Property market overview and outlook lowres

publication 6 / 2013

JUly 2013

residential Property MARKET OVERVIEW AND OUTLOOK

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JULY 20132

Residential Market Update

Consistent with investor expectations, Australian Residential Property median prices moved up by 1.9% in June to regain the decline in value that took place earlier in the quarter. The quarter concluded with a net change of 0.2%, which saw the year ending in June with a 3.8% median increase, as recorded by RP Data’s analysis. With the leading market indicators continuing to show the moderate strength in the market generated through improved affordability, expectations of a housing market recovery are growing. The Australian Financial Review, backed by APM data, reported that at the last weekend of July 2013, the housing market was at its “highest levels in more than 10 years”.

With the unemployment rate at 5.7% and inflation remaining at 2.4%, the Australian economy remained fairly stable. However, RBA governor Glenn Stevens recently indicated towards a further cut in the cash rate from its current 2.75% to a new historic low aiming stimulate the local economy.* This had a direct impact on the Australian

dollar, which declined to the lowest value in over 3 years to below 0.89 USD (current as at 2:30 pm on 6th August). This was having a dual effect on local affordability, by promising an improvement in housing affordability but also rising energy expenses.

Among the individual states, Sydney has so far returned the highest quarterly and year to date growth at 1.4% and 4.6% respectively. BIS Shrapnel, a leading data provider, has predicted the growth to continue over the next 3 years and improve prices by 19% to a median value around $770,000. The Perth property market, despite recent slowdowns in growth, currently stands at a 6.0% median value change compared to the same time last year. New home sales, driven by incentives, pushed on at a growth rate of 3.8% in June. Housing finance commitments were up by 1.6%, yet dwelling approvals fell by a seasonally adjusted 6.9% in June. Westpac Melbourne Institute’s consumer index remained flat.

* The cash rate was changed to 2.5% on the 6th of August.

The year ending June 2013 saw median values across Australian capital cities grow by an average of 3.8%, after a 1.9% monthly increase.

Source: RP DATA

6.1% 6.0%

5.6%

3.4%

0.2% -1.8%

0.9%1.1%

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Darwin( NT )

Canberra( ACT )

Melbourne( VIC )

Brisbane( QLD )

Hobart( TAS )

Dwelling Trend YoY (%)

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

Dwelling trenD year on year

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JULY 2013 3

RBA STATS

ECONOMIC GROWTH

AUD BUYS0.8931 USD

2.53% 1

2.5% in august0.25%CASH RATE

in Q22.4% 0.4%INFLATION

102.1 0.1%in JUlyin JUly

Consumer Sentiment Index Westpac - Melbourne institute

WORLDWIDE 2012US, EUROPE & JAPAN 2012 0.5%

2.8%

3.1%0.6%

AUSTRALIAN 2012AUSTRALIAN

1st quarter 2013

GDP growth2012-2013

0.2%

Australian Employment

0.1%

UNEMPLOYMENT

PARTICIPATION

5.7%

65.3%

housing finance

$ 23,289total dwelling commitments

1.2%

$ 520,000 Median House Price

$ 440,000 Median Unit Price

Highest annual median house

Highest Annual median UNIT

PERTH – 14%

DARWIN – 8.3%

New Dwelling Approvals

- 6.9%

New Home Sales

RENTAL MARKET STATISTICS AUSTRALIAN RENTAl YIELD

3.4% Australia wide snapshot

-3.6

%

3.0%

annual CHANGEIN total

property sales

Difference from Peak Dwelling

Value

Dwelling Values

3.8%

1.9%

0.2%

annu

al mon

thly

quar

terl

y

HOUSE Yield 4.1%

UNIT Yield 4.9%

Key statistics JUly 2013

Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA¹ Current at 14:30 pm 6 August 2013 * Data updated to July 2013



STATE CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW SYDNEY Sydney’s FE Score is the highest in Australia, however, fell for a second month after the SQM Research tracked Asking Price Index saw a decline this month. Auction clearance rates across NSW saw a minor improvement from already high levels.

VIC MELBOURNE Melbourne’s rating fell this month given the softer statistics over the month. State Discount Rate however saw a minor improvement. Melbourne’s overall outlook indicates a recovery has emerged.

QLD BRISBANE Brisbane’s rating improved by the largest amount this month again with positive leading indicators. The SQM Asking Price index showed a large positive change and mainly contributed to this result.

WA PERTH Perth’s score saw the largest fall this month, primarily due to its large change in seller asking price. Vacancy rates also increased and thus the property market was sluggish in the past month, however remains healthy overall.

SA ADELAIDE Adelaide also experienced a decline due to a lower asking price, while days on market and auction clearance rates increased marginally. Its property market score improved, however.

ACT CANBERRA Canberra’s rate changed in line with that of Adelaide. The asking price had a positive change, while the vacancy rate and the discount rate for the property market increased slightly.

NT DARWIN Darwin’s statistics largely stayed constant, apart from its asking price as tracked by SQM Research, which softened last month. Darwin’s vacancy rate contracted.

TAS HOBART Hobart’s FE score was at a new low after its property market score declined, due to a poor quarterly performance. While its auction clearance rates slightly rose, so too did the average property days on market.

FUtUre estate capital city rating sUmmary

Source: Future Estate Research* Score is out of 5 as indicated by out of 5: Higher score indicates a stronger property market with positive outlook, whereas a lower score indicates a softer market with lower growth prospects.


property marKet perFormance

The local residential property market has seen its performance largely affected by the developments in the investment trends of the Australian and international economies. Given the current state of the Australian economy, the RBA has currently positioned the cash rate at 2.5%. There is an expectation of another cut in the rate by 25 basis points in the first half of FY2013, contingent on the performance of the local industrial and commercial sectors.

The residential market has seen a resurgence in activity given the current position of the interest rates and home buyer stimuli. Median dwelling values have seen marginal gains as auction clearance rates have been very high. Stock on market figures tracked by SQM Research for the capital cities have also been on the decline in the second quarter of 2013. While consumer confidence saw a slight negative movement over the past month due to political uncertainty, the figure remains in the positive and shows 93% of surveyed people considering it a good time to purchase property. ABS tracked housing finance commitments saw a rise of 1.2% in the past month, supporting the findings of the Household Financial Conditions report by the Westpac-Melbourne Institute, which indicated that 82% of Australians are in a stable financial condition. Meanwhile, the Australian residential construction activity continues to be impacted by a lack of credit and has seen a sustained decline over the past 3 years, currently settling 13% below last year’s activity. This, combined with High density residential building approvals falling by 37.4% over the past year and the steady increase in the Australian population in the capital cities, has led to several data analysts publishing strong cases for a growth in the property sector. NAB has published reports of Sydney properties growing by 12% over the next 3 years and BIS Shrapnel expects a 19% rise. These reports are based on the fact that the fundamentals of the Australian Residential sector remain strong in an environment of risk concerns and uncertainty in the other investment domains generally associated with greater volatility.

aUction clearance rates

The auction clearance rates in June and July recorded by the mainstream data providers continued to exceed expectations of market analysts. Fairfax Media-owned Australian Property Monitors, a leading data provider, published its findings on the auction clearance rate at 81% for the last weekend of July, which is higher than the boom levels during late 2010. The average auction clearance rate during June was also an interesting result, with both Sydney and Melbourne recording over 70% clearance. This was particularly interesting given the traditional lower level of transaction volumes in the housing markets during the winter months of the year. The continued growth in the auction clearance rates and the gradual improvement in the dwelling median values across the capital cities are indicative of general market recovery. The housing market median value change in Sydney was 1.2%.

capital cities

The capital cities as a whole recorded an almost flat result in the month of June. Over the past year, most of the markets recorded a small positive change, except Hobart in the southern state of Tasmania, which closed at -1.8%. Sydney, meanwhile, saw its home values increase by 5.6% over the year to June with $662,500 for detached houses and $500,000 for units. Its growth in the past month was the highest of all the capital cities, an average of about a 1.4% change in house and unit dwellings. Darwin, a capital city experiencing problems with affordability due to the lack of property development investment and continued population growth, saw a decline in the median value of houses while still posting very high median rental returns of 6.2%. Perth’s property market, which has slowed and experienced greater vacancy rates, saw a decline of 1% in the median value for units, after the 4.2% increase in May. This was the case for Brisbane too, which slowed its property market recovery and had its house prices 0.9% lower in June, after a May increase in prices.

Sydney and Melbourne recorded very high auction clearance rates of over 75% again, in part due to improved affordability from the lowered cash rate.



property aUction clearance rates: JUne 2013

property aUction clearance rates: weeK enDing 28th JUly

0

500

1000

1500

2000

2500

3000

3500

71% 70%73% 71%

Month Average Last May Weekend Total May Auctions

2294

3012

Sydney Melbourne

Source: Real Estate institute of Victoria; Real Estate institute of NSW

June Property Auction Clearance Rates

0

10%

20%

30%

40%

50%

60%

70%

80%

Auction Clearance Rates

Sydney Melbourne

73%

62%

81%

71%

Australian Property Monitors RP Data REIV/REINSW*

74%71%

0

10%

20%

30%

40%

50%

60%

70%

80%

Source: Real Estate Institute of Victoria; Real Estate Institute of NSW.

* REINSW’s latest auction clearance rates are for the week ending 28th July, 2013

RP Data recorded a weekly Auction Clearance Rate of 81% from 272 auctions in Sydney for the week ending 28th July 2013. This was a highlight in the traditionally sluggish winter season.


Source: RP DATA

-8%

-7%

-6%

-5%

-4%

-3%

-2%

-1%

0

1%

2%1.6%

-3.1%

1.6%

1.1%

-0.9%

-1.7%

0.8%

-3.5%

-1.0%

0.2%0.5%

-0.5%

-6.4%

-1.6%

-0.1%

-0.9%

Melbourne( VIC )

Hobart( TAS )

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Brisbane( QLD )

Canberra( ACT )

Darwin( NT )

Unit Price Trend Over Quarter (%)

House Price TrendOver Quarter (%)

qUarterly capital city hoUse anD Unit price trenD

Gross Rental Yields

1%

0

2%

3%

4%

5%

6%

7%

8%

Darwin( NT )

Hobart( TAS )

Brisbane( QLD )

Canberra( ACT )

Perth( WA )

Adelaide( SA )

Sydney( NSW )

Melbourne( VIC )

House GrossRental Yield (%)

Units GrossRental Yield (%)

6.2%

4.6%4.2%

3.7%

5.2%5.4%

4.4% 4.4%

4.9% 4.9%

4.4%

5.1%4.8%

5.6%5.2%

6.2%

capital city hoUse anD Unit gross rental yielDs

Source: RP DATA



KEY INVESTmENT ThEmES

Theme Summary Future Estate View Comments

Key growth opportunities

§ Sustainable above-market capital growth

§ Capital cities re-emerging § Darwin boom continues § Sydney offers resilient

performance in inner city and outer suburbs

§ Population growth and dwelling undersupply are long-term drivers

§ Affordability remains a key theme, subject to cash rate

§ Generally larger centres and capitals currently experiencing growth, with population inflow and slow dwelling completions

§ Housing affordability is currently high, with cash rate low and expected to further drop and unemployment higher than expectations

Key value opportunities

§ Significant discount to comparable properties, market analyst valuation

§ Distressed opportunities reducing due to market improvement

§ Adelaide and Hobart hardest hit of capitals in 2012, recovery emerging with high affordability

§ Value more at the suburb, rather than city level and more particularly at the asset-level

§ Distressed value without capital and income growth potential questionable – i.e. lifestyle / coastal

Defensive yield § Sustainable rental income, above market yield

§ Darwin, Brisbane and Perth have very high yields due to property undersupply

§ Regional centres (top 20 population) offer highest sustainable yield

§ Yield compression possible / likely in 2013 as housing recovery gains momentum, but subject only to growth in construction investment

§ Rental growth unlikely to exceed capital growth into the longer term

Source: RP DATA * Year to Date

CAPITAL CITY hOUSE AND UNIT mEDIAN PRICES

State Capital City median house Price ($)

median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales Sydney $ 662,500 $ 500,000 4.6%

Victoria Melbourne $ 561,000 $ 446,000 2.1%

Queensland Brisbane $ 456,000 $ 360,000 0.7%

South Australia Adelaide $ 400,000 $ 334,750 0.7%

Western Australia Perth $ 517,000 $ 420,000 4.4%

Tasmania Hobart $ 335,000 $ 265,000 3.9%

Northern Territory Darwin $ 530,000 $ 445,000 -0.4%

Australian Capital Territory Canberra $ 565,000 $ 415,000 2.1%


KEY CYCLICAL ThEmES

Cyclical Outlook

Summary Future Estate View Comments

Global economy and policy

§ The global economic crises in the US and EU have eased off in 2013

§ Chinese growth is estimated to be 7.5% for 2013

§ US economy is growing at an estimated 2.5% p.a.

§ Indirect impact to residential property market via consumer confidence, access to credit and changes in growth areas

§ Negative impacts easing in 2013

§ The global impact on Australian property appeared mainly during significant international economic turmoils, which are subsiding

§ Weaker AUD offering opportunities for international investors

Domestic growth and policy

§ Growth estimated at 2.5% for the year, which is on par with US growth and well above Japan and Europe

§ Non-mining sectors such as manufacturing growing due to a lower value of the AUD

§ Lowered cash rate and improved affordability is assisting in housing market growth

§ Unemployment, at 5.7%, and a lower participation rate is having a mixed impact

§ Likely slight increase in unemployment, which combined with inflation rate on the lower end of the RBA preferred range may lead to further interest rate cuts later into 2013 by another 25 basis points

Housing affordability

§ Highest level of affordability in many years seeing the low cash rate and relatively moderate unemployment

§ The median house price/income ratio is currently at around 4, which is low internationally

§ Lower interest rates have translated to strong auction clearance rates of over 80% in the major capital cities, areas with high employment

§ Affordable inner city suburbs are experiencing growth

§ Increasing house prices likely to be off-set by lower interest rates

§ Historic low interest rates and new home buyer grants stimulating owner occupier property demand; investors noticing high growth areas

Population growth

§ Population growth was recorded at 1.8% over the year in 2012

§ 394,200 persons annual increase in period ending December 2012

§ WA recorded highest growth: 3.5%

§ Population recently reached 23M

§ Population growth expected to rise in 2013, driven mainly by overseas skilled migration

§ Migration to Australia concentrated in capital cities of NSW, VIC and WA, which has resulted in home value growth

§ Impact on housing demand /supply imbalance substantial – housing shortage from reduced construction activity and investment

§ QLD and WA major interstate beneficiaries, while Vic grows through international migration

Dwelling construction

§ Below-trend dwelling development continues, as evidenced by lower spending in a sector with difficulties in access to credit

§ House approvals have seen a decline as of late, with construction and completions remaining poor

§ New Home Sales are stronger

§ 25,000 fewer homes built in 2013 compared to a decade ago

§ Construction has fallen since 2010 given credit crunch –rental growth and yield has been high as a result

Consumer confidence

§ Consumer confidence emerging, with stronger market fundamentals

§ Investor confidence substantially improved from lows in 2012

§ Over 50% of investors expect house prices to rise materially in 2013 as compared to 8% who expect a fall

§ RP Data is reporting 250 suburbs around Australia tipped to double property values in 10 years

§ HIA reports hotspots are emerging

Household savings / demand for credit

§ Household savings ratio remains elevated at ~10% of income – back to 1908’s levels

§ Demand for housing credit still comparatively low

§ With confidence emerging, it is anticipated that a demand for housing credit will emerge, especially given substantial buffer to mortgage repayments after recent savings

§ Demand for housing credit is still increasing, albeit it at very low levels

§ Investor credit demand is leading owner-occupier demand



BRISBANE

DARWIN

Future Estate Capital City Rating

PERTH

3.15Future Estate Capital City Rating

2.63

State Auction Clearance RateState Days on Market (days) State Discount RateAsking Price Index ChangeCity Vacancy RateState Property Market Score*




32.8%1588.8%1.1%2.1%2.25

86.5%1515.2%-4.1%0.8%2.40

35.5%1126.3%-1.8%1.5%2.70

SYDNEY


CANBERRA


HOBART


MELBOURNE


ADELAIDE

58.3%1126.7%-1.7%1.9%3.65


3.16

42%865.2%-1.9%1.7%2.25


Future Estate Capital City RatingFuture Estate Capital City RatingFuture Estate Capital City Rating

2.81

59%1137.7%-0.5%2.9%3.3

3.08

23%18510.0%-1.1%2.5%2.55

1.99

43%1608.0%-1.5%1.6%2.70

2.63

DARWIN

BRISBANE

SYDNEY

CANBERRA

HOBART

MELBOURNE

ADELAIDE

PERTH

NSW

ACT

QLD

NT

SA

WA

VIC

TAS


2.81

* The State Property Market Score, which is out of 5, takes into account several factors, including demographic factors that indicate Future Growth, Quarterly House and Unit Median Price Growth Rates, Annual Dwelling Growth Rates and the Median Mortgage Payments as a proportion of the Median Household Income.

Sources: Australian Property Monitors, Domain.com.au and SQM Research.

FUtUre estate capital city rating


This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication of future performance.

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Property market overview and outlook lowres