2013_02_Property-Market-Overview-and-Outlook_lowres

residential Property MARKET OVERVIEW AND OUTLOOK

publication 2 / 2013

March 2013

Residential Market Update

In 2012, the Australian economy grew at 3.6%, which was higher than the global economic growth rate of 3.3% estimated by the IMF

Macroeconomic big picture Australian GDP growth over 2012 was greater than the OECD nations, which includes developed nations such as the EU, UK and USA. The Australian economy grew by 2.1% more than this OECD group, which reflected the more positive and stable economic conditions locally. Lately, confidence levels and investor expectations of the Australian Property Sector have improved in line with a substantial recent rise in the Australian share market, influenced by reducing uncertainty surrounding the Euro Crisis, Chinese growth and the US debt fiscal cliff.

The predictions for the property market in 2013 look increasingly positive with emerging news from recent data showing favourable market conditions. House prices across Australia have seen a 1.2% growth over the past quarter and a 1.5% growth in the first two months of 2013, ending with an average 1.3% increase

over the past year to March. Home values are now down from their October 2010 peak by just 4.3%, as opposed to the 5.7% difference at the close of 2012. Affordability is on the rise with interest rates remaining low at 3.0%.

Dwelling approvals have been trending upward, although increases are failing to match the rising housing demand from greater overseas migration to Australia. The general perception is that the market bottomed in mid 2012, with the Westpac-Melbourne institute Consumer Sentiment Index above 100 points since August last year. This understanding of the improving market conditions has been supported by the Housing Industry Association, which reported a 10% increase new home sales from September to January. In light of this economic improvement and positive market outlook, economists are now predicting RBA cash rate cuts in 2013 ranging from 0% to 1%.

Key statistics march 2013

ECONOMIC GROWTH WORLDWIDE GDP GROWTH OEDC GDP GROWTH AUSTRALIAN GDP GROWTH AUSTRALIAN GDP GROWTH 4th quarter

AUD BUYS

3.3% 1.4% 3.6% 0.6%

1.02 USD

Consumer Sentiment Index

108.3

Westpac - Melbourne institute

GDP GROWTH

2012

RBA STATS CASH RATE 3% 1.25% INFLATION 2.2% 0.2%

Australian Employment Unemployment 5.5% participation 65%

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0.2%

0.3%

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

in 2012 in Q4

7.7% FEB

Residential Market Update

Property Market Resurgence The Australian property market has seen a significant change in expectations for 2013 over the past month. As the rather unstable international economic climate clears and news of tentative stability in the Euro-zone, US debt management and the resuming Chinese growth emerges, predictions for Australian housing is positive.

RP data reports property prices have closed with a 1.8% growth in 2012 after a 3.8% drop in 2011. Property prices across the capital cities, reflecting this rise, were placed at a median price of $505,000 for houses and $423,000 for units. Residential properties have seen median values increase by an annualised rate of 2.0% on average over the past 5 years, with sales volumes 1% higher than the long term 5 year average. The Housing Industry Association, which tracks dwelling sales on a monthly basis, indicated a growth in this statistic by 4.2% over the month of January. This was the result of a 4.9% January average growth in the multi-unit sales and a 4.0% growth in detached housing

across Australia. The detached housing sales in particular saw a substantial 23.7% growth in Sydney over the past 3 months. The Auction Clearance Rates and sales numbers for 2013 are meanwhile running in excess of 20% above long term 10 year averages.

Australian property prices have bottomed in mid 2012, with 1.8% capital growth recorded for the year

The housing credit growth figures, as reported

by National Australia Bank, stand at a current 5.6% for investor properties and a 3.9% for owner-occupied properties over 2012. These figures indicate improving investor sentiment and expected growth over the rest of 2013.

Quarterly capital city house and unit price trend House Price Trend Over Quarter (%)

6%

Unit Price Trend Over Quarter (%)

5.2%

5% 4.1% 4% 3%

2.7%

2.7%

2.3%

2.2% 2.2%

2%

1.4% 1.0%

0.9%

1% 0.2% 0%

Canberra ( ACT )

-1.4%

Sydney ( NSW )

-1% -2% -3%

-0.6% Melbourne ( VIC )

-2.6%

-3.1%

0.0% Hobart ( Tasmania )

Adelaide ( SA )

Brisbane ( QLD ) Perth ( WA ) Darwin ( NT )

-4%

Source: RP DATA

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

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Residential Market Update

capital city house and unit gross rental yields 8% 7%

6.2% 6.3%

6% 5%

5.6%

5.4% 4.6%

4.9%

5.3%

5.2%

4.7%

4.4%

4.2%

4.4%

4.7%

5.1%

4.6%

3.6%

4% 3% 2% 1% 0

Canberra ( ACT )

Sydney ( NSW )

Brisbane ( QSL )

Melbourne ( VIC )

Adelaide ( SA )

Perth ( WA )

House Gross Rental Yield (%)

Source: APM

Darwin ( NT )

Hobart ( Tasmania ) Unit Gross Rental Yield (%)

Capital City House and Unit Median Prices State

Capital City

Australian Capital Territory

Median Unit Price ($)

Dwelling Trend YTD* (%)

Canberra Sydney

$ 545,000

$ 405,000

2.7%

$ 600,000

$ 475,000

2.7%

Brisbane

$ 445,000

$ 362,600

1.2%

Melbourne

$ 520,000

$ 420,000

-0.7%

Adelaide

$ 395,000

$ 320,000

-1.1%

Western Australia

Perth

$ 480,000

$ 410,000

3.7%

Northern Territory

Darwin

$ 587,000

$ 410,000

5.9%

Tasmania

Hobart

$ 325,000

$ 248,000

-2.3%

New South Wales Queensland Victoria South Australia

Median House Price ($)

* Year to Date

Source: APM

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

Residential Market Update

Effects of reduced Interest Rates and Incentives The Reserve Bank of Australia has increased market activity in the Australian Residential Property sector over 2012 with a total of 1.25% in interest rate cuts, to a current 3.0% cash rate.

This has been combined with changes in state government based incentives for purchasing property, which have shifted to favour Offthe-Plan and other new dwelling purchases.

These efforts have affected property investors and owners in the Australian capital cities differently. Sydney’s west has seen modest growth since the start of the year, with buyers taking advantage of the lower cost of financing and higher affordability. The property market has seen resurgence since the middle of 2012, as volumes, clearance rates and rates of capital value growth have increased. As Australia’s largest market by value, Sydney remains a key driver of the Australian index. Lead indicators

suggest further near-term capital gains are likely.

The Melbourne residential property market experienced a soft 2012 with prices dipping 2.9% at the close of the year. With the onset of 2013, housing markets in Melbourne have seen a recovery; sale prices have already increased by 2.2%. The auction clearance rates remain above 70%, which is considered a “robust” market in Melbourne. Clearance rates are particularly strong given the higher volumes of auctions taking place in recent weeks. Auctions are up 22% in Sydney and 8% in Melbourne on a year on year basis.

Auction Clearance Rates - March 2013 80% 70%

74.2% 69%

69%

72%

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

Clearance rate 1st weekend

Clearance rate 2nd weekend

Source: Real Estate institute of Victoria; APM

Sydney

Melbourne

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

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Residential Market Update

Relative affordability has been a key driver behind the outperformance of many regional centres compared to capital cities. Strong performance is likely to continue in 2013

Residential Property Markets of Regional Towns and Cities The Residential Property Market of regional Australian towns and cities has been affected by unique economic conditions over the past year. The key themes of greater affordability and lower price point, when compared to the capitals are expected to continue in 2013. Additionally, certain regions will continue to benefit from the higher population growth and infrastructure investment. An example of this is Mackay, which is Australia’s 14th largest city. With improving global demands for energy and resources, the main drivers of this region, above average capital growth and low vacancy rates have been seen.

REgional case study - mackay Median Prices $ 420,000 Median Prices $ 325,000 FEB

Annual trend 11.5% Annual trend 11.3% Source: Domain.com.au, APM

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FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

Residential Market Update

The Housing Bubble Myth

meanwhile, also drawn criticism from local economic commentators. Some have pointed The 9th annual housing report was recently out the issues in comparing the property published by the US based research firm affordability of such a small subset of countries.

Demographia. Focusing on international housing Others have noticed the vastly different affordability, this survey is relied upon by demographic statistics and purchasing power Harvard University Joint Centre on Housing and in the countries measured, as well the quantity widely recommended by the World Bank and and quality of both the property on the market the United Nations in their studies of worldwide and the mortgage debt used to purchase it. The residential property. The report compared most significant concern regarding the survey, developed economies which included the US, however, was the inconsistent approach to Canada, the UK, Australia, New Zealand and the measurement of household income. The Hong Kong to see how easy it was for a typical Reserve Bank of Australia’s December Quarter earning individual to own a property to reside.

2012 Bulletin provided an alternative view to The key means of comparison conducted to Demographia’s report. It showed that even as achieve this was by evaluating the median dwelling prices and incomes are skewed in the income to median city dwelling price ratio, statistical sense, an average household income showing the ‘affordability’ of an area. The report from national accounts, rather than the median concluded that Australia, especially Sydney, was individual income, was the measure required the third least affordable property market in the to be used together with the average (used for areas surveyed. consistency) dwelling prices to internationally compare housing affordability. With the income Demographia’s analysis of this affordability being measured using the national accounts, and the worldwide emphasis on its results has, sources of incomes other than just wages and Dwelling Price-to-Income Ratios* salaries can be captured.

Ratio This included earnings on investment such as Denmark superannuation, which 6 New Zealand is held until retirement.

Netherlands Using this approach, the 5 RBA found that Australia Australia was in fact placed well 4 in line with the likes of several European nations 3 such as Denmark, France, Belgium and Ireland.

Japan

Ireland

2

United States

1

1981

1986

1991

1996

2001

2006

2011

* Average dwelling prices to average household disposable income Sources: BIS; Bloomberg; Canadian Real Estate Association; Halifax; Japan Real Estate Institute; OECD; Quotable Value; Realkreditraadet; RP Data-Rismark; Thomson Reuters; United Nations; national sources (statistical agencies, central banks and government departments)

0

Based on the RBA’s dwelling – price – to – income ratios, Australian housing is actually more affordable than global peers other than the US and Japan

In most contemporary views, this result better reflected Australian housing affordability at the world stage than Demographia’s latest annual report.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE MARCH 2013

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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 MARCH 2013

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