Not Just About Subprime, Says Quinn

Sydney Morning Herald

Thursday April 3, 2008

Stuart Washington

REGULATORS had been three steps behind in tackling the credit boom that preceded the market meltdown, the chief executive of Stockland, Matthew Quinn, said yesterday.

He gave a terse assessment of businesses that exploded when the era of cheap debt came to an end and warned that consumers were on the brink of a spending slowdown that would have a dramatic effect on the broader economy.

"Some of our competitors have blown up: 'It's all about the subprime.' It's not. It's because they borrowed too much money," he told the Committee for the Economic Development of Australia in Sydney yesterday.

"[We should] face reality about what is a good business and what is a bad business. It's those that are silly and those that are sensible."

He said lax market regulation had allowed unprincipled lenders to give money to people who could not afford to repay loans.

Mr Quinn's criticisms of Australian regulators also included accounting errors exposed during the market turmoil.

Troubled companies including Centro Properties Group, audited by PricewaterhouseCoopers, and Allco Finance Group, audited by KPMG, have reported far greater short-term debts than previously revealed.

Mr Quinn questioned the effectiveness of the regulators if such errors could occur. "It comes down to transparency and the reliability of that information," he said after his speech. He also criticised reliance on asset valuations using complicated discounted cash flow models, instead of assessing values by relying on income from the properties. Many decisions to invest offshore in the property trust sector had been based on ego and financial engineering, rather than returns for investors.

Despite the grim tidings, Mr Quinn waspositive about the Australian consumer's ability to weather the problems, as long as interest rates do not continue to rise.

He also warned that the annual shortfall of 35,000 houses nationally could result in a housing affordability crisis that would require dramatic planning reform at all three levels of government.

"There's this huge imbalance between supply and demand," he said. "The states do these big plans, metropolitan plans, some better than others and then give it to the local governments to play god and work out what goes where. The whole thing is wrong."

On commercial office space, he said a vacancy rate of 3.5 per cent nationally meant there were good returns available.