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residential Property MARKET OVERVIEW AND OUTLOOK

publication 5 / 2013

JUNE 2013


Residential Market Update

The Australian Residential property sector across the capital cities closed at a 2.9% growth year on year to the end of May, after a -0.4% change over the last 3 months.

Residential property median values in Australia contracted by 1.2% in May, settling at a net annual growth rate of 2.9% at the close of the year ending last month (RP Data). This decline extended the 0.5% fall in values over April. Nevertheless, the median value movements lag the key leading indicators of the market, which were being reported at boom levels of late 2010. The ABS annualised rate of 2.5%, along with a lower than expected adjusted unemployment rate of 5.5%. This, combined with the RBA’s low cash rate of 2.75% and the Australian dollar at annual record lows of 0.9057 USD (accurate as at 11:15am on 8 July 2013), was contributing towards consistently high Auction clearance rates and low sale discounting in the past months. The Western Australian property market outpaced other

The new home sales recorded by the HIA further extended its growth this month by 3.9%, after last month’s 4.2% change. This, combined with new dwelling approvals improving by 9.1% (trend of around 0%) and up 1.2% indicated towards a better than expected health of the property market. Building approvals, tracked by the HIA, for Australia’s most populous state of NSW improved by a seasonally adjusted 33.3%. The RBA, amid a tentative economic climate, also delayed a further cut of the cash rate earlier in June. Yet, most commentators expect a further small cut of 0.25% to better stir the local growth later on in the second half of the year. The consumer sentiment about the markets was positive this month, rising 4.2% to 102.2 on the Westpac Melbourne Institute consumer index.

growing by 1.9% to settle at a 6.4% year on year growth statistic. Victoria’s capital city, however, experienced a 1.9% decline in the growth in May.

Dwelling trenD year on year 7%

Dwelling Trend YoY (%)

6.4%

6% 5%

4.7% 3.9%

4%

2.9%

3%

2.1%

2%

2.0% 1.3%

1% -1.6%

0% -1% -2%

Perth ( WA )

Darwin ( NT )

Sydney ( NSW )

Source: RP DATA

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

Canberra ( ACT )

Melbourne ( VIC )

Hobart ( TAS )

Brisbane ( QLD )

Adelaide ( SA )


Key statistics JUne 2013

ECONOMIC GROWTH 2.8% 0.5% 3.1% 0.6%

AUD BUYS

0.9057 USD

GDP growth

2012-2013

0.25% 0.4%

in MAY

UNEMPLOYMENT 5.5%

0%

PARTICIPATION

0.1%

in Q1

65.2%

Australia wide snapshot

3.9%

Median House Price $ 520,000

-0.4%

-1.2%

2.9%

monthly

+9.1%

1.2%

quarterly

$ 22,653

2.9%

total dwelling commitments

annual

Dwelling Values

housing finance

Median Unit Price

4.7% MAY/JUNE

Australian Employment

New Home Sales

New Dwelling Approvals

Westpac - Melbourne institute

102

2.4%1

RBA STATS CASH RATE 2.75% INFLATION 2.5%

Consumer Sentiment Index

annual CHANGE IN total property sales

-3.6%

WORLDWIDE 2012 US, EUROPE & JAPAN 2012 AUSTRALIAN 2012 AUSTRALIAN 1st quarter 2013

Difference from Peak Dwelling Value

$ 440,000

Weekly House Rent $ 474 * Annual Change 3.2%* Rental Yield 4.1% Weekly Unit Rent $ 440 * Annual Change 2.8%* Rental Yield 4.9% Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute ยน Current at 11:15am 8 July 2013 * Data updated to April 2013

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

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Residential Market Update

FUtUre estate capital city rating sUmmary STATE

CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW

SYDNEY

Sydney’s FE Score dropped as the state wide aggregate auction clearance rates declined from a high last month. SQM’s asking price index for Sydney declined and the

VIC

MELBOURNE

Melbourne’s rating improved as its state discount rate reduced and the asking price index monthly change increased to 1.1%. While its median price movements in currently high.

QLD

BRISBANE

Brisbane’s FE Score improved by the largest amount this month, brought about due to the early signs of recovery. Vacancy rates and discount rates improved, along with

WA

PERTH

Perth’s FE Score declined over the past month. Despite marginal improvements in the state days on market and vacancy rates, Perth’s asking price index slowed and its discount rates increased. The State Property Market Score was higher.

SA

ADELAIDE

Adelaide’s score fell after a large contraction in the unit with a reduction in auction clearance and an increase in the vacancy rates. There was a good improvement in the discount rates, however.

ACT

CANBERRA

Canberra scored higher on the FE model after improvements in the days on market statistic, the discount rate and the SQM tracked asking price index change. The minor decline.

NT

DARWIN FE score. Its auction clearance declined marginally, while all other statistics saw an improvement. However, Darwin’s softer future forecast.

TAS

HOBART

Hobart experienced a substantial reduction in its score, given a poorer result for the auction clearance, asking price index change and vacancy rate statistics. Discount rates and days on market for sale of property sale did marginally improve.

* 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 JUNE 2013

Source: Future Estate Research


property marKet perFormance The Australian Residential Property market has lately been reacting to a complicated mix of various macroeconomic and microeconomic factors. It is a combination of statistics being produced by the market data providers. While median prices have been recorded declining by 1.2% in the past month, auctioneers continue to report record auction clearance rates as high as 80.3% properties are seeing sales well above reserve prices. nature of the property market today, investment. The ABS published data shows a rise of 3.5% and 1.5% in the number purchase and construction, respectively, compared to a 1.2% rise for established

introduced by the state governments towards the end of 2012. While prospective owner

residential property investors are still reacting to the shift in the growth areas. Units in the tourism dominated areas, the domain of savvy property investors until recently, are now underperforming. Far north Queensland and the Gold Coast areas experienced growth until 2010 fuelled by tourism; units in these areas are now already close to 20% under their peak values. This can be compared to houses in the Pilbara region of WA, NT, North West region of QLD and Mackay in QLD, which grew by 19.8%, 10.3%, 10.2% and 5.5% respectively on an annualised basis over the past 5 years. All these areas were either a mining or transport hub for Coal and Iron ore. The future investment trends are now

split house and land close to workplaces in the city, and thus are moving into denser

unit apartments in the inner city suburbs. As capital city populations continue to grow, development activity has reignited in these areas of town.

aUction clearance rates The auction clearance rates recorded across two of Australia’s largest cities remained very strong this month. Predominantly auction oriented property markets, the clearance rates for Sydney and Melbourne published by the Real Estate Institute of NSW and Victoria, as well as the APM and RP Data, all showed 67% to 80% range. A 65% clearance rate is indicative of a strong property market and sustained clearance rates in excess have only previously been seen in 2010. Auction volumes were below expectations over the Queen’s Birthday long weekend, but strong for the winter season regardless. The low

Australia’s GDP growth rate was an annualised rate of 2.5% in unemployment was lower than expected and the cash rate remained at 2.75%.

and job security, thanks to the higher terms of trade with the falling AUD, could be one reason behind the strength in auctions.

capital cities The capital city market medians saw a contrast to the strength in the auction clearances reported. Sydney closed with a year on year growth of 3.9% throughout movements of 0.1% and -0.6% for houses and units, respectively. Victorian city of in the house values and a -4.0% change in units. The underlying theme in these capital cities was the increasing shortage of land needed to house growing populations. Meanwhile, it was an opposite trend for Brisbane, where the comparatively higher unit dwellings grow by 1.2% more than house medians. Perth was an outlier amongst all capitals; despite the slowing mining sector, the city’s house prices were up 1.7% 4.2% rise. Rental yields in the northern territory were again a star performer, seeing shortage and high dwelling prices here.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

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Residential Market Update

RP Data recorded a weekly Auction Clearance Rate

property aUction clearance rates may: 2013 May Property Auction Clearance Rates 80% 70%

auctions in Sydney for the week ending 2nd June 2013. This record in several years and indicated RBA rate cuts and low unemployment

3000

75% 70%

70%

2850

70% 2500

60% 2000

50%

1500

40% 30%

1459

1000

20% 500

10% 0

0

Month Average

Last May Weekend

Source: Real Estate Institute of Victoria; Real Estate Institute of NSW.

Total May Auctions Sydney

Melbourne

Source: Real Estate institute of Victoria; Real Estate institute of NSW

property aUction clearance rates: weeK enDing 16th JUne Auction Clearance Rates 80% 70%

77% 68%

67%

69%

70%

67%

60% 50% 40% 30% 20% 10% 0

Australian Property Monitors

RP Data

* REINSW’s latest auction clearance rates are for the week ending 9th June, 2013

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

REIV/REINSW* Sydney

Melbourne


qUarterly capital city hoUse anD Unit price trenD

5%

House Price Trend Over Quarter (%)

4.2%

Unit Price Trend Over Quarter (%)

4% 3% 2.3%

2%

1.7% 0.8%

1% 0

0.4% -5.6%

-2.5%

0.1% -0.6%

-0.6%

-0.9% -1.3%

-1.3% -3.5%

-1.6% -4.0%

Darwin ( NT )

Canberra ( ACT )

Melbourne ( VIC )

-1% -2% -3% -4% -5% -6%

Hobart ( TAS )

Perth ( WA )

Adelaide ( SA )

Sydney ( NSW )

Brisbane ( QLD )

Source: RP DATA

capital city hoUse anD Unit gross rental yielDs Gross Rental Yields 8% 7%

6.2% 6.3%

6% 5.1%

5%

5.6%

5.5%

5.3% 4.8%

5.1% 4.6%

4.5%

5.0%

4.9% 4.4%

4.6%

4.3% 3.7%

4% 3% 2% 1% 0 Darwin ( NT )

Source: RP DATA

Hobart ( TAS )

Brisbane ( QLD )

Canberra ( ACT )

Perth ( WA )

Adelaide ( SA )

Sydney ( NSW )

House Gross Rental Yield (%)

Melbourne ( VIC ) Units Gross Rental Yield (%)

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

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Residential Market Update

CAPITAL CITY hOUSE AND UNIT mEDIAN PRICES State

Capital City

median house Price ($)

median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales

Sydney

$ 675,000

$ 500,000

1.9%

Victoria

Melbourne

$ 567,250

$ 445,000

-0.2%

Queensland

Brisbane

$ 442,000

$ 360,000

0.2%

South Australia

Adelaide

$ 395,000

$ 328,998

0.1%

Western Australia

Perth

$ 519,000

$ 423,250

2.7%

Tasmania

Hobart

$ 340,000

$ 265,000

5.1%

Northern Territory

Darwin

$ 529,000

$ 435,750

-1.0%

Australian Capital Territory

Canberra

$ 565,000

$ 415,000

1.9%

Source: RP DATA * Year to Date

KEY INVESTmENT ThEmES Theme Key growth opportunities

Summary Sustainable above-market capital growth

Future Estate View Capital cities re-emerging Long term Darwin boom continues

Comments Generally larger centres and capitals currently experiencing and slow dwelling completions

performance in inner city and outer suburbs Population growth and dwelling undersupply are long-term drivers

high, with cash rate low and expected to further drop and unemployment higher than expectations

theme, subject to cash rate Key value opportunities

discount to comparable properties, market analyst valuation

Distressed opportunities reducing due to market improvement Adelaide and Hobart hardest hit of capitals in 2012, recovery

Value more at the suburb, rather than city level and more particularly at the asset-level Distressed value without capital and income growth potential coastal

Defensive yield

Sustainable rental income, above market yield

Darwin, Brisbane and Perth have very high yields due by property undersupply Regional centres (top 20 sustainable yield

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

likely in 2013 as housing recovery gains momentum, but subject only to growth in construction investment Rental growth unlikely to exceed capital growth into the longer term


KEY CYCLICAL ThEmES Cyclical Outlook

Summaty

Future Estate View

Comments

Global economy and policy

The global economic crises in the US and EU have

Indirect impact to residential property market via consumer

The global impact on Australian property as a whole appeared

Asian growth, even after having slowed, is still estimated above 7.4% for 2013

and changes in growth areas Negative impacts easing in 2013

international economic turmoils, which are subsiding

Domestic growth and policy

Growth estimated at 2.5% for the year, which is on par with US growth and well above Japan and Europe Non-mining sectors are growing with higher

Lowered cash rate and sustained growth is assisting in housing market growth Unemployment, at 5.5% and a lower participation rate may have will be a deciding factor

Likely mild increase in unemployment, which

Housing

Highest level of

Lower interest rates have translated to strong auction clearance rates in the major capital cities, areas with high employment

Improving house prices likely

seeing the low cash rate and 5.5% unemployment The median house price at around 4, which is low internationally Population growth

Dwelling construction

Population growth was recorded at 1.8% over the year in 2012 394,200 persons annual increase in period ending December 2012 WA recorded highest growth: 3.5% Population recently reached 23M

Population growth expected to rise in 2013, driven predominantly by overseas skilled migration Migration to Australia concentrated in capital cities of NSW, VIC and WA

Below-trend dwelling development continues, as evidenced by lower spending in a sector with

House approvals have stayed

emerging

with construction and completions remain poor New Home Sales are stronger

demand for credit

Household savings ratio remains elevated at ~10% levels Demand for housing credit still comparatively low

supply imbalance substantial 300,000 this year and construction investment slowing QLD and WA major interstate

25,000 fewer homes built in 2013 compared to a decade ago Construction has fallen since has been high as a result

Over 50% of investors expect house prices to rise in 2013 vs. 8% expect a fall

substantially improved from lows in 2012 Household

rates Historic low interest rates and new home buyer grants stimulating owner occupier property demand; investors noticing high growth areas

through international migration

to credit Consumer

on the lower end of the RBA preferred range may lead to further interest rate cuts later into 2013 by another 25 basis points

is anticipated that demand for housing credit will emerge, especially given substantial after recent savings

RP Data is reporting 250 suburbs 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 very low levels Investor credit demand is leading owner-occupier demand

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE JUNE 2013

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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*

34.5% 114 6.5% 1.4% 1.2% 3.50

86.5% 151 5.2% 1.6% 1.1% 2.00

Future Estate Capital City Rating

Future Estate Capital City Rating

3.60

3.45

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

32.5% 160 8.9% -0.4% 1.8% 2.40

Future Estate Capital City Rating

2.53

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

57% 112 6.7% 0.7% 1.7% 2.75

Future Estate Capital City Rating

QLD

3.25 WA

BRISBANE

SA

CANBERRA

NSW SYDNEY

PERTH

ACT CANBERRA

VIC

ADELAIDE

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

41% 86 5.1% -0.9% 1.5% 2.25

MELBOURNE

Future Estate Capital City Rating

2.95

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 41% 155 8.0% -0.4% 1.5% 2.60

Future Estate Capital City Rating

2.72

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

HOBART 57% 113 7.7% 1.1% 2.7% 2.95

Future Estate Capital City Rating

3.34

* 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 JUNE 2013

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

21% 182 10.0% -0.5% 2.5% 3.55

Future Estate Capital City Rating

2.31 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.

1300 future (388 873) info@futureestate.com.au www.futureestate.com.au @futureestate future.estate future estate

Copyright © Future Estate Group Pty Ltd 2012

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 be relied upon as an indication of future performance. FUTUREin ESTATE RESIDENTIAL PROPERTY MARKET JUNEnot 2013

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