Andrew Stewart McGrath report

The McGrath Report

Two Thousand Seventeen

All information has been obtained from sources believed to be reliable. McGrath Limited and its subsidiaries, together with their directors, officers and agents have used their best endeavours to ensure the information passed on in this report is accurate; however they have not checked the information and have no belief either way as to the accuracy of the information contained in this report.

Any recommendations and forward looking statements are statements of opinion only, not guarantees of future performance, and should not be relied upon. Prior to relying on the information in this report, you should make your own inquiries. Š 2016 and the McGrath trade mark are property of McGrath Limited and its subsidiaries. All other names and trade marks are the property of their respective owners.

Published Spring 2016

A Message From Andrew Stewart

Another compelling year in Australian real estate is behind us so what do we take out of it? In our annual report we try to understand the movements in the market and pinpoint the trends that seem to be having the greatest impact on us now and into the future.

The last few years have been a fascinating time for Australian residential property with a number of trends emerging and indeed driving different markets in different ways. This year’s report will delve into a number of these in an attempt to share our insights including why we’re staying in our homes longer, the rise in off-market prestige sales and how technology is and will continue to change the way we transact real estate.

Australia is no longer one market but large cities like Sydney and Melbourne are indeed multiple markets within their own city boundaries.

Andrew Stewart andrewstewart@mcgrath.com.au 0422 227 228

The East Coast capital city suburbs with the highest price growth prove that lifestyle options, strong or improving infrastructure, good schools, local jobs or proximity to employment hubs, public transport and a vibrant ‘village’ atmosphere are key factors in driving prices skyward.

Factors Driving Price Growth McGrath Report 2017

Figures compiled by CoreLogic RP Data reveal the suburbs with the greatest house and apartment price growth over the 12 months to June 30, 2016*.

A key element in the price growth of many suburbs this year has been a lack of stock, which has intensified competition.

In Sydney, Westmead recorded the strongest house price growth for FY2016 at 33.2%. We attribute this to the $900 million Westmead Hospital redevelopment project currently underway and a growing resident population of well-paid health service professionals.

In Melbourne, St Kilda East house prices rose 35.4% due to improved amenities, a changing residential profile, gentrification and increased demand from buyers priced out of Albert Park, Middle Park and Elwood.

Carlisle Street in Balaclava, a small suburb in the St Kilda East postcode, has been transformed over the past decade into a buzzy café village where locals love to hang out.

Westmead is also home to an expanding campus of the University of Western Sydney and is situated right next door to Parramatta, Sydney’s second CBD.

There are shops, major supermarkets, schools, the recently upgraded train station and easy access to the city and St Kilda foreshore. There are beautiful period houses and apartments protected by heritage order.

It’s a great place to live and gaining appeal as a destination suburb.

Fairlight recorded the strongest apartment price growth at a staggering 46%. A shortage of stock combined with a large difference between house and apartment prices and the ripple effect from its beachside neighbour, Manly all contributed to this phenomenal price rise.

Brighton had the second highest apartment price growth at 27.3%, reflecting demand from downsizers who have lived and loved the location for 30 years and are now selling their family homes and moving into apartments and townhouses in the same area.

Top 5 House Growth 1

St Kilda East

(VIC)

2

Westmead

(NSW) 33.2%

35.4%

3

Ormond

(VIC)

31.6%

4

Fairfield

(VIC)

30.3%

5

Londonderry

(NSW) 29.9%

Factors Driving Price Growth

Identifying Price Growth Hot Spots

Macro Factors • Strong population growth • Good local employment or access to job hubs • Gentrification of housing stock • Growing household incomes • Lifestyle amenities – cafes, shops, entertainment and recreation • Schools and catchment zones • Presence of big retail brands

In Brisbane, house price growth was greatest in Robertson at 25.6%; while beachside Woody Point on the Redcliffe peninsula achieved the best apartment price growth at 24.2%.

Wilston recorded the third best house price growth at 20.3% over FY2016. Wilston is a highly regarded area with a great café village, excellent schools and spectacular homes – many with city views due to the suburb’s elevated position.

Camp Hill enjoyed the second best apartment price growth at 18.9% due to strong demand from first home buyers.

In the nation’s capital, it’s all about O’Connor, which had the highest price growth for both houses at 21.5% and apartments at 15.3% in FY2016.

Market Factors

O’Connor is close to everything and has a great café and shopping precinct. Families love the tree-lined streets and good sized blocks and it is in the catchment areas for Turner School and Lyneham Primary School.

Being walking distance to the CBD and the Australian National University is also a major drawcard for young buyers and investors.

• R ising tenant and buyer demand

*

• P ublic transport and walkability

• Low or falling days on market • Low or falling vacancy rates • More auctions and rising clearance rates • Reduced vendor discounting • Limited supply of future housing

Top 5 Apartment Growth 1

Fairlight

(NSW) 46.0%

2

Ultimo

(NSW) 40.7%

3

Chipping Norton (NSW) 38.6%

4

Kirribilli

(NSW) 34.0%

5

Waverton

(NSW) 27.8%

McGrath Report 2017

CoreLogic RP Data; 12 months to June 30, 2016; suburbs with a minimum of 40 sales during the year

Top 5 Suburbs for Price Growth by Capital City Houses SUBURB

Apartments MEDIAN PRICE

12 MONTH CHANGE IN

SUBURB

MEDIAN PRICE

MEDIAN PRICE NSW

12 MONTH CHANGE IN MEDIAN PRICE

NSW

Westmead

$1,225,000

33.2%

Fairlight

$1,285,000

46.0%

Londonderry

$1,150,000

29.9%

Ultimo

$735,000

40.7%

Millers Point

$2,475,000

29.5%

Chipping Norton

$582,000

38.6%

Canterbury

$1,247,500

28.9%

Kirribilli

$1,195,000

34.0%

Croydon Park

$1,380,000

28.0%

Waverton

$1,150,000

27.8%

QLD

QLD

Robertson

$1,005,000

25.6%

Woody Point

$410,000

24.2%

Darra

$440,000

23.9%

Camp Hill

$541,000

18.9%

Wilston

$1,007,500

20.3%

Scarborough

$475,000

14.1%

Chelmer

$1,127,500

19.0%

Newstead

$595,000

11.7%

Banyo

$521,750

17.2%

Teneriffe

$629,500

11.6%

VIC

VIC

St Kilda East

$1,422,000

35.4%

Hampton East

$662,000

27.4%

Ormond

$1,500,000

31.6%

Brighton

$910,000

27.3%

Fairfield

$1,205,000

30.3%

Braybrook

$454,250

23.7%

Carlton

$945,000

29.3%

Mooroolbark

$480,000

23.1%

Keysborough

$624,000

28.7%

Balaclava

$550,000

20.6%

ACT

ACT

O’Connor

$960,000

21.5%

O’Connor

$490,000

15.3%

Ainslie

$925,000

21.4%

Bonython

$455,000

11.9%

Deakin

$1,145,500

19.6%

City

$532,500

11.8%

Narrabundah

$821,000

17.0%

Cook

$502,500

6.9%

Hackett

$790,000

16.2%

Bruce

$425,000

5.7%

Source: CoreLogic RP Data; 12 months to June 30, 2016; suburbs with a minimum of 40 sales during the year

Factors Driving Price Growth

Sydney Sydney remains Australia’s strongest and most enduring property market. It's powered by long-standing fundamentals of undersupply and population growth, providing every type of lifestyle possible including beachside, harbourside, CBD living and suburban neighbourhoods for almost 5 million residents.

Sydney real estate is like gold and in my opinion, despite the phenomenal boom of 2012-2016, Sydney property prices will continue to rise.

Latest figures from CoreLogic RP Data* tell us that Sydney property prices have risen 64% in four years.

This is spectacular growth and well ahead of the second best result in Melbourne at 44%.

For many Sydney property owners, the boom has delivered extraordinary gains for those in the market.

But how do you best capitalise on this newfound wealth?

Meantime, the market is showing signs of plateauing but price growth has continued due to a significant undersupply of stock and strong demand buoyed by further falls in interest rates.

McGrath Report 2017

According to CoreLogic RP Data*, the pace of price growth in Sydney has halved this year but median property values are still up 12.8% to $880,000 for houses and 7.5% to $665,500 for apartments over the first eight months of 2016. Pretty impressive for a slowing market.

Record low listing numbers have contributed to very strong auction clearance rates between 70% to above 80% all year.

Local upgraders have been the greatest buying force, aiming to use new equity to upgrade their homes and potentially refinance while interest rates are so low.

However, fear of selling and not being able to buy back in is resulting in a determination to buy first, so stock remains low.

Many would-be upgraders are staying put and renovating instead, with Sydney and Melbourne owners spending more than twice the money of owners in other capital cities, according to the ABS and Domain research.

While investors are still out there, we have definitely noticed a drop-off due to tighter lending criteria. The APRA-led changes introduced in early 2015 aimed to limit growth in the banks’ property investment lending to less than 10% per year and this has now been achieved.

The top end of the market improved this year. The lower dollar has encouraged expats and foreign buyers; and locals who purchased wisely post-GFC are now looking to cash in and upgrade.

In Sydney, Eastern Suburbs owners who bought in the $2 million-$4 million bracket are now selling for $7 million and upgrading to $10 million. In the Lower North Shore harbour suburbs, young families are selling for $4 million -$5 million and upgrading to $8 million-$10 million.

Affordability remains an issue across Sydney. The traditional migration west for cheaper housing continues, with the greatest population growth over the next 20 years expected in Camden, Parramatta, The Hills and Liverpool regions, according to new figures from the NSW Department of Planning#.

However, limited greenfield development space on Sydney’s western fringe means we need to get creative

Median House Price Median Apartment Price $895,000

$813,000

$708,000 $678,750 $630,000

$570,000

2014

2015

S ource: CoreLogic RP Data; 12 months to June 30, 2016 Sydney

2016

3

5

2

1

4

John McGrath’s Top Picks

1

Canterbury

3

Rouse Hill

Forestville

Once an average suburban

Follow the money. At the minute

This has been a favourite suburb

precinct best known for its equine

it’s all heading to the North West

for several years now. If you

interests; Canterbury is fast

ahead of the soon-to-be-completed

crossed the leafy North Shore

becoming an Inner West bolthole

new rail line. The surrounding

with the vibrant Northern

attracting young families and

areas are equally as attractive

Beaches, Forestville would be the

professionals alike. Buy, sit and

for both lifestyle and capital

outcome. Relatively easy access

watch your asset grow in value.

growth but the Rouse Hill Town

to the CBD, just 7 minutes to the

Centre is worth seeing for that

surf and surrounded by trees, its

address alone.

ideal for homemakers.

2

Hunters Hill

4

ans Souci / S Dolls Point

We still can’t work out why the values here for some of the country’s best real estate are materially below her peers in the East and North? This attractive garden enclave is private and discreet with beautiful homes and perfumed gardens. If you want to see some of the best homes in the country, you better check it out.

McGrath Report 2017

5

Surrounded by water and with all the appeal and benefits of Sydney’s southern suburbs yet only minutes to the bay and airport with easy access to the CBD. Leaves little doubt that this area will continue to be one of the most desirable in Sydney.

in housing a predicted 1.7 million new residents over the next two decades#. Among the options is subdivision of traditional blocks in established suburbs to enable more terraces, townhouses and dual occupancies; and more high rise apartment living around suburban CBDs. Meantime, a growing cohort of young families are leaving Sydney altogether in favour of affordable lifestyle locations, with ABS figures showing the most popular spots are the Richmond-Tweed region, Mid-North Coast, Central Coast and Hunter Valley**.

Chinese buyers remain a force in Sydney, however new fees levied by both federal and state governments on top of tighter lending criteria for foreigners has resulted in reduced demand and settlement risk on new apartments.

This is where young people want to live and over the next few years, they will be spoilt for choice and finally have some negotiating power on their side.

We see a bright future for the Sydney property market.

There is plenty of long term price growth ahead even as we approach a major affordability hurdle for younger buyers today.

We believe the burgeoning global audience for Sydney real estate will be a key contributor to future price growth; and the long term stability of the market and opportunity to create significant personal wealth will sustain the aspirations of Sydneysiders to own their own homes for generations to come. * Hedonic Home Value Index, CoreLogic RP Data, published September 1, 2016

There’s a two-year pipeline of 82,000 new apartments to be completed in Sydney, according to CoreLogic RP Data^^. To put that in perspective, 43,500 apartments are sold in Sydney per year but that includes established apartments, which represent a bigger share of the pie.

#

NSW Population Projections 2016 Update, NSW Department of Planning and Environment, published September 12, 2016

** Is family-led sea and tree change back in vogue? CoreLogic RP Data, published April 18, 2016 and Migration, Australia 2014-15, Australian Bureau of Statistics, published March 30, 2016 ^^ Record high unit construction increases settlement risk, CoreLogic RP Data, published May 16, 2016

This wave of new supply will be concentrated around the inner city and suburban employment and shopping hubs such as Strathfield, Parramatta and Ryde.

Audi Benchmark As they often say, “Follow the smart money if you want to get ahead”. So what better barometer than taking a peek at where the smart drivers garage their Audis each night.

1

Zetland

2

Parramatta

3

Mosman

4

Five Dock

5

Artarmon

6

Pennant Hills

7

Sutherland

8

Newcastle West

9

Wollongong

10

Coffs Harbour

S ource: Audi Australia

Sydney