2014 03 property market overview and outlook lowres

residential Property MARKET OVERVIEW AND OUTLOOK

publication 2 / 2014

MARCH 2014

Residential Market Update

The Residential Real Estate market took a breather in February, bringing quarterly growth now to 2.6%

RP DATA has recorded last month’s market growth rate at 0%, indicating the first signs of an easing in the growth rates for the year.

The statistic now means that the market moved 2.6% in the quarter ending February and is now posting a 9.5% annual growth across the eight capital cities. The start of the year is traditionally associated with a slowdown in the activity of the property market, which is building up towards the Easter period.

Monetary Policy continues to assist the property market, with the RBA meeting on the 4th of March leaving the Overnight Cash Rate at a 50+ year record low of 2.50%. The statement produced by the RBA mentions the policy as remaining accommodative, as interest rates remain low and credit growth gradually improves. The housing market is now 9.5% over its previous peak and 13.2% over its previous trough in mid 2012. Out of the capital cities, Sydney remains an outlier at 12.6% over its previous market peak, with Brisbane, Darwin and Hobart showing substantial potential to improve on 8-9% negative difference from the previous market peak.

This month, key metrics about the Australian and international economies were released

from the major statistical agencies. Australia’s GDP growth rate for 2013 was 2.8% in 2013 highlighted by the ABS, beating expectations placing the figure at 2.6%. The fourth quarter gain was at 0.8%, higher than 0.6% Q3 change. Jobs data was mixed, with 47,300 jobs added in February (80,500 full time jobs added), but unemployment rate steady at 6.0% nationwide. Inflation remained at 2.7%, while the Australian Dollar was resilient at the 90-cent USD frontier, given positive growth figures. Consumer sentiment, however, saw its first fall under 100 index points for the year and is now at the lowest point since May 2013.

New Dwelling Building Approvals, as tracked by the ABS, showed a 6.8% change for the month of January. This brought the trend up to 1.3%. Dwelling approvals are now 28.4% higher than at the same time in 2013. New Home Sales tracked by the HIA also recorded a minor improvement, at 0.5% for January.

New home sales are now up 17% as compared to the same time last year. ABS measured Value of Housing Finance Commitments was down marginally January, but up 1.2% on trend terms. Australian housing market has started the year on a good footing, but there remains uncertainty surrounding the direction of growth.

Dwelling trend year on year 15%

14.1%

13%

Dwelling Trend YoY (%)

11% 9.9%

9% 7.6%

7%

5% 3.1%

3%

3.0%

2.9% 2.1%

1% 0.0%

0 -1%

Sydney ( NSW )

Melbourne ( VIC )

Perth ( WA )

Adelaide ( SA )

Source: RP DATA

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MARCH 2014

Brisbane ( QLD )

Darwin ( NT )

Hobart ( TAS )

Canberra ( ACT )

Key statistics FEBRUARY 2014

ECONOMIC GROWTH WORLDWIDE 2013 US, EUROPE & JAPAN 2013 AUSTRALIAN 2013 AUSTRALIAN 3rd quarter 2013

Consumer Sentiment Index

AUD BUYS

3.0% 2.2% 2.8% 0.8%

0.9023 USD

Westpac - Melbourne institute

99.5

-0.1%

-0.7% in FEBRUARY

GDP growth

2013

Australian Employment

RBA STATS 0% 0.8%

4.8%

0%

13.2%

adjusted value of total dwelling commitments

monthly

9.5%

housing finance

$26,864

64.7%

Australia wide snapshot

Difference from TROUGH Dwelling Value

Difference from Peak Dwelling Value

0.4%

140 pts

Dwelling Values

Median House Price $ 535,000 Median Unit Price

0.2%

2.6%

in Q4

annual

Property Council/ ANZ Property Industry Confidence Index

PARTICIPATION

in 1 MONTH

HIA-COMMBANK HOUSING AFFORDABILITY INDEX

75.1

0.1%

quarterly

CASH RATE 2.50% INFLATION 2.70%

UNEMPLOYMENT 6.0%

New Home Sales

0.5 %

$ 450,000

Weekly House Rent $ 401 Weekly Unit Rent $ 398

Rental Yield Rental Yield

3.9% 4.6%

New Dwelling Approvals

6.8%

Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MARCH 2014

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Residential Market Update

Future estate capital city rating summary STATE

CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW

SYDNEY

VIC

MELBOURNE

QLD

BRISBANE

Brisbane’s score improved, led by a positive change in the asking prices and vacancy rates rated “Good”.

WA

PERTH

Perth saw a large improvement in its FE Score; while asking price saw a negative change, discount rates were relatively low.

SA

ADELAIDE

Adelaide saw a decline in its score. While vacancy rates and auction clearances were “Good”, days on market before property sale was high.

ACT

CANBERRA

Canberra saw a reduction in the score, mainly due to a large negative change in the vendor asking prices tracked by SQM research.

NT

DARWIN

Darwin’s score improved. While Days on Market was relatively high, other metrics were rated well for this capital city.

TAS

HOBART

Hobart saw a second improvement in its FE Score this month, as metrics improved from lows last year. There is more room for improvement, however.

Sydney’s FE Score remained stable, with excellent auction clearance rate and low vacancy rates.

Melbourne’s FE Score improved, with excellent auction clearance rates continuing and all other metrics recording a “Healthy” rating.

* 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 – MARCH 2014

Source: Future Estate Research

RESIDENTIAL VACANCY RATES ILLUSTRATIVE EXAMPLE : POSTCODE 2026

8%

259

6%

225

221

169 136

4%

126

135

123

109111

Real Estate supply, especially in high density residential areas, is generally staggered: large developments periodically create additional supply to meet demand

JAN/14 FEB/14

JUL/13

JAN/13

JUL/12

JAN/12

JUL/11

JAN/11

JUL/10

JAN/10

1.3%

Source: SQM Research

to be slow and is making up for many years of substantial undersupply. Future Estate believes that current levels of construction are unlikely to cause a risk of oversupply and is simply the resumption of more positive market conditions, and a normal response to low interest rates and a stable economic environment.

While some have raised questions of developments creating potential for excess supply in the inner-city market in the short term and diluting growth rates, property investment decisions should be dictated by long-term factors. While approvals are trending over 30% higher than the past year, development construction continues

CHANGE FROM PREVIOUS PEAK and TROUGH (%) Change from Previous Peak and Trough (%) 20%

18.6

17% 14%

14.4

14.5

13.8

12.6

11% 7.9

Change (%)

8% 4.9

5% 2%

4.6

4.7

2.4

2.3

Change from Previous Peak (%)

-1%

-1.0 -2.5

-4%

Change from Previous Trough* (%)

-7% -7.9

-10% Sydney (NSW)

Melbourne (VIC)

Brisbane (QLD)

-9.0 Adelaide (SA)

Perth (WA)

Hobart (TAS)

-8.1 Darwin (NT)

Canberra (ACT)

Source: RP DATA

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MARCH 2014

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Residential Market Update

auction clearance rates Auction clearance rates this month were slightly below last month, yet still indicated a buoyant market

Auction Clearance Rates across the major capital cities continue to record very strong figures. Sydney’s auction clearance was above 80% as recorded by APM, but around 79% as assessed by RP Data and REINSW. Sydney’s median house price is now $700,000 and the market has grown by 1.7% this year.

Melbourne’s auctions on the March 9th weekend were clouded by the Labour Day

long weekend, therefore recording fewer auctions than norm. Auction clearance rates were measured at about 70% across the three data providers APM, RP Data and REIV. Melbourne houses have a median price of $550,000 and have already grown 3.4% this year as the capital city rapidly emerges from declines last year.

Property auction clearance rates: week ending 9TH MARCH Auction Clearance Rates 90%

82.4% 70%

70%

79%

78.8%

80%

71%

67.3%

60% 50% 40% 30% 20% 10% 0

Australian Property Monitors

RP Data

REIV/REINSW* Sydney

Melbourne

Capital Cities Australian capital cities returned 14.2% to investors in the year ending February 2014. This was 0.3% lower than the figure last month, yet still indicates a very robust return over the year. The return figure aggregates the potential rental and capital gains value made by the investors in the past year. Sydney, having grown 0.8% in February, posted an annual return figure of 19%. Melbourne, which saw a slight 0.2% contraction in February, saw its annual return figure at 14%. Melbourne dwelling values grew 9.9% in the annual period

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – MARCH 2014

ending last month, as recorded by RP Data.

Rental returns were 3.9% and 4.7% from houses and units, respectively, in Sydney.

Melbourne’s rental returns were 3.4% and 4.2% from houses and units, respectively, slightly up from last month’s recorded results. Other notable rental returns were in Darwin, which was still recording 6.0%+ returns from its dwellings, and Hobart which was seeing 5.2% return from its houses and units. Hobart has seen strong growth this year, at 3.4% already, after its continued property market decline last year.

quarterly capital city house and unit price trend 9%

House Price Trend Over Quarter (%)

8.3%

8%

Unit Price Trend Over Quarter (%)

7%

Almost all capitals experienced growth for both houses and units during the quarter

5.8%

6% 5% 4.2%

3.8%

4% 3%

2.6% 2.1%

2.1%

2.0%

2% 1.3%

1.6%

1.3%

1.1%

1%

-0.2%

0.0%

0

-1.0% -2.0%

-1% -2%

Hobart ( TAS )

Melbourne ( VIC )

Sydney ( NSW )

Canberra ( ACT )

Brisbane ( QLD )

Adelaide ( SA )

Perth ( WA )

Darwin ( NT )

Source: RP DATA

capital city house and unit gross rental yields Gross Rental Yields 7% 6%

6.1% 6.0% 5.4%

5.2% 5.2%

5%

4.7%

5.1% 4.8% 4.4%

4.3%

4.7%

4.7%

4.3%

4.2%

3.9%

4%

Yields have contracted slightly across most markets as house and unit prices have risen

3.4%

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 – MARCH 2014

7

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

$700,000

$530,800

1.6%

Victoria

Melbourne

$550,000

$445,000

3.1%

Queensland

Brisbane

$480,000

$365,000

-0.8%

South Australia

Adelaide

$422,000

$325,000

-0.1%

Western Australia

Perth

$530,000

$431,000

-1.3%

Tasmania

Hobart

$345,000

$255,000

3.4%

Northern Territory

Darwin

$552,500

$447,000

-0.4%

Australian Capital Territory

Canberra

$559,500

$415,000

-0.2%

Source: RP DATA * Year to Date

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 now well into growth phase

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 – MARCH 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 §§ 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 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 – MARCH 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

Future Estate Capital City Rating

85% 132 5.2% 0.8% 1.5% 3.23

Future Estate Capital City Rating

3.23

2.89

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

2.89

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

3.64 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

3.00

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

3.08

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

3.53

* 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 – MARCH 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

2.70 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 – MARCH 2014

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