Melbourne Residential Market Update Future Estate investment products enable investors to cut out typical developer’s profit and access properties at near cost price. This eBook does not constitute an investment offer. Prospective investors are recommended to read IM or PDS for further information. No guarantee with regard to future investment performance is made or implied. Whilst every effort has been made to ensure accuracy, no reliance can be placed upon it by recipients.
Intelligent Property Investment
FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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In this eBook, you will learn about the current conditions, drivers and outlook of the Melbourne residential market. Ben Anderson Managing Director and Founder
Would you like to learn about the current conditions and outlook for the Melbourne residential market?
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No
Would you like to learn the real story, supported by reliable statistics, rather than the media hype?
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Do you own property in Melbourne, or are you an investor considering your next property investment?
Yes
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If you answered ‘Yes’ to any of the above, please read on.
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FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
WHY MELBOURNE? Melbourne is Australia’s second largest city and was voted as the most liveable city in the world in 2011. Melbourne is highly ranked in key economic indicators such as GDP per capita, GDP growth, employment and average household income. As of June 2012, there are about 4.14 million people living in Melbourne, or some 77% of Victoria’s population. At the current population growth rate (1.5% or 62,000 p.a.), Melbourne is forecast to surpass Sydney to become Australia’s largest city in the next few decades. Melbourne boasts a diverse range of world-class entertainment centres, shopping, fine-dining, cultural events and sports venues. Melbourne remains the destination of choice for overseas property investors due to its long-term investment potential. Melbourne remains more affordable than Sydney. Melbourne’s economy is diverse and less industry dependent (i.e. resource sector for Perth and financial services sector for Sydney).
Residential property investment in the Melbourne market is a sound long-term investment strategy underpinned by a diverse and robust economy and sustained high population growth.
FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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MARKET OVERVIEW The Melbourne market has been one of the best performing residential markets among Australian capital cities in recent years. After significant capital growth in 2009-2010, the market softened and has been generally more subdued. From peak to trough, the median house price of the Melbourne market declined by 8% before rebouncing by almost 4% in the last few months. Many lead indicators show that the bottom has been reached with a positive outlook for capital growth going forward.
The current drivers of the Melbourne residential markets include the following: Strong population growth - the highest of any Australian capital with 647,000 people moving to Melbourne over the past decade Desirable lifestyle, diverse industries and employment opportunities High investment return - Melbourne has performed strongly over the long term both in terms of capital gain and rental returns Low rental vacancy is supporting rental growth - rents grew at an average of over 8% p.a. in the 5 years to 2011 Continuing supply shortage - in stark contrast to the alarmist media commentary Strong market outlook, underpinned by robust fundamentals (such as low rental vacancy, continued demand growth and diminishing supply projections beyond 2013)
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FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
HISTORICAL RETURNS ANNUAL ASSET RETURNS AND VOLATILITY OVER THE LAST 20 YEARS TIME FRAME
2008 - 2012
2002 - 2012
1992 - 2012
ASSET CLASSES
RETURN
VOLATILITY
RETURN
VOLATILITY
RETURN
VOLATILITY
Australian Shares
-7.30%
12.40%
2.40%
11.40%
2.30%
9.60%
Australian Listed Property
-6.20%
15.90%
4.30%
11.50%
3.90%
10.80%
Australian Residential Property
8.20%
4.50%
12.80%
4.90%
11.60%
4.80%
Melbourne Apartments
8.50%
7.00%
13.40%
7.20%
12.30%
7.50%
UBS Bond Composite Index
8.17%
2.40%
6.79%
2.80%
9.20%
4.20%
Australian Cash Management Trust
5.90%
0.20%
5.50%
0.30%
6.80%
1.00%
Consumer Price Index
3.10%
0.90%
2.9%
1.20%
2.70%
1.40%
Average Weekly Earnings
4.30%
1.00%
4.40%
3.40%
3.40%
1.50%
Source: RBA, ABS, UBS , Trading Economics
FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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POPULATION GROWTH Population and Number of Dwellings in Melbourne LGA 2006-2031 180,000 160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0.0 2006
2008
2010
2012
2014
2016
2018
2020
2022
2024
2026
2028
Total Population
Source: City of Melbourne
2030
Dwellings
Population growth is exceeding dwelling completions, and this is forecast to continue well into the future.
Annual Net Overseas Migration by Major States 1983 - 2011
Net Overseas Migration
80,000
60,000
40,000
20,000
0 Dec-83 Source: rpdata.com.au
Dec-87
Dec-91
Dec-95
NSW
Dec-99
VIC
Dec-03
Dec-07
QLD
SA
Dec-11
WA
Net overseas migration has been increasing, particularly since 2003.
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FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
MELBOURNE METRO Metro & Inner Melbourne: Median House Prices 2005 - 2012 $1,000,000 $950,000 $850,000 $800,000
Median Price
$750,000 $700,000 $650,000 $600,000 $550,000 $500,000 $450,000 $400,000 $350,000
Metro Melb Houses
Source: M3Property, ABS
Jul 12
Mar 12
Dec 11
Jul 11
Mar 11
Dec 10
Jul 10
Mar 10
Dec 09
Jul 09
Mar 09
Dec 08
Jul 08
Mar 08
Dec 07
Jul 07
Mar 07
Dec 06
Jul 06
Mar 06
Dec 05
$300,000
Inner Houses
The inner city region of Melbourne has consistently outperformed outer suburbs in terms of capital growth. Metro & Inner Melbourne: Residental Vacancy Rates 2005 - 2012 3.5% 3.0%
Vacancy
2.5% 2.0% 1.5% 1.0% 0.5%
Source: M3Property, ABS
Metro Melb Houses
Jun 12
Mar 12
Sep 11
Dec 11
Jun 11
Mar 11
Sep 10
Dec 10
Jun 10
Mar 10
Dec 09
Sep 09
Jun 09
Mar 09
Dec 08
Jun 08
Sep 08
Mar 08
Sep 07
Dec 07
JUn 07
Mar 07
Sep 06
Dec 06
Jun 06
Mar 06
Dec 05
Sep 05
Jun 05
Mar 05
0%
Inner Houses
Rental vacancy rates are very low by comparison to historical levels, supporting rental income growth. FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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CAPITAL GROWTH House Price Index of Eight Australian Capital Cities 2002-2011 250
200
150
100
50
0 Mar-02
Aug-03=100
Feb-05
Aug-06
Jan-08
Jan-11
Melbourne
Sydney
Source: ABS
Jul-09
Brisbane
Adelaide
Perth
Hobart
Darwin
Canberra
Australia
Melbourne house prices have grown consistently over the past decade, even during the post-GFC period. Melbourne Median House and Apartment Prices 2002 - 2012 $600,000 $550,000
Median Prices
$500,000 $450,000 $400,000 $350,000 $300,000 $250,000
Source: REIV
Jun '12
Dec '11
Jun '11
Dec '10
Jun '10
Dec '09
Jun '09
Dec '08
Jun '08
Dec '07
Jun '07
Dec '06
Jun '06
Dec '05
Jun '05
Dec '04
Jun '04
Dec '03
Jun '03
Dec '02
Jun '02
$200,000
House Units and Apartments
Median house and apartment prices in Melbourne have grown substantially over the past decade.
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FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
RENTAL YIELD Melbourne Residential Vacancy Rates
Number of Vacancies
2007 - 2012 14,000
7%
12,000
6%
10,000
5%
8,000
4%
6,000
3%
4,000
2%
2,000
1% 0
0 Jul 2007
Jan 2008
Jul 2008
Jan 2009
Jul 2009
Jan 2010
Jul 2010
Jan 2011
Jul 2011
Number of Vacancies
Source: SQM Research
Jan 2012
Jun 2012
Vacancy Rate
In contrast to media hype, Melbourne vacancies have been remained low and relatively constant near the long term average of 3%. Melbourne Rental Growth 1996 - 2011 14%
Growth Per Annum
12% 10% 8% 6% 4% 2% 0 Adelaide Source: SQM Research, ABS
Perth
Brisbane
Canberra
Sydney
1996-2001
Darwin
Hobart
2001-2006
Melbourne
National
2006-2011
In comparison with the Sydney and Brisbane markets, the Melbourne rental market has averaged a higher annual growth rate of over 8% in the last five years. FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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NATIONAL SUPPLY SHORTAGE Australian Population Growth vs Growing Completions 1976 - 2010
Annual Apartment Completions
450,000 400,000 350,000 300,000 250,000 200,000 150,000 100.000 76 Source: ABS
78
80
82
84
86
88
90
92
94
96
98
00
Annual Dwelling Completions
02
04
06
08
10
Annual Population Gain
National population growth has accelerated and this has not been met by higher dwelling completions, creating an undersupply. Australian Housing Market Balance 1986 - 2015 400,000 360,000 320,000 280,000 240,000 200,000 160,000 120,000 80,000 40,000 0 -40,000 -80.000 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Source: ABS
House Surplus/Shortage
Completions
Underlying Demand
The national housing shortage is expected to reach over 600,000 houses by 2030.
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FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
MELBOURNE SUPPLY SHORTAGE Melbourne Total Dwellings Approvals vs Highrise Approvals 2000 - 2012 7,000
Number of Dwelling Units
6,000 5,000 4,000 3,000 2,000 1,000
0
Total
Source: ABS
Highrise
Contrary to market commentary, the supply of new dwellings is expected to decline as dwelling approvals has declined substantially in 2012. Inner Melbourne Apartment Supply 2002-2014
5,000
Forecast
Annual Apartment Completions
4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2002 Source: City of Melbourne
2003
2004
2005
Completed
2006
2007
2008
2009
Long-term Average
2010
2011
2012
Under Construction
2013
2014
Mooted
Contrary to media hype, the actual number of apartments under construction is decreasing from 2012 and expected to be below the long-run average by 2014. FUTURE ESTATE EBOOK SERIES: MELBOURNE RESIDENTIAL MARKET UPDATE
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MARKET OUTLOOK The market has been subdued over the last 12 months, with slight price declines across houses and units. The market appears to have bottomed - the peak-to-trough fall of 5.8% with 2.3% price increase over the last two months. We consider this primarily a ‘crisis of confidence’ as the fundamentals and outlook remain strong. Rents continue to grow (4.2% over the last 12 months) and vacancy rates remain relatively low at 3.5%. Forecast supply is expected to decline from 2013 to well below the long run average. The reality is in stark contrasts to media commentary which suggests a sustained oversupply. The Melbourne economy remains robust with the last reported (June 2012) year-on-year GDP growth rate at 2.3% and unemployment rate at 4.1%. Population growth remains very high and is forecast to continue, which means strong demand for new housing.
We all know property is a long-term investment. So, given the positive long-term outlook of the Melbourne market, the astute investor is recommended to look beyond the ‘market beat-ups’ and invest for the long-term.
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