National market overview ed1 2017

2017 EDITION 1

NATIONAL MARKET OVERVIEW 2017 | EDITION 1

NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

CONTENTS 04

EXECUTIVE SUMMARY

05

LONG-TERM CREDIT GROWTH TREND

06 07

Slightly Negative

MALE INCOME VS MEDIAN PROPERTY PRICES MORTGAGE; EXPRESSED AS A MULTIPLE OF ANNUAL INCOME LOAN TO VALUE RATIO Positive

09 10 11

MORTGAGE STRESS Neutral

FOREIGN STUDENT COMMENCEMENTS

NATIONAL FIRST HOME BUYER AS A % OF POPULATION Negative

13

FOREIGN INVESTMENT APPROVALS RESIDENTIAL PROPERTY Negative

Slightly Negative

Slightly Negative

08

12

14

FOREIGN INVESTMENT APPROVALS: NEW VS ESTABLISHED PROPERTY Slightly Negative

15

DWELLINGS COMMENCED

16

NATIONAL VACANCY RATE VS STATE VACANCY RATES

Negative

Slightly Negative

Slightly Negative

INVESTOR VS HOMEBUYER Negative

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

EXECUTIVE SUMMARY Commenting on the national market is always dangerous because the national market is made up of 5 major markets, 20-50 large regional markets and over a 1000 small markets. Historically speaking whilst there is a relationship between these markets most move at different times for different fundamental reasons.

Looking at the macro property trends its clear that the market isn’t healthy; long term growth is trending downwards, house prices have been running 2 times and in some cases 3 times the pace of incomes, and mortgages are at record highs when expresses as a multiple of income. On the positive side, the amount of equity we’re holding in property on average has been increasing and mortgage stress has been stable for the last 5 years.

The big X-factor in Australian residential property right now is foreign investment. It is at record highs currently $61b according to the foreign investment review board, it has tripled in 3 years and it has influenced the amount of speculative activity in the market place. High foreign investment appears to be here to stay but there is no question it is and will continue to create volatility. The most obvious problem at the moment is the overbuilding that is occurring, we forecast that in the coming 12 months we will overbuild at least 65,000 properties nationally and this will have a negative affect on those markets that are already oversupplied.

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LONG TERM CREDIT GROWTH TREND

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

THIS GRAPH SHOWS NATIONAL CREDIT GROWTH ACROSS HOUSING, BUSINESS AND PERSONAL OVERLAID WITH THE HISTORICAL NATIONAL MEDIAN PRICE CHANGE SINCE 1977. THERE IS A VERY STRONG RELATIONSHIP BETWEEN CREDIT GROWTH AND PRICE GROWTH AS WE CAN CLEARLY SEE OVER THE PAST 40 YEARS. THE INTERESTING TAKE AWAY FROM THIS GRAPH IS CREDIT GROWTH HAS BEEN PROGRESSIVELY DECLINING OVER THE PAST 3 DECADES AND THIS IS CAUSING THE LONG TERM TREND OF HOUSE PRICE GROWTH TO SLOW.

S L I G H T LY N E G AT I V E

In the 80’s credit was growing consistently between 10-20% per annum which resulted in late 80’s crash and early 90’s recession.

During this time median price changes were also fluctuating between 10-20% per annum with some exceptions. Business and Personal Credit growth was negative between 1990-94 and this meant that house prices were also flat during this time especially in Melbourne and Sydney. As we moved in the mid 90’s and early 2000’s we saw credit growth fluctuate between 5-15% and price growth follow suit with a few outliers.

As we moved past 2010 credit growth has been within a much lower band between 0-10% with price growth generally aligning in this band. Interestingly, 2010-11 was the first time we saw negative house price growth nationally and the first time in the last 40 years housing credit growth dropped below 5%.

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MALE INCOME VS MEDIAN PROPERTY PRICES

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

DESPITE THE CHANGING VARIABLES IN THE MARKET PLACE, THE OUTPERFORMANCE IN PRICE VERSUS INCOME IS UNSUSTAINABLE AND WE SEE THIS AS SLIGHTLY NEGATIVE FOR THE OVERALL HEALTH OF THE MARKET.

S L I G H T LY N E G AT I V E

Across Australia between 1994-2016, (according to the ABS) the median house price rose from $144,963 to $615,000; this represents a 324% increase in prices. During the same period, individual income for male persons rose from $727.70 to $1,694.50, which represents an increase of 133%. The outperformance in house prices has been permitted to continue due to the rise of dual income households, increased foreign investment, and the falling cost of debt. In addition, the Capital Gains Tax 50% discount introduced by the Howard Government in 1999 has also made residential property as an investment class more desirable.

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MORTGAGE; EXPRESSED AS A MULTIPLE OF ANNUAL INCOME

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

SHOULD THIS MULTIPLE CONTINUE ON ITS CURRENT TREND AND MOVE CLOSER TO FIVE TIMES, THIS COULD CAUSE SOME VULNERABILITY IN THE MARKETPLACE.

S L I G H T LY N E G AT I V E

This graph shows that the amount of debt we are taking on relative to the average male income. As we can see this has been progressively rising. This is also a reflection of the falling interest rate, increase in foreign investment and the rise in dual income households. At the moment the average mortgage is just over four times the average individual wage and this is the highest it has ever been.

As the multiple has been fairly flat over the last 9 years, arguably this can be seen as a fairly neutral indicator. Should this multiple continue on its current trend and move closer to five times, this could cause some vulnerability in the marketplace.

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LOAN TO VALUE RATIO

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

THIS GRAPH SHOWS THE LOAN TO VALUE RATIO (LVR) EXPRESSED AS A PERCENTAGE OVER THE PAST 20 YEARS. AS WE CAN SEE THERE IS A CLEAR DOWNWARD TREND WITH THE CURRENT LVR AT 59%.

POSITIVE

The downward trend and the current low LVR is very positive for market stability moving forward.

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MORTGAGE STRESS

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

LOOKING AT THE MORTGAGES ACROSS THE MAJOR FOUR BANKS, WHICH HOLD APPROXIMATELY 87% OF THE MARKET, WE CAN CLEARLY SEE THAT MORTGAGE STRESS IS NEITHER GETTING WORSE NOR BETTER. THE TREND ACROSS THE FOUR BANKS IS FAIRLY FLAT. THIS IS FAIRLY NEUTRAL FOR THE MARKET MOVING FORWARD.

NEUTRAL

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

FOREIGN STUDENT COMMENCEMENTS

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

THE ABOVE GRAPH SHOWS ALL FOREIGN STUDENT COMMENCEMENTS OVER THE PAST 14 YEARS. FOREIGN STUDENTS COMPRISE OF HIGH-SCHOOL STUDENTS, ENGLISH LANGUAGE COURSE STUDENTS, VOCATIONAL EDUCATION STUDENTS AND HIGHER EDUCATION STUDENTS. THIS IS AN IMPORTANT GRAPH AS IT CAN BE A LEAD INDICATOR INTO ACTUAL FOREIGN INVESTMENT IN OUR RESIDENTIAL PROPERTY MARKET.

S L I G H T LY N E G AT I V E Foreign Student Commencement — National

We have had a steady increase in demand for overseas students from 2002 to 2009. Since 2009 we saw a decline and then a rise in student commencement numbers, which has almost coincided identically with the rising and then falling cost of the Australian dollar.

In 2016, we saw for the first time in 4 years a drop in student commencements of approximately 50,000 this could be one of the first signs that foreign investment into Australian residential property.

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW

INVESTOR VS HOMEBUYER

EDITION 1 | 2017

THIS GRAPH SHOWS THE RELATIONSHIP BETWEEN HOMEBUYER ACTIVITY AND INVESTOR ACTIVITY ACROSS AUSTRALIA. ON AVERAGE, INVESTORS MAKE UP 36% OF THE MARKETPLACE AND HOMEBUYERS MAKE UP 64% OF THE MARKETPLACE.

N E G AT I V E

This graph clearly demonstrates that there has been over speculation within the residential property market within the last 5 years. The most important point to illustrate is that between July 2014 and July 2015 we saw investor activity larger than homebuyer activity and this is the first time that has happened since the data began. APRA changes kicked in July 2015 and we saw a dramatic decrease in investor activity, which is what we believe the market needed. However investor activity over the past 12 months have crept back up to near record high of 49%. This is a clear negative for market stability.

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW

NATIONAL FHB AS A % OF POPULATION

EDITION 1 | 2017

AS CAN BE SEEN IN THE GRAPH THERE ARE TWO NOTABLE SPIKES. THE FIRST OCCURRING IN 2000/2001 WHICH COINCIDES WITH THE INTRODUCTION OF THE FIRST HOME OWNERS GRANT AND THE SECOND COINCIDED WITH THE DOUBLING OF THE FIRST HOME BUYER GRANT IN 2008/ 2009.

FHB % of Population

N E G AT I V E

This graph shows the level of homebuyer activity across Australia expressed as a percentage of the population.

As you can see there is a clear downward trend of homebuyers being active in the marketplace. This is despite the fact that interest rates are at record lows. This is clearly a troubling sign for the market.

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FOREIGN INVESTMENT APPROVALS RESIDENTIAL PROPERTY

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

FOREIGN INVESTMENT IN RESIDENTIAL PROPERTY HAS BEEN WITHIN A FAIRLY PREDICTABLE BAND FROM 2006 TO 2013 BETWEEN $10B TO $20B. IN THE LAST TWO YEARS FOREIGN INVESTMENT HAS JUMPED FROM $17B TO $34B IN 2014 TO $60B IN 2015; THIS TRIPLING OF FOREIGN INVESTMENT HAS BEEN A FACTOR IN THE SURGE IN HOUSE PRICES WE HAVE SEEN IN THE MELBOURNE AND SYDNEY MARKET WHICH RECEIVED OVER 80% OF THE TOTAL NATIONAL FOREIGN INVESTMENT.

N E G AT I V E Proposed Investment $(B)

Whilst this has been positive for upward price movement in the two major cities, the investment is making it difficult for the local market to compete on price. Rapid increases into the money supply are never good for market stability as it has a high possibility to create volatility.

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW

FOREIGN INVESTMENT APPROVALS: NEW VS ESTABLISHED PROPERTY

EDITION 1 | 2017

THIS GRAPH SHOWS WHERE FOREIGN INVESTMENT IS BEING SPENT ACROSS THE COUNTRY AND THE BREAKDOWN OF THE PROPERTY TYPES. AS CAN BE SEEN ON THE GRAPH, 80% OF RESIDENTIAL INVESTMENT IS HAPPENING IN MELBOURNE AND SYDNEY WITH THE BULK OF THE INVESTMENT GOING INTO NEW DEVELOPMENTS. WHILST THIS IS POSITIVE FOR THE MARKET AS IT CREATES BUILDING ACTIVITY, WE ARE STARTING TO SEE SIGNS THAT THIS IS CREATING OVER BUILDING OF APARTMENTS IN BRISBANE AND MELBOURNE, WITH A POSSIBILITY OF A SLIGHT OVERSUPPLY IN SYDNEY.

For Development

S L I G H T LY N E G AT I V E

Established Property

The bars in grey show investment in the established residential property sector where foreigners are able to buy if they are on temporary work or student visas. This is the contentious foreign investment that has been widely documented in the press as this money directly competes with Australian families who are being priced out of their own local property market.

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NEW WAY | BRAND IDENTITY SYSTEM PERFORMANCE

NATIONAL MARKET OVERVIEW

DWELLINGS COMMENCED

EDITION 1 | 2017

THE ABOVE GRAPH SHOWS DWELLING COMMENCEMENTS ACROSS AUSTRALIA SINCE 1970. AS YOU CAN CLEARLY SEE HOME BUILDING HAS STAYED WITHIN A FAIRLY TIGHT BAND WITH COMMENCEMENT RUNNING BETWEEN 100,000 TO 120,000 WITH SOME EXCEPTIONS. LAST YEAR WE COMMENCED BUILDING APPROXIMATELY 117,000 HOMES AND WE ARE NOT OVERLY CONCERNED ABOUT THE HOUSING MARKET AS A GENERAL STATEMENT. APARTMENTS ON THE OTHER HAND, TELL A VERY DIFFERENT STORY, THE BAND HAS BEEN PROGRESSIVELY SHIFTING UPWARDS FROM 20,000 TO 40,000 IN THE 70’S AND 80’S TO 40,000 TO 60,000 IN THE 90’S AND 2000’S AND THEN FROM 60,000 TO 120,000 FROM 2010. THE RISE IN APARTMENT CONSTRUCTION HAS ALMOST IDENTICALLY RISEN WITH THE RISE OF FOREIGN INVESTMENT AND THIS IS WHY RAPID CHANGES TO FOREIGN INVESTMENT NEED TO BE MORE ADEQUATELY REGULATED.

N E G AT I V E Houses Other

As an oversupply of apartments currently exists in some markets the volume of apartments coming through is concerning.

Currently our country is growing by 1.4% or 329,000 persons per annum and in the 2015 calendar year we commenced building 227,000 properties. If we discount the average of 2.6 persons per dwelling to 2 people per dwelling (given some apartments will be 1 bedroom) we are on track to create 454,000 bedrooms in one year which equates to an oversupply of roughly 125,000 bedrooms or 62,000 dwellings. This is a clear negative and has the potential to create volatility especially in those markets, which are already oversupplied with apartments.

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NATIONAL VACANCY RATE VS STATE VACANCY RATES

NATIONAL MARKET OVERVIEW EDITION 1 | 2017

THE NATIONAL VACANCY RATE OF 2.5% PRESENTS SOME LEVEL OF RISK TO THE STABILITY OF THE MARKET PLACE AND GIVEN THE DWELLING COMMENCEMENTS IN 2015 THIS IS LIKELY TO DETERIORATE FURTHER.

S L I G H T LY N E G AT I V E

The graph shows the vacancy rate trends in all states of Australia as well as the national vacancy rate. The national vacancy rate has gone from 1.3% in 2006 to 2.5% in 2016. The vacancy rate under 3% is still fairly balanced, however there is a clear trend in all capital cities of rising vacancy rates and this is an obvious function of the over speculation occurring in some markets. The over speculation is in part due to the low interest rates and increase in foreign investment from 2012.

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NATIONAL MARKET OVERVIEW EDITION 1 | 2017

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NATIONAL MARKET OVERVIEW

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EDITION 1 | 2017

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