AUSTRALIAN 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: AUSTRALIAN RESIDENTIAL MARKET UPDATE
1
In this eBook, you will learn about the current conditions, drivers and outlook of the Australian residential market. Ben Anderson Managing Director and Founder
Would you like to learn how to be a successful property investor in the current market conditions?
Yes
No
Would you like to learn about the best opportunities within the market?
Yes
No
Would you like to gain access to exclusive research and market updates from Future Estate?
Yes
No
If you answered ‘Yes’ to any of the above, please read on.
1
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
MACROECONOMIC SNAPSHOT World Economy Growth in the world economy continue to pick up in the first six months of 2012 despite ongoing uncertainty in Europe and slower than anticipated economic growth in China. Conditions in other parts of Asia have recovered from the effects of last year’s natural disasters. The United States continues to grow at a modest pace. Commodity prices have eased, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies. Australia’s terms of trade have peaked, though they remain historically high.
World Financial Market Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs, but Europe will remain a potential source of uncertainty in the foreseeable future. Interest rates faced by highly rated sovereigns, including Australia, have decline to exceptionally low levels.
National Economy Recent data suggest that the Australian economy continued to grow in the first part of 2012, at a pace stronger than had been earlier indicated. The Australian economy grew 4.3% in the year ended in March 2012. Despite job cuts in certain industries, the labour market conditions remain robust with low unemployment rate of 5.2% as of June 2012. Business credit has increased strongly in recent months and the Australian currency remains strong against all major world currencies.
Source: ABS, RBA
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
2
MACROECONOMIC SNAPSHOT National GDP Growth In seasonally adjusted terms, Australian GDP increased 0.4% in the December quarter; through the year GDP growth was 2.3%. On the expenditure side, the increase this quarter (in seasonally adjusted volume terms) was driven by Household final consumption expenditure (+0.3% points), Changes in inventories (+0.3% points) and Net exports (+0.3% points). Partially offsetting these rises was Private gross fixed capital formation (-0.4% points).
National Unemployment Unemployment remains very low by historical levels, with Australia’s seasonally adjusted unemployment rate increased 0.1% points to 5.2% in June, as announced by the Australian Bureau of Statistics (ABS) on July 12th. The number of people unemployed increased by 7,200 people to 631,300 in June, the ABS reported. The ABS reported a decrease in the labour force participation rate of 0.2% points in June to 65.2%.
National Inflation Inflation remains low by historical levels and below the Reserve Bank of Australia’s (RBA) target range of 2% - 3%. This provides further scope for the RBA to lower interest rates. The Consumer Price Index (CPI) rose 0.5% in the June quarter 2012, compared with a rise of 0.1% in the March quarter 2012.
Source: ABS, RBA
3
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
MARKET DRIVERS Widening supply-demand imbalance 240,000 + dwelling shortage and growing
Strong population growth Australia has grown at 2.1% over recent years (akin to a developing, not developed, country), 1.4% in 2011 and even higher in certain regions
Robust economic fundamentals Low inflation (1.2%), low unemployment (5,2%) and above-trend GDP growth (4.2% annualised)
Improving housing affordability Higher incomes underpinned by continued real income growth and lower interest rates (3.5% as of July 2012)
Attractive rental returns Rents grew by an average of 4.4% in the last 12 months
Booming Resource Sector Mining investment continues to underpin business investment and terms of trade $231 billion approved projects underway and a further $224 billion at earlier stages of development
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
4
POPULATION GROWTH Annual Absolute Change in Total Population
Net Annual Population Growth and Long-term Average 400,000
350,000
300,000
250,000
200,000
150,000
Dec-83
Dec-87
Dec-91
Dec-95
Dec-99
Dec-03
Dec-07
Dec-11
Dec-12F
Rolling Annual Population Growth Source: rpdata.com.au
Long-Term Average
Annual population growth is increasing and forecast to continue. Projected Population Change by 2030
Percentage Change in Population
60% 50% 40% 30% 20% 10% 0 -10% -20%
Canada
US
South Asia America (excl. China)
India
South Asia
China
Northern Europe
UK
Germany
Australia
Source: ABS
The projected Australian population growth rate from today to Year 2030 exceeds those of all major world economies.
5
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
housing affordability Real Australian Household Disposable Income after (1) Buying the Median Australian Dwelling at Prevailing Prices and (2) Servicing Principal & Interest Repayments at Prevailing Mortgage Rates June 1985 to June 2011
$45,000 $40,000 $35,000 $30,000 $25,000 $20,000 $15,000
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
Jun-95
Jun-94
Jun-93
Jun-92
Jun-91
Source: Australian Bureau of Statistics
Jun-90
Jun-89
Jun-88
Jun-87
Jun-86
Jun-85
$10,000
Real Disposable Income per Household after All Housing Costs Real Disposable Income per Household
Note: Real income after all housing costs is calculated by taking the ABS-reported disposable income per household, assuming the household buys the median priced Australian dwelling at price reported in the given quarter, and then services all principal and interest repayments on an 80% LVR home loan at prevailing mortgage rates.
As real income measures of Australian household continue to climb, housing has become more affordable for the average Australian family in real terms. Rismark All Regions Dwelling Price-to-Disposable Household Income Ratio 8x 7x
Multiplier
6x 5x 4x 3x 2x 1x
Source: ABS
Sep-11 Mar-11 Sep-10 Mar-10 Sep-09 Mar-09 Sep-08 Mar-08 Sep-07 Mar-07 Sep-06 Mar-06 Sep-05 Mar-05 Sep-04 Mar-04 Sep-03 Mar-03 Sep-02 Mar-02 Sep-01 Mar-01 Sep-99 Mar-99 Sep-98 Mar-98 Sep-97 Mar-97 Sep-96 Mar-96 Sep-95 Mar-95 Sep-94 Mar-94 Sep-93 Mar-93
0x
Rismark All Regions Trimmed Mean Dwelling Price-to-Income Ratio Rismark All Regions Median Dwelling Price-to-Income Ratio
Dwelling price to disposable income has not changed substantially over time, meaning housing remains relatively affordable. FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
6
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
Melbourne
Sydney
Source: ABS
Jul-09
Jan-11
Brisbane
Adelaide
Perth
Hobart
Darwin
Canberra
Australia
Australian house prices have recorded consistent growth over the past decade, even during the post-GFC period. Rental Growth 14%
Growth Per Annum
12% 10% 8% 6% 4% 2% 0 Adelaide Source: SQM Research, ABS
Perth
Melbourne
Brisbane
Canberra
1996-2001
Sydney
Darwin
2001-2006
Hobart
National
2006-2011
Growth in rental income has been accelerating, averaging over 8% in the 5 years to 2011.
7
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
HOUSING 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
The housing shortage continues to grow ... Did you know that only 60% of the demand for new apartments was met in 2010?
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
As the supply/demand imbalance continues to widen, the national housing shortage is expected to reach over 600,000 by 2030. FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
8
MARKET FORECAST 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 Australian 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 Australian market, the astute investor is recommended to look beyond the ‘market beat-ups’ and invest for the long-term.
9
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE
If you would like more information about us and our investment products, simply call, email or visit.
1300 future (388873) info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate
Copyright Š Future Estate Group Pty Ltd 2012
10
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE