2014 june property market overview and outlook

publication 5 / 2014

JUNE 2014

residential Property MARKET OVERVIEW AND OUTLOOK

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – JUNE 20142

Residential Market Update

Given the usual seasonal slowdown coming into winter and recent change in stance of the federal fiscal policy, the Australian residential property market recorded its first negative monthly change in a year and closed May at -1.9% monthly growth, according to RP Data. This was in contrast to the 0.7% monthly change recorded in April. The second quarter of 2014 is now seeing dwelling values up by 0.7%, compared to 2.6% quarterly change at the close of April. Our view is that not too much emphasis should be placed on monthly volatility, and that the fundamental growth drivers remain present.

Auction clearance rates weighted average across the capital cities, as recorded by RP Data, is now at 60% (higher stats recorded by APM at around 70%) which is indicative of a robust market. The Australian dwelling values are now 5.5%, on average, across the capital cities, above their previous peak dwelling value. A major positive of the seasonal slowdown is that it provides flexibility for the RBA to keep interest rates “lower for longer” which should accommodate continued strength in the residential property market.

There was positive news after the recent release of the Australian GDP Growth rate over 2014. The national economy grew by a seasonally adjusted 1.1% over the first quarter of the year, nudging its annual change up to 3.5%. This was compared to the December quarter, which closed at 0.8%, and the annual growth to the end of 2013, which was 2.8%. The growth figures were higher than expected for the Australian economy and

were lead by the strength in the mining sector, which accounted for 80% of the growth figure. The RBA, in its recent meeting on June 3rd, has left rates on hold at 2.50% again, stating, “monetary policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target”.

Unemployment rate has remained at 5.9%, while the participation rate was adjusted to 64.7% for the last month. The Westpac – Melbourne Institute Consumer Sentiment Index, which tracks the local consumer confidence, improved in its most recent release and is now at 93.2 points. This is a 0.2% change, and its move to below 100 points was driven largely by the federal budget (6.6% down from before the released of the recent budget). The AUD is now buying 0.9373 of the USD and this is 0.2% more than the exchange rate last month. The exchange rate improved after the recent released of the higher than expected GDP growth rate, but has since eased back to its position now.

Median House and Unit prices across Australia were at $575,000 and $480,000, respectively. They have recorded a trend of 0.7% and -1.2% over the past quarter, respectively. New home sales as recorded by the HIA were up 2.9% over the past month of April and 6% over the past quarter. The HIA and Commonwealth Bank tracked Housing Affordability index moved favourably by shifting up 2.1% over the March quarter of 2014, and is now 10.8% annually. New Dwelling approvals were also up 15.1% over the past year to May, but changed -1.6% last month.

The annual change in the residential property market is now at 10.7%, which is slightly above long-term growth trends

Source: RP DATA

16.6%

9.9%

5.7%

2.6%

5.9%

4.3%

1.4%

9.7%

Adelaide( SA )

Darwin( NT )

Sydney( NSW )

Canberra( ACT )

Melbourne( VIC )

Perth( WA )

Brisbane( QLD )

Hobart( TAS )

Dwelling Trend YoY (%)

2%

0

4%

6%

8%

10%

12%

14%

18%

16%

Dwelling TrenD year on year

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – JUNE 2014 3

RBA STATS

ECONOMIC GROWTHAUD BUYS0.9373 USD

0.2%

2.50% in 1 MONTH0%CASH RATE

in Q1 20142.90% 0.6%INFLATION

93.2 0.2%in MAY

Consumer Sentiment Index Westpac - Melbourne institute

132 pts

WORLDWIDE 2013US, EUROPE & JAPAN 2013 2.2%

3.0%

3.5%1.1%

AUS annual to march 2014AUSTRALIAN

1ST quarter 2014

Australian Employment UNEMPLOYMENT

PARTICIPATION

5.9%

64.7%

$ 575,000 Median House Price

$ 480,000 Median Unit Price

$ 431Weekly House Rent Rental Yield 3.9%

$ 434Weekly Unit Rent Rental Yield 4.7%

New Dwelling Approvals

-1.6%

Australia wide snapshot

Dwelling Values

10.7

%

-1.9

%

0.7%

annu

al

mon

thly

quar

terl

y

UPDATED on12th JUNE 2014

New Home Sales

2.9 %

housing finance

$ 27,890

adjusted value of totaldwelling commitments

1.7%

HIA-COMMBANK HOUSINGAFFORDABILITY INDEX

76.2Property Council/ANZ Property Industry Confidence Index

GDP growth2014

5.5%

13.9

%

Differencefrom PeakDwelling

Value

Differencefrom TROUGH

Dwelling Value

Key sTaTisTics May 2014

Source: ABS, RP DATA, HIA, RBA, Westpac - Melbourne Institute, REIA



FuTure esTaTe capiTal ciTy raTing suMMary

STATE CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW SYDNEY Sydney’s FE score remained constant this month, with little change to any leading market statistics.

VIC MELBOURNE Melbourne’s score was marginally up from last month, given an improvement in the asking price index.

QLD BRISBANE Brisbane’s score was unchanged this month, with leading statistics remaining constant.

WA PERTH Perth’s score was also unchanged this month. Leading market statistics recorded little change.

SA ADELAIDE Adelaide’s score marginally declined this month. The asking price index moved unfavourably, even while the vacancy rates were rated “Good”.

ACT CANBERRA Canberra’s score declined this month after last month’s increase. Given the poor outlook for the property market locally, the asking price was negative.

NT DARWIN Darwin’s score declined this month. Lead by affordability and expectations, the asking price shifted to a large negative, even as auction clearances were excellent.

TAS HOBART Hobart’s score declined again this month. Early signs of growth last month were wiped off with April’s poor performance, and thus affected the FE score.

Source: Future Estate Research* Score is out of 5 as indicated by out of 5: Higher score indicates a stronger property market with positive outlook, whereas a lower score indicates a softer market with lower growth prospects.** Data for the Future Estate June scores as at 1 June, 2014


Auction clearance rates remain well above historical levels, despite significantly higher stock volumes, which continues to illustrate the strength of underlying demand

Auction Clearance Rates over the long weekend produced above long term average results for the major capital cities. Sydney’s records, as stated by APM, were at 74% from 393 auctions that were tracked by the organisation. RP Data has recorded the figure to be closer to 66% from 568 auctions for the week ending June 8th. The Real Estate institute of Victoria has yet to release figures for the June 8th weekend, but its June 1st results were 73% clearance rate from 897 auctions.

Melbourne recorded a 70% auction clearance rate by APM, off 257 tracked auctions over the week. The RP Data clearance rate for the city was closer to 61% off 333 auctions over the week. Real Estate Institute of Victoria produced a 61% result too, off 298 auctions. The differences among the results provided by auction clearance rate data recorders are

often due to the differences in the way they collect and present data.

Nevertheless, the residential property market has cooled from its late 2013 and early 2014 highs as of late due mainly to the normal seasonal slow down and softer consumer sentiment post the tougher budget stance. However, it is important to note that international fiscal policies, such as that managed by the European Central Bank, have recently moved to employ negative interest rates. These rates are making it easier for Australian banks to access capital and funding, thereby allowing local consumers to access credit at cheaper rates. This improvement in affordability is likely to be an important driver, and likely continue to provide a moderate and sustainable market growth rate in the near term.

aucTion clearance raTes

properTy aucTion clearance raTes: weeK enDing 8TH JuneAuction Clearance Rates

Sydney Melbourne

66%61%

74%70%

Australian Property Monitors RP Data REIV/REINSW*

73%

61%

0

10%

20%

30%

40%

50%

60%

80%

70%



All capital cities are now well above previous trough levels, although Adelaide, Darwin, Brisbane and Hobart remain below previous peaks

cHange FroM preVious peaK anD TrougH (%)

Change from Previous Trough* (%)

Change from Previous Peak (%)

Cha

nge

(%)

Change from Previous Peak and Trough (%)

15.0

-1.0

-3.1

0.2

2.3

-5.8

-8.3

0.5

21.1

6.37.3

13.912.3

5.8

20.8

8.7

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

18%

22%

14%

10%

6%

02%

-4%

-8%

-10%



Cha

nge

(%)


15.0

-1.0

-3.1

0.2

2.3

-5.8

-8.3

0.5

21.1

6.37.3

13.912.3

5.8

20.8

8.7

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

18%

22%

14%

10%

6%

02%

-4%

-8%

-10%



Cha

nge

(%)


15.0

-1.0

-3.1

0.2

2.3

-5.8

-8.3

0.5

21.1

6.37.3

13.912.3

5.8

20.8

8.7

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

18%

22%

14%

10%

6%

02%

-4%

-8%

-10%

Source: RP DATA

For the first time in 12 months, dwelling values across Australia’s capital cities showed a monthly fall of 1.9% in May, mainly contributed by Melbourne with a -3.6% decline, which is not uncommon with the lead up to the June 2014 end of financial year and cooler climate conditions of the autumn months. However, over the past quarter, capital city dwelling values are up more than 0.6%. Over the growth cycle to date, which commenced in June 2012, capital city dwelling values are up 13.9% which has been largely contributed by strong market conditions in Sydney (+21.1%).

The median national dwelling value can be split into the median house value, at $575,000 (slightly down on last month due to a weaker auction clearance rate since late

February when the capital city clearance rate hit 76%), and the median unit value, at $480,000 remains stable.

Sydney continues to be the dominant city recording a median house value of $800,000 at the close of April 2014, having progressed by 21%% in the past year (median dwelling price $678,500 respectively). Even though Sydney’s median unit remains the same with no movement in value at $576,000 for the month in spite of a small $2,000 reduction in the house value, Sydney still remains the most expensive city in Australia.

The most positive outlier for the past three months ending May 2014 was Darwin with the highest rental yields (5.8% for both houses and units) and 5.5% capital growth.

capiTal ciTies


Source: RP DATA

6.3%

2.2%

-0.2%

2.7%

0.8%

-2.7%

-3.1%

-1.7%

1.0%

2.4%

-1.8%

1.9%

0.6%

0%

1.2%

0.2%

Unit Price Trend Over Quarter (%)

House Price TrendOver Quarter (%)

-1%

-2%

-3%

-4%

1%

6%

3%

2%

5%

4%

7%

0

Melbourne( VIC )

Sydney( NSW )

Adelaide( SA )

Perth( WA )

Brisbane( QLD )

Canberra( ACT )

Darwin( NT )

Hobart( TAS )

quarTerly capiTal ciTy House anD uniT price TrenD

Gross Rental Yields

1%

0

2%

3%

4%

5%

6%

7%

Darwin( NT )

Hobart( TAS )

Brisbane( QLD )

Canberra( ACT )

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Melbourne( VIC )

House GrossRental Yield (%)

Units GrossRental Yield (%)

5.8%

4.3%

3.8%

3.4%

5.2% 5.3%

4.3% 4.2%

4.8% 4.7%4.4%

4.9%4.6%

5.0%5.2%

5.8%

capiTal ciTy House anD uniT gross renTal yielDs

Source: RP DATA

Darwin was the standout performer for the quarter, with some volatility in results after an extended period of capital growth during 2013 and early 2014. It is noted that historically markets generally slow down somewhat leading into winter

Typical rental yields have remained relatively constant with some yield contraction due to capital appreciation

Gross Rental Yields

1%

0

2%

3%

4%

5%

6%

7%

Darwin( NT )

Hobart( TAS )

Brisbane( QLD )

Canberra( ACT )

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Melbourne( VIC )

House GrossRental Yield (%)

Units GrossRental Yield (%)

5.8%

4.3%

3.8%

3.4%

5.2% 5.3%

4.3% 4.2%

4.8% 4.7%4.4%

4.9%4.6%

5.0%5.2%

5.8%



KEY INVESTmENT ThEmES

Theme Summary Future Estate View Comments

Key growth opportunities

§ Sustainable above-market capital growth

§ Capital cities set to drive the growth this year, supported by the larger regional centres especially in Queensland emerging from the dip in activity in early 2013

§ Sydney offering continued sustainability in growth in the Inner Western and Eastern Suburbs

§ Melbourne market continues to grow steadily

§ Population growth likely to be one of the key drivers of property market growth

§ Dwelling undersupply is a subsequent factor with critical influence; state building restrictions play a role

§ Long term affordability; cash rate set to expansionary setting on record lows

§ International investor interest with lower AUD and overseas restrictions

Key value opportunities

§ Discounts to comparable properties; new areas to demonstrate growth

§ Distressed opportunities have reduced due to improvement in the market health

§ Adelaide and Hobart continue to demonstrate high affordability and potential of growth

§ Outer South and North Western Sydney seeing strong fundamentals; infrastructure upgrades will drive growth

§ Value continues to be demonstrated at the asset level, rather than capital city level

§ Pockets of opportunities as lifestyle trends emerge – i.e. inner city former industrial suburbs emerging as residential growth hubs

yield growth § Rental income and sustainable above market yield

§ Darwin, Brisbane and Perth, along with Canberra remain high yield markets due to affordability constraints and dwelling undersupply

§ Regional centers and Gold Coast showing improving yields, which are generally a leading indicator to dwelling price increases

§ Yield compression is a concern in the major capital cities as dwelling values set to further expand in 2014

§ Largely set on construction expenditure; if housing supply is strong, there could be potential for stable yield

§ Rental growth currently not likely to outstrip dwelling value growth

Source: RP DATA

CAPITAL CITY hOUSE AND UNIT mEDIAN PRICES

State Capital City median house Price ($)

median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales Sydney $800,000 $576,000 3.8%

Victoria Melbourne $612,000 $468,000 1.1%

Queensland Brisbane $482,500 $370,000 1.4%

South Australia Adelaide $415,000 $330,000 1.4%

Western Australia Perth $544,500 $445,000 -1.2%

Tasmania Hobart $370,000 $320,000 4.2%

Northern Territory Darwin $590,000 $455,000 5.0%

Australian Capital Territory Canberra $560,000 $410,000 1.0%


KEY CYCLICAL ThEmES

Cyclical Outlook

Summary Future Estate View Comments

global economy and policy

§ US Federal Reserve has plans to curtail QE policy

§ Chinese growth is estimated to be 7.5% for 2014

§ US economy is growing at an estimated 2.5% p.a.

§ Indirect impact on residential property market via consumer confidence, access to credit and changes to price growth areas

§ No negative impacts currently, due to current RBA policies

§ Global negative impacts on local property markets are easing, given favourable exchange rate and local cash rate changes

§ Weaker AUD is leading to international investor interest

Domestic growth and policy

§ ABS released a Q3 2013 growth rate of 0.6%, which can be annualised to 2.5%

§ Local economy is being assisted by the low Australian Dollar

§ Lowered cash rate and improved affordability is assisting in housing market growth

§ Unemployment, at 5.8% and a lower participation rate is starting to become an issue for the RBA

§ Likely slight increase in unemployment, which combined with inflation rate on the lower end of the RBA preferred range may lead to further interest rate cuts in the first two quarters of the upcoming year.

Housing affordability

§ REIA reporting 28.5% (26% in QLD) of household income is spent on mortgage payments, lowest in a decade

§ The median house price/income ratio is about 4.5, which is low compared to Asia & Europe

§ Lower interest rates have translated to strong auction clearance rates of over 80% in the major capital cities, areas with high employment

§ Affordable inner city suburbs are experiencing growth

§ Increasing house prices likely to be off-set by lower interest rates

§ Historic low interest rates and new home buyer grants stimulating owner occupier property demand; investors noticing high growth areas

population growth

§ Population growth was recorded at 1.8% over the year in 2012

§ 394,200 persons annual increase in period ending December 2012

§ WA recorded highest growth: 3.5%

§ Population recently reached 23M

§ Population growth expected to rise in 2014, driven mainly by overseas skilled migration

§ Migration to Australia concentrated in capital cities of NSW, VIC and WA, which has resulted in home value growth

§ Impact on housing demand /supply imbalance substantial – housing shortage too from reduced construction activity and investment

§ QLD and WA major interstate beneficiaries, while VIC grows through international migration

Dwelling construction

§ Below-trend dwelling development continues

§ House approvals have seen a decline as of late, with construction and completions remaining poor

§ New Home Sales are increasing

§ 25,000 fewer homes built in 2013 compared to a decade ago

§ Construction has fallen since 2010 given credit crunch – rental growth and yield has been high as a result

consumer confidence

§ Consumer confidence emerging, with stronger market fundamentals

§ Investor confidence substantially improved from lows in 2012

§ Over 50% of investors expect house prices to rise in 2014 as compared to 8% who expect a fall

§ RP Data is reporting 250 suburbs around Australia tipped to double property values in 10 years

§ HIA reports hotspots are emerging

Household savings / demand for credit

§ Household savings ratio remains elevated at ~10% of income – back to 1980’s levels

§ Demand for housing credit still comparatively low

§ With confidence emerging, it is anticipated that demand for housing credit will emerge, especially given substantial buffer to mortgage repayments after recent savings

§ Demand for housing credit is still increasing, albeit it at below trend

§ Investor credit demand is leading owner-occupier demand



BRISBANE

DARWIN

Future Estate Capital City Rating

PERTH

3.11Future Estate Capital City Rating

2.78

State Auction Clearance RateState Days on Market (days) State Discount RateAsking Price Index ChangeCity Vacancy RateState Property Market Score*




37%1447.9%1.1%2.4%2.89

85%1325.2%0.8%1.5%3.23

36.3%925.9%-0.6%1.9%2.89

SYDNEY


CANBERRA


HOBART


MELBOURNE


ADELAIDE

70%1006.2%0.6%1.7%3.64


3.65

45%905.0%-2.9%2.1%3.00


Future Estate Capital City RatingFuture Estate Capital City RatingFuture Estate Capital City Rating

2.70

67%1107.1%0.7%2.9%3.53

3.56

30%19510.2%0.1%1.6%2.70

2.51

51.1%1547.4%0.8%1.5%3.08

3.15

DARWIN

BRISBANE

SYDNEY

CANBERRA

HOBART

MELBOURNE

ADELAIDE

PERTH

NSW

ACT

QLD

NT

SA

WA

VIC

TAS


3.00

* The State Property Market Score, which is out of 5, takes into account several factors, including demographic factors that indicate Future Growth, Quarterly House and Unit Median Price Growth Rates, Annual Dwelling Growth Rates and the Median Mortgage Payments as a proportion of the Median Household Income.

Sources: Australian Property Monitors, Domain.com.au and SQM Research.

FuTure esTaTe capiTal ciTy raTing


This document contains general information and does not contain personal advice or financial product advice. This information has been prepared without taking account of your objectives, financial situation or needs. Accordingly, before acting on this information and making financial decisions, you should consider whether this information is appropriate for you and are recommended to seek independent financial, investment, tax and/or legal advice having regard to your own objectives, financial situation and needs. This information may contain material provided to Future Estate Group Pty Ltd by third parties. While such material is published with necessary permission, Future Estate Group Pty Ltd and its related entities accept no responsibility for the accuracy or completeness of this information, nor endorses it. To the maximum extent permitted by law, Future Estate Group Pty and its related entities disclaim all liability for any loss, costs or damage which arises in connection with the use or reliance on the information and material contained in this document. Any forward looking statements and estimates are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Furthermore, past performance is not a true indicator of future performance. Any past performance information in this document has been given for illustrative purposes only and should not be relied upon as an indication of future performance.

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2014 june property market overview and outlook