residential Property MARKET OVERVIEW AND OUTLOOK
publication 4 / 2013
May 2013
Residential Market Update
Australian Property Market Overview The Australian residential property market experienced some volatility over the past month, declining by 0.5% throughout the national capital cities in April. This decline was in contrast to the 1.3% growth recorded over March and served to erode some of the gains posted since the start of 2013. The quarterly growth statistic for Australia is now at 1.1%, reflecting the market moving towards stability in the longer term. Darwin, a capital city influenced by the mining and resources sector, continued to outpace other capital cities with an average 5.0% dwelling growth over the quarter. This was while the Hobart market cycle remained in its downturn, contracting by 1.6% on average in the quarter.
of the fall recorded in February. Detached new house sales improved by 16.3% in New South Wales and by 7.3% in Melbourne. Dwelling Building approvals, however, fell by 5.5% in March, the Westpac Melbourne Institute’s Consumer Confidence Sentiment Index declined by 5.5%. The cash rate set by the RBA is now 2.75% (updated on Tuesday), with inflation rising by 0.4% over the past quarter to 2.5%, which is squarely within RBA’s desired range. Given also that the Australian dollar recorded a -1.38% change over the past month to buying 1.0245 USD¹ , most predictions continue to place a narrow band between 0% and -1% change in the cash rate over the rest of the year.
There was positive news for the new home sales figure recorded by the HIA. The statistic rose by 4.2% over the past month, recovering some
Key statistics MAY 2013
ECONOMIC GROWTH WORLDWIDE GDP GROWTH OEDC GDP GROWTH AUSTRALIAN GDP GROWTH AUSTRALIAN GDP GROWTH 4th quarter
3.3% 1.4% 3.5% 0.6%
AUD BUYS
1.02 USD
GDP GROWTH
2012
participation 65.1%
0.3%
0.1%
¹ Current at 2:30pm on 2nd May
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Westpac - Melbourne institute
105 5.1%
1.4%
Australian Employment Unemployment 5.5%
Consumer Sentiment Index
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
RBA STATS CASH RATE 2.75% 0.25% INFLATION 2.5% 0.4%
in Q1
in 2012
Residential Market Update
Key statistics May 2013
New Dwelling Approvals
-5.5%
New Home Sales
Australia wide snapshot 2.3% Annual Change in Dwelling Values 3.0% Annual Change in Total Property Sales 1.1% Quarterly Change in Dwelling Values Difference from Peak Dwelling Value 3.6%
Median House Price
+4.2%
Median Unit Price
510,000 435,275
Weekly House Rent $ 476 Annual Change 3.4% Rental Yield 4.2% Weekly Unit Rent $ 442 Annual Change 3.0% Rental Yield 4.9% Source: ABS, RP DATA, HIA, RBA
Future estate capital city rating summary STATE
CAPITAL CITY
FUTURE ESTATE SCORE
OVERVIEW
NSW
SYDNEY
VIC
MELBOURNE
QLD
BRISBANE
WA
PERTH
SA
ADELAIDE
ACT
CANBERRA
NT
DARWIN
An excellent result, with Darwin showing the highest annual growth and recent asking price change which are likely to continue. Auction clearance, vacancy rates were rated excellent and seemed to overcome “poor” affordability.
TAS
HOBART
An average result through “poor” auction clearance and a high days on market statistic; market was however gradually recovering thanks to “excellent” affordability as of late.
A healthier Asking Price Index change and good auction clearance and vacancy rate statistics saw Sydney’s FE Score increase by 2.2% to 3.77/5. Sydney’s affordability is “good” and it experienced strong growth last year. Melbourne still displayed good Auction clearance rate, but a negative asking price change in the city served to reduce its score. Melbourne quarterly growth was excellent; however predictions for further expansion are tentative given sales discount rates on higher end. Brisbane posted a higher discount rate and recorded a negative asking price change. It’s vacancy rates at 1.7% were good, but an average property in QLD took 165 days to sell. Brisbane’s quarterly growth has been poor; it is at the bottom end of its cycle. Perth continued to show extremely low vacancy rates. Positive asking price change and a marginally negative median value movement in April also added to its 15% positive FE Score change. It has grown well over the past quarter and set to continue this trend. Even as average number of days for an SA property to sell was still high, Adelaide’s vacancy rates were very tight and sales discount rates narrowed. Buoyed by “good” affordability, the city can be seen coming out of the recent slump in property market values. Canberra saw a fall in the FE Score, led by the negative asking price change compared to last month. A lacklustre statistic recorded for its auction clearance and average days to property sale meant Canberra’s lead indicators implied a stable market.
* Score is out of 5 as indicated by our of 5: Higher score indicates a stronger property market with positive outlook, whereas a lower score indicates a softer market with lower growth prospects.
Source: Future Estate Research
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
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Residential Market Update
Property Market Performance The Australian population reached 23 million in April, continuing to grow after an expansion by an average of 1.7% over 2011-2012 (ABS estimate at September 2012). Out of this population growth, 60% was accounted for by net overseas migration to Australia. The growth was the highest in Western Australia, which saw its population expand by 3.4%, while Tasmania was the slowest grower, recording a 0.1% population change. Interstate migration figures also displayed a strong population shift to Western Australia and Victoria. These population growth figures can be effectively compared to property market returns estimated by the RP Data Rismark Home Value Index. This showed a total year on year return of 8.3% for Perth (10.6% at the end of last month), 5.4% for Melbourne and 3.9% percent for Hobart. Darwin, a capital city experiencing vast
shortages of residential property and fuelled by the mining sector, saw a return of 12.4%, while posting a 5.0% quarterly and 2.6% annual growth figures. These figures, compared with the low interest rates during the time, hint at the positive investment potential in the residential property market of Australia. The overall national property market has experienced a cyclical decline over April. However, this has not been evidenced in the strong auction clearance results in the two auction sale driven capital cities of Australia. Sydney and Melbourne both recorded monthly average auction results above the healthy market threshold of 65% again this month, with the last weekend results at 69% (REIV and REINSW). Transaction and Auction volumes have also remained positive on a year on year basis.
April Property Auction Clearance Rates 2500
80% 70%
68.5%
67%
69%
2380
69% 2000
60%
1726
50%
1500
40% 1000
30% 20%
500
10% 0
0
Month Average
Last April Weekend
Source: Real Estate institute of Victoria; Real Estate institute of NSW
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
Total April Auctions
Sydney
Melbourne
Residential Market Update
On the capital city specific data, the key cities of note were Sydney, Perth, Adelaide and Darwin. All capital cities recorded a marginally negative property median value movement, with the exception of Adelaide. The South Australian capital saw an almost 3% growth in median property prices, with house values growing by 3.1%. With the median property price at just $375,000, this property market levels displayed high affordability. Darwin’s growth rates came off the boil in April, yet quarterly (5.0%) and annual (2.6%) growth rates were much higher compared to that at the close of March. Perth
recorded significant volatility in its residential property sector, contracting by the highest rate at 2.5%. The growth was still 3.5% on a year on year basis and served to thus post a flat result on a quarterly basis. With massive inbound migration, Perth is poised to continue to increase demand for dwellings over the rest of the year. Sydney continued to post healthy quarterly figures, and the local median price grew by 3%. Annual returns were one of the highest, at 8.4% in Australia’s largest and most expensive city, partly due to the strong rental market.
quarterly capital city house and unit price trend House Price Trend Over Quarter (%)
6%
6.0%
Unit Price Trend Over Quarter (%)
5% 4% 3% 2.2%
2%
2.3%
2.1%
1.9%
1.8%
1.6% 1.1%
1.3%
1%
0.6%
0.4%
0
-3.9%
-0.8%
-1.5%
Sydney ( NSW )
-0.2% Melbourne ( VIC )
Adelaide ( SA )
Perth ( WA )
-2.0% Darwin ( NT )
-1% Brisbane ( QLD )
-2%
Hobart ( Tasmania )
-3% -4%
Canberra ( ACT )
Source: RP DATA
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
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Residential Market Update
capital city house and unit gross rental yields 8% 7%
5%
6.0% 6.1%
5.7%
6%
5.5% 5.0%
4.6%
4.7%
4.3%
4%
4.4%
4.3%
4.7%
4.6%
5.3%
5.0%
4.9%
3.6%
3% 2% 1% 0
Canberra ( ACT )
Sydney ( NSW )
Brisbane ( QLD )
Melbourne ( VIC )
Adelaide ( SA )
Perth ( WA )
House Gross Rental Yield (%)
Source: RP DATA
Darwin ( NT )
Hobart ( Tasmania ) Unit Gross Rental Yield (%)
Capital City House and Unit Median Prices State
Capital City
Australian Capital Territory
Canberra Sydney
New South Wales Queensland Victoria South Australia
Median Unit Price ($)
Dwelling Trend YTD* (%)
$ 550,000
$ 413,000
3.2%
$ 650,000
$ 500,000
3.0%
Brisbane
$ 445,000
$ 375,000
1.2%
Melbourne
$ 530,000
$ 433,500
2.0%
Adelaide
$ 393,000
$ 320,000
2.4%
Western Australia
Perth
$ 515,000
$ 427,500
1.7%
Northern Territory
Darwin
$ 515,000
$ 415,000
2.6%
Tasmania
Hobart
$ 341,000
$ 277,500
2.8%
Source: RP DATA
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Median House Price ($)
* Year to Date
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
Residential Market Update
Key Cyclical Themes Cyclical Outlook Global economy and policy
Domestic growth and policy
Housing affordability
Population growth
Dwelling construction
Consumer confidence
Household savings / demand for credit
Summaty
Future Estate View
Comments
■■ The
global economic crises in the US and EU have eased off in 2013 ■■ Asian growth continues even amid speculations of a slowdown
■■ Indirect
impact to residential property market via consumer confidence and credit growth ■■ Negative impacts easing in 2013
■■ The
■■ Near-trend
growth, although unemployment has risen to 5.5% ■■ Non-mining sector improving
■■ Near-trend
GDP growth is supportive of housing market growth ■■ Key driver will be unemployment and impact on interest rate setting
■■ Likely
■■ Highest level of affordability since 2009 ■■ The median house price / income ratio is
■■ Lower
■■ Improving
■■Population growth was recorded at 1.7% over the year in 2012 ■■382,500 persons annual increase in period ending September 2012 ■■WA recorded highest growth: 3.5% ■■Population recently reached 23M
■■ Population
■■ Below-trend
■■ House approvals declining ■■ Unit approvals ticking up
■■ 25,000
■■Consumer confidence emerging ■■Investor confidence substantially improved from lows in 2012
■■ Over
■■ RP
■■Household savings ratio remains elevated at ~10% of income – back to 1908’s levels ■■Demand for housing credit still comparatively low
■■ With
■■ Demand
current at around 4, which is well below previous highs
continues
dwelling construction
interest rate environment has stimulated demand, led by the investor segment particularly in inner city apartments
2013
growth expected to rise in
■■ Driven
predominantly by overseas longterm migration ■■ Migration to Australia focused on capital cities of NSW, Vic and WA
50% of investors expect house prices to rise in 2013 vs. 8% expect a fall confidence emerging, it is anticipated that demand for housing credit will emerge, especially given substantial buffer to mortgage repayments after recent savings
global impact on local Australian property appeared mainly during significant international economic turmoils, which are subsiding mild increase in unemployment, which combined with inflation rate on the lower end of the RBA preferred range may lead to further interest rate cuts later into 2013
house prices likely to be off-set by lower interest rates ■■ Historic low interest rates and new home buyer grants stimulating investor and owner occupier property demand ■■ Impact
on housing demand /supply imbalance substantial – housing shortage to reach 300,000 this year ■■ QLD and WA major interstate beneficiaries, while Vic grows through international migration fewer homes built in 2013 compared to a decade ago Construction has fallen since 2010 –rental ■■ growth has been high as a result Data is reporting 250 suburbs around Australia tipped to double property values in 10 years; confidence growing
for housing credit is still increasing, albeit it at very low levels Investor credit demand is leading owner■■ occupier demand
Key Investment Themes Theme
Summary
■■ Capital cities re-emerging ■■ Darwin boom continues ■■ Sydney offers resilient performance in inner city and outer suburbs ■■ Population growth and dwelling undersupply are long-term drivers ■■ Affordability remains a key theme
■■ Generally larger centres and capitals currently experiencing growth ■■ Population growth within states and localities driven by employment opportunity and relative housing affordability
■■ Significant
■■ Distressed
opportunities reducing due to market improvement ■■ Adelaide and Hobart hardest hit of capitals in 2012, recovery emerging with affordability at record highs
■■ Value
■■ Sustainable
■■ Darwin,
■■ Yield
Key growth opportunities
Key value opportunities
Defensive yield
Comments
Future Estate View
■■ Sustainable above-market capital growth
discount to comparable properties, market analyst valuation
rental income, above market yield
Brisbane and Perth have very high yields, fuelled by property undersupply ■■ Regional centres (top 20 population) offer highest sustainable yield
more at the suburb, rather than city level and more particularly at the asset-level ■■ Distressed value without capital and income growth potential questionable – i.e. lifestyle / coastal compression possible / likely in 2013 as housing recovery gains momentum ■■ Rental growth unlikely to exceed capital growth materially
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
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Residential Market Update
Future Estate Property Market Fast Facts Sheet
■■Reserve Bank of Australia’s current cash rate is the lowest on record and has been set at drive growth in the local economy
■■State government’s first home buyer bonuses have been adjusted to boost new housing
developments, which have failed to keep up with demand from Australian population growth
■■Australia’s population reached 23 million in April, having grown at an approximate rate of 1.7% per annum and due to increase at a greater rate in the coming years
■■Housing Industry Association has reported that Australia is currently building 25,000 fewer homes on an annual basis as compared to a decade ago
■■National Housing Supply Council has estimated that the housing undersupply as at June 2011 was 214,700, and growing
■■Dwelling shortages are already an issue in Perth and Darwin, which have seen high median value growth along with high rental yields for local properties
■■Building and development investment has reduced severely since the GFC, with residential construction activity having contracted every month for the past 34 months
■■Despite property markets ending with a soft result this past month, preliminary auction
clearance rates in the first week of May have seen figures in the high 70 percents for Sydney and Melbourne; excellent auction results even by market peak standards
■■New home sales rose over the past month by 4.2%, while property values are now 3.6% below peak values in October 2010
■■The Australian Residential Market sector is about 3.5 times the market value of the Australian Stock Exchange and continues to present a strong investment potential for local and international investors
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
Residential Market Update
Future Estate capital city rating PERTH
DARWIN
34% State Auction Clearance Rate 127 State Days on Market (days) 7.0% State Discount Rate 2.8% Asking Price Index Change 1.0% City Vacancy Rate 3.20 State Property Market Score* Future Estate Capital City Rating
State Auction Clearance Rate 93.3% State Days on Market (days) 155 State Discount Rate 5.6% Asking Price Index Change 1.5% City Vacancy Rate 1.2% State Property Market Score* 3.20 Future Estate Capital City Rating
BRISBANE
3.84
3.59
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
36% 165 9.9% -0.6% 1.7% 2.25
Future Estate Capital City Rating
2.35
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
63% 116 7.1% 2.2% 1.5% 3.35
Future Estate Capital City Rating
QLD
3.77 WA
BRISBANE
SA
CANBERRA
NSW SYDNEY
PERTH
ACT CANBERRA
VIC
ADELAIDE
MELBOURNE
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
43% 92 5.5% -1.6% 1.5% 2.85
Future Estate Capital City Rating
2.87
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 43% 162 8.5% 0.4% 1.3% 3.35
Future Estate Capital City Rating
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
HOBART 60% 110 8.1% -0.7% 2.6% 4.15
Future Estate Capital City Rating
3.22
3.18
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
24% 195 10.5% 1.2% 2.0% 3.10
Future Estate Capital City Rating
2.77
* The State property Market Score, which is out of 5, takes into account several factors, including demographic factors that indicate future growth, Quarterly House and Unit Median Price Growth rates, Annual Dwelling growth Rates and the Median mortgage payments as a proportion of the Median Household Income.
Sources: Australian Property Monitors, Domain. com.au and SQM Research.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MAY 2013
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Residential Market Update
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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. Please contact our team at Future Estate for more information on our methodology and/or our range of other property investment advisory services.
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This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication of MARKET future performance. FUTURE ESTATE RESIDENTIAL PROPERTY UPDATE MAY 2013
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