Airport hotel upgrade
Copenhagen Airport A/S has teamed up with Scandinavian hotel operator Nordic Choice Hotels and recently opened Clarion Hotel Copenhagen Airport, which is Nordic Choice Hotels’ high-end brand. The 378-room hotel will incorporate a large conference center, which will help attract new conferences, congresses and international events to the city.

Scandic expansions
The Nordic hotel chain Scandic will increase its extensive portfolio with two new 4-star hotels, Scandic Kødbyen and Scandic Falconer. Scandic Kødbyen will be located in the popular Meatpacking District with 370 rooms while Scandic Falconer will open in the fashionable neighborhood of Frederiksberg with 330 rooms and a conference center that can accommodate events for up to 3,000 people.

In heart of town
The city centre will see an exciting range of brand new 5-star hotels when Hotel Herman K, Hotel Sander’s, Nobis Hotel Copenhagen and Hotel Post Nord start operating in the years to come. Wakeup Copenhagen will supplement the high-end options with another 2-star hotel offering 585 rooms next year.

Hostels for the budget traveler
The Danish family owned Arp-Hansen Hotel Group will open their first hostel in the city centre in the summer of 2017. The hostel will hold 1,000 beds and 280 rooms, all with shower and toilet. Due to the new hostel’s large size, the hostel meets the needs of conferences with large groups of people, who wish to stay central on a budget. The German A&O Hotels and Hostels Group is also coming to town when they open their first hostel in Copenhagen in the buzzing area of Nørrebro with 270 rooms this Spring.

In the case of Australian equities, a number of things stand out. Firstly, anecdotally there remains a high level of caution even to the point of scepticism. Cash levels remain elevated. Stock weightings remain below historic norms. In short, the asset class looks to be under-owned.

Secondly, and even more importantly from a demand perspective, the 34-year bull market in bonds looks to be over. For 30+ years, bond yields have headed south, driving bond prices higher. This is now reversing. Bond prices are declining as the yield curve grinds higher. As we have seen with renowned bond investor Bill Gross, we have reached the inflection point and the risks are now materially higher.

Why is this significant? Because the bond market is substantially larger than the equity market. If even a small percentage of investors reduce their exposure to bonds and re-allocate to equities, the effect of this ‘marginal buying’ would be pronounced.

I suspect this is already well underway — certainly in the US at least. Shares, which are fully valued in an historical context, continue to rise because of the ‘weight of money’: the marginal buyer switching from bonds to equities.

If we now turn our attention to Sydney property, there are possibly four main groups that constitute the ‘demand profile’.

The first of these is the home-owner, the spent buyer. Whilst this group may upsize or downsize and may dominate turnover, their net impact on demand is neutral. So, it is really the other three groups that provide the marginal buying.

Second is the investor pool. Traditionally this category has been one of the major drivers, accounting for up to 40% of demand. This group is clearly in the sights of the regulators, with a directive from APRA this month instructing lenders to restrict growth to this segment to a maximum of 10%. With additional pressure being applied through the percentage of interest-only loans, lending value ratios (LVRs) and net interest margin (NIM), this group is post-peak and on the way down.

Third is those non-owners wanting to buy their primary residence. This pool now appears more stretched than ever on two fronts:

a) those who can afford to buy have already capitulated and bought and,

b) the remainder looks less able to buy than ever.

On this second point, Demographia’s 13th Annual International Housing Affordability Survey (2017) is telling, finding that Sydney is now the second most unaffordable major housing market in the wold behind Hong Kong.

Offshore buyers a critical factor

This leaves the heavy lifting — the marginal buying — to the much-maligned offshore purchaser. And this is where some analysis falls down. Whilst the off-shore buyer may only represent in the vicinity of one in ten purchases, a very high percentage of these purchases represents new buying, that is, true marginal buying. So, this category is critical, also because affordability and other metrics have less impact on their buying decisions. But while this category has the most financial capacity to continue to grow, it too appears to be post-peak given the increasing regulatory scrutiny.

It is important to remember that the supply side will be growing, so the market requires steady buying at the very least but preferably increased buying to maintain prices or drive them higher. With the three main categories of marginal buyer under duress, it’s difficult to see how demand can be maintained let alone increase.

In summary, despite both Australian equities and Sydney housing prices appearing fully valued, the outlook for each asset is noticeably different. In the case of Australian equities, there is latent demand in the system. In the case of Sydney property prices, the marginal buyer may have been largely marginalised!

Content first published on cuffelinks.com.au.

Managed by Housing and Development Board in Singapore.
Tracks the overall price movement of the public residential market.
The index is based on quarterly average resale price by date of registration. The index till 3Q2014 was computed using stratification method, while that from 4Q2014 onwards is computed using the stratified hedonic regression method. 1Q2009 is adopted as the new base period with index at 100. The index from 1Q1990 to 3Q2014 are rebased to the new base period at 1Q2009. Indices from 1Q1990 to 3Q2014 are re-scaled using a factor of 100 (new index in 1Q2009) / 138.3 (original index in 1Q2009) multiplied on the original index level to derive the re-based index level for the respective quarters. Due to rounding, there could be some differences in the quarterly price change compared to the RPI series before re-scaling.

Hilton HHonors is Hilton’s guest loyalty program in which frequent guests can accumulate points and airline miles by staying with the various Hilton family of brands. The Hilton Honors program is one of the largest programs of its type, with over 30 million HHonors members. The program has partnerships with most major airlines where guests can “Double Dip” and accumulate both points and airlines miles simultaneously with their hotel stay. Similar to frequent flyer programs, there are various tiers of membership which guests can reach depending on the amount of stays and points accumulated annually, the higher the tier the more benefits members receive. The membership tiers are as follows:

Blue (obtained upon enrollment)
Silver VIP (obtained after 4 stays or 10 nights)
Gold VIP (obtained after 20 stays, 40 nights, or 75,000 base points)
Diamond VIP (obtained after 30 stays, 60 nights, or 120,000 base points)
Diamond VIP is the highest tier level, these members receive benefits such as access to the Executive Level lounge at Hilton Hotels, complimentary in-room internet access, Guaranteed 48-hour reservations, a dedicated “Diamond VIP Desk” which members can call for priority reservations and travel planning, a dedicated VIP check in line at larger hotels, best available room pre-assignments, and special in-hotel amenities such as room upgrades and arrival amenities.

The program has seen significant growth in China, which alone saw a 79 per cent increase in Hilton HHonors membership in 2011. This was attributed in part to the refining of the brand identity in China, including the addition of a Chinese name and a Chinese website for customers to sign up and redeem their points.