residential Property MARKET OVERVIEW AND OUTLOOK
publication 9 / 2013
2013 YEAR IN REVIEW
Residential Market Update
The Australian housing market saw an average of 8% annual growth over the past year. The quarterly growth was 3%.
At the end of November 2013, the Australian housing market had grown by 8.0% over the previous year, after posting a quarterly growth of 3.0%. This was below the quarterly growth figures recorded by RP Data at the end of the recent months, and indicated to the market trend towards a more sustainable growth in the longer term. The monthly growth figure at just 0.1% further supported this analysis, given the property market posted a growth of 1.3% in October. The market also experiences a regular cyclical downturn in activity towards the end of the year before Christmas. Over the past year, the housing market total returns, as calculated by RP Data combining capital growth and rental returns, has been at an average of 12.7% throughout Australia. The statistic was as high as 17.4% and 13.9% in Sydney and Perth, respectively, with the latter even pushing through a reduction of investment into the mining sector as of late. Property values across the capital cities are now at an aggregate 2.1% above their previous individual median value peaks, but just 8.7% above their respective property median value troughs. This is as the national median values approached $559,995 for houses and $467,000 for units.
The cash rate was recently left on hold at 2.5% by the RBA, which has been balancing the foreign exchange rate with the local national consumer price index. The CPI figures edged up over the past quarter by 1.2%, leading to an inflation rate of 2.2% at the close of the previous quarter. Clearance rates are still increasing for Sydney, with APM having reported another 80.4% clearance rate in the last weekend of November despite the city’s median house value approaching $750,000. Nevertheless, even with these figures, the HIA-Commonwealth Bank housing affordability index notched up 3.2% over the quarter ending September. Looking ahead, the Westpac Melbourne Institute’s measure for consumer sentiment ended 1.9% higher for November. With the AUD now valued at 0.9099 USD, having fallen 3.8% in the last 30 days, there is growing speculation of a further rate cut anytime over the first two quarters in the New Year ahead. This is especially given the falling New Home sales, unemployment at 5.8% and some of the sectors of the economy experiencing receding investor activity.
Dwelling trend year on year 14% 12.5%
12%
Dwelling Trend YoY (%)
10% 8.9%
8% 6.6%
6%
4% 2.6%
2.3%
2%
1.6% 0.8% -1.4%
0
-2%
Sydney ( NSW )
Perth ( WA )
Melbourne ( VIC )
Adelaide ( SA )
Source: RP DATA
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
Brisbane ( QLD )
Darwin ( NT )
Canberra ( ACT )
Hobart ( TAS )
Key statistics NOVEMBER 2013
ECONOMIC GROWTH WORLDWIDE 2012 US, EUROPE & JAPAN 2012 AUSTRALIAN 2012 AUSTRALIAN 3rd quarter 2013
AUD BUYS
2.8% 0.5% 3.1% 0.6%
0.9099 USD
Westpac - Melbourne institute
110.3
3.8%
GDP growth
Consumer Sentiment Index 1.9% in November
2012-2013
Australian Employment UNEMPLOYMENT 5.8%
RBA STATS CASH RATE 2.50% INFLATION 2.20%
0.25% 1.20%
PARTICIPATION in AUG
0.1%
64.8%
in Q3
5.3%
Dwelling Values
Median House Price $ 559,995 Median Unit Price
$ 467,000
New Home Sales
3.8%
2.1%
0.1% monthly
$ 25,151
quarterly 3.0%
adjusted value of total dwelling commitments
14.7%
75.1
housing finance
annual
HIA-COMMBANK HOUSING AFFORDABILITY INDEX
8.0%
Australia wide snapshot
annual CHANGE IN total property sales *
Difference from Peak Dwelling Value
* as at september 2013
New Dwelling Approvals
1.9%
Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
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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 score fell after the leading market factors such as the Asking Price Index, vacancy rate and discount rate moved unfavourably.
QLD
BRISBANE
Brisbane’s score remained unchanged. It recorded a below average auction clearance and days on market figure.
WA
PERTH
The Perth score was largely unchanged, with excellent low vacancy rate, a positive change in the asking price index and a low no. of days on market.
SA
ADELAIDE
Adelaide market saw a negative score change. While the vacancy rate was low, the asking price change and the days on market statistics were below average.
ACT
CANBERRA
ACT saw a slightly better rating, after continuing to record a good vacancy rate, an excellent positive asking price change and a relatively low days on market figure.
NT
DARWIN
Darwin continued to record a very low 1% vacancy rate. However, with other leading factors easing, the market saw an 8% reduction in the FE score.
TAS
HOBART
The Hobart market continued to cool down over the past month. It showed a very low auction clearance rate and a relatively high discount rate.
Sydney’s score this month reflected a strong increase in the Asking Price Index, an increased Auction Clearance rate and a lower vacancy rate.
* 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.
Source: Future Estate Research
Change from Previous Peak and Trough (%)
CHANGE FROM PREVIOUS PEAK and TROUGH (%) 10.1
12.2
10.9
9.6
10.9 6.3
2.8
Change (%)
14 10 6 2 -2 -6 -10 -14
-2.8
2.9
2.3
1.6
-2.7
-3.5 -7.0
-8.4
Change from Previous Trough* (%)
-15.6 Sydney (NSW)
4
Melbourne (VIC)
Brisbane (QLD)
Adelaide (SA)
Perth (WA)
Hobart (TAS)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
Darwin (NT)
Change from Previous Peak (%)
Canberra (ACT)
Source: RP DATA *Latest to September 2013
Auction Clearance in 2013 MEDIAN DWELLING VALUERates GROWTH RATE throughout 2013 5% 4%
3.7%
4% 3%
1.9% 2% 1%
3.4%
2.8%
1.2% 1.2%
1.3%
1.1%
1%
0
3%
2.3% 1.6% 0.5%
1.6%
1.3%
Quarterly growth rate for Australian dwelling values peaked in 2013 in August. Hobart home values are close to 16% below peak.
0.1%
-0.4% 0.2%
0.3%
-1%
-0.5% -1.2%
-2% -3% JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP Monthly
OCT
NOV Quarterly
auction clearance rates
Capital Cities
Australian Auction Clearance rates came off their peaks over the recent months, as the market headed towards a cyclical decline in the last months of the year. While APM reported an unusually high statistic for Sydney, there were reports on a possible inaccuracy presented, due to the large number of missing auctions in the calculation done by the data provider. RP Data and the Real Estate Institutes of NSW and VIC showed auction results in the low 70% range for Sydney and high 60% range for Melbourne.
The majority of the state capital cities are closing 2013 with substantial growth over the previous year. Sydney, with a median dwelling value now of $640,000, posted a 12.5% year on year growth rate at the end of November, which combined with rental returns, give a 17.4% median return from property over the year. This was split up between 18.1% return from house investments and 14.7% return from apartments. The next best growth was in Perth, with an 8.9% annual growth and a 13.9% return figure. Other notable returns were in Melbourne and Darwin. Melbourne grew by 6.6% in the past year and along with the strong rental market, posted a total return of 10.6%. The rental market also propped up returns in Darwin, which grew by a net 1.6%, yet returned 8% to investors. Darwin houses were yielding 6.1%, while the units were seeing yields of 5.9%. The affordability constrains in this property market, with a median dwelling value of $525,000, has flowed on to this performance of the rental market.
Looking at the clearance rates throughout the year, it can be seen that Sydney has seen a rising trend, while Melbourne saw a peak in about September. A 75% clearance rate previously indicating a resilient growth phase of the market, it can be concluded that 2013 saw a turnaround in the housing market in terms of auctions for these two major Australian capital cities. The cities had seen sluggish growth in 2011-12, and the recent results go on to show the impact of the improved affordability and the improved consumer sentiment in this asset class.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
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Residential Market Update
Auction clearances have risen throughout the year and have remained consistently above the 60% level considered to reflect a ‘balanced’ market.
Property auction clearance rates: FEB 2013 - NOV 2013 Auction Clearance Rates in 2013 100% 90% 80%
76% 72%
70%
68%
65%
68%
68% 68%
70%
72% 71% 71%
72%
79% 75%
76%
80%
78% 72%
70%
69%
60% 50% 40% 30% 20% 10% 0
FEB
MAR
APR
MAY
JUN
JUL
Source: Real Estate Institute of Victoria; Real Estate Institute of NSW.
AUG
SET
OCT
Market Threshould
NOV Melbourne Sydney
Source: Real Estate institute of Victoria; Real Estate institute of NSW
Property auction clearance rates: week ending 30TH NOVEMBER Auction Clearance Rates 80.4% 80% 70%
73%
72.7% 67%
68%
67.9%
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 – 2013 YEAR IN REVIEW
Melbourne
quarterly capital city house and unit price trend 10%
House Price Trend Over Quarter (%)
9.0%
Unit Price Trend Over Quarter (%)
8%
6%
6.0% 5.2% 4.2%
4%
Sydney, Perth and Darwin (units) showed the strongest quarterly momentum. Canberra and Hobart fell during the quarter.
3.0% 2.4%
2.1%
2%
1.4% 0.7% -1.5%
0
-0.6%
0.2%
-3.8% 0.1%
-4.9% -2.6%
Canberra ( ACT )
Hobart ( TAS )
-2%
-4%
-6%
Sydney ( NSW )
Adelaide ( SA )
Perth ( WA )
Melbourne ( VIC )
Brisbane ( QLD )
Darwin ( NT )
Source: RP DATA
capital city house and unit gross rental yields Gross Rental Yields 8% 7% 6.1%
6%
5.9% 5.5%
5.5%
5.3%
5%
4.7%
5.3% 4.5%
4.8% 4.3%
4.7%
4.7% 4.3%
4%
4.2%
3.9%
Gross yields have compressed slightly during 2013 as house/unit price growth exceeded rental growth.
3.5%
3% 2% 1% 0 Darwin ( NT )
Source: RP DATA
Hobart ( TAS )
Brisbane ( QLD )
Canberra ( ACT )
Adelaide ( SA )
Perth ( WA )
Sydney ( NSW ) House Gross Rental Yield (%)
Melbourne ( VIC ) Units Gross Rental Yield (%)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
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Residential Market Update
Capital City House and Unit Median Prices State
Median House Price ($)
Capital City
Median Unit Price ($)
Dwelling Trend YTD* (%)
New South Wales
Sydney
$749,995
$547,000
13.7%
Victoria
Melbourne
$620,000
$478,500
6.1%
Queensland
Brisbane
$465,000
$360,000
2.5%
South Australia
Adelaide
$401,000
$324,500
2.5%
Western Australia
Perth
$515,000
$430,000
8.6%
Tasmania
Hobart
$355,000
$240,000
-2.0%
Northern Territory
Darwin
$577,000
$465,000
4.2%
Australian Capital Territory
Canberra
$567,000
$440,000
1.9%
Source: RP DATA * Year to Date
Key Investment Themes Theme Key growth opportunities
Summary
§§ Sustainable above-
Future Estate View
§§ Capital cities re-emerging
market capital growth
§§ §§ §§ §§
Key value opportunities
§§ Significant discount to
Defensive yield
§§ Sustainable rental
comparable properties, market analyst valuation
income, above market yield
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along with larger regional centres Darwin growth moderates Sydney offers resilient performance in inner city and outer suburbs Melbourne market accelerating Population growth and dwelling undersupply are longterm drivers
Comments
§§ Generally larger centres 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 expectated
§§ 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 §§ Canberra also weak
level 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 (i.e. Mackay)
/ 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 – 2013 YEAR IN REVIEW
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 2013 §§ US economy is growing at an estimated 2.5% p.a. §§ US budget and debt ceiling
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 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 2013, 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 §§ 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
§§ 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 2013 as compared to 8% who expect a fall
§§ With confidence emerging,
remains elevated at ~10% of income – back to 1908’s levels §§ Demand for housing credit still comparatively low
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 very low levels §§ Investor credit demand is leading owner-occupier demand
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – 2013 YEAR IN REVIEW
9
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% 97 6.1% 1.5% 1.4% 3.49
Future Estate Capital City Rating
60% 135 5.0% 1.7% 1.0% 3.64
Future Estate Capital City Rating
3.64
3.49
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
35% 150 8.4% 1.4% 2.2% 2.85
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
65.5% 105 6.4% 2.0% 1.5% 3.91
Future Estate Capital City Rating
QLD
3.91
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*
47% 88 5.1% 5.0% 2.1% 3.41
Future Estate Capital City Rating
3.41
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 48% 155 7.6% -1.0% 1.3% 2.96
Future Estate Capital City Rating
2.96
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% 111 7.2% -0.7% 2.7% 3.26
Future Estate Capital City Rating
3.26
* 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 – 2013 YEAR IN REVIEW
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
30% 191 10.2% 1.1% 1.5% 2.48
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.
(03) 9988 2900 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 be reliedIN upon as an indication of future performance. FUTUREin ESTATE RESIDENTIAL PROPERTY MARKET – 2013 YEAR REVIEW
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