residential Property MARKET OVERVIEW AND OUTLOOK
publication 4 / 2014
MAY 2014
Residential Market Update
The Australian Residential Property Market grew by 0.3% in April, closing the quarter at 2.6% and the year at 11.5%
The National Residential Property Market has moved eased from the record high last month over towards a more sustainable growth figure. After growing 2.3% in the month of March and closing the first quarter at a positive 3.5% change, April statistics showed the market expansion at 0.3% and 2.6% for the month and quarter respectively. Australian house prices are now up 11.5% on an annual basis, higher than last month’s 10.6% annual closing figure. Recent developments in the Australian economy, fiscal management and consumer expectations have been the likely factors playing out in the market as of late. The Reserve Bank of Australia, in its May meeting, has left the cash rate unchanged at 2.5%. RBA’s board again justified the cash rate setting with a look at the largely unchanged global outlook for economic growth, the inflation rate in the target zone of 2%-3%, the continuing subdued demand for labour and the slow wage growth. The expansionary stance continued to provide upward pressure on dwelling prices across Australia, consumption figures and the general business conditions within the economy. Unemployment rate is now at 5.9%, largely unchanged, with participation rates at 64.8%, up less than 0.1% since last month.
Given the recent changes in the fiscal policy stance by the new Australian government, consumer expectations softened. Now at the same level as August 2011, the Consumer Sentiment Index tracked by the WestpacMelbourne Institute aims to capture consumer evaluations of household financial situations in the past, present and future. It is now at 92.9 points, having fallen close to 7%. The Industry Confidence Index, managed by a collaboration between the Housing Industry Association and the ANZ Bank remained at -8 point change for the June quarter of 2014, however it was published before the release of the recent budget. An impact was also reflected on the AUD exchange rate, now at 0.923, which is a -1.0% change in the past month. The HIA-Commbank Affordability Index was updated for the December quarter. The Index showed a slight fall in affordability for the last quarter of 2013, as the cash rate change was finally absorbed by the market. New Dwelling approvals changed -3.5% on a seasonally adjusted basis in April, while New Home Sales were up marginally in March. Housing Finance Commitments are also down 1.1% in the past month, given the change in investor expectations.
Dwelling trend year on year 18% 16.7%
16%
Dwelling Trend YoY (%)
14% 12%
11.6%
10% 7.7%
8%
6.3%
6% 4.7%
4.3% 3.8%
4%
2% 0
1.2%
Sydney ( NSW )
Melbourne ( VIC )
Perth ( WA )
Brisbane ( QLD )
Source: RP DATA
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
Darwin ( NT )
Hobart ( TAS )
Adelaide ( SA )
Canberra ( ACT )
Key statistics April 2014
ECONOMIC GROWTH WORLDWIDE 2013 US, EUROPE & JAPAN 2013 AUSTRALIAN 2013 AUSTRALIAN 4TH quarter 2013
Consumer Sentiment Index
AUD BUYS
3.0% 2.2% 2.8% 0.8%
0.9234 USD 1.0%
Westpac - Melbourne institute
UPDATED on 23 MAY 2014
92.9
6.8% in APRIL
GDP growth
2013
Australian Employment UNEMPLOYMENT 5.9%
RBA STATS 0% 0.6%
PARTICIPATION
in 1 MONTH
132 pts
7.2%
0.3%
1.1%
16.1%
$ 27,346
monthly
11.5% adjusted value of total dwelling commitments
2.6%
Property Council/ ANZ Property Industry Confidence Index
housing finance
quarterly
Australia wide snapshot
HIA-COMMBANK HOUSING AFFORDABILITY INDEX
74.6
64.8%
in Q1 2004
annual
CASH RATE 2.50% INFLATION 2.90%
Difference from TROUGH Dwelling Value
Difference from Peak Dwelling Value
Dwelling Values
Median House Price
$ 580,000
Median Unit Price
$ 480,000
New Home Sales
0.2 %
Weekly House Rent $ 424 Rental Yield 3.8% Weekly Unit Rent $ 425 Rental Yield 4.6%
New Dwelling Approvals
-3.5%
Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
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Residential Market Update
Future estate capital city rating summary STATE
CAPITAL CITY
FUTURE ESTATE SCORE
OVERVIEW
NSW
SYDNEY
Sydney’s FE score remained constant this month, with little change to any leading market statistics.
VIC
MELBOURNE
Melbourne’s score was marginally up from last month, given an improvement in the asking price index.
QLD
BRISBANE
WA
PERTH
Perth’s score was also unchanged this month. Leading market statistics recorded little change.
SA
ADELAIDE
Adelaide’s score marginally declined this month. The asking price index moved unfavourably, even while the vacancy rates were rated “Good”.
ACT
CANBERRA
Canberra’s score declined this month after last month’s increase. Given the poor outlook for the property market locally, the asking price was negative.
NT
DARWIN
Darwin’s score declined this month. Lead by affordability and expectations, the asking price shifted to a large negative, even as auction clearances were excellent.
TAS
HOBART
Hobart’s score declined again this month. Early signs of growth last month were wiped off with April’s poor performance, and thus affected the FE score.
Brisbane’s score was unchanged this month, with leading statistics remaining constant.
* Score is out of 5 as indicated by out of 5: Higher score indicates a stronger property market with positive outlook, whereas a lower score indicates a softer market with lower growth prospects.
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
Source: Future Estate Research
auction clearance rates
Capital Cities
Auction clearance rates this month across the two major capital cities continued to ease from the peaks seen in late 2013 and early 2014. RP Data has reported a 69.6% auction clearance for the May 18th weekend, which is one of the first of the first times the data provider has published this rate at below 70%. Analysis by APM and the Real Estate Institute of NSW was more positive, landing the clearance rates at 75% and 72%, respectively. Melbourne’s analysis of its auction market was even further constrained by the RP Data reports, which stated a 68.8% close to the statistic off 938 auctions. APM, however, published the auction clearance at 76%, with 876 auctions, while the Real Estate Institute of Victoria showed it to be at 70%. The differences between the analyses of these companies can be seen to originate from the discrepancies between the source of their auction data, as well as their analysis methodology. Nevertheless, the auction clearance rate remains high and indicative of a robust, growing market. Led by initial uncertainty regarding the budget so far, the new measures by the federal government have seen at least a momentary impact on the market movement.
Australian residential property in the major Australian capital cities returned investors 16.2% on average over the past year, inclusive of capital gains and rental return. This is with the median dwelling value now at $550,000 across Australia, having grown 11.5% in the past year. The median national dwelling value can be split into the median house value, at $580,000, and the median unit value, at $480,000. These figures, however, are very different to the values within Sydney and Melbourne, the most populous capital cities.
Auction clearance rates remain high and indicative of robust, growing market. Somewhat lower stock volumes and clearance rates should be antecipated during the coming winter months, as is the usual trend
Sydney’s median house value is $802,000 at the close of April 2014, having progressed by 17.7% in the past year and 4.4% in the past quarter. Sydney’s median unit is now valued at $576,000, which is almost as high as the national median house value and $26,000 higher than the median dwelling value. Sydney units have grown 12.4% in the past year and 2.8% in the past quarter, but moved by -0.3% in the month of April. Melbourne, on the other hand, saw its median dwelling value at just $615,000, or at least $187,000 less than Sydney’s median house value. The second highest house median value grew by 12.2% in the past year, but has seen a -0.4% change in the recent month. Melbourne’s units were worth $472,500 on median terms, up 6.8% in the past year and down 1.6% in the recent month of April. The largest positive outlier was the Adelaide market, at a median dwelling value of $389,000 and up 2.1% in April.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
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Residential Market Update
CHANGE FROM PREVIOUS PEAK and TROUGH (%) Change from Previous Peak and Trough (%) 24%
22.5 19.5
20% 16.4
16.4 14.8
16% 12%
Change (%)
Sydney markets are now 22.5% above their previous market low point that occurred approximately 2 years ago. It is at least 12.2% higher in its difference from its previous market peak, as compared to Melbourne at +4.2%
9.4
9.2
8.3 8%
5.7 4.2
4%
3.2 0.9
0.1
0
-4.2
-4.1
-7.7
-4% -8% Sydney (NSW)
Melbourne (VIC)
Source: RP DATA
Perth (WA)
Adelaide (SA)
Canberra (ACT)
Change from Previous Peak (%)
Darwin (NT)
Brisbane (QLD)
Hobart (TAS)
Change from Previous Trough* (%)
Property auction clearance rates: week ending 18TH MAY Auction Clearance Rates Auction clearance figures ranged between 70-75% for both Sydney and Melbourne on the May 18th weekend
80%
75%
76% 69.6%
70%
68.8%
72%
70%
60% 50% 40% 30% 20% 10% 0
Australian Property Monitors
RP Data
REIV/REINSW* Sydney
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
Melbourne
quarterly capital city house and unit price trend 8.9%
9%
House Price Trend Over Quarter (%)
8% 7%
Unit Price Trend Over Quarter (%) 6.5%
Positive trend across all cities, for both houses and units, with Hobart units and Darwin houses the standouts
6% 5% 4.4%
4%
3.5% 2.8%
3%
2.4%
2.2%
2%
1.7% 1.4%
1.2%
0.8%
1%
0.7%
1.1%
0.6% 0.2%
-0.6%
0 -1%
Darwin ( NT )
Sydney ( NSW )
Adelaide ( SA )
Brisbane ( QLD )
Hobart ( TAS )
Melbourne ( VIC )
Perth ( WA )
Canberra ( ACT )
Source: RP DATA
capital city house and unit gross rental yields Gross Rental Yields 7% 6%
5.8%
6.1% 5.2%
5%
5.3%
5.1%
4.9% 4.5%
4.4%
4.8% 4.2%
4.8%
4.6%
4.2%
4.2% 3.7%
4%
3.3%
3%
Darwin properties continued to present a high rental yield to investors. Surprisingly, Hobart’s properties have also been active as of late
2% 1% 0 Darwin ( NT )
Source: RP DATA
Hobart ( TAS )
Brisbane ( QLD )
Canberra ( ACT )
Adelaide ( SA )
Perth ( WA )
House Gross Rental Yield (%)
Sydney ( NSW )
Melbourne ( VIC )
Units Gross Rental Yield (%)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
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Residential Market Update
Capital City House and Unit Median Prices State
Capital City
Median House Price ($)
Median Unit Price ($)
New South Wales
Sydney
$802,000
$576,000
Victoria
Melbourne
$615,000
$472,000
Queensland
Brisbane
$490,000
$363,000
South Australia
Adelaide
$410,000
$327,250
Western Australia
Perth
$547,000
$444,000
Tasmania
Hobart
$360,000
$257,500
Northern Territory
Darwin
$585,000
$455,000
Australian Capital Territory
Canberra
$560,000
$412,500
Source: RP DATA
Key Investment Themes Theme
Summary
Key growth opportunities
§§ Sustainable
Key value opportunities
§§ Discounts to
Yield Growth
§§ Rental
above-market capital growth
comparable properties; new areas to demonstrate growth
income and sustainable above market yield
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Future Estate View
Comments
§§ Capital cities set to drive the growth
§§ Population growth likely to be
this year, supported by the larger regional centres especially in Queensland emerging from the dip in activity in early 2013 §§ Sydney offering continued sustainability in growth in the Inner Western and Eastern Suburbs §§ Melbourne market continues to grow steadily
one of the key drivers of property market growth §§ Dwelling undersupply is a subsequent factor with critical influence; state building restrictions play a role §§ Long term affordability; cash rate set to expansionary setting on record lows §§ International investor interest with lower AUD and overseas restrictions
§§ Distressed opportunities have
§§ Value continues to be
reduced due to improvement in the market health §§ Adelaide and Hobart continue to demonstrate high affordability and potential of growth §§ Outer South and North Western Sydney seeing strong fundamentals; infrastructure upgrades will drive growth
demonstrated at the asset level, rather than capital city level §§ Pockets of opportunities as lifestyle trends emerge – i.e. inner city former industrial suburbs emerging as residential growth hubs
§§ Darwin, Brisbane and Perth, along
§§ Yield compression is a concern in
with Canberra remain high yield markets due to affordability constraints and dwelling undersupply §§ Regional centers and Gold Coast showing improving yields, which are generally a leading indicator to dwelling price increases
the major capital cities as dwelling values set to further expand in 2014 §§ Largely set on construction expenditure; if housing supply is strong, there could be potential for stable yield §§ Rental growth currently not likely to outstrip dwelling value growth
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
Key Cyclical Themes Cyclical Outlook
Summary
Future Estate View
Comments
Global economy and policy
§§ US Federal Reserve has plans
§§ Indirect impact on residential §§ Global negative impacts on
to curtail QE policy §§ Chinese growth is estimated to be 7.5% for 2014 §§ US economy is growing at an estimated 2.5% p.a.
property market via local property markets are consumer confidence, access easing, given favourable to credit and changes to exchange rate and local cash price growth areas rate changes §§ No negative impacts §§ Weaker AUD is leading currently, due to current to international investor RBA policies interest
Domestic growth and policy
§§ ABS released a Q3 2013 growth §§ Lowered cash rate and rate of 0.6%, which can be annualised to 2.5% §§ Local economy is being assisted by the low Australian Dollar
improved affordability is assisting in housing market growth §§ Unemployment, at 5.8% and a lower participation rate is starting to become an issue for the RBA
§§ Likely slight increase in unemployment, which combined with inflation rate on the lower end of the RBA preferred range may lead to further interest rate cuts in the first two quarters of the upcoming year.
§§ REIA reporting 28.5% (26% in §§ Lower interest rates have §§ Increasing house prices Housing QLD) of household income is translated to strong auction likely to be off-set by lower affordability spent on mortgage payments, clearance rates of over 80% interest rates lowest in a decade in the major capital cities, §§ Historic low interest rates §§ The median house price/ areas with high employment and new home buyer grants income ratio is about 4.5, which §§ Affordable inner city suburbs stimulating owner occupier is low compared to Asia & are experiencing growth property demand; investors Europe noticing high growth areas Population growth
§§ Population growth was
§§ Population growth expected §§ Impact on housing demand / recorded at 1.8% over the to rise in 2014, driven mainly supply imbalance substantial year in 2012 by overseas skilled migration – housing shortage too from §§ 394,200 persons annual §§ Migration to Australia reduced construction activity increase in period ending concentrated in capital cities and investment December 2012 of NSW, VIC and WA, which §§ QLD and WA major interstate §§ WA recorded highest has resulted in home value beneficiaries, while VIC growth: 3.5% growth grows through international §§ Population recently reached 23M migration
§§ Below-trend dwelling Dwelling development continues construction
Consumer confidence
§§ Consumer confidence
Household savings / demand for credit
§§ Household savings ratio
emerging, with stronger market fundamentals §§ Investor confidence substantially improved from lows in 2012 remains elevated at ~10% of income – back to 1980’s levels §§ Demand for housing credit still comparatively low
§§ House approvals have
§§ 25,000 fewer homes built
seen a decline as of late, with construction and completions remaining poor §§ New Home Sales are increasing
in 2013 compared to a decade ago §§ Construction has fallen since 2010 given credit crunch – rental growth and yield has been high as a result
§§ Over 50% of investors
§§ RP Data is reporting 250
expect house prices to rise in 2014 as compared to 8% who expect a fall
§§ With confidence emerging, it is anticipated that demand for housing credit will emerge, especially given substantial buffer to mortgage repayments after recent savings
suburbs around Australia tipped to double property values in 10 years §§ HIA reports hotspots are emerging
§§ Demand for housing credit is still increasing, albeit it at below trend §§ Investor credit demand is leading owner-occupier demand
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
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Residential Market Update
Future Estate capital city rating
PERTH State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
BRISBANE
DARWIN State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
36.3% 92 5.9% -0.6% 1.9% 2.89
85% 132 5.2% 0.8% 1.5% 3.23
Future Estate Capital City Rating
Future Estate Capital City Rating
3.11
2.78
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
37% 144 7.9% 1.1% 2.4% 2.89
Future Estate Capital City Rating
3.00
SYDNEY
DARWIN
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
NT
70% 100 6.2% 0.6% 1.7% 3.64
Future Estate Capital City Rating
QLD
3.65
WA
BRISBANE
SA
CANBERRA
NSW SYDNEY
PERTH
ACT ADELAIDE
CANBERRA
VIC
MELBOURNE
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
45% 90 5.0% -2.9% 2.1% 3.00
Future Estate Capital City Rating
2.70
TAS HOBART
ADELAIDE State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
MELBOURNE 51.1% 154 7.4% 0.8% 1.5% 3.08
Future Estate Capital City Rating
3.15
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
HOBART 67% 110 7.1% 0.7% 2.9% 3.53
Future Estate Capital City Rating
3.56
* The State Property Market Score, which is out of 5, takes into account several factors, including demographic factors that indicate Future Growth, Quarterly House and Unit Median Price Growth Rates, Annual Dwelling Growth Rates and the Median Mortgage Payments as a proportion of the Median Household Income.
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MAY 2014
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
30% 195 10.2% 0.1% 1.6% 2.70
Future Estate Capital City Rating
2.51 Sources: Australian Property Monitors, Domain.com.au and SQM Research.
Future Estate’s Research Team has developed an extensive quantitative modelling process to critically assess the Australian Residential Property Market. For the Capital City Rating, our team records, benchmarks, assigns weights to and scores various key property market lead indicators and descriptive statistics. Our Services Include: §§ Buyers’ agency §§ Research – suburb reports and due-diligence markets §§ Personalised advice and investment strategy §§ Panel of “Endorsed Projects”- over $1bn portfolio of “investment grade” projects nationally §§ Contact us to arrange a complimentary consultation to discuss your needs
Please contact our team at Future Estate for more information on our methodology and/or our range of other property investment advisory services.
(03) 9988 2900 info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate
Copyright © Future Estate Group Pty Ltd 2014
This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information this document has been given for illustrative purposesUPDATE only and should not be relied upon as an indication of future performance. FUTUREin ESTATE RESIDENTIAL PROPERTY MARKET – MAY 2014
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