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Quarterly Economic & Property Report AUSTRALIA Quarter 2 | 2011


Q2 2011 | QUARTERLY ECONOMIC REPORT

NATIONAL RESEARCH REPORT

QUARTERLY ECONOMIC & PROPERTY REPORT

Overview - General Economic and Property Overview

KEY FACTS • CPI: 3.3% • SVHL Rate: 7.8% • AUS Unemployment Rate: 5.3% • AUS Population Growth: 1.5% • Average AUS Fuel Price: $1.44 pl

What an interesting year this is shaping up to be. While many analysts had hoped that a prolonged period of stable interest rates would build momentum in the property market, the latest figures show that activity has in fact quietened further. The previously stable property markets of New South Wales and Victoria have stuttered at the end of 2010 and into 2011. Recent statistics released by the ABS show a staggering decrease in the amount of national home loans issued. Not the best news for builders and developers. Sharply contrasted to the home owner market, the rental market has experienced a significant tightening, as vacancy rates decreased and rental prices are expected to increase (in some cases by 7% this year). With declining property prices and rising rents, better yields are to be made in the property market and investors could finally be enticed to re-enter the market. However, rising rental prices could put increased pressure on inflation (which took everyone by surprise with its latest jump out of the RBA’s target range this past month) and cause a further increase to interest rates, further stifling confidence. Historically, after every increase to the level of interest rates, activity in the market softens. In early 2011 it has been low inflationary pressure that has kept rates steady, with the help of a very high Australian dollar. As the Terms of Trade swells, local markets such as tourism continues to struggle. The big question now is “When will rates go up?” Recently, a key factor that affects the Australian property market has changed. There has been a rapid decline in the number of international migrants entering Australia. Closely tied to Australia’s economic growth is the continual increase in population, whether it be bigger is better or sustainable growth. While the Global Financial Crisis (GFC) caused a massive spike in the number of migrants entering the country, it now appears to have petered out. Certainly the influx of returning expats from suffering economies during the GFC (such as in Dubai and London) would have directly affected migrant numbers into Australia. Now that this has dropped off, demand for skilled labour may increase, resulting in lower unemployment and higher pressure on wages to increase, which is likely to increase inflation (and interest rates). For once, I agree with the International Monetary Fund (IMF) on urging Australia to establish a sovereign wealth fund, using the mining boom to save for a rainy day. After all, commodity prices will not remain this high forever and we should be cautious of Australia’s increasing dependence on South East Asian economies. The Chilean example of a sovereign wealth fund proves that it can work in transforming income from raw resources into sustainable and stable future income, compensating for the volatile commodity prices and finite supplies.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Confidence SENTIMENT HITS NINE MONTH LOW The Australian Consumer Sentiment Index decreased by 6.3 index points during the quarter ending March 2011 to reach 104.1 Index points. Despite the recent decrease in the index, optimism still outweighs pessimism in the current market by four index points. Long-term, the six month moving average has recorded a decrease of five Index points during the quarter. Westpac chief economist Bill Evans said the result was weaker than expected due to the aftermath of three consecutive rate hikes by the Reserve Bank and the controversy over the mining tax. According to the monthly statewide survey of consumer sentiment, during the month of April 2011 sentiment decreased in Western Australia the most (by 12.6 Index points) and also declined in New South Wales (by 1.2 Index points). Queensland experienced the greatest increase in sentiment, with 6.1%, while Victoria increased by 5.2% and South Australia saw a 3.5% increase. The Chinese Consumer Sentiment Index, measured by Macquarie China, increased 3 points to 73 index points (50 points is considered neutral in China).

Australian Consumer Sentiment Australian Consumer Sentiment Index

130

Six Month Moving Average

110 100 90 80

Consumer Sentiment Index

120

70

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Mar-91

60

Prepared by PRDnationwide Research Source: Westpac/Melbourne Institute, last updated Mar 2011

• The Consumer Sentiment Index indicates short-run changes to consumer willingness to purchase goods in the forthcoming quarter. The Index is based on a monthly survey of 1,200 Australian households conducted by the Melbourne Institute and Westpac. It represents current and future perspectives of the broad economic climate and household financial state.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Confidence cont. RECOVERY OF CONFIDENCE DESPITE DISASTERS Business confidence staggered in the December 2010 quarter after what was likely a response from the November 2010 interest rate rise. However, the March 2011 quarter had business confidence increasing to nine Index points, due to a sharp increase in trading conditions and profitability. Queensland lead the way, with confidence reaching 16 points, after the state began its recovery from the January disasters. Western Australia continued a high level of confidence, buoyed by the mining sector to reach 15 Index points. Tasmania experienced a sharp decline, falling to negative 21 Index points. The NAB Business Conditions Index (output) increased in March by 11 points to reach 9 after a poor January and February. Conditions were strong again in mining (+27 index points), recreation and personal services (+27 index points), and finance business and property (+18), while trade exposed sectors such as retail, wholesale and construction remained subdued. The NAB has its Australian economic forecasts unchanged, as the economy is expected to have stalled over the March 2011 quarter due to the floods and cyclones, but to have improved in the end from mining investment, flood reconstruction and income effects of commodity prices. The NAB forecasts GDP growth at 2.5% in 2011 and 3.7% in 2012. Global economic growth has been revised by the IMF after the Japanese disasters, softening to 4.5%. However, considering the amount of activity shocks, the degree of growth still reflects the momentum seen at the end of 2010 in the larger developed economies, such as the US and Germany. The latest Dun & Bradstreet National Business Expectations Survey showed a near decade low index figure down 17 points resulting to 14 Index points. The survey also found that 41% of executives see the high Australian dollar as having a positive impact to business.

35 30 25 20 15 10 5 0 -5 -10 -15 -20 -25 -30 -35 -40

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Prepared by PRDnationwide Research Source: National Australia Bank (NAB), last updated Apr-11

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• The Business Confidence Index indicates expectations of business conditions for the upcoming quarter. • The Index is based on a survey of approximately 900 small to large businesses in the non-farm sectors and is conducted by the National Australia Bank (NAB).

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Macroeconomic Climate FRUIT AND VEG PRICES SOAR The March 2011 CPI figures recorded an unexpected annual change of 3.3%, placing inflation just outside the RBA target range of 2% to 3%. The underlying inflation figure, as measured by the RBA removes volatile items such as fruit and fuel, has increased to 2.6% from the December 2010 quarter of 2.5%. Rising fuel costs (increase of 8.8%), vegetables (+16%), fruit (+14.5%) and pharmaceuticals (+12.5%) helped push the CPI higher than expected. Meanwhile, products that experienced a significant decline in price were furniture (-6.2%), electronic equipment (-7.2%) and milk (-6.2%). The large increase to prices for fruit and vegetables have derived from the devastation caused by Cyclone Yasi. It was education however, that experienced the largest increase in prices out of all measured groups. Hosing prices increased 1.3% during the quarter, with electricity increasing the most at 5.1%. According to BankWest, almost a third of Australians are financially unfit, with little or no savings, an over-reliance on debt, inadequate insurance, and high housing costs relative to their income. This equates to an increase of 3% from the previous year. In the study, only 17% were found to be financially fit, with respondents citing higher energy and food costs.

Inflation 8% All groups

Excluding volatile items

4%

Reserve Bank's Target Range

2%

Annual Change in CPI

6%

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Prepared by PRDnationwide Research Source: ABS Cat 6401, last updated Apr - 2011

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0%

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• Inflation is measured as a change in the Consumer Price Index (CPI), calculated by the Australian Bureau of Statistics (ABS) as the price of a weighted 'basket' of goods and services which account for a high proportion of expenditure by metropolitan households. • The Reserve Bank of Australia (RBA) aims to constrain inflation in a long-run target range of 2-3% through the setting of interest rates.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Macroeconomic Climate cont. INTEREST RATES EXPECTED TO RISE IN AUGUST Home owners have breathed a sigh of relief that the RBA has not been tempted to raise the cash rate, leaving it steady over the beginning of 2011 at 4.75%. This resulted in interest rates remaining steady, with the standard variable home loan rate at 7.8%. According to the RBA, the cash rate has not shifted during the beginning of 2011 quarter for two key reasons. The first is the high Australian dollar assisting in keeping inflationary pressures down, while the second factor has been cautionary household spending. In the past 15 years, household debt has increased significantly, however households are currently saving at a level higher than the previous 20 years. A recent Household Income and Labour Dynamics in Australia (HILDA) survey has concluded that the growth of household borrowing has declined since the mid 2000s across all age groups. Since the financial crisis of 2008 an increased amount of households have reported that they are ahead of schedule in home loan and credit card repayments. Economists now predict a rise in the cash rate to come sooner rather than later, due to the unexpected increase of recent inflation levels.

Housing Loan Interest Rate 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0

Prepared by PRDnationwide Research Source: RBA Bulletin F05, last updated Apr -11

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Standard Bank Housing Loan Interest Rate %

18.0

Month

• The housing loan interest rate is the average rate of interest being offered by housing lenders. It is higher than the RBA’s target cash rate due to lending costs and profit margins. • Interest rates are set by the RBA, who acts independently of government and sets interest rates with the goal of maintaining inflation in a long-run target range of 2% and 3%. The RBA meets monthly to review the current interest rate and is only required to justify its decision if it chooses to alter the rate

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Foreign Exchange THE NEW NORM FOR THE AUSTRALIAN DOLLAR? During the month of March 2011 the Australian Dollar Exchange Index increased a further 1.1% to register an index value of 76.3, whilst the annual change in the Australian Dollar appreciated 6.4%. The Trade Weighted Exchange Rate Index graph demonstrates the overall trend of a strengthening Australian dollar since the lows experienced in the late 1980’s. The strength of the Australian dollar is a reflection of the weakness in the $USD, strong commodity prices and high interest rates. The high level of the Australian dollar is expected to increase in the near future, with interest rates in the US expected to remain on hold, while other international markets have started to increase theirs. Global investor confidence has risen, further reducing the demand for the US dollar. Commodity prices are expected to continue to remain high, relying on demand from China. According to a recent report by Southern Cross Equities, many exporters that are not part of the mining industry are experiencing significant pain due to the high Australian dollar, citing further evidence that the two speed economy is growing further apart.

Trade Weighted Exchange Rate Index 80 75 Improving Affordability of Imports

Trade Weighted Index

70 65 60 55 50 45

Prepared by PRDnationwide Research Source: RBA Bulletin F11, last updated Apr-11

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• The trade weighted exchange rate index is compiled monthly by the Reserve Bank and ranks the Australian dollar against the currencies of our significant trading partners. • Exchange rates directly affect the prices of our exports in foreign trade dollars.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Fuel Prices DESPITE HIGH AUD$ FUEL PRICES CONTINUE TO SOAR In dollar value terms, the nation experienced a rise of seven cents to the average petrol price during the month ending March 2011. The average price Australians pay at the pump increased to $1.44 per litre. During the year ending March 2011, petrol prices increased at an average rate of 10.5% across the nation. Adelaide is now the capital city where motorists pay the least at $1.37 per litre. The city experienced the smallest quarterly increase of any capital city at 7% over the quarter. In Darwin and Hobart consumers payed the most at $1.48 per litre. Over the quarter ending March 2011, all capital cities experienced an increase in petrol prices with Hobart increasing the most at 16.5%, followed by Perth (10.9%). During the course of 2011, Brisbane petrol prices increased by 11.3%, while Sydney increased at 12.5% and Melbourne at 10.2%. During the month of March 2011 Queensland experienced an increase of 6.7% in the number of cars sold, equating to almost 90,000. This was largely due to insured drivers having to replace their cars following the January floods.

Retail Fuel Prices Brisbane

Melbourne

$1.80

Sydney

Average Retail Price of ULP

$1.60 $1.40 $1.20 $1.00 $0.80 $0.60

Prepared by PRDnationwide Research Source: AAA/Fueltrac, last updated Apr-11

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$0.40

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• Sourced from Fueltrac, this chart tracks the average retail price for unleaded petrol across a broad range of suppliers in metro areas

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Commodities Prices COMMODITY PRICES PUSH PAST 100 INDEX POINTS During the month of March 2011, commodity prices increased by 1.6% to reach 101.6 index points. Compared to the previous year prices were rapidly falling due to the slackening of demand from the wake of the financial crisis, commodity prices have now increased by 37.5%. Over the past decade demand for coal has increased by 50%, while consumption of iron ore increased by 80% from 2003. As the global rate of demand increases rapidly, suppliers have been stretched, pushing prices for commodities higher. The RBA does not know for certain how long the boom in resources shall last and has placed caution towards the high level of the Terms of Trade, opting not to buy but rather save for the near future. This strategy aligns itself to most households in Australia, which have seen their level of savings increased. Iron ore, coal and LNG now account for more than one-third of Australia’s total exports. With many new mining projects underway, capacity of export volumes are expected to increase further. According to a review of the budget outlook by the consulting firm Macroeconomics, the strength of commodity markets is already boosting the budget bottom line by $35 billion this year. It is estimated that if Government spending cuts between $4 billion to $5 billion were in place this year, a budget surplus would be viable by 2012-2013.

RBA Commodity Price Index 120 100 80 60 40 20

RBA commodity price index value

140

Prepared by PRDnationwide Research Source: RBA Bulletin G5, last updated Apr-11

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• Primary commodities account for more than half of Australia’s export earning. • The Reserve Bank’s Commodity Price Index provides an indicator of primary commodity price movements. The index includes 17 commodities with separate weightings, the highest of which are coal, gold and iron ore. • High commodity prices are one of the primary drivers behind Australia’s robust economy, influencing real estate prices particularly in Western Australia, Northern Territory, Northern Queensland and as of late South Australia. Coupled with the resource industry boom, employment and population growth follow, which spurs demand for housing and rental accommodation, particularly in neighbouring resource rich regions.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

House Finance SHARP DECLINE FELT IN HOUSING FINANCE The gross spend on housing finance was $19.3 billion during the month of February 2011. Compared to the previous year, the total spend has decreased 9.2%, equating to a fall of $2 billion. Investor spend continues to slide as it decreased to $6.2 billion, equating to a softening of $1.1 billion from the previous year. A large decline was recorded in owner occupied finance, which fell by $600 million in February alone. Since 2010, owner occupied investment has rapidly declined by $1.4 billion, but still equates to 68% of total housing finance. The fall in house finance expenditure has also seen a rise in in the amount of national advertised residential properties online. SQM Research noted that during March 2011 advertised properties increased in volume by 13,100 (3.8%). This equates to a total of 356,600 properties being advertised online, compared to 241,700 properties last year (an increase of 47.5%). A recent report released by RPData found that state and local governments get the majority of their source of tax revenue from property related taxes, approximately 48%. The report found that during the 2009-2010 financial year, almost $32 billion in tax from property alone was received. The report concluded that this level of high revenue is likely to decline in the softer property markets of 2010-2011.

Housing Finance Commitments 20 Investment

18 16 14 12 10 8 6 4

Value of Commitments ($ billion)

Owner Occupied

2

Prepared by PRDnationwide Research Source: ABS Cat. No. 5609, last updated Apr -11

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• Housing finance commitments track the volume of finance commitments made by significant lenders to individuals for the purchase of housing. • This graph tracks the value of loans approved for both owner occupiers and investors

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Labour Market UNEMPLOYMENT RATE FALLS AGAIN During the month of March 2011, unemployment decreased to 5.3%. When looking at the moving annual average, a decrease of 0.1% was recorded shifting the average unemployment rate to 5.1%. The low level of unemployment has placed increased pressure on wage growth and in the longer-term, inflation. For the month of March 2011, the nations lowest rate of unemployment occurred in the Northern Territory at 3%, while Queensland continued to have the highest rate of unemployment at 6.2%. The New South Wales unemployment rate slightly increased to 5.4%, while in Victoria unemployment softened by 16% over the month to 4.7%. After having a period of high unemployment Tasmania experienced a 14% softening to record 5.6% for the month of March. The resource industry has proved to be a large reason why unemployment levels have remained low, with male unemployment decreasing by 0.3%, while female unemployment increased by 0.1%. Further to this, a recent study by Randstad found that males were looking at employment for money and career progression, while females wanted flexibility and a better workplace culture.

Unemployment Rate 12%

Unemployment Rate Australia

Moving Annual Average Australia

8%

6%

4%

Unemployment Rate

10%

Prepared by PRDnationwide Research Source: ABS Cat 6202, last updated Apr-11

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• Unemployment is calculated as the proportion of people in the labour force that were unemployed and actively seeking work during the survey period. • The labour force is defined as the number of people aged between 16 and 55 who were either employed or actively looking for work during the survey period. • This graph tracks the unemployment rate on a monthly and moving annual average basis over the last 30 years.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Equity Market STOCK MARKET AFFECTED BY HIGH AUD$ The Australian Securities Index experienced a quick increase in April, only to retract to it’s original value. As at the 18th of April 2011, the Index recorded 4861.85, equating to an increase in the rolling average month of 2.3%. Further increases to the Australian dollar has caused the stock market to flatten, as investors look to global markets that would benefit from weaker currencies. It is predicted that in the near future, the Australian market would underperform against its global peers. A Citigroup report described how the high Australian dollar is likely to push the market towards resources and energy sector of the equity market, a view that was supported by StockAnalysis. IBISWorld forecasts that organic farming and video games are to be the two fastest growing sectors in 2011. Organic farming is expected to increase 14% in revenue from $416.3 million, while video games are expected to increase by 12% to become a $4 billion industry.

S&P / ASX 200 7,500 7,000 6,500

5,500 5,000 4,500

Index Value

6,000

4,000 3,500 3,000

31-Mar-00 8-Jun-00 15-Aug-00 19-Oct-00 27-Dec-00 6-Mar-01 15-May-01 20-Jul-01 25-Sep-01 29-Nov-01 7-Feb-02 17-Apr-02 25-Jun-02 29-Aug-02 4-Nov-02 13-Jan-03 19-Mar-03 28-May-03 4-Aug-03 8-Oct-03 12-Dec-03 23-Feb-04 3-May-04 9-Jul-04 14-Sep-04 19-Nov-04 4-Feb-05 14-Apr-05 22-Jun-05 29-Aug-05 3-Nov-05 16-Jan-06 23-Mar-06 01-JUN-06 08-AUG-06 12-OCT-06 23-May-07 30-Jul-07 03-Oct-07 07-Dec-07 18-Feb-08 28-Apr-08 03-Jul-08 08-Sep-08 12-Nov-08 21-Jan-09 30-Mar-09 05-Jun-09 12-Aug-09 16-Oct-09 22-Dec-09 03-Mar-10 12-May-10 19-Jul-10 22-Sep-10 26-Nov-10 7-Feb-11 13-Apr-11

2,500

Prepared by PRDnationwide Research Source: Standard & Poors, last updated Apr-11

Day

• The S&P/ASX 200 is recognized as the primary investable benchmark in Australia. The index covers approximately 78% of Australian equity market capitalization. Index constituents are drawn from eligible companies listed on the Australian Stock Exchange. This index is designed to address investment managers' needs to benchmark against a portfolio characterised by sufficient size and liquidity. • The S&P/ASX Australian Index is a real-time, market capitalisation weighted index that include the largest and most liquid stocks in the Australian equity market listed on the Australian Stock Exchange (ASX).

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Home Affordability INTEREST RATES CAUSE DECLINE IN HOME LOAN AFFORDABILITY As predicted, the November 2010 interest rate increase appears to have affected the Home Loan Affordability Index, which has continued to decline during the December 2010 quarter. The Index decreased by 0.4 points to register 28.3 index points. This is despite a period of softening house prices. Most states recorded an improvement to home loan affordability, with Western Australia, Queensland and Tasmania each achieving the highest growth at 0.7 index points. The ACT also improved marginally by 0.6 points. States that continued to decrease in affordability were Victoria (-0.3), the Northern Territory (-2.1) and New South Wales (-1.3). On average, Australian households now need approximately 35.3% of the family income to service their home loan. New South Wales continued to be the least affordable state, with households requiring 39.5% of the family income to service their home loan, equating to 4.2% above the national average. Queensland families require approximately 33.4% of the average family income to service the average home loan, while Victoria requires 36.1%. The ACT requires the least amount, with 18.5% of the average income. According to the REIA, the proportion of family income needed to meet the average rental payment has remained steady during 2010 at 25.1%. Over the December 2010 quarter, loans to first home buyers increased 6.8% equating to the only increase in loans to first home buyers during 2010. First home buyer participation of the total market decreased by to 15.6% during the December quarter, its lowest rate since 2004.

Home Loan Affordability Index 70.0

50.0

40.0

Index value

60.0

Improving Affordability

30.0

Prepared by PRDnationwide Research Source: REIA / Deposit Power, last updated April-11

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• The Home Loan Affordability Index measures average loan repayments against median wages and tracks these values over time. • Continued price growth in the property market without an accompanying rise in income saw a long period of decline in the home loan affordability index across the nation. • The Home Loan Affordability index commenced its rapid descent during 2002. After a short leveling between 2004 and 2006, affordability levels have again continued to trend downwards.

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Dwelling Market NEW DWELLING COMMENCEMENTS CRASH AT THE END OF 2010 The total number of dwelling commencements decreased during the December 2010 quarter by 7.7%, equating to 3,270 less new homes compared to the previous quarter. When compared to the previous year, commencements have decreased by 7.2%. On a state-by-state basis, Victoria continued to record the highest number of dwelling commencements during the December quarter, representing 35% of all dwellings commenced nationally. New South Wales followed with 20%, while Queensland had 17%. The least amount of dwellings commenced for a state during the December 2010 quarter was the Northern Territory (279), followed by Tasmania (757). With a significant decline in dwelling commencements having occurred, the HIA has demanded that federal government introduce stimulus measures for new housing. The HIA have also voiced their approval for the removal of stamp duty on new homes. Total national spend for home renovations continues to increase strongly, with $31 billion spent at the end of 2010 and forecasted growth of 2% during 2011 and 5% during 2012, equating to a total of $33 billion.

Dwelling Commencements Annual moving average

50,000 45,000 40,000 35,000 30,000

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25,000

Moving Annual Avg. of Commencements .

55,000

Dwelling Commencements Australia

Quarter Prepared by PRDnationwide Research Source: ABS Cat. No. 8750, last updated Apr-11

• Dwelling commencements indicate the number of new dwellings that have commenced their construction phase. • A moving yearly average is used to filter out seasonal fluctuations in the number of dwellings commenced. • Nationally, the annual number of dwelling commencements have been on a downward trend since Sep-04 (earlier in NSW and VIC)

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Home Prices HOME PRICES SOFTEN IN EARLY 2011 During the year ending March 2011, the national average price index released by RPData recorded a decrease of 0.6%. Only two capital cities recorded marginal positive growth, with Darwin achieving the largest amount at 1.1%. Melbourne followed with a small change of 0.6%, while there was no change recorded in Sydney. Home prices in Hobart and Adelaide have both recorded a decline in the price index, softening by 1.3% and 0.7% respectively. Brisbane prices decreased by 1.4%, while Perth decreased the most by 1.9%. According to RPData, the highest median house price now rests with Canberra at $511,500. Sydney recorded a median price at $500,000, while Perth and Melbourne recorded the third highest median price at $465,000. Developer Stockland has announced that they are pulling out of inner-city high rise developments due to a lack of Government engagement. RPData believes that the fall in house prices follows near-record levels of housing stock coming on the market, the period homes are advertised for sale has also lengthened considerably. Reserve Bank of Australia chief Glenn Stevens said he was not terribly troubled about the level of house prices in Australia, as house price to income ratios were not exceptional by global standards.

National Home Value Index National Hobart

Captial City

Canberra Darwin Perth Adelaide Brisbane Melbourne Sydney -2.5%

-2.0%

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

Change in Dwelling Price Index Prepared by PRDnationwide Research Source: RPData-Rismark International last updated May-11

• The chart to the above measures an annual period change in house prices of the capital cities.

PRDnationwide |

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Rental Market RENTAL MARKET ATTRACTS ATTENTION Over 2010, the Australian average vacancy rate decreased by 0.1% to 2.2%. Demand for rental accommodation now appears to be very high in Sydney, Canberra and Adelaide. Vacancy rates have decreased the most in Canberra (1.3%) over the most recent quarter ending December 2010. According to the latest Market Facts report from the REIA, the city to experience the greatest demand for rental accommodation is Adelaide, with vacancy rates at 0.9%. Melbourne experienced an increase to vacancy rates during the December quarter, climbing by 1% to reach a final figure of 2.4%. Brisbane recorded no change in the level of vacancies over the December quarter and is now the capital city with the largest vacancy rate at 3.4%. Darwin maintains the highest median rental price for a standard three bedroom house at $545 per week, despite a decrease of 2.2% over the quarter ending December 2010. Adelaide is still the most affordable city to rent in, with a median rental price of $310 per week. Sydney median rent increased by 2.6% over the quarter to reach $400 per week for a three bedroom house. The median rent price in Melbourne remained at $330 per week, while there was also no change in the median rental price for Brisbane at $350 per week.

Quarterly Vacancy Rates Dec-09

5.0%

Dec-10

4.5% 4.0%

3.0%

Dec-10 Average 2.2%

2.5% 2.0% 1.5%

Quarterly Vacancy Rate

3.5%

1.0% 0.5% 0.0% Aus Average

Canberra

Darwin

Prepared by PRDnationwide. Source: REIA Last Updated Jan 2011

Hobart

Perth

Adelaide

Brisbane

Melbourne

Sydney

Capital City

• The Time to Buy a Dwelling Index indicates short-run changes in consumer sentiment regarding whether it is a good time to buy a dwelling. • It is a component of the Melbourne Institute’s Consumer Sentiment Index which is undertaken monthly.

PRDnationwide |

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Demographics OVERSEAS MIGRANTS PLUMMET The Australian rate of population growth decreased significantly by 0.59% to 1.55% for the year ending September 2010. This equates to 342,004 new residents, approximately 125,474 less than the year ending June 2010. Western Australia continues to lead the way in terms of the growth rate, with an annual increase of 2%, equating to 46,647 new residents. Victoria registered the highest number of new residents with 93,848 during the year ending September 2010. This is just above New South Wales with 87,904 new residents and Queensland with 81,851. Tasmania has once again registered the slowest population growth at 0.81% for the year ending September 2010. This represents an increase of only 4,094 new residents for the state. South Australia was not far behind, recording only 1.13% growth (18,357 new residents) during the twelve month period. There has been a significant decrease in the number of immigrants entering Australia. During the September 2009 quarter, a total net 72,280 new residents called Australia home. Since then net immigrant numbers have declined by 41% to equate to 42,476 new residents for the September 2010 quarter. The rate of natural increase in Australia has slowly increased during the past decade to reach 36,352 new Australians for the September 2010 quarter. Queensland received 1,688 new interstate migrants during the September 2010 quarter. Over the twelve month period ending September 2010, Queensland’s average quarterly migration rate was 2,100 new interstate migrants, equating to the least amount of interstate travelers to Queensland in the past 20 years. New South Wales still records the highest outward migration of residents nationwide. However, over the past year this rate has slowed. The annual average rate of migrants leaving New South Wales has decreased to 2,581 and has not been this low since mid 1987. In the September 2010 quarter, outward net migration increased to 2,231 residents. The number of net migrants entering Victoria continued to be higher than the number leaving the state during the September 2010 quarter. Approximately 384 more migrants decided to call Victoria home. South Australia continued to lose residents, with 808 net residents departing during the quarter, while Tasmania welcomed a net 49 interstate migrants. Western Australia attracted a net 1,202 new residents from neighbouring states. Population Growth - Australia 80,000

4 per. Mov. Avg. (Natural Increase - Australia) 4 per. Mov. Avg. (Net Overseas Migration - Australia)

70,000

Number of Person(s)

60,000

50,000

40,000

30,000

20,000

10,000

Prepared by PRDnationwide Research Source: ABS Cat 3101, last updated Apr 2011

Sep-2010

Sep-2009

Sep-2008

Sep-2007

Sep-2006

Sep-2005

Sep-2004

Sep-2003

Sep-2002

Sep-2001

Sep-2000

Sep-1999

Sep-1998

Sep-1997

Sep-1996

Sep-1995

Sep-1994

Sep-1993

Sep-1992

Sep-1991

Sep-1990

0

Period

• Population change tracks the change in population across the states and territories of Australia. Population growth is seen as the key driver of demand for housing. PRDnationwide |

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Retail Trade RETAIL SPENDING MARGINALLY IMPROVES Over the 12 month period ending February 2011, Australia’s annual change in retail expenditure increased 3.5% from the previous year, but only shifted 0.5% during the month. Annual change in retail expenditure has rebounded from the low levels recorded over the recent months. The largest growth in expenditure occurred in food retailing, registering an annual growth of 5.4%. This was followed by other retailing which registered an annual growth of 5%. Department stores experienced a slight softening of 0.1% from the previous year, while household good retailing only increased by 0.9%. The ABS has placed cautious consumer behaviour as the reason for the performance of a slow retail sector. Consumers in Queensland however, defied the greater trend, increasing their spending by 2% over the month. In response to the growing demand of online shopping, Westfield recently officially opened its online shopping website, with over 130 retailers signed up.

Annual change in retail expenditure 12.0%

8.0% 6.0% 4.0% 2.0%

Feb-11

Nov-10

Aug-10

May-10

Feb-10

Nov-09

Aug-09

May-09

Feb-09

Nov-08

Aug-08

May-08

Feb-08

Nov-07

Aug-07

May-07

Feb-07

Nov-06

Aug-06

May-06

Feb-06

0.0%

Month

Prepared by PRDnationwide Research Source: ABS Cat No: 8501.0 Seasonally adjusted f igures last updated Jan-11

• Retail spending figures are estimated by the ABS based on the Retail Business Survey conducted monthly amongst 4,350 retail and selected service businesses. • The annual change in retail spending indicates how active consumers are in the marketplace and the degree to which consumers are willing to spend. • The seasonally adjusted figures are used to smooth out seasonal factors associated with this data.

PRDnationwide |

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Annual percentage change

10.0%


RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

About PRDnationwide Research PRDnationwide’s research division provides reliable, unbiased, and authoritative property research and consultancy to clients in metro and regional locations across Australia. Our extensive research capability and specialised approach ensures our clients can make the most informed and financially sounds decisions about residential and commercial properties. Our Knowledge

130 offices nationwide

Access to accurate and objective research is the foundation of all good property decisions As the first and only truly knowledge based property services company, PRDnationwide shares experience and knowledge to deliver innovative and effective solutions to our clients. We have a unique approach that integrates people, experience, systems and technology to create meaningful business connections We focus on understanding new issues impacting the property industry; such as the environment and sustainability, the economy, demographic and psychographic shifts, commercial and residential design; and forecast future implications around such issues based on historical data and fact. Our People Our research team is made up of highly qualified researchers who focus solely on property analysis. Skilled in deriving macro and micro quantitative information from multiple credible sources, we partner with clients to provide strategic advice and direction regarding property and market performance. We have the added advantage of sourcing valuable and factual qualitative market research in order to ensure our solutions are the most well considered and financially viable. Our experts are highly sought after consultants for both corporate and government bodies and their advice has helped steer the direction of a number of property developments and secured successful outcomes for our clients. Our Services PRDnationwide provides a full range of property research services across all sectors and markets within Australia. We have the ability and systems to monitor market movements, demographic changes and property trends. We use our knowledge of market sizes, price structure and buyer profiles to identify opportunities for clients and provide market knowledge that is unbiased, thorough and reliable. Our services include: •

Advisory and consultancy

Market Analysis including profiling and trends

Primary qualitative and quantitative research

Demographic and target market analysis

Geographic information mapping

Project Analysis including product and pricing recommendations

Rental and investment return analysis

Competitive project activity analysis

Economic indicators

Social research, including focus groups

www.prdnationwide.com.au

“We set industry benchmarks when partnering with our clients to answer key questions and solve complex issues in the residential development arena.” PRDnationwide |

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RESEARCH REPORT | Q2 2011 | QUARTERLY ECONOMIC & PROPERTY REPORT | NATIONAL

Our Research Reports Property Watch® Reports: Over 130 snapshots of various areas around Australia, as well as specific reports on property topics of interest such as resale growth, infrastructure planning, luxury properties, and supply and demand. Highlight Reports: Major annual reports examining the macro and micro economic information of larger catchment areas within select city, rural, and coastal regions. Quarterly Economic and Property Report: Produced quarterly to examine economic and property trends nationally. PRDnationwide Level 5, 10 Market St Brisbane, QLD, 4000 TEL 07 3229 3344 FAX 07 3166 0462

RESEARCHER Aaron Maskrey Director | Research PRDnationwide Ph: (07) 3370 1702 E: aaronmaskrey@prd.com.au

Niche Reports: Covering topical subjects such as mixed use and transit oriented developments, marina berths, waterfront property and luxury property markets. Suburb Profiles: Detailed demographic and sales information for statistical local areas (suburbs) in Queensland, New South Wales, Victoria, and Australian Capital Territory. Residential Unit Reports:  Quarterly reports based on primary research into the sale of new units within major metro and coastal cities identifying trends and opportunities

Research Consultancy Service

PRDnationwide does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been verified by us. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. PRDnationwide will not be liable for any loss or damage resulting from any statement, figure, calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - PRDnationwide 2011.

We set industry benchmarks when partnering with our clients to answer key questions and solve complex issues in the residential development arena. Our specialised consultancy service adds value to our clients’ business by identifying the best means for gaining a competitive advantage. We have extensive experience in providing advice on virtually every type of residential property and the issues and considerations that surround them. We simplify your decision-making process by providing comprehensive information and recommendations including (but not limited to): Primary & Secondary Market Analysis Target Market

Product & Pricing

Analysis &

Mix Anaylsis

Consumer Research Your Property

Prepared by PRDnationwide Research

GIS Mapping &

Amenity Analysis

Spatial Analysis

For further details contact Aaron Maskrey Tel 07 3370 1702 www.prdnationwide.com.au PRDnationwide is a Colliers International company

Marketing & Launch Strategies

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PRDnationwide Quarterly Economic and Property Report Q2 2011  

Produced quarterly to examine economic and property trends nationally.

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