2014 oct property market overview and outlook

publication 9 / 2014

OCTOBER 2014

residential Property MARKET OVERVIEW AND OUTLOOK

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 20142

Residential Market Update

Residential property market expectations remain buoyant with elevated auction clearance rates and home sales, solid house prices gain, and strong levels of home building approvals. Despite home buyer confidence easing in the weeks following the Federal Budget, home sales remain well above the levels of recent years, supported by improved mortgage service affordability and solid developer sentiment, driving a strong cyclical upswing in residential construction. In addition, strong foreign investor demand for Australian housing has also buoyed housing market sentiment, particularly in Sydney and Melbourne as reflected in data from the latest Property Council/ANZ Survey.

Despite price gains driving increasingly difficult first home buyer deposit affordability, we maintain that Australian house prices are not only sustainable (supported by improved loan affordability, solid economic fundamentals, a stable mortgage market, strong investor demand and a significant pent-up demand for homes) but are likely to continue to rise, albeit at a more moderate pace in the second half of 2014, before growing broadly in line with average household incomes in the medium term.

Adelaide was a standout performer this month recording a solid increase in values, posting a 3.1% capital gain after several

months of pricing volatility. Brisbane (0.6%), Darwin (1.4%) and Canberra (1.4%) also showed a capital gain in dwelling values over the most recent quarter. Perth (-0.6%) and Hobart (-1.0%) were the only two capital city markets to record a decline in dwelling values for the same period.

Dwelling values are now 9.3% higher over the 12 months to the end of September 2014 with every capital city recording an increase in dwelling values over this period. The Sydney is still the leading city driving the growth trend, increasing by 14.3% over the past twelve months. A substantial gap exists between Sydney and the next best performer, Melbourne, where dwelling values increased by 8.1%.

Sydney was the best performing capital city for the month experiencing 4.1% capital growth whilst Hobart yet again experienced negative growth of -1%. Sydney and Melbourne continue to out perform the rest of the market.

The September quarter saw capital city dwelling values rise by 2.9% based on the latest RP Data results. The result was driven by stronger than expected property market conditions across the Sydney and Melbourne markets where the quarterly capital gain was 4.1% and 3.7% respectively.

Sydney was the best performing capital city for the month.

FUTURE ESTATE RESIDENTIAL PROPERTY MARKET UPDATE – OCTOBER 2014 3

Auction clearance rates continued to beat the 70% mark week-to-week whilst volumes across various platforms such as REI and APM remained strong, which indicates heightened levels of industry and mortgage market activity. It’s apparent that more listings will enter the market place as the weather warms up. The test will be supply catering for demand as additional stock is absorbed by an increase in buyer numbers.

Both states are well positioned to take advantage of the warmer months of the year where auction clearance results historically have been high and stock on market has been consistent. However, with a decreasing stock on market rate and onward momentum in terms of auction clearances, the real change for both Sydney and Melbourne property markets is keeping up with the demand.

In conclusion, over the second quarter of 2014, RP Data recorded 70,357 residential property re-sales nationally; of these, 9.0% recorded a gross loss from the original purchase price. The gross value of the losses associated with these loss making re-sales totalled $398.3 million. Conversely, 91% of all June 2014 quarter re-sales recorded a gross profit relative to their original purchase price. The gross profit from these re-sales equated to $14.4 billion.

On a rolling annual basis, capital city dwelling values increased at a faster pace over each of the previous three growth cycles in 2009-10, 2007 and 2001/03 respectively. The growth has been very much concentrated within both Sydney and Melbourne.

Melbourne residential market has continued to grow strongly in most areas.

SYDNEY

Metropolitan Sydney continues to perform very strongly much to the delight of the Sydneysiders in the market. Interestingly, research indicates investor levels have been at record high volumes in the past 12 months within the metropolitan area. This has meant the average owner occupier is not only competing against other people in the same situation, but also competing against investors.

MELBOURNE

The overall Melbourne residential market has continued to grow strongly in most areas. The market is currently experiencing strengthening conditions with moderate to strong price growth achieved due to increased buyer interest. Purchaser interest has been influenced by the current low interest rates and high clearance rates, which have created a confident, positive market.



RBA STATS

ECONOMIC GROWTHAUD BUYS0.876 USD

2.5% in 1 MONTH0%CASH RATE

3.0%INFLATION

94 4.6%in September

Consumer Sentiment Index Westpac - Melbourne institute

131 pts

WORLDWIDE 2014US, EUROPE & JAPAN 2013 2.2%

3.3%

3.1%1.1%

AUS annual to JUNE 2014AUSTRALIAN

2ND quarter 2014

Australian Employment UNEMPLOYMENT

PARTICIPATION

6.2%

65%

$ 530,000 Median House Price

$ 470,000 Median Unit Price

$ 377Weekly House Rent Rental Yield 3.7%

$ 407Weekly Unit Rent Rental Yield 4.5%

New Dwelling Approvals

3.0%

Australia wide snapshot

Dwelling Values

9.3%

0.1%

2.9%

annu

al

mon

thly

quar

terl

y

UPDATED on 7th october 2014

New Home Sales

3.3 %

housing finance

$ 28,571

adjusted value of totaldwelling commitments

2.7%

HIA-COMMBANK HOUSINGAFFORDABILITY INDEX

77.2Property Council/ANZ Property Industry Confidence Index

GDP growth2014

10.0

%

Differencefrom

previous PeakDwelling

Value

AUGust 20140.7%

Key statistics sePteMBeR 2014*

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

* As at 30 September


FutuRe estate caPital city Rating suMMaRy - sePteMBeR 2014

STATE CAPITAL CITY

FUTURE ESTATE SCORE

OVERVIEW

NSW SYDNEY Big increase this month due to an elevation in Asking Price and clearance rates

VIC MELBOURNE All indicators look Healthy or Excellent

QLD BRISBANE Little movement in our score as all indicators look Healthy or Good

WA PERTH Little movement in Perth as all indicators look Healthy or Good

SA ADELAIDE Little movement in Adelaide as all indicators look Healthy or Good

ACT CANBERRA Canberra's score this month has been impact by a fall in Asking Price compared to last month

NT DARWIN Darwin's score rises slightly as all indicators vary between Excellent and Neutral resulting in minimal score movement

TAS HOBART A better than expected Vacancy Rate helps elevate Tasmania's score this month along with a Healthier Asking Price

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.



Source: RP DATA 3o September 2014

14.3%

8.1%

5.8%

3.2%

6.1%

4.6%

1.7%

7.1%

Adelaide( SA )

Darwin( NT )

Sydney( NSW )

Canberra( ACT )

Melbourne( VIC )

Perth( WA )

Brisbane( QLD )

Hobart( TAS )

2%

0

4%

6%

8%

10%

12%

14%

16%

Dwelling Trend YoY (%)

National average

Dwelling tRenD yeaR on yeaR

Source: RP DATA

CAPITAL CITY HOUSE AND UNIT MEDIAN PRICES AS AT 30 SEPTEMBER 2014

State Capital City Median House Price ($)

Median Unit Price ($)

Dwelling Trend YTD* (%)

New South Wales Sydney $750,000 $575,000 9.8%

Victoria Melbourne $590,000 $460,000 6.7%

Queensland Brisbane $480,000 $365,000 3.0%

South Australia Adelaide $413,000 $331,000 3.9%

Western Australia Perth $537,750 $430,000 -0.7%

Tasmania Hobart $322,500 $250,175 3.2%

Northern Territory Darwin $600,000 $475,000 3.3%

Australian Capital Territory Canberra $565,000 $396,000 3.0%


Sydney property market reported its 8th consecutive weekend clearance rate above 80%, exceeding the national clearance rate with more than three quarters of properties taken to auction selling.

National auction clearance rates are continuing their steady climb upwards as the market hits one of its busiest periods before the end of year slow down. The preliminary average clearance rate was 69%, up from 68% last week. According to RP Data, the result was consistent with the year’s trend. Sydney once again exceeded the national clearance rate with more than three quarters of properties taken to auction selling. In Melbourne the clearance rate was 70%, down slightly on last week. The Melbourne market is primed for a big test next week when there are about 1800 auctions scheduled.

The clearance rate in Perth was 60% and in Brisbane 51%, whilst half of the properties taken to auction in Adelaide and Canberra sold.

Rental MaRKet

For houses, Darwin currently holds the highest weekly median rental rate at $660 followed by Sydney $525, Canberra $480, Perth $462, Brisbane $400, Adelaide $350, Melbourne $390 and Hobart at $330.

For units, Darwin once again emerged as the most expensive market on the rental rate front by recording the highest weekly median rental rate for the quarter at $550 followed by Sydney $500, Perth $450, Brisbane $390, Canberra $383, Melbourne $370, Adelaide $300 and Hobart $275.

auction cleaRance Rates

The Sydney weekend auction market posted its biggest ever result recorded for the year at 81% according to APM. Despite hosting 704 auctions, the Sydney property market reported its 8th consecutive weekend clearance rate above 80%.

Sydney has produced the best start to a spring selling season in its history with historically high levels of auction sales for this time of the year. According to APM, last week (18th October 2014) saw a 30% increase in the number of scheduled auctions; 612 auctions were reported to the REINSW this week (as opposed to 704 listings), with 483 selling and 129 passing in. The clearance rate for this week was 79%, compared to 80% last week and 76% the same week last year.

In Melbourne, a clearance rate of 73% cent was recorded this weekend compared to 70% last weekend and 70% this weekend last year. There were 932 auctions reported to the REIV last weekend, with 681 selling and 251 being passed in, 127 of those on a vendor bid. The REIV September quarter medians, released this week showed that Coburg and Balwyn were this quarter’s top growth suburbs. Both suburbs also experienced strong demand at auction with above-average clearance rates – 82% in Coburg and 77% in Balwyn over the quarter.



Auction clearance rates continue to gather momentum as we move into the warmer months of the year.

Dwelling values are now on average 9.3% higher over the 12 months to the end of September 2014, with every capital city recording an increase over the period.

Dwelling tRenD cHange FRoM PReVious PeaK anD tRougH (%)

Change from Previous Trough* (%)

Change from Previous Peak (%)

Cha

nge

(%)

Change from Previous Peak and Trough (%)

21.8

1.4

-3.9

2.2

6.0

-4.6

-9.2

2.9

28.2

8.9

18.818.5

14.5

7.99.4

7.6

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

20%

12%

16%

24%

28%

8%

0

4%

-4%

-8%



Cha

nge

(%)


21.8

1.4

-3.9

2.2

6.0

-4.6

-9.2

2.9

28.2

8.9

18.818.5

14.5

7.99.4

7.6

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

20%

12%

16%

24%

28%

8%

0

4%

-4%

-8%



Cha

nge

(%)


21.8

1.4

-3.9

2.2

6.0

-4.6

-9.2

2.9

28.2

8.9

18.818.5

14.5

7.99.4

7.6

Sydney(NSW)

Melbourne(VIC)

Brisbane(QLD)

Adelaide(SA)

Perth(WA)

Hobart(TAS)

Darwin(NT)

Canberra(ACT)

20%

12%

16%

24%

28%

8%

0

4%

-4%

-8%

Source: RP DATA as at 3o September 2014

PRoPeRty auction cleaRance Rates: weeK enDing 12tH octoBeRAuction Clearance Rates

Sydney Melbourne

72%70%

81%

76%

Australian Property Monitors RP Data REIV/REINSW*

79%

73%

0

10%

20%

30%

40%

50%

60%

80%

70%

*REINSW has published auction results for week ending October 18th 2014


Source: RP DATA as at 3o September 2014 * Dwelling prices, which includes both houses and units

-0.7%

0.6%

0.1%0.3%

2.2%

1.1%

-1.2%-1.0%

2.7%

4.4%

2.6%

3.8%

-1.7%

5.3%

2.9%

1.4%

Unit Price Trend Over Quarter (%)

House Price TrendOver Quarter (%)

1%

0

-1%

-2%

3%

5%

4%

6%

2%

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%

House GrossRental Yield (%)

Units GrossRental Yield (%)

4.2%

3.6%3.3%

5.4%

4.1% 4.1%

4.8%4.5%

4.2%4.6%4.5%

4.7%

5.2%

6.0%5.9%

Darwin( NT )

Hobart( TAS )

Brisbane( QLD )

Canberra( ACT )

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Melbourne( VIC )

5.1%

caPital city House anD unit gRoss Rental yielDs

The best performing capital city for the quarter were again Melbourne and Sydney, recording 4.1% and 3.7% respectively *

Darwin still remains the highest rental yield performer for houses (5.9%), however Melbourne was the only capital city to post an increase in house rental yields from 3.1% in August to 3.3% in September, while all other capital cities remained neutral.

Gross Rental Yields

1%

0

2%

3%

4%

5%

6%

7%

House GrossRental Yield (%)

Units GrossRental Yield (%)

4.2%

3.6%3.2%

5.4%

4.1% 4.1%

5.0%

4.5%4.2%

4.6%4.5%4.8%

5.2%

5.8%5.9%

Darwin( NT )

Hobart( TAS )

Brisbane( QLD )

Canberra( ACT )

Adelaide( SA )

Perth( WA )

Sydney( NSW )

Melbourne( VIC )

5.2%

Source: RP DATA as at 3o September 2014



KEY INVESTMENT THEMES

Theme Summary Future Estate View Comments

Key growth opportunities

§ Ongoing capital growth cycle

§ 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 above-trend 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

§ Melbourne offers greater affordability when compared to Sydney

§ Adelaide and Hobart continue to demonstrate high affordability and potential of longer term 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 has not been material in the major capitals however will occur if prices continue to trend above rental growth rates

§ Higher housing approval levels likely to mean less upward pressure on rents in some areas

§ Rental growth currently not likely to outstrip dwelling value growth


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 slower § 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

§ Australian annualised GDP growth of 3.2% which is above trend

§ Economy remains healthy however the recent tough budget had a dampening effect

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

§ Unemployment, at 6% and a lower participation rate is starting to become an issue for the RBA

§ Interest rates low and forecast to remain stable until the end of 2014 which is having a strong impact on property investment activity

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 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

§ Housing price growth, besides Sydney, remains at or below trend, which when combined with low interest rates is not having a major impact on affordability just yet

Population growth

§ 1.8% for 2013 and showing an accelerating trend

§ Over 400,000 people migrated to Australia in 2013

§ Population growth is a major driver of demand for housing and is forecast to underpin a positive housing price outlook

§ Population growth trends are rising throughout 2014, driven mainly by overseas skilled migration

§ Migration to Australia concentrated in the capital cities Sydney and Melbourne, which has resulted in home value growth

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

§ Victoria is the largest beneficiary of population growth, with nationally the capitals being major recipients of new migrants given greater employment prospects

Dwelling construction

§ Below-trend dwelling development continues

§ Recent spike in approvals still below demand levels

§ Housing approvals have increased throughout 2014

§ New Home Sales are increasing

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

§ Higher construction levels has not yet met underlying demand largely driven by very high net migration and population growth trends

consumer confidence

§ Consumer confidence emerging, with stronger market fundamentals

§ Investor confidence remains above long term trend levels

§ Consumer confidence subdued, however property investors confidence is high

§ 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 in line with greater investor interest

§ Investor credit demand is leading owner-occupier demand



BRISBANE

DARWIN

Future Estate Capital City Rating

PERTH

3.26Future Estate Capital City Rating

2.66

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




36.8%1317.2%0.7%2.2%2.40

72.2%1345.5%-0.2%1.8%2.85

37.7%856.0%0.8%2.5%2.25

SYDNEY


CANBERRA


HOBART


MELBOURNE


ADELAIDE

71.4%885.9%2.2%1.7%4.25


4.21

45.4%855.0%-3.3%2.1%2.85


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

2.96

67.3%1026.7%0.3%2.5%4.35

3.64

20.7%1929.2%2.1%1.4%2.55

2.89

53.7%1467.0%-0.4%1.5%3.60

3.15

DARWIN

BRISBANE

SYDNEY

CANBERRA

HOBART

MELBOURNE

ADELAIDE

PERTH

NSW

ACT

QLD

NT

SA

WA

VIC

TAS


2.70

* 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 oct property market overview and outlook