SMEs upbeat … Tax change promises rural pain … Sydney property poised … Brand power … Office vacancies … Online grows … Economic roundup

SMEs upbeat

Business conditions among the SME business sector remained strong in the December quarter, according to the latest quarterly survey of SMEs by NAB.

All sectors other than construction, finance and health reported improved conditions, says George Frazis, executive general manager of business and private banking at NAB. “But the latter two industries are still experiencing strong conditions.”

About 44% of the SMEs surveyed in the SME Business Conditions Index expect profits to improve over the next year, down slightly from 48% in the September quarter.

Those SMEs in the financial and health sectors are the most optimistic about profits for the next 12 months.

– Amanda Gome

Tax changes decimate rural SMEs

Many rural SMEs will be hit hard by the Howard Government’s changes to the tax treatment of non-forestry managed investment schemes, a leading industry researcher says.

These investment schemes are used to fund about 30 olive and nut-growing companies, acquaculture producers and vineyards across the country.

Under the new regime, announced yesterday, investors who claim deductions on upfront payments made to these schemes may be legally challenged by the Australian Taxation Office.

Shane Kelly, managing director of research house Adviser Edge, says the changes will decimate managed investment scheme operators and the thousands of agricultural contractors who work for them.

“Companies with projects in the pipeline for future years will have invested in infrastructure, contractors have bought machinery and employed people; for them it will be a disaster.”

He says the small and medium-sized operators with investments up to $20 million, who comprise the majority of the industry, will be the worst hit.

“They have less capacity to change what they do – someone who is just a pearl producer or just a walnut farmer and doesn’t have the alternative revenue sources to fall back on – will struggle,” he says.

Rod Roberts, executive chairman of walnut orchard manager Webster Ltd, says that in two years his company will lose all of the income it receives from running orchards for managed investment scheme operator Gunns Ltd.

“We are very disappointed that the Government hasn’t put transitional arrangements in place. We’re half-way through a four year contract and we’ve put on staff and developed nursery infrastructure as part of that.

“We would’ve put on 100 workers over the next couple of years, not to mention the growth in downstream processing. All of that is jeopardised now.”

– Mike Preston

Sydney residential property market turnaround

Anyone looking to rent residential property in Sydney knows the market is tight — enough to turn a routine rental inspection into a bidding war between prospective tenants; or for sitting tenants to meekly accept rent rises of as much as 30%.

Part of the problem is that renters have nowhere else to go. A vacancy rate of 2% is considered to represent a market in balance; inner Sydney’s rate is much tighter at 1.3%, middle Sydney is 1.9% and outer Sydney 1.6%. With construction activity at record low levels rents can only go up — which is good news for investors.

Inflation pressures are easing and the Reserve Bank appears to have come to the end of its tightening cycle, producing a good environment for investors looking to re-enter the property market, especially in Sydney.

Australian Property Monitors says Sydney houses prices have grown just 0.5% over the past 12 months, the lowest annual growth rate of any Australian capital city. Units fared even worse; their average price fell by 2.9%.

By comparison, Perth prices, driven by the mining boom, rose by 31%, and units jumped 31.4% during the same period. And, supposedly flat markets also edged ahead — Brisbane by 5.1% and Melbourne by 3.1%.

New quarterly figures show the Sydney market is turning. In the December quarter the median house price in Sydney grew by 1.2% but the median house price in Perth grew just 0.9%. As Sydney prices stabilise, Perth may have already peaked.

Rod Cornish, head of property research at Macquarie Bank, sees a recovery in prospect. “By later this year you will begin to see Western Australia’s economy slowing down and then Australia’s economy slowing down. I think that you’ll see the Reserve Bank looking to boost activity in Victoria and NSW with a rate cut in 2008.”

“The rise in property prices around Australia has seen the affordability of Sydney property improve substantially. This has had an impact on migration levels and we are starting to see outflows from the state improve and that typically leads to an increase in demand,” says Cornish.

Not everyone agrees. Tim Lawless, the head of property research at real estate group PRD Nationwide, believes a broad recovery is due but he would like to see more conclusive data. “You can’t just look at vacancy rates in isolation,” he says. “When you start to see more market activity, a rise in median prices and rental yields increase to around 4.5% then I think you can say a recovery is under way”.

The biggest barrier to entering the Sydney property market has always been price, and in the current climate — with prices on hold, comparatively low interest rates and good economic growth globally — it’s clear that the prospects for the Sydney market are about as good as it gets.

– James Frost, eurekareport.com.au

Brand power online

Many of the most popular brands in the world are now internet-based, shows a report from Brand Channel. Google took the honours as the world’s most popular brand, followed by Apple, YouTube and Wikipedia. The report, which surveyed 3600 people in more than 100 countries, says the results show the importance of brands based around user-created content.

– Amanda Gome

National office vacancy rates at a record low

Office vacancy rates around the country have hit a 15-year low as the long-awaited upturn in the Sydney commercial property market slowly gathers pace, according to figures from the Property Council of Australia.

They show that 6.1% of the office buildings in the major office markets are empty, while CBD vacancy levels were 5.6% in January, down from 6.5% in July 2006.

In Sydney, limited new supply before 2010 and increased demand pushed vacancy down to 7.9% compared to 9.4% six months ago. But vacancy rates in Sydney will have to fall further before rents rise substantially, say industry observers.

Canberra is about to experience a glut in B-grade properties, as tenants upgrade. Melbourne is performing better than expected despite big increases in supply. Perth and Brisbane lead the nation, with Perth vacancy rates falling below 1% in the last six months.

– Jacqui Walker

Online keeps powering on

Time spent online by Australian internet users continues to grow, increasing to 12.5 hours a week from 8.9 hours in 2006, shows a survey from Nielsen/Netratings.

Nearly 80% of Australians claim to be regular users of the internet, with more than half saying they regularly used social networking or user-created sites. The majority also say they would prefer advertising on networking sites to membership or subscription fees, says a report in B&T.

Meanwhile, some analysts are warning of poor earnings growth for the media sector, according to today’s Australian Financial Review. Deutsche Bank expects the advertising revenue of mainstream media players to be affected by the growing share of online advertising as companies begin reporting first half year profits in the next few weeks.

– Amanda Gome

Economy round up

In bad news for SMEs facing recruiting difficulties, the unemployment rate has dropped to a new low of 4.5%, the lowest level since the 1970s, according to ABS figures released today.

A combination of 3200 new full-time jobs and a decline in the participation rate resulted in the 0.1% drop in unemployment.

– Mike Preston