SouthLake by First National Real Estate

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CONTENTS The 2010 Property Outlook Mid Year Update EXECUTIVE SUMMARY

NATIONAL OUTLOOK

SOUTH LAKE OUTLOOK

NEW SOUTH WALES OUTLOOK

VICTORIA OUTLOOK

QUEENSLAND OUTLOOK

SOUTH AUSTRALIA OUTLOOK

WESTERN AUSTRALIA OUTLOOK

TASMANIA OUTLOOK

NORTHERN TERRITORY OUTLOOK

Sources

2010

Property Outlook

First National Real Estate 2010 Property Outlook Mid Year Update

Executive Summary There has been much speculation, confusion and debate around the Australian property market in the first six months of 2010 as the market settles back down, following the turbulent times of the Global Financial Crisis. What has become clear is that views are polarised, there is very little consensus on predictions for the remainder of the year, concern about the impact of the Government’s proposed mining super profits tax on the availability of future bank mortgage funding, and it may be too early to get a clear picture of what will happen overall. What is known is that it is starting to have an impact on consumer confidence. The caution here is not so much the effect this proposal is having today, but the flow on effect to the property market in two to three years’ time if this is not resolved quickly and some of these future projects do not start as a result. With more than 420 members on the ground in cities, suburbs and country towns across Australia, the First National Real Estate network asked its members for their view of their local property market in order to gain a state-wide impression of market conditions that would then be put together, like pieces of a jigsaw, to provide the big-picture national outlook. Consensus amongst First National members is that although prices growth will slow, or even slip backwards in some parts of Queensland and Western Australia, the property market will broadly gain strength and they can approach the next six months with optimism as the market continues to provide unique opportunities for home buyers. Supply and demand still dominate the market and will be the key drivers of the property picture into the future. Unless all levels of government work together to address this crippling growth factor, real estate in Australia will be unable to realise its real potential. Small investors and people looking to upgrade their home were already returning to the market in the first half of 2010, and First National anticipates this trend will gain even more momentum in the second half of the year. Australia’s leading mortgage aggregator’s figures show almost 40 per cent of loans drawn in April were to investors – the highest number recorded.

First National Real Estate 2010 Property Outlook Mid Year Update

Executive Summary Broadly speaking, the $500,000 to $1.5 million market is the strongest bracket and it is interesting to see investors at the upper end of this bracket instead of the traditional sub $500,000 range. Prices and prices growth have moderated in recent months, but both are anticipated to increase in the latter half of the year â&#x20AC;&#x201C; what is uncertain is by how much. First Nationalâ&#x20AC;&#x2122;s members are predicting increases of anywhere between 1 per cent and 10 per cent, depending on their location. This is on the back of an 11.9 per cent lift in national city dwelling values over the last six months, and 5.6 per cent increase in value for the balance of state dwelling values. While first home buyers have reduced in numbers as a result of stimulus initiatives being phased out, activity by this segment will likely increase in the latter half of the year, returning to more normal levels. The reduced numbers of first home buyers is anticipated to be balanced by stronger activity in the mid-range property segment for both home sales and renovations, which were up 2.4 per cent in March to a level of 9.7 per cent higher than 12 months ago. An increasingly tight rental market will continue to yield strong returns, proving lucrative for new investors. While there is some easing of rental vacancies in some areas of Australia, First National agents, in the main, predict rental increases in the vicinity of 5 per cent to 10 per cent, acting as a further drawcard for investors. Strong population growth predictions and increasing pressure on prices, as demand continues to outstrip supply, will provide real benefits for those states able to maximise their opportunities from ongoing strong immigration levels.

First National Real Estate 2010 Property Outlook Mid Year Update

Risks The major risk to the Australian property market from ongoing rate increases is mortgage stress, which may lead to increased defaults or worse, a negative-equity situation, which would leave many in a no-win financial situation. Late payments of more than 30 days on top-rated home loans increased by 1.34 per cent in the March quarter, up almost 0.25 per cent on the December 2009 quarter. Interest rate increases are also expected to adversely affect affordability â&#x20AC;&#x201C; representing a double-edged sword as it effectively puts the home ownership dream beyond the reach of many, while at the same time providing greater opportunity for the second and third time home buyer segment. Mortgage refinancing is also of rising concern as some home-owners, buoyed by double-digit rises in property prices, are increasingly using their mortgages to help fund the purchase of big ticket items from new cars to holidays. Mortgage refinancing hit a record high of 37.2 per cent of all mortgages arranged in March. Other risks that could undermine the Australian real estate market include: - - - -

New taxes by local, state and Federal Governments Planning and approval processes The mining super tax and its effect on future mortgage funding availability Lack of land release for building new homes.

While the Federal Government announced the new portfolio of Sustainable Population, and appointment a new minister to the post, there is no real expectation amongst First Nationalâ&#x20AC;&#x2122;s members that this will have any real impact on the property market in Australia.

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 Real Estate takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.

First National Real Estate 2010 Property Outlook Mid Year Update

2010

Property Outlook

Executive Summary

First National Real Estate 2010 Property Outlook Mid Year Update

National Outlook There is consensus amongst First National members, and most commentators, that interest rates will continue to rise by the end of the year, but there is a difference of opinion about how big these rate rises will be. First National members are predicting anywhere from 0.25 per cent up to 2 per cent (in a small number of cases). The impact of interest rate increases to date is already being felt with around 25 per cent of respondents saying there had been an increase in forced sales due to mortgage defaults. It is predicted that mortgages will be further stressed in the second half so the rate of mortgage defaults could rise, along with forced sales. Sales volumes, in general, are expected to increase by the majority of First National members responding to the survey, with around 70 per cent predicting sales to increase in the coming 6 months.

House and Apartment Prices In the first half of 2010, as predicted in our January 2010 Property Outlook, house prices generally increased across Australia. Around 80 per cent of survey respondents experienced an increase in house prices, with the majority by between 1-10 per cent. Around 70 per cent of our members surveyed, said they saw apartment/strata property prices and land prices increase by between 1-10 per cent. House prices are predicted to continue increasing by up to 10 per cent by the end of the year according to 70 per cent of our members surveyed, along with strata property prices and land prices.

First National Real Estate 2010 Property Outlook Mid Year Update

National Outlook Rental Market The rental market continued to be tight for the first six months of 2010. While it is predicted rental vacancy rates may reduce slightly over the second half, and so ease pent up demand, weekly rental prices are predicted to increase, making it potentially just as difficult for renters to get into appropriate accommodation. Our survey showed 65 per cent of First National members saw vacancy rates decrease, mostly by up to 5 per cent, and this trend is predicted to continue into the second half of the year with 70 per cent of First National members predicting further declines of up to 20 per cent in the majority of cases. Rents were increased by up to 10 per cent by 86 per cent of First National members responding to the survey. They are predicted to continue escalating by up to another 5 per cent in the majority of areas, with 20 per cent of respondents predicting rent increases of up to 10 per cent. Investor activity has increased for around 62 per cent of members surveyed, with only 7 per cent reporting a decrease. This is expected to increase by up to 5 per cent by 43 per cent of our survey respondents, by between 10 and 20 per cent by 45 per cent of our survey respondents, and by more than 20 per cent by around 11 per cent of our survey respondents. Emerging Market Trends First National members continue to report strong desirability by home buyers for energy efficient features when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Almost 80 per cent of members responding to our survey said their customers seek energy efficient features, the top of the list being water tanks (82 per cent) and solar hot water and/or power (82 per cent). This is followed by native, drought tolerant gardens (26 per cent) and approved garden watering systems (25 per cent). Just over 67 per cent of First National members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market.

First National Real Estate 2010 Property Outlook Mid Year Update

Most Affordable Suburbs Our research shows that there are a number of hot spots for affordability around Australia. The following table is our pick of the cheapest investments near capital city centres: City

Suburb

Sydney

Ultimo Ashfield Punchbowl Campbelltown Flemington Northcote Preston Pascoe Vale East Perth Burswood Armadale Braddon Campbell Ascot Zillmere Caboolture Cowandilla Clearview Glenside Clarendon Vale

Melbourne

Perth

Canberra Brisbane

Adelaide

Hobart

Median Unit Gross Rental Median Price (â&#x20AC;&#x2DC;000) Yield (%) House Price (â&#x20AC;&#x2DC;000) 346 7 389 5 235 6 414 295 306 5 404 4 365 4 4 382 267 7 304 5 284 5 404 6 405 4 385 5 379 320 395 350 280 5 155.5

Gross Rental Yield (%) 5 5 5 5 5 4 8

First National Real Estate 2010 Property Outlook Mid Year Update

South Lake Outlook Tully First National Real Estate found that house prices in the South Lake region increased by between 10 and 20 per cent in the last six months, as a lack of stock continued to drive prices skywards. Apartment/strata property prices, on the other hand, stayed the same because of an oversupply of stock. Land prices decreased, given it is better to buy established homes than build new ones. The rental market saw vacancy rates decrease by up to 5 per cent, given the lack of quality rentals, and rents increased by the same amount, due to this same lack of stock. For the remainder of 2010, property prices across all sectors of house, land and apartment/strata in the South Lake region are expected to remain fairly steady, particularly in light of impending interest rate increases and stable market conditions. Vacancy rates are expected to ease, increasing by up to 5 per cent, and rents are expected to remain the same. As the region is considered ‘mid-suburbia’, and as long as the employment situation remains the same, the market is expected to continue as is. There is not a lot of room for movement in the market, unless family circumstances alter, such as divorce or children moving out of home. The major factor likely to affect the market into the future is tightening lending conditions. The real estate cycle is at the point where a status quo has been reached – there is stock available and there are buyers for the stock. The major issue is finance. Lending institutions are extremely cautious in providing finance approval – borrowers need to demonstrate excellent credit ratings, a substantial deposit and the ability to repay. Although this has an impact on current sales, Tully First National Real Estate believes this is what mitigates mortgagee sales when there is a shift in interest rates. Property hot spots over the coming 12 months are Success, Atwell and Aubin Grove – who will reap the benefits of the new railway link into the CBD and the extension of a major shopping centre in the area. These suburbs represent good apartment buying opportunities for investors and first home buyers.

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A highlight for the second half of 2010 will be an expected 5-10 per cent increase in investor activity in the property market, as the market yields better rental returns and stronger than expected capital growth. This increase is on top of an already 1-5 per cent increase in investor activity for the first half of 2010. Interest rates are anticipated to remain fairly constant until the end of 2010, resulting in a more stable marketplace for both home buyers and investors, generating some much needed capital growth. Sales should continue to increase as Generation Xers continue to be lured by the attractiveness of the region. Working in established suburbs, which border developing suburbs gives us the best possible marketplace. The properties in the established suburbs are nearing 20 years old and in some cases need refurbishment – this encourages buyers to “pick up a bargain”, do up and make a profit. On the other hand, you have buyers who favour purchasing a home which has only been established with the basics and needs to be made into a “home”. The environment is continuing to be a factor for consideration by South Lake homebuyers, with 1-5 per cent seeking energy efficient features - the most popular ‘green’ feature being water tanks, approved garden watering systems, solar hot water and power and native, drought tolerant gardens.

First National Real Estate 2010 Property Outlook Mid Year Update 11

2010

Property Outlook

Executive Summary

12 First National Real Estate 2010 Property Outlook Mid Year Update

New South Wales

Outlook

New South Walesâ&#x20AC;&#x2122; house prices are anticipated to continue in the same vein as with recent times, for the coming six months. Generally speaking, the New South Wales market has calmed and stabilised in the first half of the year, and should return to more realistic and sustainable levels although world financial markets may become volatile once again. As predicted in our January 2010 Property Outlook, house prices in New South Wales increased by an average of between 0 to 5 per cent, and similar growth is anticipated in the third and fourth quarters of this year. Some areas are experiencing impressive growth while others are retracting. The new tax by the NSW government for home owners selling property over $500,000 will have a negative impact on the market, similar to the results of the NSW Carr Government vendor exit tax for investors. The RBA increasing interest rates, particularly the last two rate rises, has already impacted on buyer confidence and housing affordability. It is First Nationalâ&#x20AC;&#x2122;s hope that the RBA perceives it has now done its job and will hold rates where they are for some months, which would improve buyer confidence significantly. Housing affordability has also come to the forefront in the state, particularly in Sydney, while other parts of NSW (regional and coastal) enjoy lower median prices and are attracting investors and first home buyers. Overall, we expect to see investors return to the market as the financial markets become more volatile again. Listings in some Sydney suburbs have been up since April, creating symmetry between buyer demand and supply, and maintaining robust prices in these locations with median prices typically above $800,000. According to our survey, 85 per cent of respondents anticipate investor activity to increase, with the remaining 15 per cent expecting no change. Of those anticipating an increase, almost 80 per cent predict increases of between 5-20 per cent. Interest rates are expected to continue to increase by around 84 per cent of respondents, with predicted increases varying between 0.25 per cent up to 2 per cent.

First National Real Estate 2010 Property Outlook Mid Year Update 13

New South Wales

Outlook

Rising mortgage repayments were the main explanation for Sydney becoming less affordable in the past year, regardless of earnings, along with increasing interest rates. Sales volumes for the next 12 months are anticipated to increase by 90 per cent of respondents, on the back of 80 per cent of respondents having already experienced an increase over the last 12 months. House and Apartment Prices Based on a survey sent to First National Real Estateâ&#x20AC;&#x2122;s New South Wales members, the greater majority of respondents indicated house prices had increased by 5 -10 per cent, land by between 10 -20 per cent and apartment/strata property by 5 -10 per cent respectively. In the second half of 2010, property prices are expected to continue increasing, with 90 per cent of members predicting increases of up to 10 per cent across all property areas. Rental Market According to the survey, almost 95 per cent of respondents indicated vacancy rates over the first six months of 2010 had eased, on average by up to 2 per cent, but as much as more than 10 per cent in some cases. Rents, for the same period, had increased by an average of 2-10 per cent, but as much as more than 10 per cent in some areas as well. For the remainder of 2010, 75 per cent of members anticipate a further decrease of vacancy rates, with the majority expecting around a 2 per cent tightening. Rents for the same period are expected to continue increasing, with 95 per cent of respondents saying this was their expectation. The majority of members responded with predictions of between 2-5 per cent, but some were for less than 2 per cent (21 per cent) and some of between 5-10 per cent (21 per cent).

14 First National Real Estate 2010 Property Outlook Mid Year Update

Emerging Market Trends First National members in New South Wales continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, around 65 per cent of our members say their customers seek energy efficient features when looking to buy a new home, based on the survey. Of those, the most popular features are waters tanks and solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens. Around 75 per cent of our New South Wales members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market. Hot Spots The best growth opportunities around Sydney will be found in areas where transport infrastructure provides a reasonable level of connectivity and amenity to residents as well as where affordable housing is strategically located within a comfortable commuting distance from major working centres and transport options. Booming property pockets in Sydney that were showing strength include Annandale, Bronte, Darlinghurst, Epping, Killara and Zetland. In regional New South Wales, top 10 predictions by a leading industry body, are Llanarth, Jerrabomberra, Byron Bay, Callala Bay, Cordeaux Heights, Bargo, Aberglasslyn, Sussex Inlet, Austinmer, Summerland Point, Ocean Shores, Horsley, Bermagui, Lemon Tree Passage, North Avoca, South West Rocks, Anna Bay and Gerringong â&#x20AC;&#x201C; all with house price growth predictions of at least 9 per cent for the next eight years.

First National Real Estate 2010 Property Outlook Mid Year Update 15

2010

Property Outlook

Executive Summary

16 First National Real Estate 2010 Property Outlook Mid Year Update

Victoria Outlook Victoriaâ&#x20AC;&#x2122;s house prices will continue their upward trend for the remaining six months of 2010, despite the market softening in the first half of the year, as the number of buyers coming into the market reduces. Melbourne will lead the Victorian property market over the coming period with many developers focusing on the Melbourne metropolitan market for land acquisitions. As predicted in our January 2010 Property Outlook, house prices in Victoria increased by an average of between 5-10 per cent, and growth is still anticipated for the third and fourth quarters of this year, although this will slow marginally to between 1-5 per cent. There are some pockets throughout the State that appear to be exempt from the influences of the lack of first home buyers, higher interest rates and secure employment. On the other hand, other areas are starting to feel the impact, where we are starting to see an increase in foreclosures by financial institutions. Housing affordability in Victoria has worsened by 10 per cent in Melbourne and 16 per cent in regional Victoria, based on the March quarter figures, compared to 4 per cent nationally. However, on the upside, more than 50 per cent of all jobs created in Australia in the past 12 months were reportedly in Victoria. The state is also attracting more than its fair share of the population surge, with two-thirds of skilled migrants reported buying a house within the first 18 months of moving here. Developers will continue to eye off Victoriaâ&#x20AC;&#x2122;s property market prospects with the State Government widening Melbourneâ&#x20AC;&#x2122;s urban growth boundaries. Provided interest rates remain stable, potential buyers should see now is a good time to purchase and invest in real estate, regardless of whether they are a want-to-be owner/occupier or investor. According to our survey, 80 per cent of respondents anticipate investor activity to increase, while 7 per cent expect it to decrease and the remaining 13 per cent expect no change. Of those anticipating an increase, around 60 per cent predict increases of up to 10 per cent and around 23 per cent predict increases of between 10-20 per cent, which is huge.

First National Real Estate 2010 Property Outlook Mid Year Update 17

Victoria Outlook Interest rates are expected to continue to increase by all Victorian respondents, with predicted increases varying between 0.5 per cent and 2 per cent. Sales volumes for the next 12 months are anticipated to increase by 60 per cent of respondents, on the back of all respondents having experienced an increase over the last 12 months. House and Apartment Prices Based on the survey sent to First National Real Estateâ&#x20AC;&#x2122;s Victorian members, all respondents indicated house prices had increased by, on average, up to 10 per cent. Almost 92 per cent of respondents indicated apartment/strata property prices had risen by up to 10 per cent in the majority of cases, and around 87 per cent indicated land prices had risen by an average of between 5 and 10 per cent. In the second half of 2010, property prices are expected to continue increasing, with around 67 per cent of members predicting increases of an average 1- 5 per cent for houses; around 72 per cent predicting increases of an average 1-5 per cent for apartment/strata property prices; and 87 per cent predicting increases of up to 20 per cent for land prices. Rental Market According to the survey, vacancy rates over the first six months of 2010 had eased in some areas, and tightened in others. 40 per cent of respondents said vacancy rates had increased, while 60 per cent said they had decreased. In the majority of cases, vacancy rate changes were in the main between 2-5 per cent. Rents, for the same period, had increased by an average of 2-10 per cent, but as much as more than 10 per cent in some areas as well. For the remainder of 2010, almost 67 per cent of members anticipate a further decrease of vacancy rates, with the majority expecting around a 2 per cent tightening. Rents for the same period are expected to continue increasing, with around 85 per cent of respondents saying this was their expectation. The majority of members responded with predictions of between 1-5 per cent, with some between 5-10 per cent (23 per cent).

18 First National Real Estate 2010 Property Outlook Mid Year Update

Emerging Market Trends First National Real Estate members in Victoria continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, around 93 per cent of our Victorian members say their customers seek energy efficient features when looking to buy a new home. Of those, the most popular features are waters tanks and solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens. Around 67 per cent of Victorian members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market. Hot Spots According to a report from a peak industry body, Victoria is the nation’s biggest building hotspot – a local area where population growth exceeds the national rate and the value of residential building work approved is in excess of $100 million. Topping the list is Whittlesea North, where residential building work approved rose to over $484 million and the population growth rate was 18.3 per cent. The national population growth rate was 2.1 per cent. Then came Wyndham South – one of Victoria’s fastest growing cities – where the value of work hit almost $284 million and the population growth rate was 12.8 per cent. Other fast growing areas around the state include Cardinia in Pakenham, Melton, Casey, Hume and Southbank Docklands. In regional Victoria, top 10 predictions by a leading industry body, are Lorne, Apollo Bay, Port Fairy, Aireys Inlet, Daylesford, Queenscliff, Bannockburn, Torquay, Geelong – all with house price growth predictions of at least 8 per cent for the next eight years. For units, Lorne was also the top pick with price growth predictions of more than 10 per cent for the next eight years. 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 Real Estate takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.

First National Real Estate 2010 Property Outlook Mid Year Update 19

2010

Property Outlook

Executive Summary

20 First National Real Estate 2010 Property Outlook Mid Year Update

Queensland Outlook The Queensland property market, while definitely slowing, is still a bit of a mixed bag at the moment, with members in some areas predicting an ongoing strengthening of the market, and others experiencing a slight downturn. One factor remains constant throughout the state – affordability is becoming a major issue due to ongoing interest rate rises and the never-ending supply shortage. In recent media reports mortgage brokers said nearly two per cent of would-be first-home buyers in Queensland will turn their backs on the property market, if there is another rate rise by the Reserve Bank. This situation will only worsen as more predicted rate rises come into play. The survey of First National’s Queensland members has shown 44.4 per cent of respondents saying the number of people being forced to sell as a result of mortgage defaults had increased. Investors currently account for an average of 10-20 per cent of overall sales of survey respondents. For the remainder of 2010, a third of respondents said they expected investor activity to increase by up to 10 per cent in the majority of cases (80 per cent), and more than 20 per cent for 20 per cent of respondents. Only about 10 per cent of respondents expected a decline in investor activity in the coming six months. Interest rates are expected to increase by all respondents, but by varying degrees, between 0.25 per cent up to 1 per cent by the end of the year. For the second half of 2010, sales are expected to increase by 50 per cent of respondents, after 83.33 per cent experienced a decline in the first half of the year. Based on recently released figures, the Sunshine Coast and the Gold Coast are the worst performers in the state in terms of having the lowest growth in median house prices – 21 per cent and 25 per cent respectively. However, given the strength of the market over the last few years, these markets are still considered quite strong. Rockhampton is considered the strongest performer among the major city markets with its median house price doubling in five years. Gladstone (up 70 per cent), Townsville (up 62 per cent) and Mackay (up 61 per cent) also showed significant growth. But it is the smaller regional centres that recorded the highest growth over the past five years, including the municipalities of Banana, Burdekin, Charters Towers, Hinchinbrook, Isaac, Longreach, Maranda, Mount Isa and Western Downs – all of which recorded growth that saw median house prices at least double in five years.

First National Real Estate 2010 Property Outlook Mid Year Update 21

Queensland Outlook House and Apartment Prices Based on the survey sent to First National Real Estateâ&#x20AC;&#x2122;s Queensland members, 70 per cent of respondents indicated house prices had decreased by, on average, around 5 per cent. All respondents indicated apartment/strata property prices had also fallen by up to 5 per cent in the majority of cases. However, respondents were split on land prices with 50 per cent indicating land prices had increased and 50 per cent indicating they had decreased â&#x20AC;&#x201C; both by up to 20 per cent in some areas, which is a big range. In the second half of 2010, more members believed prices for houses and apartment/strata properties would decrease (55.5 per cent and 83.3 per cent respectively). House prices are expected to decrease on average by around 5 per cent, but for some may be as much as up to 20 per cent. Apartment/strata property prices are expected to decrease by up to as much as 10 per cent for 50 per cent of respondents, and up to 5 per cent for the remaining 50 per cent. However, there were more members who expected land prices to increase than members who were anticipating falls in land prices. These price changes varied between 1 per cent to 10 per cent. Rental Market According to the survey, vacancy rates over the first six months of 2010 had eased in some areas, and tightened in others. Almost 78 per cent of respondents said vacancy rates had increased, while just over 22 per cent said they had decreased. In the majority of cases, vacancy rate changes were in the main between 2-5 per cent. It was again evenly split on whether rents had increased or decreased, with most movement below 5 per cent, but some by up to 10 per cent. For the remainder of 2010, around 57 per cent of members anticipate a decrease in vacancy rates, with the majority expecting around a 2 per cent tightening. Rents for the same period are expected to increase, with around 71 per cent of respondents saying this was their expectation, with predictions of up to 2 per cent increases. Emerging Market Trends First National Real Estate members in Queensland continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, around 90 per cent of our Queensland members say their customers seek energy efficient features when looking to buy a new home. 22 First National Real Estate 2010 Property Outlook Mid Year Update

Of those, the most popular features are waters tanks and solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens. Around 70 per cent of our Queensland members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market. Hot Spots Griffin-Mango Hill in Brisbane took third place in a recently-released peak body industry report of Australia’s fastest growing metropolitan and regional areas in the 2008/09 financial year. Also mentioned in the report are Condon-Rasmussen-Bohle Basin, Central Pine West, Ipswich, Brisbane City (inner) and Caloundra South. Woolloongabba has become Brisbane’s most talked-about suburb, benefiting by being part of the urban renewal process which has projects in the region streamlined to foster affordability. Woollongabba’s unit market share is set to double the Brisbane average, as the emerging trend of new apartment buildings continues. In regional Queensland, top 10 predictions by a leading industry body, are Cedar Grove, River Heads, Tamborine, Agnes Water, Parkwood, Jimboomba, Doonan, Eli Waters, Tamborine Mountain and Cedar Vale - all with house price growth predictions of at least 7 per cent for the next eight years. Toowoomba is another up and coming hot spot with its affordable real estate and planned infrastructure projects (such as the $200 million pipeline and two key rail projects – a border railway between the city and Moree in northern NSW and the Surat Basin Rail Line between Toowoomba and Gladstone) and increased mining and business ventures (like the BG Group deals worth a combined $80 billion which will see LNG exported to China and Japan; and the recent announced venture by Wagners to be a major service provider to coal-seam gas producers in the region). Banana Shire, based on the regional town of Biloela, recorded a 141 per cent rise while Isaac, including the mining towns of Moranbah and Dysart, achieved 138 per cent for median house prices. Maranda, based on Roma in the Surat Basin region, achieved similar growth. Bowen is becoming a rental hot spot as work begins in earnest on further expansion of the nearby Abbot Point coal terminal and a $1.1 billion rail project.

First National Real Estate 2010 Property Outlook Mid Year Update 23

2010

Property Outlook

Executive Summary

24 First National Real Estate 2010 Property Outlook Mid Year Update

South Australia

Outlook

The South Australian property market has been quite buoyant in the last six months, rising steadily by around 7 per cent, despite a drop in sales volume of around 5 per cent on the previous half year period. Rental vacancy rates have tightened to between 1 and 1.5 per cent, putting pressure on weekly rents. The South Australian property market is expected to continue its steady growth over the next six months and if the Reserve Bank hands out, hopefully, no more than two 0.25 per cent rate rises for the remainder of 2010, it is anticipated a consistent volume of sales will result, together with a rise in values of between 3 per cent and 5 per cent across the state. As predicted in our previous Property Outlook, house prices in South Australia increased by an average of between 5-10 per cent, and growth is still anticipated of up to 5 per cent on average for the third and fourth quarters of this year. According to our survey, around one third of respondents expect investor activity to increase, with the remaining expecting no change at all. Of those anticipating an increase, all predict increases of between 5-10 per cent. Interest rates are expected to continue to increase by all South Australian respondents, with predicted increases varying between 0.25 per cent up to 1 per cent. Sales volumes for the next 12 months are anticipated to increase by 60 per cent of respondents, reversing the trend over the last 12 months where almost 66 per cent of respondents and experienced a decline in sales.

First National Real Estate 2010 Property Outlook Mid Year Update 25

South Australia

Outlook

House and Apartment Prices Based on the survey sent to First National Real Estateâ&#x20AC;&#x2122;s South Australian members, around 67 per cent of respondents indicated house prices had increased by, on average, up to 10 per cent. Almost 98 per cent of respondents indicated apartment/strata property prices had risen by up to 10 per cent, and around 60 per cent indicated land prices had fallen by an average of between 5 and 10 per cent. In the second half of 2010, property prices are anticipated to continue increasing by the majority of respondents (80 per cent), with around 60 per cent of members predicting increases of an average 1-5 per cent for houses and apartment/strata properties; and 80 per cent predict increases of up to 5 per cent for land prices, and the remainder of between 5-10 per cent for land. Rental Market According to the survey, vacancy rates over the first six months of 2010 had eased in most areas, while almost 17 per cent of respondents said vacancy rates had increased. In the majority of cases (50 per cent), vacancy rate changes were in the main between 1-2 per cent, although some were almost negligible at less than 1 per cent (33.33 per cent of respondents) and other were as high as 5-10 per cent (16.67 per cent of respondents). Rents, for the same period, had increased by an average of 2-5 per cent, but as much as between 5-10 per cent in some areas or as low as 1-2 per cent in other areas. About a third of respondents indicated there had been an increase in forced sales due to mortgage defaults, a growing concern for those affected South Australian regions. For the remainder of 2010, almost 67 per cent of members anticipate a further decrease of vacancy rates, with the majority (80 per cent) expecting around a 2 per cent tightening. The remainder expected vacancy rates to decrease by between 2-5 per cent. All respondents said their expectation was that rents for the same period are expected to continue increasing. The majority of members (two thirds) responded with predictions of rental increases of between 1-5 per cent, with some at less than 1 per cent (one-third) and the remaining third between 5-10 per cent.

26 First National Real Estate 2010 Property Outlook Mid Year Update

Emerging Market Trends First National Real Estate members in South Australia continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, 100 per cent of First Nationalâ&#x20AC;&#x2122;s South Australian members report their customers seek energy efficient features when looking to buy a new home, based on the survey. Of those, the most popular features are waters tanks and solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens. Around 83 per cent of our South Australian members responding to the survey agreed with recent reports that there is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market. Hot Spots Onkaparinga on the South Coast was named in a recently-released peak body industry report of Australiaâ&#x20AC;&#x2122;s fastest growing metropolitan and regional areas in the 2008/09 financial year.

First National Real Estate 2010 Property Outlook Mid Year Update 27

2010

Property Outlook

Executive Summary

28 First National Real Estate 2010 Property Outlook Mid Year Update

Western Australia

Outlook

Western Australian housing is still very attractive for young people who were experiencing “lowish” interest rate levels and solid employment prospects. The “number one” risk factor which prevented first home buyers from entering the market has been due to the banks tightening their lending criteria through loan to value ratios (LVR) and a lack of genuine savings appears to be the main factor preventing Generation Y from becoming first home buyers. However, houses are still affordable and in demand especially when comparing to the ever increasing rental prices which clearly indicate in some cases it is cheaper and more beneficial for a tenant to buy rather than rent. While the market has slowed somewhat in WA, and has the potential for softening even more by year’s end, it is expected the market will show an increase of between 5 – 10% in values over the next 12 months, after falling slightly in the second half of 2010. As interest rates stabilise and the economy shows signs of recovery, confidence will be regained in the property sector. Housing is still the number one asset that can be purchased and regarded as a fairly solid investment. The Western Australian property market is definitely on track for strong growth and house prices will go forward slowly over the next two years. The only way house prices could fall would be from a major shock such as China falling over, sky rocketing interest rates or a massive increase in housing supply making demand less. There is no question the recent six interest rates rises are having the effect of slowing the market down but the fierce debate regarding the 40 per cent mining tax is also taking its toll. This debate is certainly having an effect of consumer confidence in general. Talk of succession here in the West can be highlighted by a recent radio station stating that over 75 per cent of respondents agreeing to it [mining tax]. Whilst not promoting cessation it is true that WA would rank about 60 out of the top 200 economies in the world, being a larger economy than the majority of the world’s economies. The caution here is not so much the effect this proposal is having today, but the flow on effect to the property market in two to three years’ time if this is not resolved quickly and some of these future projects do not start as a result.

First National Real Estate 2010 Property Outlook Mid Year Update 29

Western Australia

Outlook

The survey of our Western Australia members has shown that there is a growing number of people being forced to sell as a result of mortgage defaults, with 60 per cent of respondents saying these people had increased in numbers. Investors currently account for more than 20 per cent of overall sales for 60 per cent of Western Australia survey respondents; between 10-20 per cent for 20 per cent of respondents; and between 5-10 per cent for 20 per cent of respondents. For the remainder of 2010, the majority of respondents said they did not expect investor activity to change, while 20 per cent said they expected it to increase by up to 10 per cent; and 20 per cent said they expected it to decrease by up to 10 per cent. Interest rates are expected to increase by all respondents, but by varying degrees, between 0.25 per cent up to 1 per cent by the end of the year. For the second half of 2010, sales are expected to increase by 75 per cent of respondents, after experiencing a decline in the first half of the year. House and Apartment Prices Based on the survey sent, 80 per cent of respondents indicated house prices had increased by, on average, up to 5 per cent, although about 20 per cent saw rises of between 10-20 per cent. It was a similar picture for land prices, with 75 per cent of respondents saying land prices had increased by up to 5 per cent. However, respondents were split on apartment/strata property prices with 50 per cent indicating these had increased and 50 per cent indicating they had decreased â&#x20AC;&#x201C; but mostly by only up to 1 per cent. In the second half of 2010, the majority of members believed prices for houses and apartment/strata properties would decrease (66.67 per cent and 75 per cent respectively) on average by around 1 per cent, but for some perhaps as much as up to 5 per cent for both property sectors. However, 75 per cent of members expected land prices to increase by, on average, round 1 per cent, with some (25 per cent) predicting increases of up to 5 per cent.

30 First National Real Estate 2010 Property Outlook Mid Year Update

Rental Market According to the survey, vacancy rates over the first six months of 2010 had eased in some areas, and tightened in others. 60 per cent of respondents said vacancy rates had increased, while the remaining 40 per cent said they had decreased. In the majority of cases, vacancy rate changes were around 2 per cent. It was similar for rents â&#x20AC;&#x201C; 60 per cent of respondents said rents had increased, while 40 per cent said they had decreased. In the main, changes in rentals were between 2-5 per cent on average. For the remainder of 2010, 75 per cent of members anticipate a decrease in vacancy rates, with the majority expecting around a 2-5 per cent tightening. Rents for the same period are expected to increase, with 50 per cent of respondents predicting increases of between 5-10 per cent and 50 per cent predicting increases of up to 2 per cent. Emerging Market Trends First National Real Estate members in Western Australia continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, around 80 per cent of our stateâ&#x20AC;&#x2122;s members say their customers seek energy efficient features when looking to buy a new home, based on the survey. Of those, the most popular features are solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens and then water tanks. Hot Spots Wanneroo was named in a recently-released peak body industry report of Australiaâ&#x20AC;&#x2122;s fastest growing metropolitan and regional areas in the 2008/09 financial year.

First National Real Estate 2010 Property Outlook Mid Year Update 31

2010

Property Outlook

Executive Summary

32 First National Real Estate 2010 Property Outlook Mid Year Update

Tasmania Outlook The Tasmanian property market is considered to be the steady property performer with the state leading a national recovery in new home construction, house prices reaching their highest ever median price and rent rises in Hobart leading the nation. Ongoing land supply shortages lead to a massive jump in land prices for the state, with recent subdivisions selling quickly. As predicted in our previous Property Outlook, median property prices continued to increase in the first six months of 2010. Although there has been minimal activity from first home buyers so far this year, they have been replaced by second home buyers, and while investors are still low key in the marketplace, they do currently outnumber the first home buyer. The North-West Coast economy is in a fairly precarious state, with the effect of large plant closures such as ongoing job losses, still playing out. Vacancy rates have risen in the last six months as renters become first home buyers. In the coming six months, the market will remain much the same with the number of sales possibly declining slightly, but prices remaining steady, or increasing in major population areas. Bargains are still to be found in the state, with Tasmania being one of the most affordable places to live in Australia, along with its many lifestyle opportunities from sea change to tree change. Building is currently slow and the ongoing shortage of builders and other skilled labourers continue to affect growth. There is the potential for mortgage stress in the major populated areas, particularly if the Reserve Bank starts increasing interest rates by more than 0.5 per cent. All Tasmanian respondents expect interest rates to continue to increase, by up to 1 per cent. Due to its affordability and rental yields (currently remaining steady at 4.9 per cent), Tasmania will again lure investors, especially given other statesâ&#x20AC;&#x2122; legislative changes such as extra property taxes and proposed new tenancy laws.

First National Real Estate 2010 Property Outlook Mid Year Update 33

Tasmania Outlook While Tasmania does not enjoy the huge increases in capital growth of some of the other states, it does offer affordability, investment stability and is less likely to experience the big property bubble bust some commentators are predicting. House and Apartment Prices Based on the survey sent to First National Real Estateâ&#x20AC;&#x2122;s Tasmanian members, house, apartment/strata and land prices are expected to remain steady, with potential for slight increases or decreases of up to 1 per cent for the remainder of 2010 Land prices in Hobart experienced a surge in the first half of 2010, with a 14 per cent rise, bringing the median price for a block of land in the North of the State to $116,000. This increase is considered to be a result of the lack of available land keep demand consistent. Rental Market According to the survey, vacancy rates are expected to increase by up to 1 per cent in the coming six months, and rents are expected to decrease by similar amounts. This comes on the back of rent rises in Hobart of up to 11 per cent over the past 12 months (bring average weekly cost of renting a house in the city from $285 to $316), the biggest increase in the nation.

34 First National Real Estate 2010 Property Outlook Mid Year Update

Emerging Market Trends Tasmanian First National Real Estate members continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, Tasmanian members report their customers seek energy efficient features when looking to buy a new home, based on the survey. Of those, the most popular features are waters tanks and solar hot water and power, followed by approved garden watering systems and native, drought tolerant gardens. There is a trend that more Gen Xers and Baby Boomers are opting to stay in their homes, making it even harder for Gen Yers to get into the property market. Hot Spots Brighton, Kingston, Huonville and the North-West Coast are spearheading Tasmaniaâ&#x20AC;&#x2122;s building charge. Brighton is considered a hub of the stateâ&#x20AC;&#x2122;s building activity, with a lot of new builds in the Kingston Channel area and around Huonville. In the North-West, there is a lot of development across Burnie, Ulverstone and Devonport. The three least expensive suburbs in southern Tasmania were Gagebrook, Bridgewater and Clarendon Vale. The three most expensive were Battery Point, Sandy Bay and Acton Park.

First National Real Estate 2010 Property Outlook Mid Year Update 35

2010

Property Outlook

Executive Summary

36 First National Real Estate 2010 Property Outlook Mid Year Update

Northern Territory

Outlook

The Northern Territory property market is currently very healthy, but supply remains the ongoing major issue. The current lack of movement in the Northern Territory property market is expected to continue for the remainder of 2010, although there are plenty of opportunities for buyers in the unit market. It is clear that the Northern Territory is suffering a housing shortage and the critical issue is continued and planned land releases. The future looks good for property owners, as capital gains are likely however affordability is still an issue for those looking to get into the market. This is being assisted by the Northern Territory Governmentâ&#x20AC;&#x2122;s Home Start Program â&#x20AC;&#x201C; an assisted ownership scheme. Purchase thresholds have been increased in the latest budget to $385,000 in Alice Springs and $475,000 in Darwin. Interest rates are expected to continue to increase by up to 0.5 per cent. Sales volumes for the next 12 months are anticipated to increase, on the back of increases already experienced over the last 12 months. House and Apartment Prices The past six months has seen median house prices in Darwin reach $547,000 and in Alice Springs reach $430,000 representing 1.8 per cent and 4.9 per cent increases respectively. It is a similar story in the unit market, with the median unit prices in Darwin reaching $440,000 and in Alice Springs reaching $339,000, representing 9.5 per cent and 10.6 per cent increases respectively. Both regions are showing significantly lower number of sales.

First National Real Estate 2010 Property Outlook Mid Year Update 37

Northern Territory

Outlook

Rental Market Rental figures show that in the two major regions of the Northern Territory, accommodation is hard to find with overall vacancy rates in Darwin at 2.5 per cent and in Alice Springs a staggering 0.7 per cent. At the same time, rental rates continue to climb. Emerging Market Trends First National Real Estate members in the Northern Territory continue to report strong desirability by home buyers for energy efficient features, when looking to buy a new home. A recent report showed 59 per cent of home buyers would pay more for an environmentally friendly property. Currently, up to 10 per cent of our Territory members say their customers seek energy efficient features when looking to buy a new home, based on the survey. Of those, the most popular feature is solar hot water.

38 First National Real Estate 2010 Property Outlook Mid Year Update

2010

Property Outlook

Sources

First National Real Estate 2010 Property Outlook Mid Year Update 39

Sources First National Real Estate members across the country Newspapers: National, metropolitan and local suburban press. Domain.com.au HIA Media Releases Residex Papers and Media Releases Hotspotting by Terry Ryder

40 First National Real Estate 2010 Property Outlook Mid Year Update