Page 1

2015

TRENDS

CITIES

McGrath Report

1. The Manhattan effect

Sydney

2. Global vertical villages

Melbourne

3. What does $500,000 buy?

Brisbane

4. Young Seachangers, meet City Downsizers

Canberra

5. The rise of the Junior Investor 6. Investors chase regional or interstate yields 7. Working in SoHo 8. Infrastructure unlocks suburban pockets 9. Apartment living on the up

McGrath Report


CONTENTS

A MESSAGE FROM THE CEO

1

TRENDS The Manhattan effect

2

Global vertical villages

4

What does $500,000 buy? Young Seachangers, meet City Downsizers

6

The rise of the Junior Investor Investors chase regional or interstate yields

8

Working in SoHo Infrastructure unlocks suburban pockets

9 10

Apartment living on the up

12

Audi benchmark

13

7

8

THE McGRATH REPORT

CITIES Sydney

14

Melbourne

16

Brisbane & Surrounds

18

Canberra

20


A message from the CEO Where do you start when describing one of the most fascinating periods of residential real estate of the last 50 years?

Let’s start with the main story. It’s important to recognise the Australian real estate market is in many different stages of recovery – it depends where you focus and indeed what price range you focus in on. Clearly Sydney and Melbourne have been the star performers with 62% and 32% growth respectively, since the GFC (2009-2015). However, if you look beyond the last few years and review growth in both cities over the last decade, it’s fair to say that longer term growth rates have not been as extraordinary. In fact, Australia’s two biggest cities both underperformed against their usual 10year growth rates.

These factors have combined to make Sydney and Melbourne two of the strongest residential markets in the world over the last two years. But that’s no real surprise – both are rapidly growing metropolitan centres that rate highly alongside global cities for lifestyle and commerce; just as Hong Kong, London or New York real estate will always be in strong demand.

THE McGRATH REPORT

In this year’s McGrath Report we not only seek to answer the question ‘how’s the market?’ – we look at the important trends and key market trajectory to seek to predict where things will go from here. It’s not always an exact science, but our long presence in the market and broad network gives us the experience and intelligence to draw on as we look ahead.

I continue to believe Australian residential real estate is fairly valued, and think this will continue to be the case over the long term. We live in the luckiest country in the world (along with our New Zealand neighbours) and when you calculate the growing wealth, the unarguable lifestyle and factor in the currency discount against the US dollar, we remain an attractive place to live and invest.

JOHN McGRATH

Looking around the country it’s just as clear that many other metropolitan markets are in the very early stages of their growth cycle at best – and in some instances as flat as the proverbial pancake. So if we drill down on Sydney, what seems to be driving this demand? It’s pretty straightforward. There are five key drivers: 1. Record low interest rates 2. Increased demand from small investors and SMSFs 3. An underlying shortage of property coupled with continued immigration 4. High demand from Chinese buyers 5. A stable economy (apart from a few recent economic tremors).

1


MEDIAN HOUSE & APARTMENT PRICES

TRENDS

PASSING THE MORTGAGE STRESS TEST

HOUSE

APARTMENT

GROSS HOUSEHOLD INCOME REQUIRED*

HOBART

$330K

$280K

SYDNEY

ADELAIDE

$430K

$350K

Inner ring

$268K

BRISBANE

$482K

$382K

Middle ring

$197K

PERTH

$520K

$415K

Outer ring

$104K

DARWIN

$580K

$450K

CANBERRA

$588K

$415K

MELBOURNE

MELBOURNE

$620K

$475K

Inner ring

$156K

SYDNEY

$900K

$670K

Middle ring

$118K

Outer ring

$75K

Source: CoreLogic RP Data August 2015

THE McGRATH REPORT

BRISBANE Inner ring

$114K

Middle ring

$84K

Outer ring

$65K

The Manhattan effect “It’s almost like the Manhattan effect. You only attract rich people on to the Manhattan island, and the rest live out in Brooklyn. Should a global city like Sydney really offer a place for everyone? That’s a social question.”

Sydney’s inner ring now has a median house price above $1.5million and the middle ring above $1.0million, making the zone within 20km of the CBD too expensive for more than 90% of Australians based on their ability to service loans beneath the widely recognised mortgage stress test of 30% of household income^.

- Social demographer Bernard Salt, SMH June 2015

Figures compiled by CoreLogic RP Data show a rising Manhattan effect, with Sydney’s inner ring increasingly becoming the exclusive domain of high income earners. Household incomes of around $270,000 pa in the inner ring and $195,000 pa in the middle ring are required to service a typical loan.

coastal regions will become increasingly attractive to the rising number of Gen X middle income earners who are tired of Sydney’s higher cost of living (see page 7), and the next generation of families among the more nimble, lifestyle-focused Gen Y. Australian Bureau of Statistics data already shows an increasing number of Sydneysiders migrating to nearby commuter seachange locations while others are heading to Melbourne. Melbourne’s population has been growing faster than Sydney’s since 2000 and in two out of three models used by the ABS to project future populations, Melbourne will overtake Sydney in either 2030 or 2053.

Even Sydney’s less expensive outer ring requires a household income above $100,000 for most people to avoid mortgage stress. That being the case, we believe as big cities become less affordable, many families will consider regional locations within a 90 minute commute from nearby cities. Melbourne, Brisbane and NSW

^ Calculations based on most recent ABS Household Income and Income Distribution report (2011-12). Mortgage data supplied by oxygen.com.au based on 80% LVR Principal & Interest loans over 30 years at today’s discounted standard variable mortgage rate of 4.75%. Mortgage stress is widely recognised as using more than 30% of gross household income on housing costs. †

2

Source: CoreLogic RP Data April 2015. Based on lowest median house & apartment values within 10km of the CBD.

* Median gross household income required to pass the mortgage stress test of no more than 30% of income used to cover home loan repayments. Based on median priced houses (80% LVR Principal & Interest Loan over 30 years at 4.75%)


5 MOST AFFORDABLE INNER RING SUBURBS†

5 MOST AFFORDABLE INNER RING SUBURBS†

HOUSES

APARTMENTS

SYDNEY

SYDNEY

Turrella

$840K

Eastlakes

$484K

Sydenham

$846K

Marrickville

$553K

St Peters

$920K

Newtown

$559K

Tempe

$921K

Darlington

$560K

MEDIAN HOUSE

MEDIAN APARTMENT

Waterloo

$937K

Potts Point

$565K

$388K

$305K

$505K

$350K

$683K

$450K

MELBOURNE

BRISBANE

MELBOURNE

Bellfield

$583K

Carlton

$316K

Maidstone

$589K

West Footscray

$325K

Footscray

$618K

Kingsville

$329K

West Footscray

$631K

Burnley

$337K

Preston

$676K

Gardenvale

$339K

BRISBANE

BRISBANE Rocklea

$353K

Holland Park West

$347K

Keperra

$439K

Gordon Park

$347K

Tingalpa

$479K

Kedron

$348K

Salisbury

$486K

Tingalpa

$348K

Nathan

$487K

Moorooka

$351K

CANBERRA

CANBERRA $462K

Curtin

$306K

Scullin

$465K

Chifley

$313K

Evatt

$501K

Hawker

$314K

Florey

$526K

Lyons

$320K

Giralang

$532K

Downer

$321K

MEDIAN HOUSE

MEDIAN APARTMENT

$625K

$450K

$1.2M

$615K

$1.6M

$750K

THE McGRATH REPORT

Page

SYDNEY

MELBOURNE

MEDIAN HOUSE

MEDIAN APARTMENT

$452K

$365K

$705K

$500K

$936K

$510K

Distance from CBD 0-10km 10-30km 30-50km

Source: CoreLogic RP Data April 2015. Based on lowest median house & apartment values within 10km of the CBD

3


TRENDS

Global vertical villages Apartment living is on the rise around the world – literally. Australia’s tallest residential towers are still in development, with one of the highest, Australia 108, in Melbourne offering ‘cloud residences’ from floor 71 up.

apartments for young families, offering a home within a 20-minute radius of everything they need: schools, shops, jobs and transport.

THE McGRATH REPORT

In this battle for the city skyline, vertical villages are becoming neighbourhoods in themselves. We can expect to see larger

TALLEST RESIDENTIAL TOWERS

AUSTRALIA INTERNATIONAL

249m Infinity Tower 43 Herschel Street Brisbane Australia

4

254m Prima Pearl 35 Queensbridge Street South Bank Melbourne Australia

265m 120 Collins Street Melbourne Australia

297m Eureka Tower Riverside Quay South Bank Melbourne Australia

323m Q1 9 Hamilton Avenue Surfers Paradise Gold Coast Australia

339m Mercury City 1st Krasnogvardeysky Avenue Moscow Russia

380m Elite Residence Al Sofouh Road Dubai UAE


828m Burj Khalifa 1 Sheikh Mohammed bin Rashid Blvd Dubai UAE

THE McGRATH REPORT

632m Shanghai Tower Luijiazui Finance and Trade Zone, Pudong District, Shanghai China

382m Burj Mohammed Bin Rashid, Khalifa Bin Zayed The1st Abu Dhab UAE

393m 23 Marina 568 Al Marsa Dubai Marina UAE

414m Princess Tower Al Marsa Dubai Marina UAE

426m 432 Park Avenue New York USA

5


TRENDS

What does $500,000 buy? We believe buyers priced out of Sydney will increasingly relocate to other capital cities or major regional employment centres for affordability. In 2004, a half million dollars was the median house price in Sydney, but today it is considered entry-level buying at best. Here is what $500,000 will buy in the East Coast capitals.

SYDNEY INNER RING

MIDDLE RING

Studio or 1 bed apartment in Potts Point

1 bed apartment in Queenscliff

12/4 McDonald Street, Potts Point Studio

OUTER RING

6/3 Dowling Street, Queenscliff 1 bed Sold July 2015

1 car

Sold June 2015

1 car

$500,000

McGrath Estate Agents

$485,000

McGrath Estate Agents

$472,000

Studio or 1 bed apartment in St Leonards

THE McGRATH REPORT

3 bed

$495,000

1 bath

2 bed apartment in Kirrawee

38/8 Hixson Street, Bankstown

1 bath

Sold May 2015 McGrath Estate Agents

1 bath

2 bed apartment in Bankstown

102/38 Albany Street, St Leonards 1 bed

18 Rose Drive, Mount Annan

1 bath

Sold May 2015 McGrath Estate Agents

3 bed house in Mount Annan

30/494 President Avenue, Kirrawee

2 bed

1 bath

2 bed

1 bath

Sold May 2015

2 car

Sold February 2015

2 car

First National JJ Crawford

$470,000

McGrath Estate Agents

$501,000

BRISBANE INNER RING

MIDDLE RING

3 bed house in Keperra

OUTER RING

3 bed house in Wynnum

19 Dawson Parade, Keperra

4 bed house in Parkinson

65 Waterview Avenue, Wynnum

28 Naracoorte Place, Parkinson

3 bed

1 bath

3 bed

1 bath

4 bed

2 bath

Sold January 2015

2 car

Sold March 2015

1 car

Sold January 2015

2 car

McGrath Estate Agents

$460,500

McGrath Estate Agents

$500,000

McGrath Estate Agents

$470,000

3 bed house in Runcorn

2 bed apartment in West End 2/17 Ganges Street, West End

5 bed house in Petrie

16 Shapcott Place, Runcorn

14 Fontenay Court, Petrie

2 bed

1 bath

3 bed

1 bath

5 bed

2 bath

Sold February 2015

1 car

Sold May 2015

1 car

Sold May 2015

2 car

McGrath Estate Agents

$470,000

LJ Hooker

$485,000

David Deane Strathpine

$460,000

MELBOURNE INNER RING

MIDDLE RING

1 or 2 bed apartment in Hawthorn

2 or 3 bed house in Reservoir

7/176 Power Street, Hawthorn 2 bed

1 bath

$462,500

2 bath

Sold April 2015

Hocking Stuart

2 bed

$481,000

Hodges

2 bath

Hodges

$450,000

3 bed house in Taylors Lakes 20 Lady Nelson Way, Taylors Lakes 1 bath

Sold July 2015 $460,000

3 bed Sold May 2015

2/53 Jackson Road, Highett

*Research based on July 2015 Residential Report of independent property valuation firm, Herron Todd White and 2015 sales data from realestate.com.au.

6

1 bath

2 bed apartment in Highett

202/62 Altona Street, Kensington

Pagan Real Estate

3 bed

14 Orana Crescent, Chelsea

Sold April 2015

2 bed apartment in Kensington

2 bed

3 bed house in Chelsea

26 Hickford Street, Reservoir

Sold June 2015 Nelson Alexander

OUTER RING

3 bed

2 bath

Sold June 2015 $495,000

Barry Plant

$450,500


Young Seachangers, meet City Downsizers 27.3%

24.8% 23.1% NEWCASTLE RESIDENTS

19.7% 18.6% CENTRAL COAST RESIDENTS

13.4% WOLLONGONG RESIDENTS

A long-held Australian tradition for retirees and empty-nesters, we believe the next wave of Seachangers will be young families leaving Sydney, or adopting a telecommuting or Fly-in-FlyOut (FIFO) lifestyle from another capital city or coastal centre. Previously, Sydney families have adapted to rising house prices by moving to less expensive commuter areas like the Central Coast or buying apartments over houses in Sydney. Family apartment living was a significant trend in the early 2000s but today, average Sydney apartments are more expensive than houses anywhere else in Australia and many families are tired of feeling stretched. We believe a desire for an easier, more affordable lifestyle will contribute to a growing contingent of families leaving Sydney altogether. Some families are still willing to commute, with our offices reporting more Sydney buyers on the Central Coast and in

THE McGRATH REPORT

% RESIDENTS WHO MOVED INTO THE AREA BETWEEN 2001-2006

% RESIDENTS WHO MOVED INTO THE AREA BETWEEN 2006-2011

Newcastle and the Southern Highlands this year. Brisbane and the Sunshine Coast are also proving popular with families looking further afield for even better value for money. We’re observing more young Sydney families buying on the Central Coast and in Newcastle and the Southern Highlands; as well as Brisbane and the Sunshine Coast. Many are also relocating to Melbourne.

City Downsizers Meanwhile, more empty-nesters are shunning the seachange in favour of CBD living. This is reflected in forecasts that retirement age residents will be the fastest growing group in the City of Sydney LGA by 2026, up 72% on 2011 compared to an increase of 34% in working age residents, according to population analysts, forecast.id.

Contributing to this trend is delayed retirement post-GFC; a desire for lower maintenance living close to work; providing childcare for their grandkids*; and an inner city construction boom providing an abundance of high quality options for a generation that want to enjoy their next phase in security and comfort. The global NORC phenomenon (Naturally Occurring Retirement Communities) is expected to evolve in Sydney, with more apartment buildings not actually designated for seniors gradually developing a predominately older community as existing owners ‘age in place’ and downsizers move in. We are observing more Empty Nesters from the Eastern Suburbs and Upper North Shore downsizing to the Inner East, Inner City and Inner West.

* Source: Australian Bureau of Statistics – 30% of children of working parents receive childcare from a grandparent

7


TRENDS

The rise of the Junior Investor ‘RentVesting’ is the emerging property investment trend. Young buyers are now renting where they want to live (or living at home) and buying in more traditional first home owner locations as an investment. They are are getting in early too, with Domain research showing the average age at which Gen Y buys their first property investment is 25 years compared to 35 for Gen X and 45 for Baby Boomers.

GEN Y

BABY BOOMERS

GEN X

25

35

YRS OLD

45

YRS OLD

YRS OLD

Young Australians are also building larger investment portfolios than their predecessors, who typically aimed to own their own home with one investment. Today, 16% of Gen Ys already own two or more properties compared to 17% of Gen Xs and Baby Boomers.

The average age at which each generation bought their first investment property

THE McGRATH REPORT

A recent Mortgage Choice survey shows reinvesting has increased from 21% of investors to 37% over the past 12 months alone.

Investors chase regional or interstate yields

Source: CoreLogic RP Data August 2015

8

APARTMENTS 4.1%

The Gold Coast, Sunshine Coast and Central Coast are also popular, with older investors buying with future owner-occupation in mind.

HOUSES 3.0%

Some are heading to Melbourne where apartments are $170,000 cheaper and stock levels are much higher. Others from both Sydney and Melbourne are looking to

Brisbane for its exceptional value for money, strong prospects for capital growth and the highest rental yields of the major capitals.

MELBOURNE Gross rental yields

Investment activity across Australia remains extremely high. However in the hottest investment market of them all, Sydney, we are seeing a decentralisation of activity as soaring prices and declining yields prompt Sydneysiders to look elsewhere.


Working in SoHo A surge in one-person businesses, fuelled in part by mobile and Wi-Fi technology, is seeing the continual rise of the ‘small office home office’ (SoHo) worker. And as technology advances and more workplaces introduce flexible working arrangements, the need to go ‘into the office’ is diminishing and a transformation in the way we work is coming. According to ABS figures, 8.5% of the workforce operates as a sole-person business, and one in 12 employees spend more time working from home than any other location. In a 2015 report* commissioned by nbn™, social demographer Bernard Salt describes a new Australian dream where work fits around lifestyle. Fast broadband allows more people to work when and where they like, while workplaces switch focus to what is delivered, rather than serving the traditional 9 to 5.

A typical digital worker is aged 35 to 44, university qualified and lives in a major capital city. They work for medium-sized businesses (20-199 employees) and more than a third telecommute threeplus days per week. But soon enough, more of them will be working remotely on a permanent basis, enabling them to pursue a better lifestyle and more affordable housing anywhere they like while still earning a big city salary. As Bernard Salt says in the report, “The Australian penchant for lifestyle locations such as seachange and treechange might be enhanced as more people set up businesses or deliver work via the internet from wherever they choose to live.”

*Source: ‘Towards a Super Connected Australia’ report, nbn, 2015 ^Source: Australian Communications and Media Authority

APARTMENTS 5.4%

HOUSES 4.4%

BRISBANE Gross Rental Yields

APARTMENTS 4.9%

HOUSES 4.1%

CANBERRA Gross Rental Yields

APARTMENTS 4.1%

HOUSES 3.1%

SYDNEY Gross Rental Yields

THE McGRATH REPORT

One in two Australians are already considered ‘digital workers’ who use the internet to work away from the office parttime, full-time or outside normal hours.^

9


TRENDS

Infrastructure unlocks suburban pockets SYDNEY

New infrastructure is unlocking affordable outer suburban areas previously dismissed by city families for being too far to travel for work. Major projects in Sydney, Melbourne and Brisbane are shortening the city commute and

providing growth stimulus to property markets previously held back by geography. History shows that major infrastructure can have a direct and meaningful impact on property prices, so we see a dual advantage for buyers purchasing along new infrastructure routes. Here are our picks of the projects.

PAST PROJECTS

NEW PROJECTS

THE McGRATH REPORT

Infrastructure is bringing the outer and middle rings closer to the CBD, and that’s vital for city workers looking to buy their own home.

Anzac Bridge 1989-1995

WestConnex 2015-2023

WestConnex is the biggest transport project in Australia today. It involves a 33km link between Sydney’s far west through to the city, airport and Port Botany precinct, bypassing 52 sets of traffic lights. The project will result in significant travel time savings by car and bus. Commuters travelling by car from Parramatta will save 25 minutes to the CBD and 40 minutes to the airport. About 10km of new bus lanes will halve the CBD commute from Burwood. WestConnex will also divert 3,000 trucks off Parramatta Road per day. Top 3 suburbs to benefit

Time saved to CBD

Parramatta

25 mins*

Homebush

20 mins

Beverly Hills

25 mins

*by car

Price impact 1995-97

Lilyfield

House prices up 46%

Annandale

House prices up 41%

Rozelle

House prices up 34%

Sydney Metro Northwest

M5 East Motorway

2012-2019

1998-2001

This $8.3 billion project involves a new 23km track linking Epping and Sydney’s Hills and North West regions via eight stations at Cherrybrook, Castle Hill Towers, Showground at Castle Hill, Norwest at Baulkham Hills, Bella Vista, Kellyville, Rouse Hill Town Centre, and Cudgegong Road, Rouse Hill. This will be the first fully-automated metro rail system in Australia, with a train arriving every four minutes during peak hour. It will take 12,000 cars off the road during the morning peak, with 4,000 commuter parking spaces provided at Cherrybrook (400), Showground (600), Bella Vista (800), Cudgegong Road (1,000) and Kellyville (1,200).

Top 3 suburbs to Time saved to benefit CBD Rouse Hill

18 mins*

Bella Vista

17 mins

Kellyville

13 mins

*by bus

10

Top 3 suburbs to benefit

Epping to Chatswood Rail Line 2002-2009 Top 3 suburbs to benefit

Price impact 2009-11

North Ryde

House prices up 25%

Chatswood

House prices up 21%

Epping

House prices up 17%

Top 3 suburbs to benefit

Price impact 2001-03

Revesby

House prices up 47%

Roselands

House prices up 43%

Bexley North

House prices up 40%


BRISBANE

NEW PROJECTS

PAST PROJECTS

Moreton Bay Rail

Airport Link & Windsor-Kedron Northern Busway

2013-2016

Moreton Bay is home to 350,000 people, making it Australia’s third largest LGA and one of the fastest growing, with the population to tip 500,000 by 2031. This $1.147 billion project involves a new 12.6km dualtrack rail line, with every full train taking 600 cars off the road. There will be six stations at Kippa-Ring, Rothwell, Mango Hill East, Mango Hill, Murrumba Downs and Kallangur connecting to the existing Petrie to Brisbane city line.

Top 3 suburbs to benefit

Time saved to CBD

Kippa-Ring

15 mins*

Rothwell

15 mins

Redcliffe

15 mins

*by car

2008-2012

Legacy Way

Top 3 suburbs to benefit

Price impact 2012-14

2011-2015

Windsor

House prices up 12%

Kedron

House prices up 23%

Toombul

House prices up 17%

Legacy Way was opened to traffic in June 2015. The new 4.6km road tunnel connects the Western Freeway at Toowong with the Inner City Bypass at Kelvin Grove. This four-minute journey has transformed access to and from Brisbane’s western suburbs and reduced traffic congestion on Milton Road and Coronation Drive.

Inner City Bypass (ICB) Commenced 2002

Top 3 suburbs to Time saved benefit to airport 20 mins

Brookfield

19 mins

Kenmore

14 mins*

Price impact 2002-04

Albion

House prices up 30%

Clayfield

House prices up 57%

Hamilton

House prices up 72%

Ascot

House prices up 51%

THE McGRATH REPORT

Indooroopilly

Top 3 suburbs to benefit

*peak hour

MELBOURNE

PAST PROJECTS

NEW PROJECTS

Level Crossing Removal Project

Melbourne Metro Rail Project 2018-Mid 2020s

Beginning at South Kensington and ending at South Yarra, this $11.5 billion project will include a mix of new underground rail tunnels, stations and interchanges within the CBD. It is designed to increase the capacity of Melbourne’s busiest train lines and should allow for an additional 20,000 passengers in peak hour. Increased services resulting in the prevention of overcrowding will shave 10 minutes off the CBD commute.

2015-2023

Eastlink Freeway

Over eight years, some of the worst 50 level crossings across Melbourne will be removed in order to improve safety, reduce congestion and enable more frequent train services. Combined with a $1.3 billion investment in new high-capacity trains, this project should significantly improve public transport use and decrease CBD travel times.

2005-2008 Top 3 suburbs to Price impact 2008-10 benefit Wantirna South

House prices up 26%

Dandenong

House prices up 25%

Ringwood

House prices up 24%

Peninsula Link Freeway

Top 3 suburbs Time saved to to benefit CBD Bentleigh

5-10 mins*

St Albans

5-10 mins

Noble Park

5-10 mins

2010-2013 Top 3 suburbs to Price impact 2013-15 benefit

*by car

M80 Ring Road Upgrade

Top 3 suburbs to benefit

Time saved to CBD

2009-2014

Werribee

10 mins*

Price impact 2012-14

Springvale

10 mins

Top 3 suburbs to benefit

Coburg

10 mins

Greensborough

House prices up 17%

Lalor

House prices up 7%

Campbellfield

House prices up 2%

*by train

Mornington

House prices up 11%

Frankston

House prices up 10%

Carrum Downs

House prices up 5%

Source: House price growth from CoreLogic RP Data

11


TRENDS

Apartment living on the up

Traditionally, house prices in Australia have outperformed apartments by a significant margin for long-term capital gain. However the growth gap appears to be narrowing, reflecting the increasing social acceptance of apartment living as demographic trends shift. Apartments are clearly an increasingly strong investment option with potential for wealth creation, and apartment living is becoming the preferred choice for a growing proportion of the population. With close proximity to work and social activities, and with the convenience of onsite facilities such as gyms, pools and concierges, it’s entirely possible that apartments will take over from the quarter acre block as the new Australian dream.

family is still dominant today, an increasing number of Australians live in a couple relationship without children or by themselves – and they neither need or want to live in a house. By around 2030, childless couples (DINKS and Empty-Nesters) will become the most common family type in Australia – and lone person households (SINKS and older people) will become the fastest growing household type, according to the ABS*. Adding to this is increasing interest in apartments from investors due to affordability, as well as rising international demand. FIRB restrictions mean overseas investors can only purchase new stock – typically apartments.

Our changing demographics are also driving this trend. While the nuclear *Source: Household and Family Projections 2011 to 2036 (series II), released March 2015

Comparison of house vs apartment capital growth 1980-2015 19801989

19901999

20002009

2010

2011

2012

2013

2014

2015 YTD

Median house price change

181%

50%

157%

10%

-2%

1%

6%

6%

2%

Median apartment price change

193%

54%

115%

11%

0%

0.2%

3%

2%

0.2%

Median house price change

180%

59%

98%

20%

-6%

8%

9%

14%

6%

Median apartment price change

182%

71%

65%

15%

1%

6%

6%

9%

3%

Median house price change

261%

28%

140%

19%

-1%

-2%

7%

7%

0.4%

Median apartment price change

229%

48%

127%

16%

0%

-2%

3%

2%

0%

Median house price change

207%

52%

191%

8%

-5%

0%

4%

5%

1%

Median apartment price change

174%

66%

133%

6%

-2%

1%

3%

1%

-1%

THE McGRATH REPORT

AUSTRALIA

SYDNEY

MELBOURNE

BRISBANE

Source: CoreLogic RP Data based on sold properties reported over this period.

Childless couples (DINKS and EmptyNesters) will become the most common family type in Australia around 2030.

Lone person households (SINKS and Seniors) will be the fastest growing household type.

There are 1.1 million Chinese buyers who can easily afford a Sydney apartment and this pool is expected to grow by around 30% by 2020. Credit Suisse 2014

12


AUDI BENCHMARK

Follow the smart money 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.

Burwood 49 Balwyn North 66 Bentleigh East 42 Camberwell 61 Balwyn 40

Berwick 44 Doncaster East 77 Brighton East 43 Kingston 32 Forrest 25

New Farm 64

Nicholls 27 Kambah 21

Carindale 50 Southport 48

Paddington 44

Mosman 299

Bulimba 47 Ascot 41 Indooroopilly 41

Brisbane City 40

Pyrmont 72

Clayfield 40 Surfers Paradise 40 Sydney City 152

Randwick 72 Botany 100 Epping 72

Castle Hill 136 Kellyville 72 Mascot 75 Zetland 82

NSW MELBOURNE BRISBANE ACT Number of Audi drivers Source: Audi Australia

13

THE McGRATH REPORT

Brighton 96

Doncaster 64


$662,500

CITIES

June 30, 2013, Sydney’s median house price

$900,000 June 30, 2015, Sydney’s median house price

THE McGRATH REPORT

Sydney It has undoubtedly been one of the most spectacular booms in Sydney’s real estate history. According to CoreLogic RP Data, this growth cycle began in May 2012 and it’s been a strong climb since then. On June 30 2013, Sydney’s median house price was $662,500 and it had risen 6.3% over the year. In the next 12 months we saw another 16.2% rise and a further 17.8% gain by June 30 2015. By September 2015, Sydney’s median house price was $900,000. Soon enough, we’ll have a million dollar median – in fact, some researchers say we’re already there but everyone measures the numbers a bit differently. Further interest rate cuts in 2015 have extended the boom, along with strong demand from investors and a shortage of stock that has resulted in strong auction sales and high clearance rates that peaked at 89% in May 2015. The average time it takes to sell also reached record speed at just 26 days. Lack of stock has been a big issue, particularly in destination suburbs where existing residents seeking to upgrade or downsize locally have been competing with an increasing number of out-of-area aspirants. By mid-May, total stock available for sale was down 21% compared to the year before. Many home owners delayed selling because buying back in was simply too hard. However, the approaching spring market has seen this stock shortage improve to 5% lower in August compared with the year before, and a wave of new listings over September, October and November should help break the deadlock and improve the situation for buyers.

14

In reality, we are probably getting close to the peak of this boom. Interest rates are unlikely to rise for some time but affordability is starting to bite. Prices have risen to such a point that I believe more young families than usual will leave Sydney in favour of Melbourne, Brisbane or major coastal areas. Many first home buyers are ‘rentvesting’ instead, which is a great option. We’re also seeing more investors heading to Brisbane for the highest yields of the major capitals (as well as the Gold and Sunshine Coasts) with all three locations offering excellent prospects for near-term capital growth. Tighter investor lending criteria is having an impact in Sydney and this is a good thing, as it is weeding out the investors who are leveraging themselves too highly. Investor lending in NSW fell sharply from 50% of new loans in May to 42% in June, which is significant as the average had been 50% over the previous year, according to one of Australia’s largest brokers, AFG. However this is only a speed bump in Sydney’s boom. Investors on good incomes using new equity in their homes or SMSFs are easily able to satisfy the new criteria of lower LVRs, tougher serviceability assessments and slightly higher interest rates. Natural attrition will be what ends this boom – a simple case of prices getting so high that owner-occupiers back off to see what happens next, while falling rental yields and limited prospects for much more capital growth prompt investors to look elsewhere.

Anyone who owns a good-quality, welllocated property in Sydney owns a piece of financial security. Despite predictions that Melbourne’s population will overtake Sydney’s in as little as 15 years, Sydney will always be the powerhouse property market of Australia due to high migration, work opportunities and an undersupply. And it’s important to remember that boom periods are only part of a growth cycle. While I do expect this boom to cease soon, Sydney prices will continue to grow throughout 2016 – it will just be at a slower pace.

One of the most spectacular booms will soon come to an end. Sydney’s prices will continue growing, just at a slower pace.


House vs apartment prices in Sydney

UP 18% $900K

Median apartment price UP 16% $800K

Median house price

UP 6% $663K*

UP 10% $650K

UP 12% $586K

UP 2% $500K

JUNE 30, 2013

JUNE 30, 2014

JUNE 30, 2015

*Settled sales previous 3 months – CoreLogic RP Data

THE McGRATH REPORT

PATONGA

MARRAMARRA NATIONAL PARK

John McGrath’s Top Picks

BEROWRA CREEK

GLENORIE BEROWRA

1

BEROWRA VALLEY REGIONAL PARK MOUNT KURING-GAI

DURAL HORNSBY

KU-RING-GAI CHASE NATIONAL PARK TERREY HILLS

GARIGAL NATIONAL PARK

CASTLE HILL

NARRABEEN

3 MANLY CHATSWOOD

RYDE

4

1

LIDCOMBE HOMEBUSH

SYDNEY ULTIMO 2

BANKSTOWN

MAROUBRA

REVESBY HURSTVILLE

BOTANY BAY MENAI CARINGBAH CRONULLA

5

ROYAL NATIONAL PARK

BATE BAY

The Rocks

As a shift in the housing stock moves from government owned to private dwelling there is bound to be a massive upgrade to these beautiful harbourside Georgian and Victorian homes – plus a significant change in local amenity that usually follows such upgrades. With the recently opened Barangaroo Point Park, a 5-minute walk to the CBD and Barangaroo commercial precinct, this is fast becoming one of the most fashionable addresses in Sydney. 2

Kensington

With the recent surging interest from overseas buyers, Kenso will become one of the main beneficiaries due to the university campus around which the suburb has evolved. Add to this to the upcoming light rail, which will whisk residents in and out of the City and to the mighty sporting facilities of Moore Park and Royal Randwick, and your investment is looking safe in this university suburb. 3

Curl Curl

While the Sydney recovery is still more heavily focused on the Inner Ring suburbs, the gorgeous Northern Beaches lifestyle is attracting great attention from the water babies looking for better value than the East. We like Curl Curl with its intimate positioning by the sand and relatively easy access to the CBD compared to some of her sister suburbs further north. Not only will you live longer with a Curl Curl address, you’ll outperform the Sydney market by many percentage points in the next decade.

4

Parramatta

There are two key reasons Parramatta is a must-have in this year’s report. First, the commercial and infrastructure activities in and around Parramatta are leaving much of Sydney in their wake with many smart companies choosing to relocate closer to their employees in what is now the heart of Sydney. The second reason is the activation of the river, which has for many years been a forgotten waterway. Opportunities are starting to emerge to build quality medium-density riverside dwellings over the next few years and these establish new pricing benchmarks. So for investors and home owners alike, head west to get a piece of this golden lifestyle. 5

Engadine

The Shire and great living have been closely aligned for many generations, as the locals know only too well. But as the surf-side suburbs shoot north in price and young homeowners look to secure a piece of God’s country, areas like Engadine offer great land size at an affordable entry point. So if a 600-square-metre block is still on your ‘must have’ list and your budget is under $750,000, pop Engadine into your search engine and find sensible value you couldn’t spot elsewhere.

WATERFALL

15


CITIES

THE McGRATH REPORT

Melbourne The Melbourne property market has shown ongoing strength in 2015, with the median house price rising above $700,000 for the first time. Figures from the Real Estate Institute of Victoria show house values rose by 5% to $706,000 in the June quarter, while auction clearance rates reached a fiveyear high for the month of June at 78%. Properties are also selling in record time with the average days on market just 32, according to CoreLogic RP Data. Record low interest rates and unprecedented interstate and overseas migration and investment are combining to fuel the Melbourne market. Victoria’s population has increased by more than 100,000 people over the past 12 months, with net interstate migration at its highest level in 40 years and net overseas migration accounting for half the state’s growth, according to the ABS. The declining Australian dollar is making local real estate even more attractive to an already active overseas investor market, with remarkably high sale prices for prestige homes and off-the-plan projects recorded in 2015, mostly in the eastern suburbs. Victoria remains the most popular destination among wealthy foreigners using the Significant Investor Visa; and Credit Suisse estimates 14% of new apartments are being purchased by Chinese investors alone.

16

In July 2015, the Victorian Government increased stamp duty for foreign purchasers by 3% in response to community concern. To enforce the new law, all home buyers must now complete the Duties Form 62 Purchaser Statement declaring whether they are a local or overseas purchaser. The quality of schools is becoming a determining factor for Melbourne family buyers and investors. Melbourne buyers’ agency and research company, Property Analytics, has documented the relationship between VCE scores and property values and found that suburbs with top performing public high schools have experienced twice the city’s average median house price growth over the past three years. Overall, Melbourne has a two-tier market with an oversupply in apartments resulting in lesser capital growth. According to CoreLogic RP Data, Melbourne apartment prices rose by just 2% in 2015 financial year. In 2014, residential zones were reformed across Victoria to direct new apartment developments away from suburbs with special character to areas around main roads, shopping centres and transport links. This change has contributed to a 38% increase in non-house dwelling approvals in FY15 (house dwelling approvals were up 10%)

We are very optimistic about the potential for steady ongoing price growth in Melbourne, particularly for houses, over the next few years. Unlike Sydney, Melbourne has much more room for growth because it is coming off a lower base, and is still well off the $1.0million house price median of its northern neighbour. There are already indications that an increasing number of Sydneysiders are migrating to Melbourne for job opportunities and more affordable housing. While previous generations of Sydneysiders have stayed and battled affordability issues, we believe the more nimble Gen Y will upgrade between cities – not suburbs – as their families grow.

Unlike Sydney, Melbourne has much more room for growth because it is coming off a lower base. We are very optimistic about the potential for steady ongoing price growth.


PRESTON ROSANNA

COBURG ESSENDON

MOONEE PONDS

4

IVANHOE

NORTHCOTE

MANNINGHAM MAIDSTONE

DONVALE

ALPHINGTON

FOOTSCRAY

CARLTON

2

MELBOURNE

SURREY HILLS

NUNAWADING

SOUTHBANK

CAMBERWELL

NEWPORT

BURWOOD

5

HOBSONS BAY MALVERN ST KILDA 3

1

OAKLEIGH

THE McGRATH REPORT

BRIGHTON

MULGRAVE PORT PHILLIP

BLACK ROCK

SPRINGVALE

HEATHERTON

John McGrath’s Top Picks 1

Murrumbeena/Hughesdale/ McKinnon

Conveniently located close to Chadstone shopping centre, public transport and proximity to the CBD. With a selection of high-quality secondary schools, the area is popular with both families and investors. 2

Balwyn

With tree-lined streets, period homes, and large blocks, Balwyn is one of the city’s most exclusive suburbs. Some of Melbourne’s best schools are within striking distance, and have been driving demand from wealthy, affluent buyers. 3

Glen Waverley

Glen Waverley properties are tightly held, with access to leading education institutions and public transport options. Million-dollar homes are in high demand from a burgeoning Chinese community.

4

Brunswick

This is a trendy, multicultural suburb with a rich history and a strong rental market. Townhouses and apartments are a growing trend with young professionals, yet there are still plenty of classic period homes. 5

Williamstown

With its historical architecture, CHELSEA beaches and parklands, Williamstown has the charm of a maritime village. It’s accessible by train and ferry, and has experienced widespread gentrification in recent years through increased interest from younger buyers.

SEAFORD

17


CITIES

THE McGRATH REPORT

Brisbane & surrounds South-East Queensland showed stability in 2015 with consistent sales activity, but price growth slowed to 4% along the Brisbane to Gold Coast corridor in FY15. The lowest net interstate migration in more than two decades coupled with a weak economy, comparatively high unemployment and a change of government have combined to keep property prices relatively flat. On the ground however, things do look positive. Low interest rates are encouraging upgraders in the $1.0million-plus bracket in premium areas such as Ascot, Hawthorne, New Farm, Bulimba and Paddington. Many are choosing to keep their existing homes in the $500,000 to $1million bracket for investment. First home buyers are also back, buying in affordable suburbs like Mansfield, Salisbury and Belmont where homes are selling faster than anywhere else in Brisbane, according to CoreLogic RP Data.

Typically, an increasing house price gap between Brisbane and Sydney is pivotal in creating new market energy. By August 2015, the gap was $431,500 – the largest gap in dollar terms on record with Sydney house prices 88% higher than Brisbane, according to CoreLogic RP Data. As a result, we are now seeing a steady flow of Sydney and Melbourne buyers up north. Southern investors are chasing capital growth and the highest yields of the major capital cities, while young families are seeking affordability and lifestyle. Owner-occupiers are purchasing Queenslander-style family homes in blue chip areas where they are paying half what they would in Sydney for an equivalent home. Many are leasing these properties for decent yields while they look to secure work before moving here permanently.

Solid demand and a shortage of homes for sale in some areas pushed Brisbane’s auction clearance rate to its highest level on record (since 2009) at 50% for the year to August. By comparison, over the same period of the year, Brisbane recorded 46% in 2014, 40% in 2013, 33% in 2012 and 24% in 2011.

While the Gold Coast is always hit hard by economic downturns, it comes back with a vengeance and that is happening now. The sub-$1.0million market has been buzzing with a mix of local upgraders and southern investors and Seachangers. It has also been an excellent year for prestige property with the entry level of the region’s Top 50 Home Sales in FY15 rising to $2.5million from $1.323million in FY14*.

Apartments are a different story, with a rising oversupply in inner city areas like West End, Fortitude Valley, Newstead and Hamilton. Buyers are very discerning and only competing for properties with unique features. Downsizers are snapping up three-bedroom properties but the smaller non-descript options are sitting on the shelf.

The China Factor – a key element in Sydney and Melbourne’s booms – is increasingly at play in Queensland, especially on the Gold Coast. The juwai.com property portal reports purchasing intent up by 1,120% YOY, which is not surprising as more Chinese developers build locally and market their projects directly back home.

*Gold Coast Bulletin

18

Construction on the long-awaited $1 billion Jewel hotel and apartment project at Broadbeach by its Chinese owners began in March 2015 and the first non-stop flights from the Gold Coast to China will commence soon. The Sunshine Coast market is bullish especially above $1.0million. Locals who have been waiting out the post-GFC downturn are upgrading now and we are seeing a significant influx of southern Seachangers. Buderim is among the favourites due to its schools; and lifestyle homes are popular in Noosa, Mooloolaba and Sunshine Beach. I remain very optimistic about South East Queensland. The weakening dollar will boost tourism, there are a slew of new infrastructure projects underway and the economy appears to be responding to new political management. While the Gold Coast has always had a good international reputation, Brisbane is increasingly asserting itself as a sophisticated global city, particularly following the G20 in 2014. The ‘big country town’ stigma of old has been eroded by a continuing undercurrent of social, economic and cultural change. Once state economic conditions improve and Sydney slows down, the South East Queensland property market will be ready to roar.

While the Gold Coast has always had a good international reputation, Brisbane is increasingly asserting itself as a sophisticated global city, particularly following the G20 in 2014.


History will repeat History shows a strong correlation between Sydney booms and growth in South-East Queensland. $1M

Sydney Median house price Gold Coast Median house price Brisbane Median house price

$800K

$600K

$400K

$200K

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015*

* Partial year totals for 2015. Source: CoreLogic RP Data

COOROY

John McGrath’s Top Picks

SUNSHINE COAST

MOUNT KILCOY

1

5

CONONDALE

Murarrie has long been seen as a largely industrial area, but today it is coming of age as young singles, couples and families priced out of nearby Bulimba, Morningside and Cannon Hill venture in looking to renovate.

MALENY

BERRBURRUM STATE FOREST

2

D’AGUILAR NATIONAL PARK

MORETON BAY

DUNDAS 3

2 3

1

Everton Park, Brisbane

Everton Park offers a huge range of properties to suit every buyer demographic and there is plenty of value for money. Investors and first home buyers are competing strongly for the lower priced homes.

DAYBORO

D’AGUILAR NATIONAL PARK

Murarrie, Brisbane

RABY BAY

BRISBANE

ROSEWOOD

4

Paradise Point, Gold Coast

Paradise Point is located between Hope Island and the mesmerising Gold Coast Broadwater. It has a wonderful burgeoning café scene and offers four-bedroom houses around $700,000 just 200 metres from the water. 5

Birtinya, Sunshine Coast

Birtinya offers great value and there is plenty of room for growth as the suburb continues to benefit from the ongoing development of the Kawana health precinct.

Paddington, Brisbane

Paddington presents the best value among all of Brisbane’s blue-chip suburbs. Over the past two years, Paddington buyers have been venturing into Bulimba, Ascot, New Farm and Hawthorne looking for better value. Now they are returning following a rejuvenation of Paddington’s café scene.

HARRISVILLE JIMBOOMBA

4 GOLD COAST

19

THE McGRATH REPORT

$100K


CITIES

THE McGRATH REPORT

Canberra Canberra has become a tale of two markets, with houses performing far better than apartments. Three consecutive quarters of house price growth – the first time we have seen this since 2008 – indicates that change is afoot in the nation’s capital. Over the first seven months of 2015, Canberra recorded the third highest growth in house prices behind Sydney and Melbourne, with values up 5%, according to CoreLogic RP Data. Meanwhile, apartment price growth was anaemic at just 1% due to an increasing oversupply. There is a lack of houses for sale with total stock on the market down 10-15% YOY, according to CoreLogic RP Data. This favourable supply/demand dynamic has allowed house prices to grow. We have seen more auctions and better clearance rates in 2015, as well as a number of suburb records, including four achieved by our offices in O’Connor ($2.2million), Forde ($1.225million), Crace ($1.215million) and Downer ($960,000). Since mid-2013, almost 10,000 public service job cuts nationwide have made Canberra residents reluctant to make large financial decisions. However this appears to be over with Budget papers showing only 70 jobs are expected to go in FY16, and this is injecting some confidence back into the market.

20

Canberra has the highest incomes of the capital cities, so it is less likely to experience the affordability issues of Sydney and this is also underpinning house price stability. Families on good incomes in secure jobs are now happy to upgrade their homes, especially while interest rates remain so low. The ‘Mr Fluffy’ buyback scheme, where the government will buy back homes contaminated by loose-fill asbestos, has provided a significant boost to the market. 1,014 of 1,022 affected homes are participating in the scheme and 879 offers had been accepted as of early August 2015. Home owners have been well paid for their asbestos-ridden homes, and with the additional benefit of a stamp duty credit on their next purchase, they have a significant advantage over other buyers. Most Mr Fluffy home owners have sought to buy back into the same areas, but some have taken the opportunity to move from older outlying suburbs into the blue-chip Inner North and Inner South, or the Gungahlin region where brand new suburbs, houses and amenities are very appealing. The apartment sector will remain soft for the foreseeable future, with latest ABS data showing a further 2,917 approvals for 2014-15 – the highest number in three years.

Massive stamp duty concessions available through the Over 60s Home Bonus Scheme have proved popular in the Inner North and Inner South. Introduced in 2014 for a period of two years, the scheme has encouraged many older couples to downsize into singlestorey houses or townhouses. Just $20 stamp duty applies to purchases up to $625,000 with a sliding scale of fees from there. Excitement is building around the planned Capital Metro light rail project connecting the city to Gungahlin. It will create jobs, take cars off the road and reduce the city commute to 25 minutes. This is more important for the future as current analysis predicts the morning run could take up to an hour by 2031 without the rail in place. The light rail will also connect the growing Gungahlin district to the vibrant restaurant scene of the Inner North and CBD, so we see a great lifestyle benefit here too.

Change is afoot in the nation’s capital, and a favourable supply/demand dynamic has seen house prices grow.


HALL

AMAROO

4

CASEY

GUNGAHLIN

NICHOLLS

GOOROOYARROO NATURE RESERVE FLYNN

HARRISON

1

FRANKLIN

EVATT

MELBA

MITCHELL

KALEEN LATHAM HOLT

LAWSON

KENNY

BELCONNEN PAGE BRUCE

3

LYNEHAM

MACQUARIE 5

ARANDA AINSLIE TURNER

MT MAJURA NATURE RESERVE MAJURA

THE McGRATH REPORT

CANBERRA

CAMPBELL

PIALLIGO

YARRALUMLA

CAPITAL HILL

KINGSTON

COOMBS

WRIGHT

FYSHWICK NARRABUNDAH

WESTON CREEK

RED HILL NATURE PARK

2

CRESTWOOD

GARRAN PHILLIP HARMAN

SYMONSTON O’MALLEY

CHIFLEY

QUEANBEYAN WEST

John McGrath’s Top Picks 1

Crace

This is a relatively new suburb and very popular with families due to its modern TORRENS housing, parks, sporting facilities, cafes and schools. Excellent prices are being achieved but we see further room for growth. 2

Lyons

KAMBAH A gentrifying sleeper suburb next to Curtin, Lyons’ property prices are peaking off the back of extremely strong demand. Lyons used toHILLS have a poor reputation but this has URAMBI NATURE RESERVE changed and we are now seeing Curtin buyers OXLEY expanding their search into Lyons.

3

MAWSON

Downer

5

Dickson

Dickson will enjoy long-term benefits from Just north of Dickson, Downer will also the light rail and Dickson centre master plan, receive benefits from the light rail and which will bring more eateries, expanded Dickson centre master plan. It offers close MUGGA retail and streetscape upgrades. Much of proximity to schools and good prospects for FARRER the suburb is zoned for medium density price growth. JERRABOMBERRA development so there is great opportunity for land banking.HUME 4 Forde STONYHURST The more affordable alternative to Crace, with similar facilities but a $50,000 discount on homes. As Crace property prices WANNIASSA grow, we see great upside potential for FADDEN neighbouring suburbs.

TRALEE

ENVIRONA

CHISHOLM

21


191 New South Head Road EDGECLIFF NSW 2027 T F

(+61 2) 9386 3333 (+61 2) 9386 3344

All information (including property areas, floor size, price and description), has been obtained from sources believed to be reliable. McGrath Limited, its subsidiaries, 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. Prior to relying on the information in this report, you should make your own inquiries.

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McGrath Report 15