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Published on: Wednesday, July 12, 2017

By James Dunn

Warren Buffett has made his largest donation of his Berkshire Hathaway shares to charity in a decade, gifting about US$3.17 billion ($4.2 billion) worth of the company’s B class stock. The recipients are the Bill & Melinda Gates Foundation and four family charities linked to family members. The Gates Foundation will receive about US$2.42 billion ($3.2 billion) of Monday’s donations, while the rest will be shares between the Susan Thompson Buffett Foundation, named for his late first wife, and the Howard G. Buffett, Sherwood and NoVo Foundations, respectively overseen by his children, Howard, Susan and Peter. Berkshire says the 86-year-old Buffett has donated US$27.54 billion ($36.2 billion) to the five charities since 2006, including roughly US$21.9 billion ($28.8 billion) to the Gates Foundation. That still leaves Buffett holding about 17% of Berkshire (voting and non-voting), worth more than US$71 billion ($93.4 billion). He controls 32% of the voting A class shares. 

London’s luxury real-estate prices have hit bear-market territory, with the UK’s “Brexit” sending property investors to the exit. Prices in London are tumbling at the fastest and steepest rate since the GFC. On the back of the slump in the pound since last year’s referendum on European Union membership, the price index of “prime central-London” properties has slumped 23% from its 2015 peak when measured in US dollars, giving up 17% in just the past year. At the top end of the London market – which means homes selling for A$33 million and upward – prices are estimated to have fallen 25% in sterling terms. But long-term London investors will not be crying: over the past 40 years, prices in central London have risen 50-fold, according to real-estate agency Knight Frank. That is twice the rise in the Dow Jones Industrial Average over the same period.

Australian businesses are enjoying the best operating conditions in almost a decade, with the National Australia Bank business conditions index rising in June from +10.9 points to +15.1 points, a 9½-year high (the long-term average is +5.1 points), which takes the index effectively back to pre-GFC levels. The two biggest drivers of business conditions were stronger trading conditions and profitability, rising from +11 to +15 and +15 to +21 respectively, with the highest performing industries being wholesale, construction and manufacturing. Mining was “once again” the worst performer in the month of June. The business confidence index rose from +7.5 points to +9.3 points (its long-term average +5.8 points). Capacity utilisation fell from a 9-year high of 82.5% to 81.9% in June – still well above the long-term average of 81.0. Meanwhile, the proportion of firms reporting that they did not require credit lifted from around 52% in May to 70% in June.

Strong population growth continues to boost Australia’s aggregate growth rates, painting a more positive picture on the economy than what most households are experiencing, says CBA. Aggregate growth rates are heavily influenced by population growth – more people means more spending. But our strong population growth has flattered our headline growth figures. Australia’s population growth rate is significantly higher than most other countries in our OECD peer group: Australia’s population grew by 1.55% (373,000 people) in 2016, with net overseas migration accounting for 56% of that increase. Stripping out this effect and looking at a per-head basis, the latest national accounts put gross domestic product (GDP) per capita growth at just 0.2% in the year to March 2017, However, there has been a marked improvement in real net national disposable income (RNNDI) per capita: in the year to March 2017, RNNDI per capita rose by a solid 4%.

The second half of 2017 is likely to be an inflection point for the Australian housing market, says HSBC. The bank says that housing markets in Sydney and Melbourne will cool over the next 12 to 18 months, with the Reserve Bank of Australia (RBA) expected to prompt the process by lifting the cash rate early next year. HSBC predicts that house price growth will slow to 3%–6% in 2018, down from 8%–10% in 2017. Linking Australia’s housing cycle to the manoeuvres of the RBA in response to the mining boom, HSBC says high cash rates in 2011 (4.75%) held back housing to “make way” for the mining boom. More recently, cuts to the official interest rate (currently sitting at 1.50%) have fuelled a housing construction boom.

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