2013 08 05

residential Property MARKET OVERVIEW AND OUTLOOK

publication 7 / 2013

AUGUST 2013

Residential Market Update

Australian dwelling values have increased by 4.9% in the year ending July 2013, after having grown by 1.6% during the month

Australian Residential Property continued its upwards trend in July, closing with a 1.6% positive monthly change. The quarterly and annual growth statistics produced by RP Data indicated 2.3% and 4.9% growth, respectively suggesting renewed confidence in this investment sector.

Early pre-release reports from RP DATA Rismark have concluded that the quarterly growth statistic for Sydney’s residential property market at the end of August was 5.4%, which is up from 3.9% quarterly growth statistic at July end. Forecasts of Sydney’s net annual growth for the calendar year 2013 are now at 10%, which illustrates that the Sydney market is leading the broader Australian residential property market rebound since 2012.

Housing affordability improved throughout Australia over the past month, as the cash rate was lowered to a new historic low of 2.5%. This was in addition to the HIACommonwealth Bank Australian Housing Affordability Index increase of 4.4% during

the June quarter, with areas such as Regional Queensland seeing close to a 10% increase in affordability. The flow on effects of this were on the auction clearance rates, which have been recorded at peak levels in the major capital cities for the past 6-8 weeks.

Over the week ending 1st September 2013, clearance rates were 85% in Sydney and 72% in Melbourne according to APM. The Westpac Melbourne Institute Consumer Sentiment Index improved by 3.5% to 105.7, placing it into the positive outlook range. This was alongside an increase of 10.8% in the building approvals statistic recorded by the ABS, which produced a long term upwards trend. The total value of the Housing Finance Commitments tracked by the ABS also indicated a rise of 1.2%, and this was partly due to increased affordability and subsequent buyer activity. The new Home Sales figure tracked by HIA also rose by 3.4% in July. The rental market also continues to improve, with house and unit rents up 3.2% and 2.3% annually.

Dwelling trend year on year 10% 8.3%

Dwelling Trend YoY (%)

8% 6.5%

6%

4.3%

4.1%

4%

1.7%

2%

1.2%

1.1%

-0.4%

0%

-2%

Perth ( WA )

Sydney ( NSW )

Melbourne ( VIC )

Canberra ( ACT )

Source: RP DATA

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

Darwin ( NT )

Brisbane ( QLD )

Adelaide ( SA )

Hobart ( TAS )

Key statistics july 2013

ECONOMIC GROWTH WORLDWIDE 2012 US, EUROPE & JAPAN 2012 AUSTRALIAN 2012 AUSTRALIAN 2ND quarter 2013

2.8% 0.5% 3.1% 0.6%

AUD BUYS

0.8905 USD

2012-2013

Westpac - Melbourne institute

105.7

3.0% in august*

GDP growth

Consumer Sentiment Index 3.5% in AUGust

Australian Employment

RBA STATS

65.1%

housing finance monthly

1.2%

1.3%

annual CHANGE IN total property sales

total dwelling commitments (M)

$ 23,690

14.7%

1.6%

Australia wide snapshot

in Q2

Difference from Peak Dwelling Value

Dwelling Values

Median House Price $ 513,000 Median Unit Price

0.2%

quarterly

72.8

PARTICIPATION in Aug

annual

HIA-COMMBANK HOUSING AFFORDABILITY INDEX

0.2%

2.3%

0.25% 0.4%

4.9%

CASH RATE 2.5% INFLATION 2.4%

UNEMPLOYMENT 5.7%

$ 440,000

New Home Sales

3.4%

New Dwelling Approvals

10.8%

Weekly House Rent $ 478 Annual Change 3.2% Rental Yield 4.1% Weekly Unit Rent $ 443 Annual Change 2.3% Rental Yield 4.9% Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA * Current at 14:30 pm 4 September 2013

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

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Residential Market Update

Future estate capital city rating summary STATE

CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW

SYDNEY

VIC

MELBOURNE

Melbourne’s market saw a positive change in the key factors, with moderate improvements in auction clearance rate, asking price index and the vacancy rate.

The property market score was also higher.

QLD

BRISBANE

The Brisbane market was largely unchanged, apart from slight improvements in the days on market, discount rates and auction clearance rates.

WA

PERTH

Perth’s FE score was higher due to a lower discount rate and days on market statistic. The asking price change for the last month was positive, as well as the property market score.

SA

ADELAIDE

Adelaide’s residential property sector retained a similar score to last month, being affected slightly by a positive change in the asking price index and past median value performance.

ACT

CANBERRA

Canberra’s score saw a sharp increase this month, given an improvement in all key statistics and a growth in the recent median value. The Asking Price Index produced the most significant positive change.

NT

DARWIN

Darwin retained its excellent vacancy rate and went on to post one of the highest scores. The Auction Clearance Rate fell, however the days on market and asking price index statistics improved.

TAS

HOBART

Hobart, having experienced poor growth recently, showed the largest percent increase last month. Even as the Asking Price Index saw a decline, there was a positive change in all other key rates and figures.

Sydney’s FE score changed upwards after an improvement in all key statistics. The aggregate auction clearance rate and the asking price index saw significant increases.

* 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 AUGUST 2013

Source: Future Estate Research

Property Market Performance Australian residential property prices continue to grow and the sector has seen continuing investor interest as of late, given the current standing of the Monetary Policy and positive consumer sentiment. Off the plan and established property sales have seen a sharp increase, with auction clearances also in excess of 80%, well above previous market benchmarks set in 2010.

Anecdotally, some auctions have even closed with sale prices well in excess of reserves.

There are several key reasons for such a market phenomenon.

The local residential property market, similar to other asset classes, is largely driven by both supply side and demand side effects as well as market sentiment. The supply side has especially been an area especially of concern in recent years, given the constraints on credit approval faced by property developers servicing the increasing demands of Australia’s population, which is growing at 1.8% p.a. The HIA-tracked Australian Performance of Construction Index, which measures building activity in Australia, has recorded that for the past 38 months consecutively, the construction sector has seen a consistent decline. ABS data further supports this news; its articles report the value of total construction work done fell 1.0% below trend in the June 2013 quarter.

Therefore, an inherent undersupply exists in the market, which is having a significant impact in sustaining high dwelling median values of, for example, $645,000 in Sydney.

There are also demand side factors which have seen significant reasons to expand. With the cash rate currently set at an expansionary 2.5% by the RBA, housing affordability has greatly increased and subsequently led to increased demand for property. The HIACommbank Affordability index increased by 4.4% in the past quarter, and the Adelaide Bank/REIA Affordability report has stated that the proportion of household income now required to meet median mortgage repayments is at a decade low of just 28.7% nationwide (just 26% in Queensland, which subsequently had a 1.5% median

price growth in August). Moreover, with the Australian dollar falling in value, there has also been increased international demand.

Overseas investors have more recently been interested in Australian luxury property: notable recent sales have been a $17m Hyde Park penthouse sold to a Chinese investor, and a $10.7m off the plan sale from the Barangaroo project released by Lend Lease.

The current property market is showing strength due to a combination of unique supply and demand factors.

All in all, the effect of this supply constraint and demand increase is a rise in median home values. The ABS has reported that between the 2012 and 2013 June quarters, Australian residential property prices increased by 5.1%, with Perth and Darwin having grown by 11% and 7.7% respectively.

RP Data further reports that after an annual growth of 4.9%, the median house and unit prices in Australia are $513,000 and $440,000 respectively.

auction clearance rates Auction clearance rates continued to be strong in July and August, with figures well above the levels seen during 2012. Sydney was recording a heightened level of buyer activity, with rapid off the plan sales off Tower Capitol in Bondi Junction and Barangaroo at Darling Harbour within hours of release.

Luxury non-waterfront sales at record prices exceeding $30m were also recorded in the Eastern Suburbs. The national aggregate auction clearance rate, as recorded by APM, was 66%. RP Data recorded a monthly median value appreciation of 1.6%.

Capital Cities Among the capital cities, the top increases were seen in Perth houses and Darwin units.

Sydney and Canberra posted the highest aggregate monthly gains, rising by 2% and 2.5% respectively in the month of July. The year on year data showed Perth houses grew by 8.8%, closely followed by Sydney houses at 7.3% growth. This produced a net average return (including rent and capital gain) of 13.8% for Perth and 11.9% for Sydney. This was particularly interesting given reports of a decline in mining-related activity, which is the dominant industry in Western Australia.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

5

Residential Market Update

APM recorded a weekly Auction Clearance Rate of 85% from 410 auctions in Sydney for the week ending 1st September 2013.

This was one of the highest recorded clearance rates for this capital city.

Property auction clearance rates: july 2013 July Property Auction Clearance Rates 80%

72%

70%

74%

70%

2000

1770

72%

1500

60%

1303

50% 1000

40% 30%

500

20% 10% 0

0

Month Average

Last July Weekend

Total July Auctions

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

Sydney

Melbourne

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

Property auction clearance rates: week ending 1ST SEPTEMBER Auction Clearance Rates 85% 80%

80

72%

75.2%

80

69%

70%

70

60%

60

60

50%

50

50

40%

40

40

30%

30

30

20%

20

20

10%

10

10

0

0

RP Data

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

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

79%

70

0

Australian Property Monitors

79%

REIV/REINSW* Sydney

Melbourne

quarterly capital city house and unit price trend

5%

House Price Trend Over Quarter (%)

4.6%

Unit Price Trend Over Quarter (%)

3.9%

4%

2.8%

3% 2%

3.0%

2.9%

2.5%

1.6%

1.2%

1.5%

1% 0 -0.2%

-1%

-0.3%

-0.4%

-2%

-1.8%

-3%

-2.8%

-4% -5% -6% -6.2%

-7% -8%

-7.0% Perth ( WA )

Sydney ( NSW )

Hobart ( TAS )

Melbourne ( VIC )

Canberra ( ACT )

Brisbane ( QLD )

Darwin ( NT )

Adelaide ( SA )

Source: RP DATA

capital city house and unit gross rental yields Gross Rental Yields 8% 7% 6.2%

6%

6.0% 5.4%

5.2% 5.2%

5.0%

4.8%

5%

4.4%

5.0% 4.4%

4.9% 4.4% 4.4%

4.4%

4.1%

4%

3.6%

3% 2% 1% 0 Darwin ( NT )

Source: RP DATA

Hobart ( TAS )

Brisbane ( QLD )

Adelaide ( SA )

Perth ( WA )

Canberra ( ACT )

Sydney ( NSW )

House Gross Rental Yield (%)

Melbourne ( VIC ) Units Gross Rental Yield (%)

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

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Residential Market Update

Capital City House and Unit Median Prices State

Capital City

Median House Price ($)

Median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales

Sydney

$ 645,000

$ 500,000

6.7%

Victoria

Melbourne

$ 530,000

$ 435,000

4.4%

Queensland

Brisbane

$ 460,000

$ 353,000

0.7%

South Australia

Adelaide

$ 395,000

$ 332,500

-0.8%

Western Australia

Perth

$ 510,000

$ 415,000

6.1%

Tasmania

Hobart

$ 315,300

$ 270,000

4.8%

Northern Territory

Darwin

$ 520,000

$ 457,500

1.6%

Australian Capital Territory

Canberra

$ 555,000

$ 409,975

4.7%

Source: RP DATA * Year to Date

Key Investment Themes Theme Key growth opportunities

Summary

§§ Sustainable above-market capital growth

Key value opportunities

§§ Significant discount to

Defensive yield

§§ Sustainable rental income,

comparable properties, market analyst valuation

above market yield

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Future Estate View

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

Comments

§§ Generally larger centres

performance in inner city and outer suburbs §§ Population growth and dwelling undersupply are long-term drivers §§ Affordability remains a key theme, subject to cash rate

and capitals currently experiencing growth, with population inflow and slow dwelling completions §§ Housing affordability is currently high, with cash rate low and expected to drop further and unemployment higher than expectations

§§ Distressed opportunities

§§ Value more at the suburb

reducing due to market improvement §§ Adelaide and Hobart hardest hit of capitals in 2012, recovery emerging with high affordability

level, rather than city level and more particularly at the asset level §§ Distressed value without capital and income growth potential questionable – i.e. lifestyle / coastal

§§ Darwin, Brisbane and Perth

§§ Yield compression possible

have very high yields due to property undersupply §§ Regional centres (top 20 population) offer highest sustainable yield

/ likely in 2013 as housing recovery gains momentum, but subject only to growth in construction investment §§ Rental growth unlikely to exceed capital growth in the longer term

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

Key Cyclical Themes Cyclical Outlook

Summary

Future Estate View

Comments

Global economy and policy

§§ The global economic crises in

§§ Indirect impact to residential §§ Global negative impacts on

the US and EU have eased off in 2013 §§ Chinese growth is estimated to be 7.5% for 2013 §§ US economy is growing at an estimated 2.5% p.a.

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 RBA to international investor policies interest

Domestic growth and policy

§§ ABS recently released an

§§ Lowered cash rate and above expectation GDP growth improved affordability is statistic for Q2 of the 2013 assisting in housing market calendar year growth §§ Local economy being sustained §§ Unemployment, at 5.7% and by lower AUD; poised to grow if a lower participation rate is rates further decline, which is having a mixed impact likely if US QE policy is relieved

§§ Likely slight increase in unemployment, which combined with inflation rate on the lower end of the RBApreferred range may lead to further interest rate cuts later into 2013 to another record low

§§ 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 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 recorded at 1.8% over the year in 2012 §§ 394,200 persons annual increase in period ending December 2012 §§ WA recorded highest growth: 3.5% §§ Population recently reached 23M

§§ Below-trend dwelling Dwelling development continues construction §§ 38th consecutive month of declining construction activity, as reported by HIA 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 1908’s levels §§ Demand for housing credit still comparatively low

§§ Population growth expected

§§ Impact on housing demand / to rise in 2013, driven mainly supply imbalance substantial by overseas skilled migration – housing shortage from §§ Migration to Australia reduced construction activity concentrated in capital cities and investment of NSW, VIC and WA, which §§ QLD and WA major interstate has resulted in home value beneficiaries, while VIC growth grows through international migration §§ House approvals have seen a decline as of late, with construction and completions remaining poor §§ New Home Sales are increasing

§§ Over 50% of investors expect house prices to rise in 2013 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

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

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

§§ RP Data is reporting 250 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 very low levels §§ Investor credit demand is leading owner-occupier demand

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE AUGUST 2013

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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*

33% 107 6.1% 0.7% 1.6% 3.60

Future Estate Capital City Rating

70% 142 5.1% 0.4% 0.8% 2.85

Future Estate Capital City Rating

3.56

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*

33.5% 155 8.7% 1.1% 2.1% 2.4

Future Estate Capital City Rating

2.85

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

62% 110 6.5% 1.7% 1.8% 4.25

Future Estate Capital City Rating

QLD

3.76

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*

44% 87 5.1% 1.7% 1.9% 3.0

Future Estate Capital City Rating

3.45

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% 160 7.8% 0.5% 1.6% 1.95

Future Estate Capital City Rating

2.74

State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*

HOBART 61% 113 7.5% 0.6% 2.7% 4.05

Future Estate Capital City Rating

3.41

* 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 AUGUST 2013

State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*

32% 191 10.5% -1.2% 2.2% 3.3

Future Estate Capital City Rating

2.48 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.

1300 future (388 873) info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate

Copyright © Future Estate Group Pty Ltd 2013

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 be2013 relied upon as an indication of future performance.

FUTUREin ESTATE RESIDENTIAL PROPERTY MARKET AUGUST

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