Conservative property valuations on the rise … $10 billion in venture capital … James Hardie investigation wake up call …People keep dropping old media … AWA flood continues …

Conservative property valuations on the rise

There are early signs that conservative property valuations are on the rise as lenders get nervous about defaulting borrowers and a slower economy around the corner.

The conservative property valuations are proving a nightmare for property investors. Investors, real estate agents and market observers say they are fed up with independent appraisals, which they say are regularly undervaluing property by as much as 20%.

Discrepancies between the figure property valuers insist is fair and the price the buyer agrees to pay is disastrous for purchasers that are reliant on lenders for funds. This is because banks and mortgage providers lend money based on independent valuations, not the price the purchaser has agreed to pay.

Patrick Bright, managing director of buying agent EPS Property Search, says: “If you’ve exchanged contracts agreeing to pay $1 million for a property, and the bank’s valuer says the property is only worth $950,000, the bank will only lend you $950,000. If you can’t come up with the cash to cover the shortfall, you’re stuck. You lose the 10% deposit.”

Real estate observer and consumer advocate Neil Jenman, says lenders are covering their backs in case the economy turns and the number of borrowers forced to default soars.

“I wouldn’t say that the banks are pushing valuers to be cautious with their valuations, it’s more that the lenders are wagging their fingers at valuers saying, ‘you be careful now’,” Jenman says.

But some property industry observers say valuers appraisals are spot-on, and it is the starry-eyed buyers that are at fault. “More often than not, the purchaser hasn’t done the research, and they’ve been led by a sales agent to pay more than the property is worth. I hear these stories and I question why on earth the purchaser didn’t get an independent valuation before they agreed to pay that price,” Bright says.

Property buyers should insist on a second opinion if one appraisal comes in far below the agreed purchase price. Then demand that the valuer complete the assessment the old fashioned way — with a site inspection (the Australian Prudential Regulation Authority reported in May 2005 that 20% of valuations were being conducted remotely).

Make sure you have a way out in case the bank continues to insist that the purchase price is too high. Jenman urges buyers to insert a “subject to satisfactory valuation” clause into the property contract. If that fails, scream. “Yell, threaten and get angry,” Jenman says. “You’d be amazed how often that works.”

— Kristen Le Mesurier

$10 billion in venture capital invested in 2005/06

$10.9 billion was allocated to Australian venture capital investment vehicles in the 2005/06 financial year, up almost $1 billion from the previous year, Australian Bureau of Statistics data released on Friday reveals.

Close to $7 billion of that amount was committed to venture capital investments, leaving some $4 billion yet to be invested.

That great bulk of the venture capital funds were sourced from Australian investors, with overseas investors contributing just 6% to the investment pool.

The most popular destination for investment funds were leveraged or management buy outs, early expansion stage companies and late expansion stage companies.

— Mike Preston

James Hardie investigation wake up call for company directors

The Australian Securities & Investments Commission’s civil action against Hardie directors and executives, announced on Thursday, is a timely warning to all company directors of the seriousness of their responsibilities.

Meredith Hellicar, the chairwoman of Hardie’s board, former chief executive Peter McDonald and eight other former and current directors and executives face stiff financial penalties and disqualification as directors for their role in the restructure of James Hardie in 2001.

“Most SME directors don’t really understand the full responsibilities they have as directors under the corporations laws,” says Sue Prestney, SME chairwoman at the Institute of Chartered Accountants in Australia.

She says that although the days of business owner’s uninformed spouses sitting on family business boards is mostly over, there are still many directors failing to understand the risks associated with their role.

On the flip side, many potential independent directors do understand these risks and it is making it very difficult to recruit them on to boards of SMEs.

“Many SMEs can’t afford to pay independent directors what they must to find good people prepared to take on the onerous independent director’s role,” Prestney says.

— Jacqui Walker

Online revolution continues

Consumers continue to move from old media such as newspapers to websites. According to Roy Morgan Research released on Thursday, most newspapers lost readers last calendar year.

The Monday to Friday readership of The Australian Financial Review fell 4.9% to 255,000, and its weekend edition declined by 1.7% to 173,000 for the 12 months to 31 December. The weekday Australian newspaper bucked the trend, with a leap of 10.4% to 435,000 readers.

— Amanda Gome


AWAs head towards one million

Close to one million Australian Workplace Agreements are likely to be in operation by this year’s federal election, increasing pressure on the ALP to explain how it will implement its policy to abolish the individual agreements without creating employment chaos.

Almost 715,000 workers are now employed under AWAs across Australia, the Employment Advocate Peter McIlwain told a Senate estimates committee hearing on Thursday.

More than 250,000 workers have signed AWAs since WorkChoices laws came into effect in March 2006, a dramatic increase on the previous decade.

Small businesses registered more than 35,000 AWAs in the December 2006 quarter, more than any other sector of the Australian economy, figures from the Office of the Employment Advocate reveals.

AWAs grew fastest in the retail and hospitality sectors, between them signing an additional 35,606 workers on to the individual statutory agreement.

Further analysis of Employment Advocate figures reveals that small business will be most affected by any change. Business with fewer than 100 staff are the highest users, and retail and hospitality experienced the highest growth.

National Retail Association spokesman Gary Black says the retail sector has been slow to take up reform opportunities in the past, but was now coming to realise the advantages that AWAs offer. Retail awards had been “the most inflexible and counter productive around,” Black says, so it was unsurprising retailers were enthusiastically taking up AWAs.

He said Labor’s promise to abolish AWAs would have a heavy impact on the small businesses that dominate the retail sector. “They don’t have the resources to manage these changeovers, so if the system is changed that will be a big admin cost for them.”

NSW Business Chamber spokesman Paul Ritchie says the progress towards one million active AWAs meant Labor’s policy to roll back WorkChoices was even more of a concern.

But Council of Small Businesses Organisations of Australia (COSBOA) chief executive Tony Steven, refused to criticise Labor’s roll-back plan.

He said Labor’s IR shadow minister Julia Gillard was listening to COSBOA’s concerns, and that talks between them were “ongoing and working well”.

— Mike Preston

Economic roundup

The sharemarket came back to earth on Friday morning, down 9.2 points to 5983 at noon Friday after it smashed the magic 6000 point barrier at about 3.30pm Thrusday afternoon.

Economists are now speculating about whether the sharemarket is set for sustainable growth or is a bubble ready to burst.

The Australian dollar came close to its strongest 2007 weekly growth this week, its current price of US78.4 cents up from a low of US77.36 cents on Monday.

Reserve Bank data released on Thursday show household debt grew to $962 billion last year. Credit card debt grew at a rapid 14% in 2006, reaching $39 billion by December last year.

The Australian Bureau of Statistics revealed on Friday that Australia imported $14,591 million in January, up $21 million from December 2006.

And Australian workers are almost 20% less productive that their US counterparts, according to a recent Organisation for Economic Co-operation and Development report. Australia’s productivity has slowly declined since 2000, leaving Australia lagging behind other developed nations, the report says.

— Mike Preston


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