residential Property MARKET OVERVIEW AND OUTLOOK
publication 7 / 2014
AUGUST 2014
Residential Market Update
The top performing cities for 2013-2014 capital gains have been Sydney and Melbourne, where dwelling values are up year to date by 14.8% (Sydney) and 11% (Melbourne) respectively.
It’s been evident for the most of 2014 that the two stand out capital cities of Sydney and Melbourne continue to drive two tier housing market conditions yet again in July 2014. The latest RP Data results for July home value indices results confirmed that Sydney and Melbourne continued their strong capital gains trend, with dwelling values rising 2.0% and 1.8% over three months ending July 2014, as well as helping increase the combined capital city average 1.1% higher over the same period. The gain across the country was mostly centred in Sydney, Melbourne as well as Canberra, where dwelling values rose 2.0%, 1.8% and 2.1% respectively over the rolling quarter, offsetting the falls recorded in other capital cities, namely Adelaide (-2.6%) and Hobart (-1.2%). With respect to Sydney, the robust Sydney property market is continuing to show signs of strength overall with limited stock on the market and record low interest rates fuelling demand. While marketing periods are still historically shorter than previous years, it appears the panic surrounding the market a few months ago with respect to the ‘bubble hype’ has eased, and volumes are flattening, which is also due to adjustments in seasonal market conditions as we approach the warmer months of the year where we tend to experience increased stock on market and higher auction clearance rate results. In boom times, properties within secondary locations receive a boost in value due to the limited stock on the market. It should be noted that since June 2012, the combined capitals index reported by RP Data has recorded a cumulative gain of 17.4%. The standout performer for capital gains has been Sydney where values have moved almost 25% higher over this time, with Darwin and Melbourne also recording solid performance results with values up 20.4% and 18.5% over the growth cycle to date. In Melbourne, the property market remained strong in the first half of 2014 and continues to look solid with all leading
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 2014
market indicators positive. Because of low interest rates and strong investment, it is expected that the Melbourne residential market will continue to grow in the future. This characteristic of strong market performance can also be identified by a stronger performing auction market this year with an average clearance rate of 74% with offshore investors contributing to demand for residential developments in the city and inner CBD fringes. Melbourne’s middle/ outer suburbs are still the best performance for long-term capital growth, particularly the north-east parts of Melbourne such as Coburg, Thornbury and Fitzroy North as well as Blackburn, Burwood and Manningham. Even though the latest statistics look overwhelmingly positive, the growth trends has eased from the peak conditions recorded in 2013. In the last six months, the home values in capital cities have moved 3.7% higher as opposed to 7.2% experienced during the same peak period last year. The best performing capital city over the last three months has been Canberra recording 2.1% capital growth and the weakest performing capital city experiencing negative capital growth of -2.6% as Adelaide. Rental yields were down over the month, with capital gains continuing to outpace rental growth, with Melbourne yields the lowest of any capital city at 3.4%, followed by Sydney at 3.9% gross. Despite these results, the total returns on housing have been strong thanks to the level of capital gains. The RBA Board left the official cash rate at 2.5% yet again, which didn’t come as a surprise to anyone with almost every Australian economist predicting that rates will continue to stay on hold into the foreseeable future. While interest rates remain at record lows and fixed rates continue to see further downward pressure, you could expect the trend in capital gain appreciation experienced to continue over the remainder of 2014 and potentially into Quarter 1 of 2015.
Key statistics JULY 2014
ECONOMIC GROWTH WORLDWIDE 2013 US, EUROPE & JAPAN 2013 AUS annual to MARCH 2014 AUSTRALIAN 2ND quarter 2014
Consumer Sentiment Index
AUD BUYS
3.0% 2.2% 3.2% 1.1%
0.9346 USD
Westpac - Melbourne institute
UPDATED on 7th AUGUST 2014
94.9
1.9% in JULY
GDP growth
2014
Australian Employment UNEMPLOYMENT 6.1%
RBA STATS 0% 0.7%
PARTICIPATION JULY 2014
0.3%
IN MILLIONS
8.7%
1.6%
$ 27,713
monthly
10.2% adjusted value of total dwelling commitments
1.1%
Property Council/ ANZ Property Industry Confidence Index
housing finance
quarterly
Australia wide snapshot
HIA-COMMBANK HOUSING AFFORDABILITY INDEX
77.2
64.7%
in 1 MONTH
annual
CASH RATE 2.50% INFLATION 3.00%
Difference from previous Peak Dwelling Value
Dwelling Values
131 pts Median House Price
$ 555,000
Median Unit Price
$ 475,000
New Home Sales
1.2 %
Weekly House Rent $ 406 Rental Yield 3.8% Weekly Unit Rent $ 420 Rental Yield 4.6%
New Dwelling Approvals
-1.1%
Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 2014
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Residential Market Update
Future estate capital city rating summary - JULY 2014 STATE
CAPITAL CITY
FUTURE ESTATE SCORE
OVERVIEW
NSW
SYDNEY
VIC
MELBOURNE
Melbourne’s score was up more than 8% this month due to positive auction clearance result and leading market statistics
QLD
BRISBANE
Brisbane’s score was marginally down on last month again due to a negative asking price result
WA
PERTH
Perth’s FE score was down more than 11% this month due to an unexpected decrease in the asking price and dwelling home value
SA
ADELAIDE
Adelaide’s score marginally increased this month helped by a favourable auction clearance rate and better than expected vacancy rate results recorded for the month
ACT
CANBERRA
Canberra’s FE score improved this month by 7% as a result of an improvement in vacancy rates
NT
DARWIN
Darwin’s FE score is down this month (after experiencing a significant increase last month) due to a larger than expected decline in the asking price for the month
TAS
HOBART
Hobart’s score increased this month by more than 12% aided by a better state discount rate result verses other states for the month
Sydney’s FE score was given a positive boost this month due to an increase in the auction clearance rate result
* 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 2014
Source: Future Estate Research
Dwelling trend year on year 16% 14.8%
Dwelling Trend YoY (%)
14%
12%
11.0%
10%
8% 6.5%
6.3%
6% 4.3%
4%
3.0% 1.9%
2% 0
1.0%
Sydney ( NSW )
Melbourne ( VIC )
Darwin ( NT )
Brisbane ( QLD )
Adelaide ( SA )
Perth ( WA )
Canberra ( ACT )
Hobart ( TAS )
Source: RP DATA 31 July 2014
auction clearance rates
Capital Cities
As we come out of the cooler months of the year, we should expect stock on market to decrease as auction clearance rates increase due to increasing market conditions. According to the 2nd August auction results produced by APM, Sydney experience a 79% clearance rate with 426 auctions recorded – the national average for the same weekend was 76%. Similar positive results were recorded by RP Data with more than 75% and 586 auctions recorded. Average selling and vendor discounting rates across all capital cities scored healthy to good results for the month, especially Hobart, Brisbane and Adelaide.
All capital city dwelling values posted positive results with Sydney houses experiencing 7.4% capital growth year to date and 5.6% capital growth for units. The median house price for Sydney now sits at $745,000 and $569,000 for units (average median dwelling price is $650,000). Broadly, capital city dwelling values have trended higher since June 2012. Since then, the combined capitals index has recorded a cumulative gain of 17.4% aided mainly by Sydney’s recent performance for capital gains moving almost 25%.
Stock on market has started to deteriorate as a result of increased clearance rates across most capital cities over the past three months and the demand for house finance remaining stable.
The average median dwelling price across all capital cities is $530,000, experiencing a 10.2% positive change in dwelling values year on year and more than 1.6% for July 2014.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 2014
5
Residential Market Update
Property auction clearance rates: week ending 2nd AUGUST Auction Clearance Rates Sydney and Melbourne’ s auction clearance rate continues its upward trajectory with August 2nd weekly result reaching 79% and 76% respectively as indicated by APM
79%
80%
76%
75.4%
73%
72%
68.5%
70% 60% 50% 40% 30% 20% 10% 0
Australian Property Monitors
RP Data
REIV/REINSW* Sydney
Melbourne
*REINSW has published auction results for week ending July 27 2014
DWELLING TREND CHANGE FROM PREVIOUS PEAK and TROUGH (%) Change from Previous Peak and Trough (%) All capital cities are well above recorded trough levels with Sydney experiencing 24.9% and Darwin breaking 20% (20.4%)
24.9 24% 20.4
20%
18.7
18.5 14.7
Change (%)
16% 12%
20%
24% 18.7
Change (%)
20%
Change (%)
16% 12%
8%
6.1
6
14.7
Sydney (NSW)
6.1
4%
7.9
Melbourne (VIC) 3.0
7.9
Perth (WA)
8.7
2.2
Source: RP DATA 315.5 July 2014
0
Canberra 5.5(ACT) -1.7
-3.3
-4.6
Sydney (NSW)
Melbourne (VIC)
Perth (WA)
Canberra (ACT)
Adelaide (SA)
-3.3
-8.9
Darwin (NT)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 2014 Melbourne (VIC)
Perth (WA)
Canberra (ACT)
Adelaide (SA)
Darwin (NT)
Brisbane (QLD)
8.0
Darwin (NT)
8.0
2.2 -1.7
8.7
Adelaide (SA)
-8%
Sydney (NSW)
-8.9
20.4
14.7
-8%
-4.6
-8%
-4%
-4%
-3.3
18.5
-4%
3.0
0
-1.7
20.4
18.7
8%
4%
2.2 (%)
0
16% 18.5 12%
8.0
5.5
3.0
24.9 4%
Change 24% from Previous Peak and Trough 24.9
8.7
7.9 Change from Previous Peak and Trough (%) 6.1
8%
Hobart (TAS)
-4.6
-8.9 Change from Previous Peak (%) Change from Previous Trough* (%)
Brisbane (QLD)
Hobart (TAS)
Brisbane Hobart (QLD) Change (TAS) from Previous Peak (%)
Change from Previous Trough* (%)
Change Previo Peak (%
Change Previo Trough
quarterly capital city house and unit price trend
6%
House Price Trend Over Quarter (%)
5.6%
Unit Price Trend Over Quarter (%)
5% 4% 3%
3.5% 2.9% 2.4% 2.0%
2%
1.8%
1% 0.2%
0%
0
-0.3%
-0.4%
-1%
-0.1%
-0.4% -0.8%
-1.3%
-2% -3%
The best performing capital cities for the quarter were again Sydney and Melbourne, recording 2% and 1.8% price growth respectively with Adelaide being the weakest performer (-2.6%). Brisbane, Perth and Hobart also posted negative results
-2.8%
-4% -5% -6%
-5.5% Canberra ( ACT )
Melbourne ( VIC )
Sydney ( NSW )
Darwin ( NT )
Brisbane ( QLD )
Perth ( WA )
Hobart ( TAS )
Adelaide ( SA )
Source: RP DATA 31 July 2014
Gross Rental Yields capital city house and unit gross rental yields 7%
Gross Rental Yields
6%
5.9% 5.8% 7%
5%
6%
5.4%
5.2% 5.2% 4.6%
5.2% 5.2%
5%
4%
5.0%
4.9%
5.9% 5.8%
4.6%
5.4%
4.3% 4.6%
4.5%
4.2% 4.9%
4.6% 4.3%
4.2%
4.2%
5.0%
4.1% 4.1%
4%
3.7%
4.5%
3.7%
3%
3.3%
4.2%
3.3%
3%
2% 2%
1%
1%
0
Gross rental yields continue to remain stable with units in most capital cities outperforming houses. Better than expected results for units were recorded for Brisbane, Melbourne and Canberra
0
Darwin ( NT )
Hobart Darwin ( NT )) ( TAS
Brisbane Hobart ( TAS ) ) ( QLD
Source: RP DATA 31 July 2014
Adelaide Brisbane ( QLD( )SA )
Adelaide Perth ( SA ) ( WA )
Perth ( WA )
Canberra Canberra ( ACT ) ( ACT )
Sydney Sydney ( NSW ( NSW ) )
HouseHouse GrossGross Rental Yield (%) Rental Yield (%)
Melbourne Melbourne ( VIC) ) ( VIC Units Gross Units Gross Rental Yield (%) Rental Yield (%)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 2014
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Residential Market Update
Capital City House and Unit Median Prices as at 31 JULY 2014 State
Capital City
Median House Price ($)
Median Unit Price ($)
Dwelling Trend YTD* (%)
New South Wales
Sydney
$745,000
$569,000
7.0%
Victoria
Melbourne
$590,000
$460,000
6.8%
Queensland
Brisbane
$485,000
$373,000
2.3%
South Australia
Adelaide
$411,000
$345,000
0.7%
Western Australia
Perth
$535,000
$437,750
-0.5%
Tasmania
Hobart
$320,000
$265,500
3.6%
Northern Territory
Darwin
$552,500
$445,000
4.8%
Australian Capital Territory
Canberra
$555,000
$435,000
3.1%
Source: RP DATA
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 one
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 continues to grow steadily
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
§§ Melbourne offers greater affordability
§§ Value continues to be when compared to Sydney demonstrated at the asset level, rather than capital city level §§ Adelaide and Hobart continue to demonstrate high affordability and §§ Pockets of opportunities as lifestyle potential of growth trends emerge – i.e. inner city former industrial suburbs emerging §§ Outer South and North Western as residential growth hubs Sydney seeing strong fundamentals; infrastructure upgrades will drive growth §§ Darwin, Brisbane and Perth, along
§§ Yield compression has not been
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
material in the major capitals however will occur if prices continue to trend above rental growth rates §§ Higher housing approval levels likely to mean less upward pressure on rents in some areas §§ Rental growth currently not likely to outstrip dwelling value growth
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – AUGUST 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 to currently, due to current international investor interest RBA policies
Domestic growth and policy
§§ Australian annualised GDP
§§ Lowered cash rate and
growth of 3.2% which is above trend §§ Economy remains healthy however the recent tough budget had a dampening effect
improved affordability is assisting in housing market growth §§ Unemployment, at 6% and a lower participation rate is starting to become an issue for the RBA
§§ Interest rates low and forecast to remain stable until the end of 2014 which is having a strong impact on property investment activity
§§ REIA reporting 28.5% (26% in §§ Lower interest rates have §§ Increasing house prices likely to Housing QLD) of household income is translated to strong auction be off-set by lower interest rates affordability spent on mortgage payments, clearance rates of over 80% §§ Housing price growth, besides lowest in a decade in the major capital cities, Sydney, remains at or below §§ The median house price/ areas with high employment trend, which when combined income ratio is about 4.5, §§ Affordable inner city suburbs with low interest rates is not which is low compared to Asia are experiencing growth having a major impact on & Europe affordability just yet Population growth
§§ 1.8% for 2013 and showing an accelerating trend §§ Over 400,000 people migrated to Australia in 2013 §§ Population growth is a major driver of demand for housing and is forecast to underpin a positive housing price outlook
§§ Below-trend dwelling Dwelling development continues construction
Consumer confidence
§§ Consumer confidence
Household savings / demand for credit
§§ Household savings ratio
emerging, with stronger market fundamentals §§ Investor confidence remains above long term trend levels remains elevated at ~10% of income – back to 1980’s levels §§ Demand for housing credit still comparatively low
§§ Population growth trends
§§ Impact on housing demand / are rising throughout 2014, supply imbalance substantial driven mainly by overseas – housing shortage too from skilled migration reduced construction activity §§ Migration to Australia and investment concentrated in capital cities §§ Victoria is the largest of NSW, VIC and WA, which beneficiary of population has resulted in home value growth, with nationally the growth capitals being major recipients of new migrants given greater employment prospects §§ Housing approvals have
§§ 25,000 fewer homes built in 2013
increased throughout 2014 §§ New Home Sales are increasing
§§ Higher construction levels has
§§ Over 50% of investors
§§ RP Data is reporting 250 suburbs
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
compared to a decade ago
not yet met underlying demand largely driven by very high net migration and population growth trends 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 – AUGUST 2014
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*
37.2% 85 6.0% -1.2% 2.5% 2.85
74% 134 5.5% -2.7% 1.6% 3.30
Future Estate Capital City Rating
Future Estate Capital City Rating
3.23
2.51
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
36.7% 134 7.3% -1.0% 2.4% 2.40
Future Estate Capital City Rating
2.55
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
71.5% 92 6.0% 1.0% 1.9% 4.25
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*
44.9% 85 5.1% -1.2% 2.3% 2.70
Future Estate Capital City Rating
2.93
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 53.1% 147 7.1% -0.2% 1.6% 2.55
Future Estate Capital City Rating
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*
HOBART 67.5% 105 6.8% -0.1% 2.7% 3.90
Future Estate Capital City Rating
3.38
* 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 2014
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
25.6% 191 9.3% 0.1% 1.8% 2.55
Future Estate Capital City Rating
2.44 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 – AUGUST 2014
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