On small detonations of hope, bad weather and rabbit holes

It started out as a quiet week. Then everything exploded.

Reports, revisions, new programs, all pointing to the need to fast track sustainable change in the built environment..

Let’s see, this week’s list includes:

  • The Property Council now says that Premium grade buildings now need to be five star Green Star and to carry a NABERS Energy rating (we hear that’s four stars at least), plus a number of other environmental metics such as water and waste.
  • The NSW Government officially launches its Environmental Upgrades program, City of Sydney release of its framework for Environmental Upgrade Agreements, the funding mechanism that ties repayment of energy retrofits to the council rates (that’s right) And the PCA holds a great forum on the subject (more soon)
  • The latest PCA/IPD Green Property Investment Index that shows that on a capital basis  – yes and yes again –  green buildings are also gold
  • The Federal Government launches an Urban Design Protocol for Australian cities and towns, Creating Places for People (more on this soon)

And in a specific, micro, but important way:

  • Developers of Cape Paterson ecovillage now say they can prove through a study by Tosh Szatow (a previous contributor to The Fifth Estate) that their development can save tens of thousands of dollars off the cost of family bills and shave years off the mortgage

Why all this action? Here’s why:

We are running out of time. Everyone knows it. The property industry included. In fact, first and foremost.

What other industry do you see moving as fast and furious on the need to reconfigure our cities so we can survive the climate change that’s too late to avoid, and seize the savings on greenhouse gas emissions that are still in our grasp?

Green and greener
For some drama and creative response to the challenge it’s hard to go past WOHA architects, the Singapore based firm with a reputation for out there buildings especially in tones of deep green. One of its principals Richard Hassell in 2009 gave a wonderful insight into the firm’s work at a presentation for UTS in Sydney.

Now WOHA has its own retrospective at Deutsches Architekturmuseum in Germany this week of 19 of their greenest buildings.

Entitled Breathing Architecture the exhibition will highlight the “permeation” of buildings and landscape, of interiors and exteriors that the firm has struck a reputation for,  such as the Singapore School of the Arts and the residential high-rise The Met in Bangkok, which received the International Highrise Award 2010.

AMP Capital
The Fifth Estate
stepped into the world of financial sustainability this week, attending a media function at AMP Capital with all the key property heads providing a rundown on the nasty global outlook and the more positive outlook on home territory. Speaking were: Andrew Bird, director and chief investment officer, Property; Simon Vinson, head of new business initiatives and head of Asian property; Louise Joslin, fund manager Australian Core Property Portfolio and Adam Tindall, chief operating officer, property.

So what’s the verdict? From Bird it’s a bleak forecast on debt, with very little upside likely on the European front. Best to have no debt, he says, happily adding that his portfolio is exactly in that position. If the Global Financial Crisis V.I  consisted of governments bailing out the private sector, now that the governments are in trouble don’t expect the privates to repay the favour, he said. Bird’s key caution: the stock market is saying one thing (positive; periodically anyway) and the bond markets are saying something much more negative; the bond markets were spot on last time.

So what happens to asset prices in this scenario of scarce debt? They fall of course.

But as another property source pointed out, property is a safe haven when the financial markets take a battering. Unless you are forced to sell that is. This means that directly held unlisted property (such as most of the AMP Capital portfolio) can weather out the storm much better than listed assets, which will react to sentiment.

In housing, much of the market in Australia is directly owned, so even though the value of housing judged by recent sales might fall, most people will chose to not sell, and wait for an improvement in conditions.

In commercial property an unlisted fund can do the same. That’s where low gearing comes in handy because if you have high gearing, then the bank might start to worry about the loan to valuation ratio. This is what happened in previous downturns. Ask Sydney property developer Sid Londish who said some years ago how he never missed a payment to the bank, yet the bank stepped in and sold him up in the 80s crash.

It works like this. Say you have 30 per cent gearing on a property worth $1 million. If the value falls to $800,000 the value of your debt grows from 30 per cent of the asset to 37.5 per cent. And the bank might say, you have breached your loan to valuation lending covenant ­– LVR ­– and we want our money back.

That’s why property-loving Australians have been stashing away their cash and paying down their debt in droves.  And why it’s a very sustainable thing not to spend too much on “stuff” and save up.

In the GFC the banks chose not to sell up their debtors because the last time they did so they realised massive losses in a rotten market. The trick now ­? well, so far, is to hold on for grim death and wait for the market to improve.

In the commercial property sector, it was hilarious to watch the valuers refuse to downgrade property assets because they would cling for dear life to their mantra to use only comparable sales for valuation. There were no comparable sales because no-one sold a thing on the direct market. Yet around the world and in the listed property market asset values were slaughtered.

On Asia and sustainability
Back at the AMP Capital lunch, Simon Vinson shed some light on attitudes to sustainability in Asia where his portfolio is based. Serious sustainability will take a while to catch on there because in Asia land is so valuable, roughly 60 per cent of total property value compared to about 40 per cent in Australia, so that improvements ­­– the buildings –  tend to be viewed as not so important and can be seen as somewhat disposable.

Attitudes will change, but it will take time, Vinson said, and the change will be quicker in the office sector.

On retail ­– and consumers new-found love of saving instead of spending –  Joslin revealed why shopping centre owners can continue to report a good story on their property performance in the face of deteriorating overall retail conditions. It’s because in a strong centre the retail mix can be changed to suit the times. It’s a bit harder to do this in a strip shopping centre unless the retailers themselves can be highly flexible and innovative.

Tea Party down the rabbit hole
And some really good news that the Fairfax papers today picked up from The New York Times, support for the Tea Party is falling. These are the people who think sustainability is a world government plot.

It’s the same people who oppose energy efficient light globes and put out articles with headlines such as California’s Green Jihad.

The Fifth Estate – sustainable property news and forum

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