on the Singapore exchange with a market capitalisation around A$700 million probably appropriately described as a medium sized property developer in Singapore. The corporate background was actually jewellery retailing where it is still active. This was an inherited family business of Koh Wee Seng.

The property development division has been the driver of growth and a rapid expansion of the balance sheet over recent years:

Note: Calendar FY. 2014 is the half year to June 30

That expansion has pretty much entirely coincided with the period of a debt fuelled property boom in Singapore post the GFC. Singapore has introduced a series of macro-prudential controls and restrictions to try and cool their hot property market while maintaining extremely low interest rates.

This has in turn fuelled Singaporeans to turn to foreign property investment. Singapore ranks #4 for foreign investment in Australian real estate behind China, Canada and the USA. There was a good report on this in the Sydney Morning herald a few months ago: Singaporean investors hungry for a piece of the Australian housing market.

The Singapore property market has now turned with valuations falling in recent times despite the low interest rates, and some further falls anticipated. Aspial have about half a dozen ongoing projects in Singapore but beyond that all future projects listed in their most recent report and described as their focus for the next year are in Australia:

These sites have been acquired over the past year. Some of these appear to be somewhat larger than previous Aspial developments in Singapore, albeit the Cairns development is staged. Southbank is proposed to be the tallest residential tower in the southern hemisphere. This project has been kicking around for a while, at times with some controversy, before Aspial picked it up. So far Aspial haven't turned a sod on any development in Australia but have paid up well for the land.

It's pretty obvious that a key target market for these projects is going to be investors from Singapore and China. The Singapore central bank earlier in the year issued a warning on foreign property investment. There has also been oversupply in some locations in Australia: Landlords hit by glut of apartments; Apartment glut puts tenants on top. The scale of the Cairns proposal could be interesting down the track for sectors of the local real estate market.

Broader financial aspects are where the bigger risks could arise with some concerns currently on imminent debt rollover for Singapore developers: Singapore Condo Builders Facing $19 Billion Wall. The FY2013 annual report indicated that the bulk of Aspial debt was on a 2-5 year duration.

I wont delve into the complexities of the Singaporean exchange rate and interest rate mechanisms but interest rates generally align with US benchmarks. The SMH link above reports a variable mortgage rate as low as 1.17%. The Aspial 2013 accounts indicate that they capitalise interest at an average weighted rate of 2.14%. This allows Aspial to turn a rather modest return on assets into a far more impressive return on equity.

There are some Catastrophists on a Singapore debt bubble, as there are with China. One doesn't need to be in that camp for a more balanced awareness of the risks in both now more widely acknowledged: Asia's borrowing plunge

This isn't also meant to be either too cynical or critical of Aspial which I haven't really delved into very deeply. Rather lets just say that when it comes to Aquis and Aspial, both the proponents and the projects, neither are exactly at the lower end of the risk spectrum should there be any economic accident.

Meanwhile I trust that Aspial have a competent CFO and they remember to send Janet Yellen a Christmas card this year, or perhaps a present of a new punch bowl.

Previous post: Land valuation weirdnesses revisited
Cairns Post: Asian developer Singaporean Aspial Corporation buys another CBD site
Also posts: Chinese investors are pushing into Melbourne and Sydney
Risk and the chance of an economic accident: Volatility and Market Pricing

Wednesday, October 8, 2014

Your guide on how to interpret News Ltd journalism

The ABS yesterday released Arrivals and Departures data for August. All good. Arrivals and departures both continue to grow with arrivals now outpacing growth in departures. Arrivals from China continue to grow.

However, on my evening walk to my local RSL for refreshment I could help but note the report in todays Courier-Mail, which is the only place I bother to read the Mail because it is free:
"Australia is back in favour with international tourists, as overseas visitors flock here in numbers not seen since before the Sydney Olympics."

Lets look at the graph from the ABS data:

Yes, I can see clearly that international short term arrival numbers have only grown by about 40% (eyeball approximation) since the Sydenay Olympics!

Never mind, the Qld proportion of 'state where most time spent' finally broke out of a continual trend of being lower than the previous year! Albeit with qualifications as last year was a very low August peak.

Aquis: Junket to Macau

Junkets to Macau usually comprise gamblers from China. The recent media and business junket from Cairns to Macau may not have involved much high roller gambling but certainly generated plenty of PR blather which included at least the following generated by recipients of a freebie on the Aquis jet:

Nick Dalton, Cairns Post: Aquis delayed until 2016 ; $40m splurge on Reef Casino; French colossus eyes AquisAquis to generate bonanza for local firms; Fung reveals big Aquis drawcards;

Peter Michael, Sunday/Courier Mail: $8billion gamble on Cairns casino; Hong Kong’s Tony Fung hopes for approval for his $8.15 billion Aquis gambling complex near Cairns

Kristian Silva, Brisbane Times: Canefields and casinos: Cairns at a crossroads; Junkets 'crucial' for proposed Cairns casino; Meet the men behind the Aquis casino

John Mackenzie, 4CA: "blah, something, something, blah"

The timing of the media assault, which saw Nick Dalton achieve new levels of hyperbole and sycophancy, is interesting. Perhaps it had something to do with this concurrent report at The Australian: Queensland ready to roll dice again on casino bids
THE Queensland government has put on notice the two Chinese-backed companies vying to build multi-million-dollar regional casino developments, warning that it could issue a fresh round of gaming licence tenders if proposals do not meet its requirements.         
Queensland Deputy Premier Jeff Seeney said the government would consider reissuing bids for an integrated resort licence if the short-listed regional proponents failed to meet the probity and government requirements.
Mr Seeney said the ASF Consortium’s $7.5 billion Gold Coast Broadwater development and Tony Fung’s $8.15bn Aquis resort north of Cairns faced challenges.
“If one or more than one of those proposals is not successful in meeting the criteria, then it is likely that the government would go back to the market,” he said.
“It would be opened up again in another market-based process for proponents to put forward expressions of interest.”
Mr Seeney said the regional proponents had challenges.
There is no challenge which can not be overcome with a frenzy of media hype. Business representatives on the Junket to Macau apparently included Advance Cairns, Cairns Chamber, and TTNQ with the full flight passenger manifest still unconfirmed.
Peter Michael, the FNQ correspondent for the Courier-Mail, managed to surpass Nick Dalton for numerical inaccuracy with a report which included a Macau growth number now 4 months out of date before the recent downturn, and an Aquis high roller estimate which either misunderstands the distinction between gaming turnover and revenue or has misplaced a decimal point.

Monday, October 6, 2014

The geodesy of daylight saving

It's that time of year again when Queenslanders have to put up with jibes on their inability to grasp the fundamentals of daylight saving. The irony is that most of these come from persons, even otherwise intelligent and generally knowledgeable persons, with an inability to grasp the basics of geodesy, or even simple geography.

The Cairns Post couldn't resist a report: Time keeps ticking for Far North as daylight saving begins which includes comments from Brett Moller which have nothing really to do with why daylight saving is not so attractive in FNQ as in more temperate zones. Brett is a lawyer.

I have repeated this link several times over the years since it was posted in 2007 but it remains the most relevant I am aware of to explain simply some of the geodetic and geographic complexities/simplicities, particularly relevant to Queensland: Daylight saving beyond the fading curtains

I wonder how many people are even aware that the 'longest day' at the solstice is neither the earliest sunrise or the latest sunset? Never mind. I'm sure they will have an opinion on daylight saving anyway!

Meanwhile I noted an unusually rare thoughtful comment from Barnaby Joyce: "Daylight Savings, a euphemism of having to give up an hour of your mornings to people who prefer afternoons. Bike riders not happy."

Debt & Wealth

Paul Sheehan, resident conservative columnist at the Sydney Morning Herald:

If we are so wealthy, why are we in so much debt?

Excellent response tweet from Peter Whiteford, prominent economist now at ANU:
If we are so wealthy, why are we in so much debt? AKA if we are in so much debt, why are we so wealthy?

Which reminds me of causes and correlations.

Thursday, October 2, 2014

Pirates plunder Treasury

The announcement that the next instalment in the Pirates of the Caribbean series is to be filmed exclusively in Queensland has created much excitement. While locations will include Port Douglas and the Whitsundays it will mostly be based at the Village Roadshow studio on the Gold Coast.

The film was lured with the aid of $21.6 million from Canberra. However this is not 'new' money but was allocated by the previous Guvmint in 2013 for 20,000 Leagues Under The Sea, which subsequently stalled. Disney have now been allowed to roll this over into the new adventure.

Despite the excitement there is good reason to query such subsidies for this type of film production. Gene Tunny has a good opinion post on this at The Drum: Taxpayer money wasted chasing film productions. Gene also has several posts at Queensland Economy Watch: Is it worth paying $10K each for temporary film industry jobs?; Government should resist subsidising Disney Nemo film – no long-term benefit to Qld; Drum opinion piece – Taxpayer money wasted chasing film productions
Paying over $10,000 each for temporary jobs on a film production doesn’t seem like a good use of public funds to me when there are so many better uses. Indeed, we’d probably be better off spending $10,000 on a training course for a long-term unemployed person. And if we’re going to subsidise the film industry, we should at least spend the money on films that actually contribute to Australian culture.
Update: Gene has posted again today Don’t we have better things to spend $22 million on than Pirates of the Caribbean 5?
We don’t really face a choice of having people employed on an international film production or having them unemployed – and if that really is the choice we should make sure they get some re-training for a more reliable job.

There appears to be some job inflation in the report today at the Cairns Post with previously postulated job numbers escalating from the initial 2,000 to 3,000 based on absolutely nothing at all. The official media statement vaguely refers to "thousands". Perhaps they need more extras for a pirate movie? I'm sure retrenched coal miners would make excellent pirate extras and require minimal retraining.

It is also noted in the report that it was "confirmed the Queensland Government has provided incentives including payroll tax exemptions to lure the production but would not reveal how much." There is no reference anywhere in the media statement to any contribution from the Queensland Guvmint.

Meanwhile both Joe Hockey and Tim Nicholls are seeking further cuts or asset sales to deal with their budget emergencies as the Age Of Entitlement is supposed to be over. I think we could have just found some entitlements they could easily have cut. Best summed up I think by Firstdogonthemoon:

Update: The Member for Cairns seems to have increased the job inflation bidding in his FB post. It is now "thousands of local jobs".
Update 2: Brisbane Times "set to create at least 1000 jobs".

Wednesday, October 1, 2014

What is happening with the vacancy rate?

The HTW CairnsWatch report from Rick Carr was posted yesterday. I agree with the narrative of an ongoing modest recovery in the Cairns economy albeit with some minor reservations on employment and airport data. However, what is going on with vacancy rates?

If I have eyeballed Rick's graph correctly the vacancy rate has now reached a new three year high after bottoming and trending up since 2012? We know there is no new supply of units and building approvals for houses, while recovering, remain at comparatively low historical levels relative to population. Construction will also lag approvals. 

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