Looking for Bambi. Who are the two biggest potential victims of any apartment/housing fallout? Yes, the banks have lots of loans extended to developers and buyers, and the development companies are exposed as well, not to mention agents such as McGrath. But also take a look at Fairfax Media and News Corp for the two Bambi-in-the-headlights victims if there’s a sell-off and nasty slide in apartments, which the Reserve Bank warned there could be in its first Financial Stability Review of the year on Friday.

“An ongoing risk comes from the significant and geographically concentrated growth in supply of new apartments in Sydney, Melbourne and Brisbane due for completion over the next few years. This new supply may weigh on prices and rents in these areas. If that occurs, investors will need to service their mortgages while earning lower rental income and any households facing difficulties making repayments may not be able to resolve their situation easily by selling the property.”

But for Fairfax, with its Domain print and online property business, and News, which owns 64% of REA Group, the country’s biggest online property group, the stakes are much larger because both companies need the investor appeal of Domain and REA to support their share prices. REA has a market value of $6.91 billion, which accounts for much of News Corp’s US$10 billion valuation. Domain is not listed, but it accounts for well over half the $97 million of earnings before interest and tax, depreciation and amortisation from the company’s metro publishing business. Fairfax itself trades on a high price earnings ratio of 21, which is you use to put a value on Domain, it’s nearly $1.4 billion. Fairfax itself has a market value of $1.89 billion. — Glenn Dyer

Who you calling a witch-hunt? This morning’s Australian Financial Review quotes former NAB boss Don Argus as describing Labor’s proposal for a royal commission into banking as a “political witch-hunt” that could damage economic growth and spook investors. But what were the pink batts and CFMEU royal commissions all about? Wedging Labor and Bill Shorten and setting up a double dissolution election for the Turnbull government — nothing to do with good governance. Argus joins other big business people who have placed their heads in the sand about the way the public (bank customers) feel about the need for an inquiry — there is widespread support, as today’s Essential Report shows. — Glenn Dyer

China’s shell game. Data out yesterday show that property prices in China’s 70 major cities rose sharply in March, with Shenzhen in particular reporting a spectacular rise of more than 61% (bubble!). Prices rose in 40 of the 70 major cities. Prices of new residential buildings rose 4.9% in March from March 2015. In Beijing prices rose 16% year-on-year and in Shanghai they rose 25%. The rebound in property (thanks to an explosion in new bank loans), was perhaps the major driver of first-quarter growth (which rose an estimated 6.7%, annual). What would GDP have grown without the lending/property splurge? Total first quarter credit surged 58% from the first quarter of 2015. Bank loans rose, local government debt was swapped into local government bonds in the continuing bailout of provincial governments. Corporate loans rose. Believe it or not, but there was supposed to be a crackdown on lending in the March quarter — and yet bank loans soared. How long can the central government maintain the stimulus without creating another bubble? — Glenn Dyer

Peter Fray

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