McGrath Report 2014

The McGrath Report

14

The Australian residential real estate recovery continues. In January of this year, every capital city in Australia recorded a quarter of positive capital growth simultaneously - the first time this has happened since the GFC. For me, this was an important milestone & it suggests we won’t be turning back.

My prediction at the time of last year’s McGrath Report was a 10%-15% price increase. This eventuated with Sydney prices lifting by 14.8% in the 12 months to August 2014.

The post-GFC recovery started with first home buyers under $600,000 & escalated above the $1 million mark soon after, as upgraders benefited from the surge of activity. The market strength has now moved up to & above the $2 million range in Sydney. Even the prestige market has seen some price movement & increased transactions. While we are yet to see the luxury end of the market show its true colours, I believe this will happen in the next 12 months.

I predict between 5%-10% growth across the board in Sydney values this year, with potentially higher growth in the prestige market as it makes up for lost time. However, the real mover in Australian real estate for the next 3-5 years will undoubtedly be South East Queensland - where I believe we can expect at least double the growth of Sydney values.

This year’s McGrath Report identifies several themes we believe will drive demand and prices, plus the hottest of hot spots on the East Coast.

John McGrath Chief Executive Officer

Around Australia

A quick look at what’s happening to prices around Australia.

Median House Prices (RP Data August 2014)

Sydney $745,000

Melbourne $590,000 Darwin $552,500

Perth $535,000

Brisbane $475,000

Adelaide $411,000

Hobart $320,000

The McGrath Report 2014

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Canberra $555,000

Median Apartment Prices (RP Data)

Sydney $569,000

Canberra $435,000

Perth $437,750

Brisbane $390,000 Adelaide $345,000

Hobart $265,500

Around Australia

11

Darwin $445,000

Melbourne $460,000

2014 2004 1994 1984

Capital City House Price Growth since 1984 (Dept of Housing, REIA & RP Data) Darwin not included due to impact of Cyclone Tracy in 1974.

Hobart

Perth

Brisbane

Adelaide

Melbourne

Canberra

Sydney

$745,000

$555,000 $590,000

$535,000

$499,999 $475,000

$411,000

$370,000 $320,000 (2014)

$310,000

$310,000

$255,000 $242,500 $227,000 (2004)

$172,000 $157,000 $132,500 $115,000

$130,000 $111,000

$100,000 (1994)

$84,250 $58,950

$44,750 (1984)

$48,175

$61,250

$65,000

$85,900

Big Themes We believe there are currently four themes driving the market.

1. C hina Growth Continues

The Chinese interest in Australia is far from over as many immigrants & overseas investors seek to buy in major cities around Australia.

Sydney continues to be the favoured destination with Brisbane, Melbourne & Perth next in line.

Foreign Demand Australia’s education, lifestyle, economic & political stability continue to attract foreign investors & owneroccupiers. Chinese property portal, juwai.com reports Sydney, Melbourne, Brisbane & the Gold Coast are among the top 10 cities worldwide searched by visitors.

Foreign demand for residential real estate is increasing substantially, with 15,999 approvals worth $24.8B over the nine months to March 2014. This is 44% higher than the total value approved in FY13.

A report by Credit Suisse estimates the Chinese are buying 18% of new supply in Sydney & 14% in Melbourne (mostly apartments). There are 1.1 million Chinese who can afford to buy a Sydney apartment & this number is estimated to increase 30% by 2020.

(Treasury, FIRB)

Chinese Buyers Discovering Brisbane Chinese buyers are beginning to discover value in Brisbane. They are favouring the CBD & inner city areas including established Asian communities like Sunnybank Hills, University precincts like St Lucia & more affluent areas like Hamilton, Newstead & New Farm.

Development Chinese mega-developers are rushing to acquire development sites across Sydney & Melbourne.

Queensland & particularly the Gold Coast are also gaining favour. In FY13, there was $323M in land acquisitions by the Chinese in Queensland, up 38% on FY12. Singapore developers were second highest at $317M – up from $75M in FY12.

In Brisbane, Chinese buyers want low maintenance homes near educational facilities, infrastructure & also the CBD. On the Gold Coast, Southport is popular due to a large amount of new homes, the light rail, the new hospital & good schools. The new Chinatown precinct will make the area even more attractive.

(Queensland Registrar of Titles)

Among affluent Asian investors, there is increasing interest in QLD, with 29% considering buying there in the next year, compared to 34% ACT, 25% VIC & 20% NSW.

Projects Underway by Chinese Developers

(HSBC)

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970M Jewel, Surfers Paradise, QLD $ $600M Greenland Centre, Sydney’s CBD, NSW $550M Promenade, Parramatta, NSW $500M Ryde Garden, Sydney, NSW $100M Sanbano, Gold Coast, QLD

The McGrath Report 2014

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Top 10 Brisbane Searches by Chinese Buyers

India To Follow

1. Brisbane 2. Hamilton 3. Bridgeman Downs 4. Kangaroo Point 5. Zillmere 6. Pullenvale 7. Bulimba 8. Indooroopilly 9. Newstead 10. Aspley

We expect the rising middle class in India to follow China as key foreign investors in Australian real estate.

The Indian economy has experienced 8% annual GDP growth over the past decade, with trade between Australia & India increasing significantly.

(Juwai.com)

There are 450,000 people of Indian heritage in Australia, including 50,000 students. The fastest growing language in Australia is Hindi.

Fear In Context While Chinese & foreign buying is increasing, it remains a small percentage of the residential market (Australian Property Council estimates it is less than 5%).

Chinese buyers are generally prefer established Asian communities & new apartments in CBDs. We believe overseas buyers are not competing in the main with first home buyers, as they generally buy higher priced properties and new homes. Chinese owner-occupiers prefer new property & Chinese offshore investors are buying new, while Australian first home buyers prefer established housing.

(RBA, FIRB)

Big Themes

20% of all migrants entering Australia during FY13 were from India.

(Dept of Immigration)

Harris Park is Sydney’s ‘Little India’ with 40% of the population born in India.

(Census 2011)

Indian private business investment in Australia increased 75.8% over the 5 years to 2013, with China second at 41.7%.

(ABS/Govt figures – average annual compounding growth rate)

HSBC research shows 18% of affluent Indians are already invested in Australian real estate compared to 9% of affluent Chinese. QLD is the number one state of choice among affluent Indians considering investing in Australian property, closely followed by VIC.

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2. Investors & First Home Buyers

Record Investor Activity NSW investor activity peaked at 53% of new loans in January before tapering to 48% in July as rising property values diminished yields.

Meantime, QLD rose from 33.5% to 34.6% as local & southern state investors began recognising QLD’s affordability & higher yields.

(AFG)

Changing Face of Australian Investors

These two groups often fight for prime property below $600,000 but for now the investors are ahead with strong demand from both private investors alongside Self Managed Super Funds. We anticipate that FHB’s will be back in strength so the battle may be on again.

1st Home

Bank of Mum & Dad

First home buying has plummeted to just 3.4% of loans in NSW & 4.8% in QLD – well below the long term average of 1520%. Government grants incentivising the purchase of new or off-the-plan properties are working but first time buyers still overwhelmingly prefer established properties.

First home buyers are increasingly seeking their parents’ help, particularly in expensive inner city locations. Parents are either acting as guarantor, gifting deposit shortfalls or buying for their own investment where their children want to live, often close to universities.

(AFG)

19% of Gen Ys received financial assistance from their parents to buy their first home according to realestate.com.au’s Housing Affordability Index.

Traditional investors are increasingly competing with SMSFs & ‘rentvestors’ – Gen Y buyers purchasing first investments ahead of first homes while renting in lifestyle precincts.

The SMSF market has a long way to run, with 2,700+ new funds set up every month & more than $20.5B currently invested in residential property, up 17%.

(ATO – 12 months to March 2014)

The McGrath Report 2014

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3. Prestige Market Starts to Move

Whilst luxury property was lagging compared to the rest of the market, there are clear signals that it is stirring from its slumber & we are expecting material price rises above $2M this year.

Growth

Momentum

ASX

Ex-Pats

Australia’s most expensive suburbs have slightly outpaced the lower & middle markets in price growth, up 11.1% compared to 10.9% (middle market) & 9.2% (lower market).

Political & economic stability, rising business confidence & increasing overseas demand is driving new momentum in prestige property after several years of post-GFC stagnation.

Largely due to the weaker dollar & a higher number of prestige homes coming onto the market, ex-pats are back after years on the sidelines. Despite no plans to return soon, they are buying now with expectations of imminent price growth.

Brisbane $3M 80 sales, up 36%.

Improving company profits pushed the ASX 200 above 5,500 to be 9.75% higher. Banking & finance executives are once again receiving bonuses & upgrading their homes. The March Qtr NAB ASX 300 Business Survey showed the highest confidence among larger firms in the survey’s three-year history.

(RP Data)

(12 months to August 1, 2014)

Sydney $37M 112 Wolseley Road Point Piper

Brisbane $8.25M 15 Ningana Street Fig Tree Pocket

Gold Coast $8.7M 60 Admiralty Drive Surfers Paradise

Sunshine Coast $6.5M 25 Witta Circle Noosa Heads

$30M 130 Wolseley Road Point Piper

$4.5M 7 Wilonda Street Robertson

$7.3M 72 The Sovereign Mile Sovereign Islands

$5.7M 6 Belmore Terrace Sunshine Beach

$20M 12 Ginahgulla Road Bellevue Hill

$4.5M 8 Sentinel Court Cleveland

$7.22M 26 Marseille Court Bundall

$3.65M 44 Seaview Terrace Sunshine Beach

$19M 17 Carrington Avenue Bellevue Hill

$4.5M 602/1 Gray Street New Farm

$7.2M 49-109 Tallebudgera Connection Road Tallebudgera

$3.3M 31 Watson Street Currimundi

$15.6M 21 Carrington Avenue Mosman

$4M 39 Sentinel Court Cleveland

(RP Data 12 months to May 2014)

Sydney $5M 259 sales, up 13% in FY14;

Top 5 Sales in 2014 to June 30

Big Themes

$6.6M 103 Hedges Avenue Mermaid Beach 19

$3.2M 19 Wesley Court Noosa Heads (RP Data, McGrath)

4. Urban Hubs

As infrastructure unlocks pockets of Sydney by creating local employment opportunities & reducing commuting time, values are likely to surge in some areas as families seek more value for money.

Outer Hubs

Middle Hubs

There are three major growth areas in Sydney targeted for new jobs & affordable housing in the long term.

The NSW Government’s Urban Activation Precincts program is fast-tracking new housing, jobs & has upgraded infrastructure in 8 key urban hubs away from the CBD. These areas include North Ryde Station, Epping Town Centre & Herring Road, Macquarie Park in Sydney’s north, Carter Street, Lidcombe in the west, & Wentworth Point in Sydney’s inner west.

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he Western Sydney T Employment Area will be the state’s largest new employment space, creating 57,000 new jobs over 30 years & up to 212,000 jobs when fully developed he South-West Growth T Centre incorporates 17,000 ha including Liverpool, Camden & Campbelltown LGAs. Major new centre at Leppington serviced by the new South West Rail Link. About 110,000 new homes to accommodate 300,000 people – almost the population of Canberra he North-West Growth T Centre incorporates 10,000 ha including The Hills, Blacktown & Hawkesbury LGAs. There is a major new centre at Rouse Hill serviced by the North West Rail Link & upgraded Richmond line.

About 70,000 new homes to accommodate 200,000 residents

The McGrath Report 2014

Airport Located within the Western Sydney Employment Area, Sydney’s second airport at Badgerys Creek will create 35,000 new jobs by 2035, increasing to 60,000 by 2060. Construction will begin in 2016, creating 4,000 jobs initially.

First flights expected mid-2020s. A $3B road infrastructure program will commence shortly.

Price Growth

Surge of the West

A significant number of Sydney buyers are giving up on the expensive inner ring & buying in the middle ring, which have experienced some of the strongest price growth in FY14. They include North Rocks (up 23%), Northmead (16%) & Baulkham Hills (15%).

Five of the nation’s top 10 fastest selling suburbs are in Sydney’s west, with an average selling time of just 12-15 days.

(Australian Property Monitors)

(RP Data)

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1 . Old Toongabbie (houses) 4. Parklea (houses) 5. Quakers Hill (apartments) 8. Lalor Park (houses) 9. Werrington Downs (houses)

Section Title

21

Sydney

A $60B infrastructure program is transforming Sydney, with major road & public transport upgrades enabling easier access between homes & job centres.

High density building approvals in Sydney more than doubled from 9,932 in FY11 to 20,354 in the year to March 2014, with strong activity expected to continue for the next 5 years.

Sydney’s population is expected to grow by 1.575 million people (36.7%) by 2031.

60 20,354 1.575

Sydney

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Sydney Overview

Sydney has asserted its position as Australia’s strongest & fastest growing residential real estate market over the past 12 months with around 14.8% price growth across the board. Often called the ‘New York of Australia’, a combination of factors has driven demand for the Harbour City to all time highs in FY14 & my prediction is there is more to come in terms of growth.

There have been several key drivers of this growth including: ■

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The McGrath Report 2014

he return of investors T & influx of SMSF direct investments ignificant inflow of S overseas investment in the residential market ecord low interest rates R alongside record high rents he impact of a new T State Government pproval & A commencement of several major infrastructure projects nderlying housing U shortage coupled with an anticipated population growth of 1.57 million by 2031

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Together with a recovering economy, these factors have driven demand for housing to new levels & are likely to continue the growth curve for several years to come, albeit (thankfully) at more modest rates of growth from here.

Whilst I believe we will continue to see the hottest demand & price growth in the inner ring & beachside suburbs of Sydney, there is a sharp increase in demand for new residential areas in the outer ring like Kellyville & Rouse Hill, heightened by new scheduled transportation links. This will continue as Sydneysiders strive to balance the competing factors of proximity, convenience, lifestyle & affordability.

If you study the price growth history of homes located close to the CBD compared to property located in the outer areas of Sydney, you will see a significant difference over the past 20 years with inner Sydney Paddington median values growing by 350% compared to outer Sydney Penrith increasing by 250%. Parramatta which is one of the largest CBD’s in the country delivered a formidable 335% growth in the same period. This really underscores the distinct yields of different locations over time for those investing in property.

As well we must remember that much of the growth over the past 12 months has been catch up for lost ground during the GFC when prices either slumped or plateaued for several years.

The majority of the price growth throughout Sydney in the last year has been in the sub $2M range.

I think given the improving sharemarket, we are likely to see demand for property above $2M start to escalate this year with many undervalued prestige markets about to surge ahead.

As dangerous as it is to make future predictions in this uncertain world in which we live, I believe the Sydney market has between 10%-20% growth left in it this cycle over the next few years.

This is unlikely to (ever) be straight-line growth, instead almost guaranteed to include periods of short term corrections fuelled by share market fluctuations, economic uncertainty & the inevitable interest rate rises.

John McGrath’s Top Picks Millers Point/The Rocks this historical northern fringe of the CBD is about to explode.

With the top end of the town as one neighbour, Barangarroo as another & Sydney Harbour at your door it is the best located suburb in the country.

Camperdown/Erskineville/ Newtown close to the CBD & benefitting from Sydney University embedded within. King Street retail strip along with Erskineville Village are great spots to wander & find great coffee on the weekend. The Victorian terraces make this area somewhat unique and add to its charm.

Botany/Mascot once a working class industrial factory suburb, this area has transformed itself completely & is fast becoming a fashionable address. Right next door to the airport it will come into its own for commuters.

Balmain/Birchgrove this area is not cheap. Nor should it be.

Minutes by car or ferry to the CBD. Lace terraces alongside contemporary town homes, small warehouses & nearby apartments – all wrapped around a hub of activity & restaurants in the village.

Earlwood/Bardwell Park for many years this hidden gem has escaped the radar of many buyers. Only 12km from the CBD & with a historically large Greek community, it is now being discovered by a new group of buyers who may have previously bought in areas like Haberfield & Five Dock.

Sydney

27

Concord walk down the thriving coffee strip on Majors Bay Road.

Look around & you’ll feel that this is an area on the move.

Whilst prices are no longer the obvious value they were a few years ago, they’re still well short of where they will be in the next 10!

Little Bay/Matraville/Chifley the smart young families who want an Eastern Suburbs beachside location without the price tag have discovered this area.

Full of leisure & sporting pursuits, it’s now home to a growing army of young professionals with families seeking better value & more land than the inner City alternatives.

Forestville surrounded by bushland Forestville is hidden between the northern surf beaches & the leafy North Shore.

This cosy neighborhood is rapidly becoming the preferred address for many buyers from the East & Inner West who are craving more land & value for money.

Rouse Hill/Castle Hill an hour wandering through Rouse Hill Town Centre retail village tells you this area is thriving. As new transport links arrive this area will have everything it needs.

Strong growth over 5 years.

Dolls Point this picturesque pocket on the edge of Botany Bay is home to a small tight knit group of 1,500 residents. Buy to occupy or as an investment & you’ll be rewarded by the increasingly popular enclave.

Most Active Suburbs Number of Houses Sold (RP Data)

Baulkham Hills 526 ($780,000)

Blacktown 540 ($480,500 )

Glenmore Park 440 (Median $530,000)

The McGrath Report 2014

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Castle Hill 573 ($961,125)

Kellyville 587 ($815,000)

Most Active Suburbs Number of Apartments Sold (RP Data)

Dee Why 666 ($565,000)

Sydney City 510 (Median $649,000)

Sydney

Cronulla 520 ($565,000 )

Rhodes 561 ($641,000 )

31

Parramatta 679 ($475,000)

Sydney at a Glance

3 in 5 NSW Residents Live In Sydney

Booming New Apartment Market

Sydney’s population is expected to grow by 1.57 million people (36.7%) by 2031. The areas expected to have the highest growth include Sydney’s west, greenfield areas on the outskirts & the CBD.

High density building approvals in Sydney more than doubled from 9,932 in FY11 to 20,354 in the year to March 2014, with strong activity expected to continue for at least 5 years.

(NSW Planning Dept)

(BIS Shrapnel)

ajor New Infrastructure M Unlocks Good Value Markets A $60B infrastructure program is transforming Sydney, with major road & public transport upgrades enabling easier access between homes & job centres. These include: ■

After an extended downturn in construction from the late 2000s, today’s boom is being driven by strong population & economic growth, a chronic undersupply, rising property prices, record low interest rates & high demand from local & foreign investors.

New Apartment Hot Spots (Council Areas)

WestConnex (stage 1 completion 2017)

67 suburbs in Greater Sydney have apartments with median prices under $400K. Below are 4 Inner Sydney LGAs with apartment median pricing under $550K. Suburb Median Ultimo $425,000

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NorthConnex (completion 2019) orth-West Rail Link N (completion 2019) BD & South East Light C Rail (completion 2019/20) outh-West Rail Link S (completion 2015) I nner West Light Rail extension (completed)

1. City of Sydney (3,700 new apartments pa) 2. Parramatta (1,600) 3. Ryde (1,200) 4. Auburn (1,100) 5. Ku-ring-gai (900) (BIS Shrapnel high density approval estimates)

The McGrath Report 2014

Inner Sydney Still Has Affordable Options

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Rushcutters Bay

$445,000

Elizabeth Bay

$530,000

Potts Point

$535,000

(RP Data)

Location Matters The gap between inner Sydney property & the outer suburbs has widened over the years as buyers look for access to the CBD & lifestyle infrastructure.

Penrith Parramatta

Paddington

1994

2004

2014

$118,000

$321,000

$414,000

$163,000

$505,500

$712,500

$346,000

$1,050,000

$1,550,000

Penrith

Parramatta

Paddington

(RP Data)

Sydney

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Audi Benchmark Follow the smart money suburbs with the most Audi owners.

Baulkham Hills

Strathfield

The McGrath Report 2014

Killara

Wahroonga

Randwick

Chatswood

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Burwood

Rhodes

Castle Hill

Mosman

BRISBANE & SURROUNDS

Brisbane houses are 40% cheaper than Sydney & 22.5% cheaper than Melbourne.

In a tell-tale sign, Brisbane sales are up 25% year to February, with 31,770 homes sold compared to 25,470 over the same period in 2013.

Inner Brisbane is experiencing a construction boom, with 5,500 new apartments expected to be ready for sale June-Dec 2014.

Brisbane & Surrounds

40 25 5,500 37

Brisbane & Surrounds Overview

Upgraders are driving most markets in Queensland, with increasing interest from Melbourne & Sydney investors chasing better yields & value. Over the next three years, Brisbane & South-East Queensland will deliver the best capital growth of all the major cities & a fantastic opportunity for southern investors, downsizers & seachanging families.

Let the Sun Shine: Sunshine Coast recovery The Sunshine Coast has finally begun its recovery thanks to major new infrastructure, employment growth & a price disparity that is once again attracting Sydney & Melbourne buyers.

Rewind five years & the median house price in Brisbane wasn’t that different to Sydney & Melbourne. RP Data shows the price gap was just $25,000 with Melbourne & $134,000 with Sydney.

Today, that gap has widened significantly to $115,000 & $270,000 & it’s this sort of gap that has sparked Brisbane’s previous growth cycles.

And that’s what we’re starting to see now.

At the start of any growth period in any location, you see a few tell-tale signs: More local & out-of area investors. More families upgrading while value remains. First home buyers looking to get out of the rental cycle. Returning developers. The number of sales goes up, the days on market goes down. More buyers attend opens & register to bid at auctions.

The McGrath Report 2014

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In 2007, the price gap between the Sunshine Coast & Sydney was just $55,000. There was little reason for Sydney investors to buy here. But the GFC hit hard & today that gap is $265,000 making buying very attractive.

In addition to a compelling value proposition, there’s nothing like major infrastructure & new jobs to spur on a property market.

All of this is happening in Brisbane right now & it’s finally starting to have an impact. RP Data reports Brisbane property values are up almost 7% in the 12 months to August 1 (which looks slow compared to Sydney’s 14.8% & Melbourne’s 11%) but as growth in Sydney & Melbourne slows down, Brisbanes is likely to ramp up.

Upgraders are the biggest players in Brisbane’s market today. Last year, the sub-$1M was the standout sector, this year it has extended to sub-$1.5M. The $500,000 to $700,000 bracket is very strong, with lots of families selling to upgrade to $1M+ properties & lots of buyers ready to compete for their homes.

The inner ring markets 5-6km from the CBD are in strong demand, followed by the middle ring about 10km out. We are starting to see that classic ripple effect as more people expand their search to the middle ring where they can get bigger blocks at slightly better prices yet still with easy access to the CBD.

No project is more significant than the Sunshine Coast Public University Hospital at Kawana, currently under construction & employing 1,800 workers.

On completion in 2016, the hospital will create 2,500 new jobs with another 2,500 by 2021.

The new private hospital opened in late 2013, employing more than 600 staff.

The 25-year plan to rebuild Maroochydore CBD was given formal approval in July with work to commence soon.

Old commercial buildings will be demolished, new roads built & Horton Park Golf Club will be developed. The new city centre will accommodate 240,000 sqm of retail & commercial space & 2,000 homes will be built nearby.

Today, we’re seeing a bottom up recovery with the sub-$500,000 market moving fast, followed by the middle market between $500,000 to $1M & a slight pick-up in the $1M+ sector – largely driven

by Sydney & Melbourne families moving here for lifestyle & value.

Investment activity is increasing due to affordability, attractive yields & great potential for capital growth. Australia’s largest mortgage broker, AFG reports a jump in Queensland investment activity this year. More buyers’ agents are setting up in Brisbane – indicative of increasing demand from interstate clients.

There is a well-worn path from Sydney/Melbourne to South-East Queensland but interstate migration is near record lows – mainly due to baby boomers remaining at work postGFC, hence delaying their trek north for their retirement in the sun.

On the Gold Coast, a wide range of buyers are active for the first time in years.

Many people who sat on the sidelines post-GFC are back in action, confidence is growing & the herd effect is kicking in.

John McGrath’s Top Picks

Things are happening quickly because the area was so heavily oversold in the GFC. Another big factor boosting confidence is the completion of large infrastructure projects, especially the Gold Coast Light Rail & Gold Coast University Hospital.

Carindale just 10kms from the CBD benefitting as people widen their search from the inner ring.

It offers bigger blocks & homes for fractionally less & good local shops including a Westfield.

Big infrastructure projects on the Sunshine Coast (new public & private university hospitals, Maroochydore CBD redevelopment) & in Toowoomba ($100M Brisbane West Wellcamp Airport opening this year & the $1.6B Second Range Crossing starting mid2015) are making national headlines & attracting interstate enquiry.

Some interstate investors in regional areas such as Townsville & the Sunshine Coast are ‘pre-retirees’ – an emerging buyer demographic purchasing now for investment with plans to move in later in retirement.

Brisbane & Surrounds

In Brisbane & on the Sunshine Coast, we are beginning to see young southern families who have sold for big prices back home moving here for lifestyle & jobs that are on par with southern incomes.

The Sunshine Coast’s house prices began improving in mid2013, with the median value up 5.5% over the 12 months to August 2014.

(RP Data)

(Census 2011)

I expect this trend to grow, especially once southern city dwellers realise that Brisbane today is not what they remember 10 years ago. Brisbane is an urbane, cosmopolitan city with great culture, entertainment & restaurants. A good indicator is Brisbane’s debut on Monocle’s Top 25 World’s Most Liveable Cities Index this year.

Local upgraders are once again active in established suburbs with great schools such as Buderim, Tanawha & Mountain Creek.

Investors are back with a 50:50 split between locals & interstate buyers primarily from Sydney.

An emerging trend across the state is miners returning to former home towns & cities or moving to lifestyle locations & investing in real estate.

The mining boom turned many average families into wealthy households & we expect to see more of this activity in years to come as mining winds down.

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Indooroopilly offers a great mix of property types including new apartments & prestige homes.

The new $450M refurbishment of Indooroopilly Shopping Centre has created a major suburban retail mecca & a real alternative to the CBD for major shopping excursions.

Hendra popular suburb with easy access to the airport. A value alternative to the renowned bluechip areas of Hamilton & Ascot.

Newtown less than 2kms west of the Toowoomba CBD, Newtown is an affordable hot spot undergoing change as more young couples & families move in & renovate.

Helensvale located a 15 minute drive from Southport, Helensvale is a sleeping giant.

This large suburb offers a range of properties with good buying available. There are good schools & easy access to highways leading to Brisbane, Southport & Surfers Paradise.

Most Active Suburbs Number of Houses Sold (RP Data)

North Lakes 442 ($445,000 )

Morayfield 336 (Median $317,750)

The McGrath Report 2014

Caboolture 350 ($308,000)

Kallangur 359 ($335,000 )

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Forest Lake 469 ($392,000)

Most Active Suburbs Number of Apartments Sold (RP Data)

Brisbane City 666 ($500,000)

Fortitude Valley 261 (Median $425,000)

Brisbane & Surrounds

Kangaroo Point 262 ($515,000 )

New Farm 288 ($538,750 )

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Nundah 321 ($413,500)

Brisbane at a Glance

Most Affordable East Coast Capital City Market

New Inner City Apartments In Record Numbers

Brisbane houses are 40% cheaper than Sydney & 22.5% cheaper than Melbourne.

Inner Brisbane is experiencing a construction boom, with 5,500 new apartments expected to be ready for sale June-Dec 2014. Demand driven by local, interstate & international investors as well as local downsizers & young professionals. Construction likely to peak in 2016.

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edian house price $475,000 vs Sydney $745,000 M Median apartment price $390,000 vs Sydney $569,000 Property prices up 7% in FY14 vs Sydney 15.4% Average Queensland home loan $373,911 vs $506,696 in NSW Median rent $415 pw (h) $400 (a) vs Sydney $585 pw (h) $520 (a) Investment yields 4.6% (h) 5.4% (a) vs Sydney 3.7% (h) 4.5% (a)

(Urbis & BIS Shrapnel)

Inner Brisbane Still Has Affordable Options 41 suburbs in Greater Brisbane have apartments with median prices under $310K, down from 46 last year.

Below are 5 Brisbane LGAs with apartments sub-$310K.

(AFG, RP Data) Suburb

Median

Algester

$290,500

Kuraby

$292,250

In a tell-tale sign, the number of sales for the Brisbane region are up 19.8% in the year to May 2014, with 48,930 sales compared to 40,840 over the same period in 2013.

Bridgeman Downs

$295,000

Sumner

$300,750

Parkinson

$302,000

(RP Data)

(RP Data)

Cusp Of Recovery

Audi Benchmark

Buderim

Ascot

The McGrath Report 2014

Sunnybank Hills

Robina

Bardon

Bulimba

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Paddington

Surfers Paradise

New Farm

Southport

Australian Capital Territory

Australian Capital Territory Snapshot

Highest Growth

Lowest Days On Market

House

House

Suburb

1 Year

3 Year

Median

Suburb

Amaroo

14%

8%

$582,500

Page

DOM 32

Hackett

14%

9%

$702,000

Stirling

40

Bruce

14%

16%

$750,000

Weetangera

40

Chapman

13%

-4%

$745,000

Scullin

41

Wright

13%

n.a.

$618,848

Latham

46

Suburb

1 Year

3 Year

Median

Suburb

DOM

Casey

24%

17%

$433,250

Monash

34

Harrison

24%

22%

$463,000

Cook

42

Lyons

19%

-4%

$428,950

Latham

46

Weston

12%

8%

$470,000

Palmerston

48

Cook

11%

5%

$500,000

Banks

57

Apartment

Apartment

Highest Number Of Sales

Highest Rental Yields

House

House

Suburb

# Sales

Suburb

Gross Rental Yield

Rent P/W

Casey

159

Macgregor

5.20%

$430

Kambah

157

Charnwood

5.20%

$398

Bonner

145

Isabella Plains

5.19%

$450

Forde

124

Melba

5.15%

$480

Ngunnawal

121

Chisholm

5.10%

$440

Apartment

Apartment

Suburb

# Sales

Suburb

Gross Rental Yield

Rent P/W

Kingston

222

Scullin

6.84%

$355

Braddon

199

Franklin

6.47%

$370

Belconnen

142

City

5.88%

$500

Griffith

128

Ngunnawal

5.78%

$390

Turner

105

Melba

5.67%

$360

(RP Data) Australian Capital Territory

47

Australian Capital Territory Overview

The biggest cut in public sector jobs in 20 years & an oversupply of new apartments are major challenges for Canberra. The market has been jittery since before the election but property values have shown resilience. Downsizing is becoming a significant trend that should be turbocharged by new stamp duty concessions.

The ACT market has been quite uneventful over the past year, with the usual pause around election time followed by a period of uncertainty over jobs that kept market activity on ice in many regions of the city.

The Budget announcement of 16,500 public service job cuts by 2017 was especially concerning for Canberra, as 42% of the nation’s public servants live & work in the city.

Nothing dampens market enthusiasm like job worries but after a slow Winter – which is pretty traditional anyway, we sense a change in confidence.

RP Data figures show Canberra house prices rose 3.2% January to August, with apartments up 1%. This is a similar rate of growth to 2013 when houses rose 3.7% & apartments 1.5%. It’s certainly not booming but they’re not going backwards.

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Low interest rates & a lack of quality houses for sale are keeping house prices solid. The apartment sector is a different story, with the oversupply having a material effect on prices.

In inner north Dickson, some properties are selling for prices close to the 2010 market peak as more locals look to upgrade.

Further north in Gungahlin, newly completed suburbs such as Crace are attracting families & an increasing number of Asian & Indian owner-occupiers purchasing after a few years of renting.

Downsizing is becoming a significant trend, with more of Canberra’s ageing population looking to transition to lower maintenance properties.

As more public sector jobs go – with many redundancies aimed at senior managers; we expect to see more downsizing helped along by the new Over 60s Home Bonus Scheme.

The two-year scheme provides massive stamp duty concessions for over 60s. Just $20 will be charged on purchases up to $595,000 – a drop in the ocean compared to the $20,550 you would normally pay.

I see an opportunity for downsizers to buy well now in the oversupplied new apartment market with plenty of choice, time & negotiating power on their side. Some downsizers prefer townhouses & this demand is being met by developers building infill properties now that government land releases are being scaled back.

Investment activity is down & the apartment sector will remain tough for some time. Mainland Chinese are not big players as yet but a HSBC study of wealthy Asian investors shows 34% are interested in the ACT – well ahead of NSW (20%), VIC (25%) & QLD (29%).

Australian Capital Territory

John McGrath’s Top Picks Ainslie a strong reliable performer, this is a large tightlyheld suburb with a significant segment elevated to capture city views & also backing onto bush reserve. It is walking distance to the city with wide leafy streets & vibrant village shops & cafes. Also has easy access to the employment hubs of Russell & Barton.

Turner very solid performer & one of the closest established suburbs to the CBD. A lot of new boutique apartments & townhouses are going in. It has easy access to the Australian National University (ANU) & is popular with students, academics & CBD executives.

Low long-term vacancy rates & reliable capital growth.

Audi Benchmark

Yarralumla

Kambah

Canberra

49

Kingston

Deakin

Crace/Franklin these relatively new neighbouring suburbs are very popular with families due to their modern housing, landscaped parks, sporting facilities, cafes & schools. Crace is Australia’s fastest growing housing market according to the Housing Industry Association, based on the value of new home approvals & population growth.

REGIONAL New South Wales

Regional New South Wales Snapshot

Highest Growth

Lowest Days On Market

House

House

Suburb

1 Year

3 Year

Median

Suburb

DOM

Dareton

49%

9%

$130,000

Valley Heights

21

Blue Bay

48%

46%

$635,000

Currans Hill

21

Balranald

45%

21%

$145,000

North Gosford

22

Berrima

43%

n.a.

$860,000

Kahibah

23

Ewingsdale

40%

30%

$1,263,000

Wyoming

29

Suburb

1 Year

3 Year

Median

Suburb

DOM

Mittagong

45%

96%

$460,000

Kariong

18

Murwillumbah

42%

30%

$240,000

Lisarow

23

Bermagui

38%

2%

$295,000

Merewether

24

Gregory Hills

36%

n.a.

$484,475

Mardi

24

Batehaven

35%

-20%

$251,000

Bligh Park

29

Apartment

Apartment

Highest Number Of Sales

Highest Rental Yields

House

House

Suburb

# Sales

Suburb

Gross Rental Yield

Port Macquarie

868

Killcare

16.71%

$2,650

Dubbo

718

Rosedale

15.05%

$1,400

Orange

585

Malua Bay

11.73%

$925

Goulburn

467

Broulee

11.46%

$850

Armidale

384

Mossy Point

11.09%

$1,290

Apartment

Rent P/W

Apartment

Suburb

# Sales

Suburb

Gross Rental Yield

Rent P/W

Wollongong

558

Lavington

7.88%

$210

Port Macquarie

503

Tolland

7.76%

$185

Coffs Harbour

312

Sapphire Beach

7.64%

$360

Tweed Heads

243

Cowra

7.40%

$175

Gosford

188

Nowra

7.16%

$230

Regional New South Wales

53

Regional New South Wales Overview

The heat of the Sydney market is starting to have an influence on regional areas, inspiring new confidence among local upgraders & investors seeking to take advantage of low interest rates, high yields & great capital growth opportunities in their own backyard.

Competition from Sydney buyers is increasing as city dwellers look further afield for investment, retirement &/or a lifestyle change.

Many NSW markets are experiencing a good level of buyer activity & steady or improving prices. In many cases, local upgraders are dominating the market but local & outof-area investors are also out in increasing force.

Many Sydney investors are expanding their search to regional areas as rising prices back home reduce yields. More investors are using self-managed super funds (SMSF) where they are buying houses as well as apartment that deliver strong yields.

The ‘pre-retirees’ – those that are purchasing now for investment with the specific intention of moving in themselves in retirement – are becoming a significant new buyer demographic.

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54

Post-GFC, many baby boomers have delayed retirement to give their super nest eggs a chance to regenerate. Sydney’s recent property boom has given them newfound equity that is enabling them to buy their future retirement homes now.

This is a very typical scenario in locations such as Byron Bay, Banora Point, Kiama, Berry & Bowral.

This is really smart thinking given most regional areas are in line for good capital growth; & strong rental yields of up to 7% means these properties will pay for themselves until the owners choose to move in.

Of course, we are still seeing downsizing retirees relocating permanently to lifestyle markets, particularly those with easy access back to Sydney to visit the grandkids. In Port Macquarie’s Town Beach, 12 out of 17 in a new luxury complex sold to Sydney downsizers. The lowest price paid was $950,000 for the ground floor & the penthouses are being marketed above $2.2M which could set a record for the town.

As is often the case with Sydney booms, city prices reach a point where some young families simply give up & leave Sydney for a lifestyle destination.

Others expand their search & buy in commuter regions like the Central Coast, Wollongong, Bowral & the Blue Mountains.

We’re starting to see more of this now.

Regional New South Wales

Another trend not seen in many years is Sydney buyers purchasing weekenders – & not just beach shacks either, we’re talking $1.5M-$2M+ properties on the Central Coast & in Bowral & early $1Ms in Berry.

John McGrath’s Top Picks Moss Vale beautiful village area with diverse housing. Moss Vale is a 10 minute drive south of Bowral & offers better value but the same lifestyle (median house price approximately $185,000 less than Bowral).

Mount Ousley/Balgownie positioned north of Wollongong CBD, these areas are popular with young families & Sydney commuters, with easy access to the Princes Motorway for a 30 minute trip to Sydney’s southern border. Fantastic local village shops at Balgownie & a lot of housing diversity.

We are also seeing instances of Chinese activity in some markets for the first time. In the Southern Highlands, there have been several major landholding purchases of 100 acres or more, including the 11-hectare site of the iconic Milton Park guesthouse which sold for $13M in December 2013. A few Sydney-based Chinese buyers are also in Newcastle & Port Macquarie looking for development sites.

Blackheath offers wonderful character homes on quarter-acre blocks from $350,000. It has a lively local village & is already benefitting from road upgrades enabling faster access to Sydney.

Kincumber the more affordable neighbour of Avoca Beach & Saratoga – Kincumber offers good yields & prospects for capital growth with today’s prices about 20% less than Avoca Beach & Saratoga.

55

Around the World

As the global economy continues to recover so do the key international real estate markets.

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58

New York

The Manhattan residential market is showing signs of stabilising after a year of robust activity, record low inventory & strong foreign buyer interest.

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hinese replace Russians as Manhattan’s Top Apartment C buyers. Russian activity dropped off due to unrest in Ukraine & US imposing sanctions against Russia ontinued shortage of stock & restoration of prices C to pre-2008 levels resulted in a slower pace in 2014 L uxury Sales Grow at Disproportionate rate.

Shift towards larger units in new luxury developments contributed to higher priced sales

Top 5 Sales in 2014

roperties above $3M account for 12% of sales P (up 3% in last 12 months)

US$90M Penthouse, 432 Park Avenue, Upper East

45 sales at $10M+, an increase of 181% in 12 months ew Developments saw the largest median price N growth in one & three bedroom units. Average sales price increased 63% in 12 months to $3.59M Co-ops & older condos $5M+ have slowed verage sale price increased 20% in 12 months to A $1.697 million

US$70M Penthouse, 960 Fifth Ave, Upper East US$50.912M Penthouse, Walker Tower, Chelsea US$45M 15 Century Park West, Upper West US$43M Triplex Penthouse, One Madison, Downtown

rice Per Square Foot Sets New Record. Focus on P high-end sales drove average price per square foot up to $1,286 Downtown has the largest volume of sales at 27%

(Corcoran Report, realdeal.com)

Around the World

59

NYC

London

London continues to be one of the world’s most expensive residential markets as it is buoyed by the wealth of Russians, Chinese & Arabs. Prime London property becomes akin to a global reserve currency.

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he pace of house price growth has slowed in Q2 T 2014 as the market stabilises & returns to more normal trading conditions

Investors account for nearly 31% of all Prime London purchases made in Q2 2014, the highest level on record rime Central London (Chelsea, Kensington, Mayfair, P Notting Hill, Holland Park, Pimlico) is the key hotspot for overseas investors, cash buyers account for 68% of all purchase in Q2 2014 (+26%) rices are still rising, particularly in lower price brackets P where demand is outstripping supply. One bedroom units in Outer Prime London (Clapham, Balham, Battersea, Barnes, Fulham) have seen fastest annual growth (+28%) s prices have climbed in Central London, buyers A look further afield to more affordable urban ‘villages’ of Outer Prime London. Hotspots are Clapham, Brook Green & Balham

55% of Prime London property is valued at £1 million or more

House price growth steadies in Q2, 2014

Top 5 Sales In 2014 £140M Penthouse, One Hyde Park, Knightsbridge

Prime Central Average Property Price: £2,239.559 Quarterly Change: 2.1% Annual Change: 10.5%

£43M House, Mayfair £35M House, St Johns Wood £30M House, Kensington

Outer Prime London Average Property Price: £1,183,570

£29.95M House, St Johns Wood

Quarterly Change: 4.3% Annual Change: 15.3%

(Marsh & Parsons, Lonres.com, databiens.com)

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LDN

Paris

The French government’s punitive tax regime, rising interest rates, low consumer & business confidence has had a negative impact on the residential market – Paris becomes a buyer’s market.

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ince Q3 2011, average price of three-bedroom S homes down from €1.5 million to just above €1 million in Q1 2014 uyers’ Market continues. Active sales market in B Paris for heavily discounted properties. Buyers largely French nationals living abroad. Foreign buyers mainly Middle East & Russian. U.S. re-emerge (celebrities & businessmen) hile recovery underway in most European markets, W France has stagnated due to weak consumer spending & business investment. Unemployment at a new record high of 3.36 million ealth tax on assets over €1.3 million, increased VAT W on renovations & higher business taxes, dampened prestige market. Price stabilisation evident in more upmarket arrondissements

Top end price growth subdued as buyers factor in wealth tax implications, creating surplus stock & downward pressure on prices

Top 5 Sales in 2014 €11 400 000 Apartment (Odeon) June 2013 approx 34500€/m2 €7 000 000 Apartment (Etoile Foch) Jan 2014 approx 11750€m2 € 5 600 000 Apartment ( Trocadero) May 2014 approx 16000€/m2 € 5 350 000 Apartment ( Place des Vosges) Jan 2014 Approx 26300€/m2 €5 000 000 Apartment (Grenelle) Feb 2014 at approx. 28000€ m2

Most purchasing activity sub €1 million I ntroduction of Loi ALUR in March 2014 to contain growth in rental values in line with RPI as well as to regulation rental values by location*

*retail price index (databiens.com)

Around the World

63

PAR

Hong Kong

Despite a continued softening in the luxury residential market due increased transaction costs from stricter policy measures & multiple stamp duties, Hong Kong Island is the third-most expensive city in the world after Monaco & London.

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Buyers of properties valued at HK$2M+ pay double stamp duty up to a 8.5% ceiling since February 2013 if non HKG residents. Legislation doubling stamp duty was passed on July 2014 L uxury apartment prices down by 8% from their peak in Q4 2012 Top 5 Sales In 2014

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Luxury residential sales also affected by declining demand in leasing as multinationals cut rental budgets & many expats return to recovering economies back home. Luxury rents falling by around 4% in Q1 2014 nly 95 luxury sales in Q1 2014, a 41% drop compared O with the 161 transactions in Q1 2013. Low volume a result of cooling measures & declining investment interest rices in the mass-residential market showed signs of a P correction in Q1 2014 across Hong Kong Island, Kowloon & the New Territories, however increasing demand for small to medium-size flats

HK$690M House at 28 Barker Road, The Peak – HK Island HK$650M House at 3 Gough Hill Road, The Peak – HK Island HK$430M Apartment, Stubbs Road, The Peak – HK Island HK$231M House at Shouson Peak – HK Island HK$200M House at Pok Fu Lam – HK Island

ecent signs of revival in the Hong Kong market due to R developer discounts on higher stock levels, low interest rates & some government concessions on stamp duties with some recent high priced sales

(Savills, Knight Frank)

The McGrath Report 2014

64

HKG