Warning! Watch Sales at Australia 108


Melbournians take note! How does a 10-minute flight from the CBD to the airport for under $100 sound? This could be a commercial reality within about four years.

It’s thanks to Uber, which next year is going to start testing its four-seater electric aircraft designed for the job. Dallas and Los Angeles are the only other cities scheduled as well.

It’s an exciting possibility.

But yours truly is wondering today what passengers might see next year if they happen to look out the window at the Southern Hemisphere’s tallest building going up — the building known as Australia 108.

The (bad) history of tall buildings opening

The Australian Financial Review reports that buyers here have walked away or defaulted on 10% of apartments bought off the plan.

This looks ominous. There is something known as the ‘skyscraper curse’.

It’s the history these mega skyscrapers have of opening in recession. Australia 108 is due to be completed next year.

It appears that the number of sold apartments in the building is currently less than it was way back in 2015.

That’s a long time to go backwards. Apartment valuations have taken a big hit and don’t look like turning around anytime soon.

Is this a warning or an opportunity? There’s no clear-cut answer. It’s not crazy to suggest a fund could come in and buy up some of the stock and hold them off market until the cycle turns upwards.

It appears something like this is happening elsewhere, at least. A fund manager out of Sydney has raised $500 million to buy up ‘underperforming’ commercial property.

It looks like it was an easy pitch. The hunt for yield is getting more urgent in Australia as the cash rate sinks.

Savers are getting whipped; the interest on most savings accounts is below the rate of inflation. This looks bullish for the stock market in general. 

The first port of call for most will be bank stocks. This is familiar territory for most and the banks pay good dividends. But it’s not so clear whether bank dividends are sustainable.

Low interest rates are not so great for banks. The outlook for credit growth is mixed.

Plus, we have the Reserve Bank of New Zealand threatening their NZ subsidiaries with higher capital ratios. That makes me wary.

Clearly, I’m not alone.

The market is hunting income elsewhere, too. The S&P ASX/200 A-REIT Index [ASX:XPJ] is up nearly 19% this year. It’s also what’s probably fuelling the rally in Telstra [ASX:TLS].

But just look at the big miners. Iron ore just leapt 5% to go to US$106. This rally is really enduring now and setting up the possibility of more special dividends.

Iron ore inventories in China are at their lowest since early 2017. One research firm expects the price to hit US$120 by August.

Hmmm. Take those kinds of forecasts with a grain of salt. There’s no guarantees in the market. But you’d have to agree things are reasonably bullish for Aussie stocks currently.

Market to power higher over time

Don’t forget that traditionally you get a lot of tax loss selling this month before investors reset for the new financial year. So the trend this month is bucking history, too.

At the start of the year, Profit Watch made the case for the Aussie market to attack all-time highs.

We’re much closer now. And it’s not crazy to suggest that a rising market will suck in more buyers if the rally continues.

Here’s one thing we do know. It’s not going to be a smooth ride. There’s bound to be corrections along the way.

For now, the rally is heavily biased towards the bigger end of the market.

I’d be surprised if this positive momentum didn’t filter down to the smaller and more speculative stocks at some point.

So there’s still opportunity to make hay while the sun is shining.

It’s setting up for an exciting and interesting second half of the year. But do watch sales at Australia 108. The skyscraper curse has good history.

My take? Stay cautiously bullish.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch