residential Property MARKET OVERVIEW AND OUTLOOK
publication 8 / 2014
SEPTEMBER 2014
Residential Market Update
Melbourne was the highest performing capital city over the last three months with 6.4% capital growth whilst Hobart experienced the weakest at -0.8%
The residential property market is Australia’s single largest and most valuable asset class with a total estimated value of $5.2 trillion and therefore remains an extremely important component of the Australian economy. Over the past year, GDP was recorded at $1.53 trillion indicating that the total value of residential housing is significantly larger than the annual output of the Australian economy. Sydney and Melbourne led the growth phenomenon recording the strongest capital growth conditions of all capital cities so far in 2014. Even though performance nationally has been strong across most capital cities, it’s Sydney and Melbourne who have been the only capital cities to have experienced double digit growth over the past year. According to RP Data, Sydney’s dwelling values increased by 27.2% and Melbourne values by 19.5% over the latest growth cycle. Sydney and Melbourne were also the strongest performing cities during the 2009/10 growth cycle as well. Since the beginning of 2009, we have seen values rise by a cumulative 50.1% and 46.1% in Sydney and Melbourne respectively. Looking at the other state capitals over the same time frame, Perth’s
dwelling values are now 15% higher, followed by Adelaide at 9.9%, Brisbane with 5.3% and Hobart the only state to experience negative growth (-1.5%). Considering the higher auction clearance rate results in recent months, the rapid rate of sale closures, combined with a low interest rate environment, it’s likely that dwelling values across most capital cities will rise over the next quarter. We can therefore expect with the start of spring upon us that listing numbers will rise over the coming month as well, which will provide a real test for the housing market. Consumer confidence is also moving in the right direction, which has contributed to the last few months of solid capital growth across most capital cities. As long as confidence remains strong, this should continue to add fuel to the exuberant buying and selling conditions the housing market has seen during the winter period. For most of 2014, property investors have been concentrating across the Sydney and Melbourne apartment markets where capital gains have been strong, but yields have been pushed very low. Rental yield historically tend to be healthier in smaller regions where capital growth tends to be present in more mature markets.
Dwelling trend year on year
18%
16.2%
16%
Dwelling Trend YoY (%)
14% 11.7%
12% 10% 8%
5.9%
6%
5.4%
5.4% 3.5%
4%
2.8% 1.4%
2% 0
Sydney ( NSW )
Melbourne ( VIC )
Adelaide ( SA )
Brisbane ( QLD )
Source: RP DATA 31 August 2014
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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – SEPTEMBER 2014
Darwin ( NT )
Perth ( WA )
Hobart ( TAS )
Canberra ( ACT )
Key statistics AUGUST 2014
ECONOMIC GROWTH WORLDWIDE 2013 US, EUROPE & JAPAN 2013 AUS annual to JUNE 2014 AUSTRALIAN 2ND quarter 2014
Consumer Sentiment Index
AUD BUYS
3.0% 2.2% 3.1% 1.1%
0.9341 USD
Westpac - Melbourne institute
UPDATED on 5th SEPTEMBER 2014
98.5
3.8%
in AUGUST
GDP growth
2014
Australian Employment UNEMPLOYMENT 6.4%
RBA STATS 0% 0.7%
PARTICIPATION AUGust 2014
$ 27,748
1.0%
9.9%
1.1% monthly
10.9% adjusted value of total dwelling commitments
4.1%
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
$ 548,000
Median Unit Price
$ 467,500
New Home Sales
2.5 %
Weekly House Rent $ 390 Rental Yield 3.7% Weekly Unit Rent $ 405 Rental Yield 4.5%
New Dwelling Approvals
2.5%
Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – SEPTEMBER 2014
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Residential Market Update
Future estate capital city rating summary - AUGUST 2014 STATE
CAPITAL CITY
FUTURE ESTATE SCORE
OVERVIEW
NSW
SYDNEY
Sydney’s score remained unchanged this month with all lead indicators and outlook looking positive.
VIC
MELBOURNE
An increase in the asking price result had a positive impact on Melbourne’s score this month.
QLD
BRISBANE
All indicators for Brisbane remain neutral, healthy or good resulting in a 5% increase to the capitals score this month.
WA
PERTH
Perth’s score remains stable with all indicators either neutral or healthy.
SA
ADELAIDE
Better than expected auction clearance results for the winter period helped improve the state’s score by more than 5%.
ACT
CANBERRA
A big jump in Canberra’s score by more than 15% this month due to better than expected asking price discount and clearance results.
NT
DARWIN
An improvement in the state’s vacancy rate and clearance results lead to a substantial in the state’s score by close to 10%.
TAS
HOBART
Hobart’s score remained unchanged this month.
* 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 – SEPTEMBER 2014
Source: Future Estate Research
auction clearance rates Both Melbourne and Sydney’s property sales results in recent months continued to break records for volume, values and property investor involvement, setting the scene for a big result as the traditional spring season gets into full swing. As winter draws to a close, the number of auctions in the first week of spring was hot. As predicted, last weekend experienced a 30% increase in the number of scheduled auctions. 615 auctions were reported to the REINSW, with 480 selling and 129 passing in. The clearance rate was 79%, compared to 80% last week and 76% the same week last year. For NSW, a clearance rate of 77% was recorded in the same weekend compared to 73% last weekend and 73% this weekend last year. For Victoria, REIV expects more than 2,100 auctions in the two weekends before the AFL Grand Final. This will surpass last year’s 1,800 auctions over the same weekends as vendors continue to favour auctions this year. Sydney property investors dominated with more than 60% attributed to those seeking income or capital growth from real estate growth that last year topped 15% according to RP Data, which is the highest in a decade. An estimated $33 billion annual spent on property by foreign buyers is also having an impact on Sydney and Melbourne volumes, prices and the types of properties being put up for offer, according to analysis by UBS for the federal Parliament’s inquiry into foreign investment in residential real estate. The recent rain and blustery weather conditions in Sydney in recent weeks have not deterred buyers from attending auctions. In addition to higher returns, low interest rates and pent-up demand, there was also the added expectation that prices still have a way to go leading into the warmer months of 2014 up to Christmas. Melbourne’s property market, with its robust clearance rates of nearly 80% are substantially higher than the same time last
year despite more than 70% more properties on offer compared to the same period last year. More than 40% of current buyers are estimated to be investors. Most other capital cities posted increased clearance rates. Brisbane was about 50%, Adelaide 70%, Canberra 56% and Perth 27%. During 2013-14, there has been a 90% increase in Foreign Investment Review Board Applications, which is useful for monitoring the scale of activity, but lacks detail on its impact on prices.
Capital Cities The Median Dwelling Price of all combined capital cities is now around $520,000, with Sydney still the dominant influencer at $650,000. Sydney topped the chart yet again with a record high Median House Price of $740,000, making it increasingly difficult for first home buyers to pursue the property of their dreams in the most desired locations. Melbourne’s change in dwelling values year on year is now in double digits recording growth of 11.7% with the combined capital city average now sitting at 10.9% growth year on year. Melbourne has also been the stand out performing capital city for the quarter with 6.4% growth compared to Sydney (5%). An increase in auction clearance and decrease in vacancy rates in Adelaide in recent months have also lead to an increase for the quarter in terms of dwelling values with 5.9%, followed by Brisbane and Darwin (both experiencing 5.4% respectively). Even Hobart experienced steady growth for the quarter recording a 2.8% increase in value. The increase in prices has contributed to the increase in the total value of residential dwellings to $5.2 trillion up to the June Quarter 2014, an increase of almost half a trillion dollars since June 2013. As indicated earlier, the mean price of dwellings in Australia is now $520,000, an increase of more than $25,000 over the year. This represents more than twice the increase over the year to June 2013.
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – SEPTEMBER 2014
5
Residential Market Update
Property auction clearance rates: week ending 6th SEPTEMBER Auction Clearance Rates Auction clearance rates over spring look promising with strong results experienced over the winter months
90%
83%
82%
80%
80%
79%
75%
77%
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 August 31 2014
DWELLING TREND CHANGE FROM PREVIOUS PEAK and TROUGH (%) Change from Previous Peak and Trough (%) All capital cities apart from Darwin and Hobart posted positive gains over the winter months, and are well positioned leading into spring
27.2
28% 24% 20.8
20.0
19.5
20%
28%
Change (%)
16%
15.0
12% 8% 27.2
3.3
4%
Change from Previous Peak and Trough 24% 27.2
28%
20.8 20%
24%
12%
Change (%)
20%
8%
6.9
Change (%)
16%
-3.7
15.0
20.0
-8%
-4.6 -9.0
Sydney 6.9 (NSW)
8% 4% 0
Melbourne (VIC) 3.3 7.9
8.3
Perth 8.3
-4%
Canberra 7.9
(WA)
2.6
Source: RP DATA as at 31 August 2014
3.3
(ACT)
8.7
Adelaide8.7 (SA)
Change from Previous Peak (%)
2.6 0.5
Sydney
Melbourne
-3.7
Perth
-3.7 Canberra -4.6 Adelaide
Darwin
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – (ACT) SEPTEMBER (NSW) (VIC) (WA) (SA)2014 (NT) -8% -9.0
Melbourne (VIC)
Perth (WA)
Canberra (ACT)
Adelaide (SA)
Darwin (NT)
Brisbane (QLD)
Darwin 7.9 (NT)
7.9
0.5
-8%
Sydney (NSW)
Chang Previo Trough
12%
4%
-4%
Chang Previo Peak (%
20.0
19.5
15.0
7.9
0.5
0
0
6
(%)2.6
-4%
16% 19.5
20.8
8.7
8.3 7.9 Change from 6.9 Previous Peak and Trough (%)
Hobart (TAS)
-4.6
Change from Previous Trough* (%) -9.0
Brisbane (QLD)
Hobart (TAS)
Brisbane (QLD)
Hobart (TAS)
Change from Previous Peak (%) Change from Previous Trough* (%)
quarterly capital city house and unit price trend 8% 7%
House Price Trend Over Quarter (%) 6.6%
Unit Price Trend Over Quarter (%)
6% 5%
5.2%
5.4% 5.0%
4%
3.7%
3%
2.8%
The best performing capital cities for the quarter were again Melbourne and Sydney, recording 5% and 6.4% capital growth respectively
2.4%
2%
1.5%
1.4%
1%
1.0%
0.8% -2.1%
0
0%
-0.7% -1.1%
-1.0%
-1% -2% -3%
Melbourne ( VIC )
Sydney ( NSW )
Canberra ( ACT )
Brisbane ( QLD )
Adelaide ( SA )
Perth ( WA )
Hobart ( TAS )
Darwin ( NT )
Source: RP DATA as at 31 August 2014
capital city house and unit gross rental yields Gross Rental Yields
Gross Rental Yields
7%
7% 6%
6% 5.9% 5.8% 5%
5%
5.9% 5.8% 5.4%
5.2% 5.2%
5.4%
5.2% 5.2%
4.8%4.2%
4.5%
4%
4.2%
4%
3%
3%
2%
2%
1%
5.0%
4.8%
4.5%
4.6% 4.1%
4.1%
4.5%
5.0%
4.2%
4.1%
4.6%
4.5% 3.6% 4.1%
Darwin still remains the highest rental yield performer for both houses and units (5.9% and 5.8%)
3.2% 4.2%
3.6% 3.2%
0 Darwin ( NT )
1%
Hobart ( TAS )
Brisbane ( QLD )
Adelaide ( SA )
Perth ( WA )
Canberra ( ACT )
0 Darwin ( NT )
Hobart ( TAS )
Brisbane ( QLD )
Source: RP DATA as at 31 August 2014
Adelaide ( SA )
Perth ( WA )
Canberra ( ACT )
Sydney ( NSW )
House Gross RentalSydney Yield (%)
( NSW )
House Gross Rental Yield (%)
Melbourne ( VIC ) Units Gross
Rental Yield (%) Melbourne ( VIC )
Units Gross Rental Yield (%)
FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – SEPTEMBER 2014
7
Residential Market Update
Capital City House and Unit Median Prices as at 31 AUGUST 2014 State
Capital City
Median House Price ($)
Median Unit Price ($)
Dwelling Trend YTD* (%)
New South Wales
Sydney
$740,000
$565,000
9.0%
Victoria
Melbourne
$570,000
$460,000
7.6%
Queensland
Brisbane
$485,000
$372,000
2.8%
South Australia
Adelaide
$410,000
$335,000
2.9%
Western Australia
Perth
$530,000
$440,000
-0.3%
Tasmania
Hobart
$319,000
$275,000
3.4%
Northern Territory
Darwin
$550,000
$450,000
4.4%
Australian Capital Territory
Canberra
$565,000
$420,000
3.4%
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 – SEPTEMBER 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 – SEPTEMBER 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*
37.6% 85 6.0% -0.8% 2.5% 3.00
73.7% 135 5.5% -0.1% 1.4% 2.70
Future Estate Capital City Rating
Future Estate Capital City Rating
3.38
2.70
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
36.4% 132 7.3% 0.5% 2.3% 2.70
Future Estate Capital City Rating
2.78
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% 90 5.9% 0.3% 1.8% 4.25
Future Estate Capital City Rating
QLD
3.91 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*
45.0% 84 5.0% 1.3% 2.1% 2.70
Future Estate Capital City Rating
3.38
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 7.1% 0.3% 1.5% 3.30
Future Estate Capital City Rating
3.23
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
HOBART 67.2% 104 6.8% 1.3% 2.6% 4.35
Future Estate Capital City Rating
3.79
* 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 – SEPTEMBER 2014
State Auction Clearance Rate State Days on Market (days) State Discount Rate Asking Price Index Change City Vacancy Rate State Property Market Score*
21.3% 189 9.2% 0.9% 1.7% 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 – SEPTEMBER 2014
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