Property Market Outlook 2009 by First National Paradise Point & Bundall

The

2009 PROPERTY

Outlook

EXECUTIVE SUMMARY The Australian Property Market has fluctuated enormously over the last 12 months, and there is still some uncertainty about the economy and how it will be affected by the international economic outlook. While governments are propping up Australiaâ&#x20AC;&#x2122;s economy with various stimulus packages, and the property market undergoes a face lift as a result, what remains certain is that being realistic and patient will be the key for those buying and selling property in 2009. It is imperative that vendors and purchasers adjust to the changing times and that real estate stakeholders support them through these adjustments. Prices have dropped, but this is not a result of the global situation alone. House prices were coming off a five year high and some price adjustment and correction was essential to stabilise the market and make housing more affordable. Unrealistic, over-inflated prices as experienced during any boom, will eventually fall so that true value is more appropriately reflected in the asking price. In 2009, house prices are expected to stabilise across the country, with some gradual growth returning in the latter part of the year. There are already signs of movement in the market. Government initiatives are serving to stimulate the market and return consumer confidence. First National agents are reporting increased buyer enquiry and activity, particularly from first home buyers and investors. For those brave enough and fortunate enough to be in a good financial position, there are many opportunities available. While unemployment is being discussed, as the full impact of the global financial crisis takes its toll, Australia is in the enviable position of having what is arguably the strongest developed economy at the current time. Unemployment is just above 33 year lows, the economy has not had a recession in 17 years, government debt has been paid off and the budget surplus stands at $20 billion. Australiaâ&#x20AC;&#x2122;s economic future is more dependent on China than the United States, United Kingdom and Europe for trade and economic growth and China is still predicting growth, even if at lower levels than previously.

In addition, the current pipeline of construction work and the relative strength of minimum wages will help support the Australian economy in the near term. The recent depreciation in the A$ will also support export volumes, although this will be offset, to a large extent, by the slowdown in world demand. The dominant factor for the Australian property market in 2009 will be demand and supply. At First National’s national convention in Sanctuary Cove in 2008, key note speaker Phil Ruthven, Chairman of IBIS World made it clear one of the major differences between Australia and the rest of the developed world is that we have a shortage not an oversupply of housing stock. “Housing affordability has traditionally been 2.5 times of average household income but in the first years of this century, it has blown out to be 4 times which is just unsustainable,” Phil Ruthven said. “Getting it back down should be fairly simple, it just needs housing prices to come down by 5 – 10% and wages to grow by 6% and we will see affordability come slowly back down to 2.5 times.” Seen in this light, the latest drop in prices may be the start of an improvement in affordability. Demand for property is strong but supply has not kept pace. As a result, rental markets are the tightest in 19 years and rents continue to rise. This will help sustain house prices and cushion some of the sale price falls that are expected in the first half of 2009. However, with the fastest population growth in 18 years as a result of record immigration, infrastructure and major growth projects, coupled with sound government support and economic policy mean that the Australian property market is looking solid for 2009, and will probably even experience the early signs of recovery in the second half of the year. Outlined in this document are First National’s collective thoughts on the outlook for the property market from a national perspective, a state level and for local markets.

Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.

EXECUTIVE SUMMARY LOOKING AHEAD Past experience shows us that the property market follows a cycle, as do global economies, so there are certain factors which can be taken into account for planning purposes. We have relied on these to outline our thoughts for what to expect, (in the absence of any unforeseen circumstances) over 2009. Given Australiaâ&#x20AC;&#x2122;s place in the current global environment, there will be four key drivers of the property market: debt, jobs, the world economy and affordability. Supply and demand would normally be a driver, but in this case, they will serve to place a floor under a weak market. Household debt levels are at record highs meaning people are unable to take on any extra debt. Official statistics show many households are experiencing mortgage stress. The world economy is a key driver of employment. The future of the property market is dependent upon the success of stimulatory programs, the likes of which have not been seen before, being introduced by the troubled economies of Japan, Europe, US and China. Any positive effects for Australia are unlikely to flow through until the second half of 2009. For the first time in more than a decade, home ownership is affordable for young workers with relatively low wages due to lower interest rates, the generous support for first home buyers from state and federal governments and declining property prices. Given the above, although the Australian economy has softened, the market should hold up for the first half of 2009. As the nation moves towards the end of 2009, many of the economic stimulus packages will start to kick in which may see us experience a minor recovery. However, any rally is likely to be restrained by debt levels, credit availability and poorer affordability at the higher end of the market. While the top end of the market is expected to be worst hit over the coming 12 month period, there are some great opportunities in the bottom end of the market, particularly in the price range below $500,000. This should see a welcome return of the investor into the market, whose absence has been felt across Australia. First time buyers are also presented with a fabulous opportunity to enter into the property market. Falling house prices will also be supported by state and federal government initiatives such as the boost to the first home ownersâ&#x20AC;&#x2122; grant, the abolition or reduction of stamp duty on specific property purchase types and lower living costs from reduced fuel prices and low interest rates. This bodes well for first home buyers and housing will be at its most affordable for some years.

There is also great potential for the commercial sector. Rental markets will be the key drivers of improvement in the residential markets. Over the next five years, rental yields will move to being almost on par with home loan interest rates, making the incentive for investing in property even stronger. At the moment, the average national yield is still shy of the magic 5.5 per cent to 6.0 per cent figure usually required to entice people to invest in property. The national yield for units was at 5.05 per cent at September 30 2008 and 4.6 per cent for houses. Commentary on the market is still mixed with some predictions of a 10 per cent fall in house and unit prices across the country in the next year as global economies continue to weaken. However, some analysts are cautiously saying there is potential for house prices to grow, towards the end of 2009 and the beginning of 2010. Should pent up demand pressure build, this may translate to higher construction, which could underpin an upturn in economic growth and, subsequently, prices. There is no doubt 2008 was a volatile market, where we went from a boom market to a market in transition. The credit crisis is affecting global markets in different ways and we are, and will continue to be, affected this year, though to what extent remains to be seen. Our view is that Australia is already experiencing a very slow and gradual recovery in the market, which we expect to be sustained throughout the course of 2009.

The economic outlook In considering the economic outlook, it is necessary to look at what has happened in the global and the domestic economy in the past. Global economies have, and will continue to have, impact on the Australian economy. The nationâ&#x20AC;&#x2122;s economic growth has already slowed, and poor household sentiment has seen residential prices generally decline across all capital cities, based on the latest BIS Shrapnel figures (September quarter, 2008). The Australian property market has proven its resilience by showing only modest value falls in most capital cities during 2008. There was a broad erosion of housing affordability in major capital cities over the past seven or eight years: initially in Sydney in 2003, followed by Perth in 2005 and most recently in Adelaide, Brisbane and Melbourne in 2007. The traditional affordability gap between capital cities narrowed to an extent we have not seen for more than a decade.

EXECUTIVE SUMMARY In 2008 housing prices in major capital cities edged down by up to 6 per cent, modestly improving housing affordability for some markets. The most dramatic development is the improvement in housing affordability, since October, due to the sharp reduction in official cash rates and mortgage interest rates. Based on the last rate cut, we can see a marked improvement in housing affordability across the market purely driven by the reduction in mortgage rates. That has restored housing affordability to 2003 levels in Sydney, 2006 levels in Brisbane and Perth and 2007 levels in Melbourne and Adelaide. As the erratic global economic behaviour of 2008 continues to impact on Australia, it is expected the residential market will remain relatively flat for the majority of 2009, gradually picking up in the latter part of the year. Even though the Australian economy has weakened considerably since the beginning of 2008, there is strong debate about the extent of any potential recession in Australia. What is anticipated is: • • • •

unemployment will rise, but will stay below the levels of the early 1990’s household wages and consumer confidence will deteriorate further decreases in interest rates and the cash rate will underpin the Australian economy lending conditions will remain tight as future expectations deteriorate due to recession fears.

There are a number of factors that will act as market influences for 2009. These include falling interest rates, increasing affordability, rising rents, improved investment yields and a shortage of housing. The key determinant of what happens to the Australian economy, given the UK, Japanese and US recessions, is the labour market. Job losses are already being experienced across the labour-intensive industries of banking, car manufacturing and mining. It is expected further job losses will come from some of Australia’s largest companies, creating an extremely competitive labour market. However, some industries such as the construction and infrastructure industries will remain strong along with the health industry, which always performs well during stressful times.

Whatever happens, the Australian Government will do what is necessary to minimise the impact of the global credit crunch and failing international economies. Federal Treasurer, Wayne Swan, recently stated the Australian Government “will take whatever measures are required to support jobs and strengthen the economy.” On the positive side, the cost of living will become more and more reasonable. Interest rates will continue to fall and the expectation is that they will stabilise at around 3 or 4 per cent. Fuel prices are not likely to go up much until the US economy begins to improve, which is anticipated to occur at the end of 2009, at the earliest. It is important to remember that conditions in Australia are different from those in the US and UK. We have a better regulated economy and so should not experience the devastating impact witnessed by our global partners. Unlike the US, we do not have an oversupply of housing, and our financial institutions fund lending from their deposit base without substantial restraints on their loan-to-value ratios. Our banks are highly regulated providing rigorous controls that ensure borrowers’ capacity to pay.

House prices TThe overwhelming feeling is that while there are still tough times ahead, the Australian property market will weather the storm. In October 2008, in Sydney and Melbourne (60 per cent of the total Australian housing market) house prices rose. The predictions are for median house prices to fall anywhere from 0.5 per cent to 40 per cent (although only a few analysts believe it will get as high as 40 per cent). But the consensus is that it will be at the top end, rather than the bottom end that the pinch will come. House prices are expected to continue falling, but it is predicted they will stabilise during the year and gradually improve towards the end of the year. Some of these falls are related not so much to any external economic factors, but the fact that local property prices were over-inflated. In cities where affordability was most stretched, such as Brisbane and Perth, the total decline – from peak to trough – may well be in the double digits. We can choose to see this as a slump or an improvement in affordability!

EXECUTIVE SUMMARY The surprise of 2009 could be the strength, not the weakness, of housing. Overall, top end buyers will fare the worst as they will be affected by both price corrections and an oversupply of stock. Investors and previous home buyers will slowly begin to return to the market once the uncertainty of employment begins to clear up. The big winners will be the first home owners and investors as governments continue to implement initiatives to stimulate the market, interest rates are lowered and more affordable product comes onto the market. What should be remembered is that, in the long term, Australian property owners remain well ahead – no postcode has yet shown a negative 10-year return.

Trends and Changing Consumers Prior to the current economic situation, those operating in the property market saw a strong trend towards eco-friendly and green homes. With the changing economic environment, trends, as well as consumers, are also changing. In the short term, first home buyers and investors will be the mainstays of the property market in 2009. In the coming years, as demographics and values change, consumers will be seeking: • smaller homes • more private spaces • greater energy efficiency • smaller environmental footprints • water recycling, and • greater proximity to services and transport, particularly in areas where population density is expected to increase. Consumers are moving away from the traditional quarter acre block on the fringe of suburbia, to smaller, more sustainable properties, with lower water and energy consumption, located close to services and public transport.

Over the nine months to September 2008, approved loans to first home buyers declined by 24 per cent, compared to the same period in 2007. The states to have experienced the greatest fall in first home buyer activity during this period have been Queensland (-41 per cent), followed by Victoria (-25 per cent), while all other states, except Western Australia showed a decline of between 10 per cent and 20 per cent in loans. In October 2008, the Federal Government increased the First Home Ownersâ&#x20AC;&#x2122; Grant to $21,000 for new dwellings and $14,000 for established dwellings up until 30 June 2009. This is likely to pull forward demand by first home buyers into this window, as buyers seek to take advantage of the higher Grant. Low interest rates, lower costs of living and more realistic property prices have improved housing affordability. Coupled with federal and state government initiatives, such as changes to stamp duty laws, in some states and higher grants, owning your own home is now so affordable that it is the first home buyer and investor that will keep the property market alive in 2009. There are already signs of the impact of some of the government initiatives, with many First National agents showing increased activity and interest by the first home buyer and investor. There are some predictions there will be a further 0.75 per cent easing in monetary policy during the first six months of 2009, which would take the cash rate to 3.5 per cent and the variable rate to 6.0 per cent. In addition, in line with slowing economic conditions dampening purchaser confidence and demand, it is further anticipated that median house prices will decline in all capital cities in 2009. This will result in a dramatic improvement in home affordability across the five capital cities by June 2009, with affordability levels being more in line with the long term average. Indeed, affordability in each of the capital cities will reach early 2000 levels and in Sydney, late 1990 levels.

NATIONAL OUTLOOK The outlook for Australia, in general, is quietly optimistic. Improved affordability due to lower interest rates, in conjunction with government initiatives to stimulate first home buyer activity, should see the bottom end of the market pick up. The top end of the market will continue to be negatively affected by the decline in the equities market and its effect on non-salary income. House prices are expected to fall further, mostly in Brisbane and Adelaide, and to a lesser extent in Sydney. This reflects the degree of price adjustment required to restore balance in each market. With lower house prices and expectations of further rate cuts, it is anticipated there will be a substantial improvement in housing affordability. There are enough positives now in place to prevent a much further weakening of the economic climate and consumer confidence. If there is increased consumer spending and a marked improvement in first home buyer demand supporting the lower end of the market, the outlook may remain positive for the remainder of the year. Retailers have already reported better-than-expected post-Christmas spending which is hoped to continue through the first quarter of 2009. Both market analysts and First National estate agents are starting to see some early positive signs in the market. Some commentators agree that it will take the stabilisation of Australiaâ&#x20AC;&#x2122;s economy, and unemployment to stop rising, before we see a widespread improvement in the property market. Despite weakening economic conditions creating extremely low purchaser sentiment, BIS Shrapnel says residential markets in capital cities around Australia remain tight, providing solid rental growth for investors. Along with dwelling prices remaining flat and interest rates falling by 3 per cent over the second half of 2008, residential returns to investors should be enhanced. Rural and regional property markets Many estate agents are positive about current market conditions for rural and regional properties and thereâ&#x20AC;&#x2122;s a lot of optimism concerning the outlook for 2009. Although many regions experienced mixed cropping results, many agents are reporting ongoing investment inquiry for Australian rural enterprises, both domestically and internationally. There have been a number of major sales to overseas investors.

This underlies the strength of demand for Australian rural real estate, despite adverse economic conditions. Buyers are actively interested in rural industries across the board including dairy, forestry, cattle and cropping, particularly in areas where water is available and secure. The aftermath of the natural disasters in Queensland and Victoria will have the strongest impact in areas directly affected, but whether they will be a positive influence by reducing supply or a negative influence by people being dissuaded from buying in the country remains to be seen. Another area of interest for potential buyers is the lifestyle and retreat properties. House prices The following table predicts movements in the median house price (MHP) for all Australian states, and some regional centres, from June 2008 to 2011. Centre Sydney Newcastle Wollongong Melbourne Brisbane Gold Coast Sunshine Coast Townsville Cairns Adelaide Perth Hobart Darwin

$MHP June 2008 541,000 319,000 359,000 450,000 420,000 485,000 464,500

$MHP June 2009 515,000 317,000 355,000 437,000 391,000 465,000 445,000

373,000 375,000 370,000 445,000 325,000 423,300

365,000 365,000 360,000 420,000 320,000 405,000

% change -4.8 -0.6 -1.1 -2.9 -6.9 -4.1 -4.2

$MHP June 2010 525,000 328,000 365,000 454,000 407,000 480,000 460,000

-2.1 -2.7 -2.7 -5.6 -1.5 -4.3

375,000 380,000 370,000 440,000 330,000 420,000

% change

+1.9 +3.5 +2.8 +3.9 +4.1 +3.2 +3.4

$MHP June 2011 567,000 353,000 390,000 491,000 439,000 520,000 495,000

+8 +7.6 +6.8 +8.1 +7.9 +8.3 +7.6

+2.7 +4.1 +2.8 +4.8 +3.1 +3.7

390,000 400,000 395,000 470,000 345,000 445,000

+4.0 +5.3 +6.8 +6.8 +4.5 +6.0

NATIONAL OUTLOOK Rental Market and Commercial Property Across Australia, median rent prices remained steady or slightly increased over the December quarter. Median house rent trends were flat in Melbourne, Brisbane, Hobart, the Sunshine Coast and the Gold Coast in the last quarter. Median house rent prices went up by more than 5 per cent in all major capitals over the year. After Darwin, Sydney had the largest increases, with the median house rent increasing 17 per cent in the year, while unit prices went up 6.5 per cent. Median unit prices in Sydney, Canberra, Newcastle and the Gold Coast were also flat. Median unit prices on the Sunshine Coast fell 1.6 per cent. In Canberra the figure increased for the first time last year in the December quarter, when it jumped 5 per cent. The Perth, Darwin and south east Queensland apartment markets are all under stress. In Perth, higher interest rates early in 2008 put a brake on the apartment market, which was then followed by a slowing in the resources sector putting further pressure on the market. Prices also rose quickly in Darwin and the weakness in Queensland can be seen in Brisbane as well as the Gold Coast and Sunshine Coast. There is potential in the inner-city unit market, but mainly for older units in need of renovation. Greenwich, in Sydneyâ&#x20AC;&#x2122;s lower North Shore, is a suburb already showing growth. It has a supply of older-style apartments, some with views of the city. Suburbs surrounding Greenwich, including Wollstonecraft, Crows Nest and Gore Hill, experienced a rise in median apartment prices by 3.7 per cent in 2008. Apartment prices on the Gold Coast and Sunshine Coast in Queensland, Lorne in Victoria and the Central Coast, Nelson Bay and Wollongong in NSW could all be under pressure this year. With the slowing of the economy and the threat of rising unemployment, people may need to divest of non-core assets such as holiday homes or apartments which will see a rise in the number of listings. Investors will be heartened by the increase in rental yields in 2008.

Residential rents have accelerated over the course of 2007/08, with the weighted average capital city rental increasing by 7.7 per cent. All capital cities, except Hobart, experienced higher growth in rents during the year. This is expected given the tightness of rental markets and it is anticipated there will be further solid growth in the ABS rental index for capital cities over the course of 2009 and 2010, given that vacancy rates will likely remain below the balanced market rate (of 3 per cent) in the next two years. Australia is moving to a situation where rental yields will be closer to 7 per cent than 5 per cent, with the highest increases likely to come from Brisbane, Perth, Adelaide and Sydney. Adelaide was the top performer in terms of property value growth for rental yield in the year October 2007 to October 2008, followed closely by Darwin (6.47 per cent). Inner city areas in Sydney, Melbourne and Brisbane showed a 6.5 per cent rental yield at the end of last year. Other suburbs showing strong rental yields include Greenwich and Wollstonecraft in Sydney, Carlton and Footscray in Melbourne and Fortitude Valley and South Brisbane in Brisbane. Rental vacancy rates were below 2 per cent in Sydney, Melbourne, Brisbane and Adelaide and just above 2 per cent in Canberra and Hobart. As interest rates come down and paying off a mortgage becomes more affordable, we expect to see more renters start to say â&#x20AC;&#x153;It would be cheaper if we just bought this place instead of paying rentâ&#x20AC;?. With the cheap market prices and interest rates, more investors and potential investors will start to realise the rolling return on property investment makes buying attractive â&#x20AC;&#x201C; cheaper homes with higher rental yields. The top performing rental yield areas are mainly suburbs situated within and around greater Melbourne and greater Sydney, with the best rental yields generally found in units.

NATIONAL OUTLOOK The following table depicts current rental yields and the percentage change over the previous year. Suburb Yield (%) %age change on last State The following table depicts current rental yields and the percentage change over the previous year. year NSW North Turramurra 7.7 +4.1 Ballambi 4.4 +2.9 Woronora Heights 6.6 +2.9 Cecil Hills 6.4 +2.8 Little Bay 4.4 +2.8 +4.8 9.5 Victoria Princes Hill +3.7 7.8 Toongabbie +3.3 6.8 Derrimut +3.3 Shoreham 4.6 +3.0 Warneet 6.9 +2.8 7.1 Chewton 6.9 +2.8 Gembrook Goondiwindi 5.7 +2.8 Queensland Parap 7.4 +3.0 Northern Territory On the commercial property side, investors will start the year with an overhang of up to $30 billion of buildings on the Australian market. This is not expected to shift too quickly, and the stand off between buyers and sellers may well continue into 2009. Commercial property values will be an enticing proposition for many buyers, especially with the dollar declining, but credit availability is still so limited that major transactions are hard to fund. The softening economy threatens to undermine rent growth, and values could have further to fall. However, from the real estate investment trustsâ&#x20AC;&#x2122; (REITâ&#x20AC;&#x2122;s) perspective, things could be looking up. For those that recapitalised in late 2008 (often at huge cost), the overheads could disappear quickly as properties are withdrawn from the market. According to some analysts, cashed up private buyers may well pick off strategic opportunities but will only take a small portion of the asset for sale, to maximise the income from properties as the real economy becomes impacted by the credit crunch.

Australiaâ&#x20AC;&#x2122;s Hot Spots The hot spots for Australia will be areas where the median price is under $400,000, close to central business districts, near universities and on train lines or major bus routes. The most expensive and most affordable suburbs Property on or around the water will continue to be a favoured living option across Australia. RP Data appoints Port Pirie West as the most affordable regional seaside suburb with a current median house price of $140,000. The nationâ&#x20AC;&#x2122;s most expensive seaside suburb is Tamarama in Sydney where the median house price is at $4.4 million. According to RP data, the most expensive suburbs for houses and units are: State New South Wales

Victoria Queensland Western Australia

House/Unit House House House House House House Unit Unit Unit Unit House Unit House House House House & Unit Unit

Suburb Darling Point Tamarama Bellevue Hill Vaucluse Dover Heights Forrest (ACT) Point Piper Dawes Point Darling Point Yarralumla (ACT) Toorak Point Lookout Peppermint Grove Dalkeith Applecross Cottlesloe Watermans Bay

The majority of the most expensive suburbs for houses and units in Australia, are waterfront locations, with the remaining suburb, Bellevue Hill, located close to water and enjoying superb views.

NATIONAL OUTLOOK Conversely, the list of the most affordable suburbs for houses and units looks like this: State New South Wales

Victoria

Queensland

South Australia

House/Unit House House House House House House House Unit Unit Unit Unit House House House House House House Unit Unit House House House House House Unit Unit Unit Unit Unit

Suburb Ravenswood Ungarie Coolah Coonamble Bourke Trangie Walgett Tolland North Albury Sussex Inlet Nowra Rainbow Sea Lake Hopetoun Minyip Dimboola Murtoa Ararat Moe Cunnamulla Dirranbandi Augathelia Tambo Yelarbon Trunding Kooralbyn Beachmere Deagon Southside

House House House Unit Unit Unit Unit

Port Pirie West Terowie Snowtown Robe Millicent Renmark Evanston

State Northern Territory Tasmania

House/Unit Houses & Units Houses & Units

Suburb Fannie Bay Upper Burnie Beechford White Beach George Town Strahan East Devonport Waverley Mowbray Ravenswood Invermay

QUEENSLAND OUTLOOK The biggest hurdle for Queensland in 2009 will be to overcome unemployment concerns. The announcement by the state’s Premier, Anna Bligh that the government would form rapid response teams to fight escalating unemployment should go some way to allaying fears and assist in strengthening consumer confidence. The Queensland government’s move to lift the stamp duty-free threshold for first home buyers to $500,000 and the 1.25 per cent fall in interest rates should also provide renewed interest in the housing market. The federal government’s recent tripling of the First Home Owner Grant for new homes to $21,000 and doubling of the grant for existing homes is likely to encourage first home buyers back into the market, after a 13 per cent fall in lending to first home buyers in the past year. The state’s best performers were the agricultural strongholds of Greenmount and Tully. Median house prices for Queensland achieved price growth of up to 40 per cent in 2008. Queensland achieved strong population growth of 2.2 per cent last year, and has a low unemployment rate of 3.6 per cent. Strong migration and low levels of housing construction are expected to keep the state in a housing deficit, which should provide some support for housing prices. The undersupply of dwellings is expected to hit 19,000 by June 2009. Brisbane Brisbane’s more diversified economy makes it a lower-risk market than the state’s more resourcesbased towns. Brisbane’s median house price was down about 1.69 per cent for the 2008 year, according to figures released in October. Overall, Brisbane’s median house price is expected to decline by 7 per cent during 2008/09. However, as confidence returns, this easing of prices and improved affordability will position Brisbane for forecast price growth of 4 per cent in 2009/10. Strong growth in property prices is expected to emerge in 2010/11, taking the median to $439,000 (+8 per cent). By June 2010, mortgage affordability in Brisbane should be at its best level since 2003. Brisbane’s Fortitude Valley achieved house price growth of almost 30 per cent in 2008 and Brisbane bayside suburbs also performed above average, driven by families looking for affordable waterside options within a 20 minute drive of the central business district.

The lower end of the market will outperform all other markets in Brisbane during 2009. First home buyers are likely to become a key driver in 2009. A combination of lower house prices, increased government grants for first home buyers, stamp duty relief, and significantly lower variable housing interest rates should improve housing affordability considerably. Demand from those wanting to upgrade is also anticipated to improve, with lower borrowing costs acting as a significant incentive to upgrade. Some prestige areas such as Ascot, Hamilton and Fig Tree Pocket achieved strong sales. In 2009, places such as Redcliffe and the semi industrial neighbourhood of Rocklea will attract buyers this year due to the extra drawcard of a median house price of less than $400,000. In light of more favourable affordability levels, easing economic uncertainty, and an expanding dwelling stock deficiency, turnover of property is anticipated to increase through 2009. In turn, prices are forecast to recover mildly, increasing by 4 per cent in 2009/10. Gold Coast and Sunshine Coast Both the Gold Coast and the Sunshine Coast are expected to follow Brisbaneâ&#x20AC;&#x2122;s median house price trend. Despite the uncertainty brought about by the credit crisis, the fundamentals of the greater South East Queensland property market remain strong. Fewer dwelling completions coming online in 2009/10, combined with strong relative population growth, suggests that competition among willing owner occupiers will intensify into 2009 and 2010. The Gold Coast is forecast to experience a 3 per cent increase in the median house price for 2009/10, followed by a further 8 per cent growth in 2010/11. Upmarket properties were selling at rock bottom prices on the Gold Coast as the wealth of sellers and buyers shrinks in difficult economic times. However, the market has bottomed out and the first quarter of this year should see housing prices begin to rise. As financing restrictions ease and economic uncertainty dissipates, it is believed that dwelling commencements, specifically apartment projects, will recover strongly during the second half of 2009. House prices on the Sunshine Coast are forecast to follow a similar path to that of the Gold Coast.

QUEENSLAND OUTLOOK Townsville and Cairns Townsville and Cairns should experience only a 2-3 per cent fall in the median price. The additional First Home Owners’ Grant is expected to have a greater impact in Townsville than in Cairns, principally, because of its younger demographic profile. However, the deterioration in relative affordability between Townsville and Brisbane is likely to mean that fewer young families will migrate north and this will reduce the level of first home buyer demand compared to the strong demand in recent years. Charters Towers, 90 minutes from Townsville, had less than a 10 per cent softening of prices in 2008 and started the year off strongly with plenty of inquiries and sales. With gold mining, agriculture and education it enjoyed 18 per cent growth in 2008 and the outlook is for a more moderate 4 per cent increase in 2009. The high level of commencements over the past two years has added significantly to the dwelling stock, and is estimated to ease the Far North’s dwelling stock deficiency. Nonetheless, the Cairns property market should remain tight beyond 2009. While Cairns maintains a reasonably high level of exposure to the struggling mining sector, which has been hit hard amidst the current global economic slowdown, we believe there should be enough local infrastructure investment in the pipeline to maintain solid economic conditions. Regional – General Areas such as Gladstone and Mackay who have benefited from the completion and expansion of nearby mines need to prepare for the possibility that continued expansion may not take place. Mackay is fortunate that it is already gaining a reputation for its strong mix of sectors, including mining, retail trade, primary industries and tourism, providing a strong future platform. The diversification of the region’s economy will help it ride the global economic crisis and planned large scale marine and local infrastructure projects, such as the $20m Convention Centre and $500m Port of Airlie project, will provide additional economic and employment opportunities for the region. Recent figures show that Mackay is experiencing strong economic growth, and it is coming off a peak property period. While it is one of the state’s most expensive areas to rent and buy a home, it also represents an ideal investment opportunity with a shortage of supply for both houses and units, as well as commercial properties.

Commercial and Rental According to BIS Shrapnel, the annual rate of increases in rents to Brisbane was above 6 per cent in 2006 and 2007 and 9.3 per cent in 2008. Sizeable growth in rents for Brisbane of 18 per cent is projected over the three years to June 2011. According to Residex, the median yield for Brisbane units was 4.64 per cent at September 30 2008. Although still tight, the Brisbane vacancy rate eased slightly over the first half of 2008 to 2.2 per cent in both March and June quarters. Total dwelling completions experienced an upturn during 2007, which has added a solid level of new rental stock to the market. Brisbane experienced a 44 per cent rise in median rents in the four years to June 2008. With a solid stock deficiency level expected to be maintained during the forecast period, vacancy rates will therefore continue to be tight. However, after the strong growth of recent years, the potential for stronger rises in Brisbane is more limited, and sizeable growth in rents of 18 per cent is projected over the three years to June 2011. Indicative rental yields for Brisbane were at 4 per cent at June 2008. Forecast indicative yields are projected to rise to 4.7 per cent at June 2009, due to an expected 7 per cent fall in prices, and then are forecast to remain at that level over the next two years to June 2011. Gold Coast investors know they can get a return from rent thatâ&#x20AC;&#x2122;s comparable to a fixedâ&#x20AC;&#x201C;term deposit and theyâ&#x20AC;&#x2122;ve got an asset that will still appreciate in value. There has been a noticeable lift in Gold Coast buyer interest in January, and that is very encouraging. The drop in dwelling starts in 2008/09 will mean that completions remain low relative to underlying demand in 2009/10, so the rental market will remain tight. This continuing tight supply of rental property is expected to support strong rental growth through to 2010. This is likely to increase investor demand in 2009/10, as well as increase the allure of owner occupation to some renters. The growth suburbs for Queensland for apartments at June 2008 are Ayr and Highland Park.

QUEENSLAND OUTLOOK Hot Spots Queensland has some of Australia’s premium beachfront locations and some of the most affordable. Halifax, 15 km from Ingham and 100km north of Townsville tops the most affordable list with a median house price of $200,000. Halifax is also considered to be one of the outperforming suburbs for the state in 2009, along with Redcliffe, Salisbury, Keperra, Coopers Plains, Zillmere, Chermside West, Rocklea, Banyo, Mount Gravatt East, Loganholme, Wooloowin, Annerley, East Brisbane, Fortitude Valley, Camp Hill, Albion, Greenslopes, Clayfield, Chermside and Moorooka. Other most affordable suburbs for 2009 are: • • • •

Rocky Point with a median house price of $238,130 Burnett Heads with a median house price of $271,500 Elliott Heads with a median house price of $285,000 Cardwell with a median house price of $290,000

Regional hotspots in terms of suburbs likely to outperform during 2009 also include: • Nambour, with a current median house price of $359,000. This self-contained community has two hospitals, a number of supermarkets and many other retailers and schools. • Thuringowa Central is a recently created Townsville City which is home to a large number of businesses and has a significant supply of commercial building housing many of the region’s major businesses. It has a median house price of $342,000. • Esk, with its timber dominated housing and a median house price of $245,000, represents a very affordable price for owners who want to live in a small regional township within close proximity to Brisbane. • Tully, Australia’s wettest town, has a median price of $265,000, is situated close to Mission Beach, Dunk Island and the Great Barrier Reef. It represents a very affordable location, particularly, for retirees. • Cranbrook has a median house price of $338,000, making it a much more affordable option than the nearby regional centre of Townsville.

SOURCES: BIS Shrapnel – Residential Property Prospects 2008-11 BIS Shrapnel – December Update (Residential Property Prospects 2008-11) Real Estate Institute of Australia (REIA) Focus Group Final Report REIA – Media Release “Signs of Positive Activity in the First Home Owners Market, Let’s Keep it Going (10 January 2009) Real Estate Institute of Tasmania (REIT) November, Tasmanian Property Market (23 December 2008) REIT – Tasmanian first home buyers up 10 per cent in December, 2 February 2009 Real Estate Institute of Victoria (REIV) – State of the Market RPData – Top Performing Rental Yield Areas RP Data Media Releases – Property Hotspots for 2009 (26 December 2008) Property Pulse – Industry Market Wrap Up Macquarie Real Estate Economic Research

Weekend Australian Financial Review (Weekend AFR) articles over November and December 2008 Sunday Tasmanian, Boon in Burnie’s Upper Echelons (4 January 2009) Money,Your Home – Property Outlook 2009-01-14 BRW – Top 500 Private Companies, August 28-October 1 2008 BRW – November 6-12 2008 The Australian, Darwin Goes Through the Roof as Rental Hotspot (26 January 2009) Realestate.com.au – Rental Yield 2009 Winners The Australian Financial Review – Special Report (January 23-26, 2009) Real Estate Institute of South Australia Market Update – SA Property Market Reliable in Long Term (23 January 2009)