residential Property MARKET OVERVIEW AND OUTLOOK
publication 1 / 20013
January 2013
PROPERTY MARKET UPDATE
Market appears to have bottomed after the recent trough, although statistical volatility continued during late 2012
Capital city home values fell over consecutive years, down 3.8% in 2011 and 0.4% in 2012. The second half of the 2012 looked generally positive and was thus good news for property investors moving into 2013.
Across the 8 capital cities throughout the month of December 2012, the RP DataRismark Home Value Index fell by 0.3%. The monthly result was pulled lower by a weak unit market performance, with unit values moving 1.1% lower in December 2012 compared to a virtually flat detached housing market (-0.1%). The strongest performing capital city for December 2012
was Melbourne, where values actually increased by 0.5% after having fallen over the previous two months. Values also rose in Adelaide and Perth. Whilst we have now seen two successive years of annual value declines, the annual rate of decline has improved substantially compared to 2011; the overall direction generally improving coming into 2013.
Capital Values Index Results, 31 December 2012 Change in Dwelling Values
Median
Gross
Dwelling Price
Month
Quarter
Sydney
-1.0%
-1.9%
1.5%
6.1%
$ 580,246
0.5%
-1.6%
-2.9%
0.8%
$ 500,000
-0.3%
-0.6%
-0.8%
4.0%
$ 417,500
Adelaide
0.1%
-1.8%
-0.8%
3.6%
$ 380,000
Perth
0.3%
1.7%
0.8%
5.3%
$ 479,000
Hobart
0.7%
-3.7%
-0.1%
5.3%
$ 317,500
Darwin
-2.5%
2.5%
8.9%
15.6%
$ 500,500
Canberra
-1.0%
-1.1%
-0.3%
4.5%
$ 517,500
8 Capital City Aggregate
-0.3%
-1.2%
-0.4%
4.0%
$ 483,000
0.4%
0.4%
0.2%
Melbourne Brisbane - Gold Coast
Rest of State
Year on Year
Total Return
Rental Yields
$ 334,886 Source: RP Data
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET OVERVIEW AND OUTLOOK JANUARY 2013
Snapshot of the 4th quarter of 2012:
Best performing capital city: Darwin 2.5% capital growth, which was buoyed by major infrastructure and resource investment and housing shortages
WEAKEST performing capital city: HOBART with 3.7% contraction, Hobart which continues to experience poor economic and property market conditions
HIGHEST RENTAL YIELDS: Darwin Darwin houses with gross rental yield of 6.1% and Darwin units at 5.9%. It is noted that regional centres such as Mackay offer higher yields than the capitals
LOWEST RENTAL YIELDS: MELBOURNE Melbourne houses with gross rental yields of 3.6% and Melbourne units at 4.4%, a market which is stabilising after a decline following the significant outperformance during 2009 / 2010
MOST EXPENSIVE CITY: SYDNEY with a median dwelling price of $580,246
MOST AFFORDABLE city: HOBART with a median dwelling price of $317,500
2.5%
capital growth
-3.7%
capital growth
houses units
houses units
6.1% 5.9% 3.6% 4.4%
$ 580,246 dwelling price
$ 317,500 dwelling price
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET OVERVIEW AND OUTLOOK JANUARY 2013
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OVERVIEW AND OUTLOOK
Lower and falling interest rates, combined with the ongoing “hunt for yield” should see investors re-enter the residential property market in 2013
International monetary economic conditions continue to concern domestic property investors Macroeconomic factors, both domestically and internationally, continue to weigh on the sentiment towards the housing market throughout 2013. It has become clear that adjustments to official interest rates by the RBA are not as yet having the same impact on consumers as they have had in the past. This is illustrated by lower housing finance approvals and construction levels in Australia, however it should be noted that there is generally a transmission lag of around 9 months between lower interest rates and higher transactional volumes. This transmission process, called inside lag, is still underway, and possibly delayed as cautious investors await positive macro signals before committing.
Focus continues to be on yield and income in 2013 Investors are expected to continue to focus on yield maximization in 2013. However, with the lower interest rate environment and potential further reductions, this will no doubt push some investors and retirees away from cash and into growth oriented investments such as property. Given the median yield on capital city apartments is 4.9%, the around 4.5% on 1 – 5 year typical bank term deposits compare favourably. Investors are expected to consider their cash-orientation in light of the lower cash returns now on offer and consider positioning themselves for both income and long term growth by way of diversification in housing property type (units versus houses).
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Can we expect further rate cuts throughout 2013? The simple answer is yes. Future Estate predicts a further 50 – 75 basis point reduction in interest rates where the official cash rate (currently at 3%) will dip to a potential 2.25% by end of year. These results will have a moderate improvement on consumer confidence and we are likely to see property investor activity stimulated in the later part of Q1 2013 as the transmission cycle runs its course. The ‘yield premium’ for property investment (versus cash) will continue to grow throughout 2013 to around 1.5% (gross basis) which is a remarkable situation when considering the typical historic ‘yield discount’ to cash returns.
What is the outlook for the Australian economy across the different states? The outlook for the Australian economy as a whole is currently looking quite positive for the year, with expectations of growth as high as 3%. According to the Organisation for Ecomonic Co-operation and Development (OECD), the local economy grew by an estimated 3.7% in 2012, ahead of the OECD average of just 1.4%. Strong growth in Australia’s major trading partners such as China continues to drive demand for energy and resources. This is increasing the Australian terms of trade, even more so as the dollar eases back from recent highs. All in all, the economy is likely to see another year of trend growth, with global economic uncertainties clearing in 2013.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET OVERVIEW AND OUTLOOK JANUARY 2013
How will rental yields perform in 2013?
improved by 4.2% to a national average of 4.3% presently. It is expected that rents and yields will continue to grow during 2013 as the housing undersupply, in particularly the affordable end, continues to grow. [G1]
Rental growth has continued to outpace value growth during 2012. Capital city rents improved 3% during 2012 and yields
Rental Yields 7% 6.1%
6% 5%
5.4% 5.0%
4.7%
4.3%
4%
5.4%
4.4%
5.0%
4.8% 4.3%
5.9%
5.2%
5.6% 4.8%
5.6% 4.7%
4.9%
4.5%
4.2%
3.6%
Australia 8 capitals
3% 2% 1%
Sydney
Melbourne
Brisbane Gold Coast
Adelaide
Perth
Hobart
Darwin
Canberra
Houses
Brisbane
Units
G1
Source: RP Data
Changes to stimulus packages in NSW will drive first home buyers into the housing market in 2013 From the 1st October, the new purchases grant has increased to $15,000 (previously $7,000) for new purchases or building a new home up to the value of $650,000. The $15,000 reduces to $10,000 from 1st January 2014, so we will potentially see an increase in first home buyers entering the market throughout 2013. This will in turn have a positive impact on housing finance approvals and new construction dwelling statistics. These stimulus packages will hopefully raise sales volumes up until 2014 when the schemes are slowly phased out. Most first home buyers will
be encouraged to purchase property (particularly apartments and units) off the plan with the new $15,000 incentive rather than purchasing existing dwellings with the lower incentive.
Clearance rates have remained stable during Australian economic uncertainty Clearance rates across most capital cities remained stable with QLD experiencing a very robust 71%, NSW 60%, VIC 65% and SA 56% in the back end of December 2012 prior to Christmas. We should continue to see similar results throughout Q1 2013. Â
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET OVERVIEW AND OUTLOOK JANUARY 2013
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OVERVIEW AND OUTLOOK
Dwelling approvals continue to remain tepid as we move into 2013 Dwelling approvals were weaker than expected with a recorded 7.6% drop in October 2012, driven largely by a pull-back in high rise high density approvals (which is historically notoriously volatile) and a softer than expected number for private sector houses (-1.5%). The drop is well within the range of monthly volatility and historical activity. The value of renovation approvals also dropped sharply in October 2012 (-13%). Currently, VIC and QLD account for close to 53% of total dwelling approvals for construction in Australia. Any change to the economic indicators for growth and sustainability in these states will have an obvious flow on effect in terms of approval results moving forward.
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Outlook for 2013 looks cautiously optimistic as key lead indicators continue to improve Whilst the softer than expected December results give reason to question the strength of the property recovery, key indicators such as days-on-market, level of discounting and forward expectations are showing positive signs. We expect most major markets to experience both capital and rental growth during 2013 as the lower interest rate environment assisted with the fiscal stimuli promotes latent investor demand.
Stay tuned for our detailed National Property Market Outlook Report, to be released shortly.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET OVERVIEW AND OUTLOOK JANUARY 2013
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Copyright Š Future Estate Group Pty Ltd 2012
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 purposesOVERVIEW only and should not be relied uponJANUARY as an indication of future performance. FUTUREin ESTATE RESIDENTIAL PROPERTY MARKET AND OUTLOOK 2013
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