2014 oct property market overview and outlook

residential Property MARKET OVERVIEW AND OUTLOOK

publication 9 / 2014

OCTOBER 2014

Residential Market Update

Sydney was the best performing capital city for the month experiencing 4.1% capital growth whilst Hobart yet again experienced negative growth of -1%. Sydney and Melbourne continue to out perform the rest of the market.

Residential property market expectations remain buoyant with elevated auction clearance rates and home sales, solid house prices gain, and strong levels of home building approvals. Despite home buyer confidence easing in the weeks following the Federal Budget, home sales remain well above the levels of recent years, supported by improved mortgage service affordability and solid developer sentiment, driving a strong cyclical upswing in residential construction.

In addition, strong foreign investor demand for Australian housing has also buoyed housing market sentiment, particularly in Sydney and Melbourne as reflected in data from the latest Property Council/ANZ Survey.

Despite price gains driving increasingly difficult first home buyer deposit affordability, we maintain that Australian house prices are not only sustainable (supported by improved loan affordability, solid economic fundamentals, a stable mortgage market, strong investor demand and a significant pent-up demand for homes) but are likely to continue to rise, albeit at a more moderate pace in the second half of 2014, before growing broadly in line with average household incomes in the medium term.

Adelaide was a standout performer this month recording a solid increase in values, posting a 3.1% capital gain after several

The September quarter saw capital city dwelling values rise by 2.9% based on the latest RP Data results. The result was driven by stronger than expected property market conditions across the Sydney and Melbourne markets where the quarterly capital gain was 4.1% and 3.7% respectively.

months of pricing volatility. Brisbane (0.6%), Darwin (1.4%) and Canberra (1.4%) also showed a capital gain in dwelling values over the most recent quarter. Perth (-0.6%) and Hobart (-1.0%) were the only two capital city markets to record a decline in dwelling values for the same period.

Dwelling values are now 9.3% higher over the 12 months to the end of September 2014 with every capital city recording an increase in dwelling values over this period.

The Sydney is still the leading city driving the growth trend, increasing by 14.3% over the past twelve months. A substantial gap exists between Sydney and the next best performer, Melbourne, where dwelling values increased by 8.1%.

Sydney was the best performing capital city for the month.

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

Melbourne residential market has continued to grow strongly in most areas.

Auction clearance rates continued to beat the 70% mark week-to-week whilst volumes across various platforms such as REI and APM remained strong, which indicates heightened levels of industry and mortgage market activity. It’s apparent that more listings will enter the market place as the weather warms up. The test will be supply catering for demand as additional stock is absorbed by an increase in buyer numbers.

On a rolling annual basis, capital city dwelling values increased at a faster pace over each of the previous three growth cycles in 2009-10, 2007 and 2001/03 respectively. The growth has been very much concentrated within both Sydney and Melbourne.

Both states are well positioned to take advantage of the warmer months of the year where auction clearance results historically have been high and stock on market has been consistent. However, with a decreasing stock on market rate and onward momentum in terms of auction clearances, the real change for both Sydney and Melbourne property markets is keeping up with the demand.

In conclusion, over the second quarter of 2014, RP Data recorded 70,357 residential property re-sales nationally; of these, 9.0% recorded a gross loss from the original purchase price. The gross value of the losses associated with these loss making re-sales totalled $398.3 million. Conversely, 91% of all June 2014 quarter re-sales recorded a gross profit relative to their original purchase price. The gross profit from these re-sales equated to $14.4 billion.

SYDNEY

MELBOURNE

Metropolitan Sydney continues to perform very strongly much to the delight of the Sydneysiders in the market. Interestingly, research indicates investor levels have been at record high volumes in the past 12 months within the metropolitan area. This has meant the average owner occupier is not only competing against other people in the same situation, but also competing against investors.

The overall Melbourne residential market has continued to grow strongly in most areas. The market is currently experiencing strengthening conditions with moderate to strong price growth achieved due to increased buyer interest. Purchaser interest has been influenced by the current low interest rates and high clearance rates, which have created a confident, positive market.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

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Residential Market Update

Key statistics SEPTEMBER 2014*

ECONOMIC GROWTH WORLDWIDE 2014 US, EUROPE & JAPAN 2013 AUS annual to JUNE 2014 AUSTRALIAN 2ND quarter 2014

Consumer Sentiment Index

AUD BUYS

3.3% 2.2% 3.1% 1.1%

0.876 USD

Westpac - Melbourne institute

94

UPDATED on 7th october 2014

4.6%

in September

GDP growth

2014

Australian Employment UNEMPLOYMENT 6.2%

RBA STATS 0% 0.7%

PARTICIPATION AUGust 2014

adjusted value of total dwelling commitments

$ 28,571

2.7%

10.0% Difference from previous Peak Dwelling Value

Dwelling Values

131 pts Median House Price

$ 530,000

Median Unit Price

$ 470,000

New Home Sales

3.3 %

Weekly House Rent $ 377 Rental Yield 3.7% Weekly Unit Rent $ 407 Rental Yield 4.5%

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monthly

9.3% annual

Property Council/ ANZ Property Industry Confidence Index

housing finance

0.1%

Australia wide snapshot

HIA-COMMBANK HOUSING AFFORDABILITY INDEX

77.2

65%

in 1 MONTH

quarterly 2.9%

CASH RATE 2.5% INFLATION 3.0%

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

New Dwelling Approvals

3.0%

Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA * As at 30 September

Future estate capital city rating summary - SEPTEMBER 2014

STATE

CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW

SYDNEY

VIC

MELBOURNE

QLD

BRISBANE

WA

PERTH

SA

ADELAIDE

Little movement in Adelaide as all indicators look Healthy or Good

ACT

CANBERRA

Canberra's score this month has been impact by a fall in Asking Price compared to last month

NT

DARWIN

Darwin's score rises slightly as all indicators vary between Excellent and Neutral resulting in minimal score movement

TAS

HOBART

A better than expected Vacancy Rate helps elevate Tasmania's score this month along with a Healthier Asking Price

Big increase this month due to an elevation in Asking Price and clearance rates All indicators look Healthy or Excellent Little movement in our score as all indicators look Healthy or Good Little movement in Perth as all indicators look Healthy or Good

* 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

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

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Residential Market Update

Capital City House and Unit Median Prices as at 30 SEPTEMBER 2014 State

Capital City

Median House Price ($)

Median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales

Sydney

$750,000

$575,000

9.8%

Victoria

Melbourne

$590,000

$460,000

6.7%

Queensland

Brisbane

$480,000

$365,000

3.0%

South Australia

Adelaide

$413,000

$331,000

3.9%

Western Australia

Perth

$537,750

$430,000

-0.7%

Tasmania

Hobart

$322,500

$250,175

3.2%

Northern Territory

Darwin

$600,000

$475,000

3.3%

Australian Capital Territory

Canberra

$565,000

$396,000

3.0%

Source: RP DATA

Dwelling trend year on year 16% 14.3% Dwelling Trend YoY (%)

14%

National average

12% 10% 8.1%

8%

7.1% 6.1%

6%

5.8% 4.6%

4%

3.2% 1.7%

2% 0

Sydney ( NSW )

Melbourne ( VIC )

Darwin ( NT )

Brisbane ( QLD )

Adelaide ( SA )

Source: RP DATA 3o September 2014

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

Hobart ( TAS )

Perth ( WA )

Canberra ( ACT )

auction clearance rates The Sydney weekend auction market posted its biggest ever result recorded for the year at 81% according to APM. Despite hosting 704 auctions, the Sydney property market reported its 8th consecutive weekend clearance rate above 80%.

Sydney has produced the best start to a spring selling season in its history with historically high levels of auction sales for this time of the year. According to APM, last week (18th October 2014) saw a 30% increase in the number of scheduled auctions; 612 auctions were reported to the REINSW this week (as opposed to 704 listings), with 483 selling and 129 passing in.

The clearance rate for this week was 79%, compared to 80% last week and 76% the same week last year.

In Melbourne, a clearance rate of 73% cent was recorded this weekend compared to 70% last weekend and 70% this weekend last year. There were 932 auctions reported to the REIV last weekend, with 681 selling and 251 being passed in, 127 of those on a vendor bid. The REIV September quarter medians, released this week showed that Coburg and Balwyn were this quarter’s top growth suburbs. Both suburbs also experienced strong demand at auction with above-average clearance rates – 82% in Coburg and 77% in Balwyn over the quarter.

National auction clearance rates are continuing their steady climb upwards as the market hits one of its busiest periods before the end of year slow down. The preliminary average clearance rate was 69%, up from 68% last week. According to RP Data, the result was consistent with the year’s trend.

Sydney once again exceeded the national clearance rate with more than three quarters of properties taken to auction selling. In Melbourne the clearance rate was 70%, down slightly on last week. The Melbourne market is primed for a big test next week when there are about 1800 auctions scheduled.

Sydney property market reported its 8th consecutive weekend clearance rate above 80%, exceeding the national clearance rate with more than three quarters of properties taken to auction selling.

The clearance rate in Perth was 60% and in Brisbane 51%, whilst half of the properties taken to auction in Adelaide and Canberra sold.

Rental MARKET For houses, Darwin currently holds the highest weekly median rental rate at $660 followed by Sydney $525, Canberra $480, Perth $462, Brisbane $400, Adelaide $350, Melbourne $390 and Hobart at $330.

For units, Darwin once again emerged as the most expensive market on the rental rate front by recording the highest weekly median rental rate for the quarter at $550 followed

by Sydney $500, Perth $450, Brisbane $390, Canberra $383, Melbourne $370, Adelaide $300 and Hobart $275.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

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Residential Market Update

Property auction clearance rates: week ending 12th OCTOBER Auction Clearance Rates Auction clearance rates continue to gather momentum as we move into the warmer months of the year.

81%

79%

76%

80%

72%

73%

70%

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 October 18th 2014

DWELLING TREND CHANGE FROM PREVIOUS PEAK and TROUGH (%) Change from Previous Peak and Trough (%) Dwelling values are now on average 9.3% higher over the 12 months to the end of September 2014, with every capital city recording an increase over the period.

28.2

28% 24%

21.8

20%

18.8

18.5

28%

Change (%)

16%

14.5

12% 7.9Trough (%) Change from Previous Peak and

24%

28.2

2.9

4%

28%

21.8

20% 24%

21.8

Change (%)

16% 12% 8%

6.0

Sydney

Melbourne (VIC)

6.0 (NSW)

2.98.9

7.9

8.9

7.9 Perth

Canberra (ACT)

(WA)

9.4 2.2

1.4

Adelaide (SA)

-4%

2.2

Sydney

1.4

Melbourne

-3.9

Perth

-3.9 -4.6 Canberra Adelaide

Brisbane (QLD) -9.2

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – (ACT) OCTOBER(SA) 2014 -8% (NSW) (VIC) (WA) Sydney (NSW)

Melbourne (VIC)

Perth (WA)

Canberra (ACT)

Adelaide (SA)

Brisbane (QLD)

Darwin (NT)

(QLD)

Change from Previous Peak (%) -4.6

-8%

-4%

7.6 Brisbane

7.6

0

8

-9.2

9.4

Source: RP DATA as at 3o September 2014

2.9

-4.6

18.8

14.5

0

-3.9

14.5

4%

4%

Chang Previo Trough

18.8

-8%

8%

1.4

18.5

-4%

18.5 12%

Chang Previo Peak (%

0

16%

Change (%)

20%

7.6

6.0

Change from Previous Peak and Trough (%)2.2 28.2

9.4

8.9

8%

Hobart (TAS)

Darwin (NT)

Change from Previous Trough* (%) -9.2 Hobart (TAS)

Darwin Hobart (NT) Change (TAS) from Previous Peak (%)

Change from Previous Trough* (%)

quarterly capital city house and unit price trend 6%

House Price Trend Over Quarter (%)

5.3%

5%

Unit Price Trend Over Quarter (%)

4.4%

4%

3%

3.8%

2.7%

2.6%

2.9%

The best performing capital city for the quarter were again Melbourne and Sydney, recording 4.1% and 3.7% respectively *

2.2%

2% 1.4% 1.1%

1% 0.3% -1.7%

0

0.6% 0.1%

-0.7%

-1.0% -1.2%

-1% -2%

Sydney ( NSW )

Melbourne ( VIC )

Adelaide ( SA )

Darwin ( NT )

Source: RP DATA as at 3o September 2014

Canberra ( ACT )

Brisbane ( QLD )

Perth ( WA )

Hobart ( TAS )

* Dwelling prices, which includes both houses and units

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

7%

6%

5.9% 5.8%6% 5%

5%

5.9% 6.0%

5.2% 5.2%

5.4%

5.2% 5.1% 5.4%

4.5%

4.5%

4.8%

4.2%

4%

4.7%

4.6%

4.2%

4.6%

4.1%

4.1%

5.0% 4.8%

4.5%

4.1%

3.6%

4%

3.6% 3%

3%

4.2%

4.5%

4.1%

4.2% 3.3%

3.2%

2%

2%

1% 0

1%

Darwin ( NT )

0 Darwin ( NT )

Hobart ( TAS )

Hobart ( TAS )

Brisbane ( QLD )

Brisbane ( QLD )

Adelaide ( SA )

Source: RP DATA as at 3o September 2014

Adelaide ( SA )

Perth ( WA )

Perth ( WA )

Canberra ( ACT )

Canberra ( ACT )

Sydney ( NSW )

HouseSydney Gross Rental( Yield NSW(%) )

House Gross Rental Yield (%)

Melbourne ( VIC )

Darwin still remains the highest rental yield performer for houses (5.9%), however Melbourne was the only capital city to post an increase in house rental yields from 3.1% in August to 3.3% in September, while all other capital cities remained neutral.

Melbourne Units Gross Rental Yield ( VIC ) (%) Units Gross Rental Yield (%)

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014

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Residential Market Update

Key Investment Themes Theme

Summary

Key growth opportunities

§§ Ongoing

Key value opportunities

§§ Discounts to

Yield Growth

§§ Rental

capital growth cycle

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 abovetrend 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 longer term 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 – OCTOBER 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 slower §§ 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 5, which §§ Affordable inner city suburbs with low interest rates is not 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 §§ Recent spike in approvals still below demand levels

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 the capital §§ Victoria is the largest cities Sydney and Melbourne, beneficiary of population which has resulted in home growth, with nationally the value 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

§§ Consumer confidence

§§ RP Data is reporting 250 suburbs

subdued, however property investors confidence is high

§§ 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 in line with greater investor interest §§ Investor credit demand is leading owner-occupier demand

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 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*

37.7% 85 6.0% 0.8% 2.5% 2.25

72.2% 134 5.5% -0.2% 1.8% 2.85

Future Estate Capital City Rating

Future Estate Capital City Rating

3.26

2.66

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

36.8% 131 7.2% 0.7% 2.2% 2.40

Future Estate Capital City Rating

2.70

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

71.4% 88 5.9% 2.2% 1.7% 4.25

Future Estate Capital City Rating

QLD

4.21 WA

BRISBANE

SA

CANBERRA

NSW SYDNEY

PERTH

ACT CANBERRA

VIC

ADELAIDE

MELBOURNE

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

45.4% 85 5.0% -3.3% 2.1% 2.85

Future Estate Capital City Rating

2.96

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 53.7% 146 7.0% -0.4% 1.5% 3.60

Future Estate Capital City Rating

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*

HOBART 67.3% 102 6.7% 0.3% 2.5% 4.35

Future Estate Capital City Rating

3.64

* 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 – OCTOBER 2014

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

20.7% 192 9.2% 2.1% 1.4% 2.55

Future Estate Capital City Rating

2.89 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 – OCTOBER 2014

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