Property capital markets report

Transcription

1 On the move Investors flock back to property markets Economic outlook Will demand for credit stay at record lows? Policy poser Lessons from New Zealand s mortgage lending market State by state Analysis of home values, sales and rents across Australia Property capital markets report SPRING 213

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3 Contents Property capital markets report SPRING Introduction 3 Executive summary Economic overview While economic conditions are comparatively strong, Australia is not immune from the effect of global economic uncertainty. Lessons from New Zealand What can be learnt from New Zealand policy makers and their efforts to put the brakes on that country s housing market? Housing market overview Sales transactions and home values are generally increasing but prudence remains the watch word for Australian households. State by State analysis Sydney and New South Wales Melbourne and Victoria Brisbane and Queensland Adelaide and South Australia... 3 Perth and Western Australia Hobart and Tasmania Darwin Canberra Publisher Andrew Stabback T: E: astabback@financialpublications.com.au Managing Editor: Andrew Starke T: E: astarke@financialpublications.com.au Art Direction: Six Black Pens, info@sixblackpens.com All rights reserved 213. No part of this work covered by the publisher s copyright may be reproduced in any form by any means, graphic, electronic or mechanical, including photocopying, recording, taping, or information storage and retrieval, without the written permission of the publisher. Any unauthorised use of this publication will result in immediate legal proceedings. Publisher s Note: Although every care has been taken to ensure the accuracy of the information contained within this publication, neither the publishers, authors nor their employers can be held liable for any inaccuracies, errors or omissions. Readers are strongly advised to contact their professional advisor before entering into any contract to buy or sell any security. Asia-Pacific Banking & Finance Suite 13, Level 1, 83 York Street, Sydney, NSW 2 financialpublications.com.au 1

4 Introduction RP Data Property Capital Markets Report, Spring 213 Introduction Tim Lawless Research Director, RP Data RP Data s research team is very pleased to bring you the fourth edition of the RP Data Property Capital Markets Report. The report is released at a time when Australia has a newly elected government, the economy is transitioning away from a mining-related infrastructure boom and housing markets are well into a recovery with both dwelling values and transaction volumes on the rise. The residential housing market in Australia is the country s largest and most valuable asset class; worth an estimated $4.9 trillion, which is about three and a half times the value of Australia s stock market and about three times the value of Australia s combined superannuation funds. Dwelling values across the combined capital city index have increased by 3.8 per cent over the most recent financial year. Based on early data flows, it is clear that dwelling values have continued to rise over recent months. Buyer numbers have moved from their low base over the past year, rising by close to twenty per cent compared with a year ago. Australians are viewing the housing market in a more positive light, and buyer demand is being fuelled by the low cost of debt and the recent improvements in affordability, brought about by the 7.7 per cent fall in dwelling values recorded between late 21 and May 212, as well as the low interest rate environment. The burgeoning housing recovery is occurring as the Australian economy enters a period of transition. The resources infrastructure boom has been winding down since commodity prices peaked in late 211, creating some challenges for economic growth. Policy makers are now looking towards housing construction to fill part of the economic void that has been left by the slowdown in the resources sector. To date the economic transition could be described as relatively sedate, however there has been a considerable lift in the number of new dwellings approved for construction, which is likely to gather pace as the housing market recovery gathers momentum. With the economy shifting down a gear, there has also been some softening in the national labour force. The rate of unemployment has drifted higher, with the national rate as at July sitting at 5.7 per cent. The reading remains low from a historical measure and an international stand point. Despite the slightly higher unemployment reading, Australian mortgage holders are continuing to demonstrate their capacity to pay down debt. Housing loan arrears remain well contained, with the percentage of mortgages more than ninety days overdue well below one per cent. Looking forward, the Australian housing market is likely to see a continuation of the growth conditions that are currently evident. The market drivers will continue to be a mix of low interest rates, a strong population growth rate that is trending higher while dwelling construction fails to keep pace. Vacancy rates are currently below 3 per cent across most capital cities. This suggests that rental markets will continue to experience upwards pressure. At the time of writing virtually every housing market indicator was heading in a positive direction. Homes are selling faster, vendors are discounting their prices by a lesser amount and auction clearance rates are consistently higher than 7 per cent. Overall, the Australian housing market will continue to face some challenges. Housing affordability is an ongoing issue, particularly in the larger cities such as Sydney and Melbourne where dwelling prices are higher. Softening labour markets will result in more Australians being unemployed or under employed. This in turn is likely to have an impact on consumer confidence and, willingness to take on additional credit. The economic transition away from the mining sector and towards other sectors of the economy such as construction, manufacturing, tourism and retail remains in the early phases and the outcome remains uncertain. We hope that the spring 213 edition of the RP Data Property Capital Markets Report is a useful reference guide. More up to date information and market indicators are always available at 2

5 RP Data Property Capital Markets Report, Spring 213 Executive summary Executive summary While economic indicators are comparatively strong, Australia has not been immune to the effect of global economic uncertainty and financial markets turmoil. The local economy is currently experiencing below average levels of economic growth, falling terms of trade (from record high levels) and lower commodity prices are undoubtedly impacting economic growth. As a result, demand for credit is growing at near-record low levels and Australian households are more focussed on saving rather than spending, with the national household savings ratio now relatively stable at their highest levels in 25 years. With mortgage rates anticipated to remain low over the next six months it will be important to monitor how the housing market responds, particularly in light of a slowing resources sector, an anticipated increase in the unemployment rate, low levels of credit growth and a high level of household savings. The Reserve Bank (RBA) still has scope to cut official interest rates further if required. The residential housing market is Australia s single largest asset class with a total estimated value of $4.89 trillion as at June 213. In comparison, the total value of listed Australian equities is almost three and a half times smaller at $1.4 trillion. The national gross domestic product over the year to March 213 was $1.48 trillion indicating that the value of housing assets is 3.3 times larger than the economy s annual output. With such a large proportion of Australian wealth allocated to residential housing, providing timely, complete and accurate measurements about the performance of Australia s largest and most valuable asset class is essential. Over the 12 months to June 213, home values across the eight capital cities of Australia, which account for 65.5 per cent of the national population, have increased by 3.8 per cent. In contrast, over the 12 months to June 212, combined capital city home values had fallen by 3.6 per cent, indicating a sharp reversal of the housing market s performance over the past year. Over the first six months of 213, home values have increased by 3. per cent, indicating that much of the annual value growth has occurred during 213. Capital city home values have been recording moderate rises over the past 12 months, however, they remain 2.9 per cent lower than they were at their peak in October 21. Most encouraging is the fact that the rise in home values is being accompanied by a rise in transaction numbers. Over the three months to May 213, capital city house and unit sales were 19.3 per cent higher than over the same period a year ago. The fact that values are rising in line with transaction numbers suggests that the current increase in values is likely to be more sustainable. Sydney houses took an average of 38 days to sell in June 213 compared to 58 days a year earlier. Units are taking an average of 31 days to sell currently, compared to 46 days a year earlier. Melbourne homes are selling much quicker than they were at the same time a year ago. In June 212, it took an average of 57 days to sell a house and 6 days to sell a unit. Currently it takes an average of 41 days to sell a house and 37 days for a unit. It is taking a similar length of time to sell a Brisbane home to what it was a year ago. Houses and units are currently selling after an average of 62 days and 65 days respectively on the market. In June 212 it took an average of 63 days to sell a house and 68 days to sell a unit. Homes are also taking a shorter length of time to sell across Adelaide than they were at the same time last year. A year ago, houses took an average of 7 days to sell and units 74 days. In June 213 houses took an average of 56 days to sell and units took 54 days. The length of time it takes to sell a house in Perth has also improved over the year. Houses are currently taking an average of 49 days to sell and units 52 days. In June 212 they were taking an average of 6 days and 59 days respectively. The national gross domestic product over the year to March 213 was $1.48 trillion indicating that the value of housing assets is 3.3 times larger than the economy s annual output. 3

6 Economic overview RP Data Property Capital Markets Report, Spring 213 Economic overview While economic conditions are comparatively strong, Australia is not immune to the effect of global economic uncertainty. Official interest rates are currently at their lowest level in more than 5 years at 2.5 per cent. As a result, we are starting to see a response by the housng market both in terms of capital growth and sales activity. The following pages detail some of the key economic factors which are affecting the Australian residential housing market. According to the International Monetary Fund, Australia was the 12th largest economy in the world in 212, representing 2.2 per cent of the world s economy. In comparison to most other developed economies, Australia is performing well, albeit economic growth more recently has transitioned to a below trend rate of growth. Australia hasn t had a recession since the early 199 s, housing markets have not collapsed following the financial crisis and the national unemployment rate remains at low levels. Although economic conditions are comparatively strong, Australia is not immune to the effect of global economic uncertainty and financial markets turmoil. The Australian economy is currently experiencing below average levels of economic growth, falling terms of trade (from record high levels) and lower commodity prices. As a result, demand for credit is growing at near record low levels and Australian households are more focussed on saving rather than spending, with the national household savings ratio now fairly stable at the highest levels in 25 years. Official interest rates are currently at their lowest level in more than 5 years, 4

7 RP Data Property Capital Markets Report, Spring 213 Economic overview 2.5 per cent. As a result we are starting to see a response by the housing market both in terms of capital growth and sales activity. It is important to note that even though housing markets are recovering, there has been no deterioration in household savings, nor has there been a break out in housing credit growth. Despite this strong economic position, the rate of unemployment (5.7 per cent in July) is currently at its highest level since September 29 and Federal Treasury has recently stated that they are forecasting a peak in unemployment of 6.25 per cent in the middle of next year. If unemployment does reach this level, it would be the highest unemployment rate since September 22. With the prospect of rising unemployment, this may dampen consumer confidence and demand for credit and subsequently impact on the national housing market. With low mortgage rates anticipated to remain over at least the next six months, it will be important to monitor how the housing market responds, particularly in light of a slowing resources sector, an anticipated increase in the unemployment rate, low levels of credit growth and a high level of household savings. The RBA still has scope to cut official interest rates further if required. Low inflation provides the Government scope for further monetary policy stimulus if required (See G1) The Consumer Price Index (CPI) is a quarterly measure of the level of price inflation within the Australian economy. As at June 213, headline inflation was recorded at 2.4 per cent over the year. The RBA has a mediumterm target rate for inflation of between two and three per cent which indicates inflation currently sits in the middle of their target range. The RBA uses other core inflation indicators as its preferred measure, specifically the weighted median and the trimmed mean. Over the 12 months to June 213, these measures were both recorded at 2.2 per cent and 2.6 per cent respectively, again indicating that inflation is comfortably contained. With headline and underlying inflation comfortably in the middle of the target range, it is clear that the RBA has scope, if required, to cut official interest rates further over the coming months. You will note from the chart that the RBA has a target rate for inflation of 2 per cent to 3 per cent over the cycle. This target rate was introduced in the middle of 1993 and you can see that since that time, inflation has been much lower and has generally been contained within this target range. Focussing on the CPI groups, inflation over G1: Consumer Price Index (CPI) Jun-83 to Jun-13 12% 8% 6% 4% 2% -2% -2% Jun-83 Jun-86 Jun-89 Jun-92 Jun-95 Jun-98 Jun-1 Jun-4 Jun-7 Jun-1 Jun-13 Headline inflation Underlying inflation Source: RP Data, ABS G2: Gross Domestic Product Mar-83 to Mar-13 8% 6% 4% 2% -2% -4% -4% Mar-83 Mar-88 Mar-93 Mar-98 Mar-3 Mar-8 Mar-13 Quarterly change Annual change the past year has been highest in health (6.6 per cent), education (5.7 per cent), housing (5.3 per cent) and alcohol and tobacco (4. per cent). On the other hand, CPI has fallen by.5 per cent for transport,.3 per cent for clothing and footwear and.1 per cent for recreation and culture. Recent forecasts by the RBA contained in their bi-annual Statement on Monetary Policy indicates that the RBA expects inflation will remain within the target range throughout 213. In fact, the RBA forecasts inflation will remain below 3 per cent at least until the end of 215. Australia has not had a recession since the June 1991 quarter (See G2) Australia s Gross Domestic Product (GDP) has increased by.6 per cent over the March 213 quarter and is 2.6 per cent higher over the 12 months to March 213. Australia has not been in recession (defined as two successive quarters of GDP contraction) since June 1991, more than 21 years ago. Over the 12 months to March 213, the value of the domestic economy s output was $1.48 trillion. The GDP data for March 213 showed RBA target range In the recent RBA bi-annual Statement on Monetary Policy, the RBA expects inflation will remain within the target range throughout 213 and remain below 3 per cent at least until the end of % 8% 6% 4% 2% 8% 6% 4% 2% -2% Source: RP Data, ABS 5

8 Economic overview RP Data Property Capital Markets Report, Spring 213 G3: Household savings ratio Mar-73 to Mar-13 25% 2 15% 5% -5% Mar-73 Mar-77 Mar-81 Mar-85 Mar-89 G4: Terms of trade index Mar-73 to Mar Mar-73 Mar-77 Mar-81 Mar-85 Mar-89 Australia s Gross Domestic Product (GDP) has increased by.6 per cent over the March 213 quarter and is now 2.6 per cent higher over the 12 months to March 213. Mar-93 Mar-97 Mar-1 Mar-5 Mar-9 Mar-13 25% 2 15% 5% -5% Mar-93 Mar-97 Mar-1 Mar-5 Mar-9 Mar-13 Source: RP Data, ABS Source: RP Data, ABS that the industries providing the largest contribution to overall GDP growth over the past year were: mining (9.9 per cent), financial and insurance services (9.6 per cent), construction (7.3 per cent) and manufacturing (7.1 per cent). Ownership of dwellings contributed a substantial 7.6 per cent to overall GDP over the year. This result, coupled with construction, highlights why the RBA is hopeful that housing construction can fill some of the void in the economy as investment in the mining sector falls from here. As a result of slowing mining investment, its contribution to overall GDP is also likely to slow. The RBA and Treasury have recently lowered their forecast for economic growth this year to 2.25 per cent. Forecasts also anticipate economic growth of just 2.25 per cent for the 213/14 financial year. The ABS National Accounts also reveal that household disposable incomes have increased by just 1.1 per cent over the past year. Given the increased level of household savings and other economic indicators, it is clear that with less income growth, households are showing a lower propensity to spend the money they have available or take on additional debt. Household savings remain at an elevated level (See G3) The ABS National Accounts data, which contains GDP, also details the level of savings by households which is measured by the household savings ratio. This ratio was recorded at 1.6 per cent over the March 213 quarter and has averaged 9.8 per cent over the past five years. Based on current levels, household savings is at its highest level since As the chart shows, the jump in household savings over recent years has reversed the trend which commenced in The decline in savings by households reached a record low in the June 22 quarter when the ratio reached -2.4 per cent, which indicated households spent all of their disposable income plus an additional 2.4 per cent. Since that time, the savings ratio has been trending higher, with the increase hastened by the onset of the financial crisis. However, spending patterns had shown some signs of changing prior to the onset of the crisis. The high level of household savings, we believe, is one of the reasons why there has been restraint in other areas of the economy, including retail trade and housing market activity. Terms of trade is declining as mining investment peaks (See G4) The terms of trade index was recorded at 9.8 points over the March 213 quarter, with the index having fallen by 14.7 per cent since it peaked over the September quarter of 211. Having moved beyond the peak in the terms of trade, there is likely to be some impact on economic growth and other sectors of the Australian economy, given the recent strength of the mining and resources sector and its significant contribution to economic growth over recent years. More recent data on commodity prices indicates that resource prices have continued to trend lower over recent months. However, commodity prices are lower than their 211 peak, on average they remain significantly higher than historic levels. Population growth continues to increase from already high levels (See G5) Australia s population increased by 394,233 persons throughout the 212 calendar year, up from an increase of 339,65 persons over the 211 calendar year. In terms of the total population, Australia s population increased by 1.8 per cent over the year which was in-line with the average annual increase over the past five years but, was the highest level of population growth since the 12 months to December 29. 6

9 RP Data Property Capital Markets Report, Spring 213 Economic overview There are two components to population growth at the national level: net overseas migration and natural increase (births minus deaths). Both measures remain elevated on a historical basis with natural increase contributing 4 per cent of national population growth (158,319) and net overseas migration contributing the additional 6 per cent (235,914). More recently available data on overseas arrivals and departures shows that net longterm overseas arrivals continue to increase and were at their highest annual level in June 213 (36,5) since November 29 (312,43). This is likely to be reflected over the coming quarters by further increases to net overseas migration which should drive population growth higher. Of course, the increase in population translates to higher demand for housing across the country. As will be detailed in the coming pages, the unemployment rate is anticipated to rise over the coming year, which may result in a lower level of population growth. Based on the labour force data, 122,912 new jobs were created over the 12 months to July whilst net long-term overseas arrivals were recorded at 36,5 persons to June 213. If job creation slows, employment prospects for those moving here from abroad will be lower which may result in lower levels of overseas migration. A highly centralised nation (See G6) The population of Australia is highly centralised and largely concentrated in and around a few key centres, mostly along the eastern seaboard. As at June 212, 65.5 per cent of Australians (slightly more than 15 million) lived within a capital city. Of this 65.5 per cent, 38.9 per cent lived in either Sydney or Melbourne with 56.8 per cent of Australians located in Sydney, Melbourne, Brisbane or Perth. One in five Australians live within the Greater Sydney region. The fact that so many Australians live in a handful of capital cities creates significant housing demand within these regions. The further challenge is that housing is much more expensive as you move closer to the city centre as the more affordable areas on the outskirts of the city often have limited provision of much needed transport infrastructure and facilities. This goes some way to explaining why home values in Australia appear high on an international basis. Private sector appetite for credit is at low levels on an historic basis (See G7) Private sector credit (including securitisations) has increased by 3.1 per cent over the 12 months to June 213. The result is made up G5: Quarterly change in national population Dec-82 to Dec-12 8, 6, 4, 2, Dec-82 Dec-85 Dec-88 Dec-91 Dec-94 Dec-97 Dec- Dec-3 Dec-6 Dec-9 Dec-12 Natural increase Net overseas migration G6: Estimated population by capital city as at June 212 Capital city State Population of a 4.6 per cent increase in housing credit, a.2 per cent increase in other personal credit and a.9 per cent increase in business credit. As the chart highlights, credit growth is at an anaemic level. At June 212, overall credit had grown by 4.4 per cent over the year. The RBA has been tracking the annual growth in private sector credit since September Between then and June 213 private sector credit has increased at an average annual rate of 11.9 per cent. Given this you can appreciate just how low consumer appetite for credit is. The slowdown in the demand for credit is a response to the financial crisis and the higher levels of global economic volatility. Growth in private sector credit has been much slower since mid 28, and looks set to remain at low levels for as long as consumers, and to a lesser extent, businesses are more focussed on reducing leverage. The annual growth in private sector credit has been consistently below 5. per cent since March 29, highlighting the extent of the ongoing slowdown and the reluctance by the private sector to take on additional debt. Per cent of capital city population 8, 6, 4, 2, Source: RP Data, ABS Per cent of total population Sydney NSW 4,667, % 2.4% Melbourne Vic 4,246, % 18.5% Brisbane Qld 2,189, % 9.6% Adelaide SA 1,277, % 5.6% Perth WA 1,897, % 8.3% Hobart TAS 216, %.9% Darwin NT 131,678.9%.6% Canberra ACT 374, % 1.6% Combined capital cities 15,1, % Source: RP Data, ABS Australia s population increased by 394,233 persons throughout the 212 calendar year, up from 339,65 persons over the 211 calendar year. Australia s total population increased by 1.8 per cent over the year which was in-line with the average annual increase over the past five years. 7

10 Economic overview RP Data Property Capital Markets Report, Spring 213 G7: Annual growth in private sector credit Jun-78 to Jun-13 25% 2 15% 5% 25% 2 15% 5% of the 21 to 23 housing boom. It was also around this time that households started to increase their rate of savings. The household savings ratio increased dramatically in late 28 and has been at an elevated level ever since. The record low level of growth in private sector housing credit is reflective of both lower demand for new housing loans and the fact that home owners are paying off their home loans at a more rapid pace. -5% Jun-78 Jun-83 Jun-88 Jun-93 Jun-98 Jun-3 Jun-8 Jun-13 G8: Annual growth in private sector housing credit Jun-78 to Jun-13 25% 2 15% 5% Jun-78 Jun-83 Jun-88 Jun-93 Jun-98 Jun-3 Jun-8 Jun-13 Private sector housing credit increased by just 4.6 per cent over the 12 months to June 213 and is at near record low levels. Between August 1977 to June 213, housing credit has grown at an average annual rate of 13.5 per cent. At the same time 12 months ago, housing credit had grown by 5. per cent over the year. -5% Source: RP Data, RBA 25% 2 15% 5% Source: RP Data, RBA Demand for housing credit by the private sector at near record low levels (See G8) Over the 12 months to June 213, private sector housing credit has increased by just 4.6 per cent. Over recent months there has been a slight increase in housing credit growth, however, it remains at an extremely low level. The data series for private sector housing credit extends back to August Between then and June 213, credit has grown at an average annual rate of 13.5 per cent. At the same time 12 months ago, housing credit had grown by 5. per cent over the year. The data further breaks the housing credit aggregates into owner occupier and investor housing credit. Owner occupier housing credit has increased by 4.1 per cent over the 12 months to June 213, compared to a 4.9 per cent increase over the year to June 212. Investor housing credit has risen by 5.7 per cent over the past year compared to a more moderate 5.3 per cent annual increase to June 212. Growth in housing credit has been trending lower ever since February 24, which was the peak of the Sydney housing market. This time period also marked the end Households remain highly indebted (See G9) As at March 213, the typical Australian household had a level of debt which was per cent higher than their disposable income. Although that figure remains at a very high level, the debt level has been at a similar level now since the end of 25 as detailed in the G9 chart. It is also important to note that housing accounts for 9.5 per cent of the outstanding debt to households. This highlights that housing is the single largest asset purchase that most Australians will ever make. Unlike many other countries, the level of debt hasn t decreased over recent years, however, it has seemingly reached a plateau. The RBA recently published detailed research on the slow rate of credit growth by the private sector and the level of household debt in their March 213 Financial Stability Review. They noted that a contributing factor to the slower pace of credit growth is the fact that households have been taking advantage of the lower interest rate environment to pay down their debt faster. Mortgage buffers (balances in mortgage offset and redraw facilities) are now estimated to be equivalent to around 14 per cent of the outstanding stock of housing loans. When interest rates fall, not all borrowers reduce their mortgage payments, resulting in an increase in prepayment rates. The increase in the rate of prepayments as a result of the decline in mortgage lending rates since late 211 is estimated to have reduced the growth rate of housing credit by around.5 percentage points over 212. Measured a different way, in aggregate, households mortgage buffers are equivalent to around 2 months of scheduled repayments (principal plus interest) at current interest rates. This provides considerable scope for many borrowers to continue to meet their loan repayments even during a temporary spell of unemployment or reduced income. Falling mortgage rates are powering the current housing market recovery (See G1) Official interest rates, as set by the RBA, started on a loosening bias in November 211 when the official cash rate was cut by 25 basis points. Since that time the cash rate has fallen by 225 basis points to 2.5 per cent, its lowest level in 8

11 RP Data Property Capital Markets Report, Spring 213 Economic overview more than 5 years. To August 213, standard variable mortgage rates have fallen by approximately 185 basis points over that time, from 7.8 per cent to 5.95 per cent. In reality, most mortgagees receive the discounted variable mortgage rate which currently sits at 5.1 per cent. The average three year fixed mortgage rate is currently 4.9 per cent. With mortgage rates at such low levels, the housing market is clearly responding to the low interest charges on mortgage debt. The RBA still has scope to cut rates further should the need arise. The likelihood of further interest rate cuts seems fairly high given that Federal Treasury is now forecasting that economic growth will slow to 2.5 per cent this year and the unemployment rate will peak at 6.25 per cent. Of course, the challenge will be once interest rates inevitably move higher, will mortgagees be able to continue to repay their loans and what impact will interest rate rises have on home values? The predominance of variable or floating rate mortgages in Australia means that changes to official interest rates quickly flow through to the budgets and spending patterns of those with a mortgage. Low returns in lower risk asset classes are driving investors into the housing market (See G11) Investor activity in the Australian housing market has been extremely strong over the past year. When you look at the returns currently available on relatively risk-free asset classes such as bank deposits and government bonds you can understand why investors are targeting other asset classes such as property. At the end of July 213, the overnight cash rate was recorded at 2.75 per cent, one year term deposits had an interest rate of 3.7 per cent and five and 1 year Australian Government Bonds were returning 3.9 per cent and 3.75 per cent respectively. The returns for low risk investment classes have severely reduced due the fact that there is stronger demand for risk free investment. The reduced return in risk-free asset classes was recently noted in a speech by the Reserve Bank Governor Glenn Stevens. Absolute borrowing costs for most borrowers are very low despite higher spreads, because the return on one of the least risky assets the cash rate is the lowest for 5 years or more. The market yields on government securities, the lowest risk assets of all, have likewise been very low. In other words, with many investors wanting safety, the price of safety has risen. It has to rise by enough to prompt at least some people to start to shift their portfolios in the direction of taking some more risk by holding equities, physical assets and so on, though obviously we don t want too much risk-taking. One of the things we have been watching for as G9: Household debt to disposable income Mar-77 to Mar Mar-77 Mar-81 Mar-85 Mar-89 Mar-93 Mar-97 Mar-1 Mar-5 Mar-9 Mar-13 G1: Typical home loan lending rates across Australia Aug-91 to Aug-13 14% 12% 8% 6% 4% Aug-91 Aug-93 Aug-95 Aug-97 Aug-99 Aug-1 Aug-3 Aug-5 Aug-7 Aug-9 Aug-11 Aug-13 Standard variable mortgage rate Discounted variable mortgage rate 3 yr fixed rate Source: RP Data, RBA we have been reducing interest rates has been an indication of savers shifting portfolios towards some of the slightly more risky asset classes, as that is one of the expected and intended effects of monetary policy easing. There are clearly signs of policy working in this respect, though not, to date, by so much that we see a serious impediment to further easing, were that to be appropriate from an overall macroeconomic point of view. When you consider 4.9 per cent growth in capital city home values over the past year accompanied by a 4.2 per cent gross rental yield on a typical investment property, it is no surprise that investor interest in the housing market is currently so strong. Consumer sentiment has been trending higher over the past year (See G12) The monthly survey of consumer sentiment undertaken by Westpac and the Melbourne Institute shows that Australian consumers are currently more optimistic than pessimistic about economic conditions. The Index measures views on the financial situation of Australian households over the past Source: RP Data, RBA 14% 12% 8% 6% 4% With mortgage rates at such low levels, the housing market is clearly responding to the low interest rate charges on mortgage debt. The RBA still has the scope to cut rates further. 9

12 Economic overview RP Data Property Capital Markets Report, Spring 213 G11: Returns on selected low-risk asset classes Jul-91 to Jul-13 12% 8% 6% 4% 2% G12: Australian consumer sentiment Aug-77 to Aug Jul-91 Jul-93 Jul-95 Jul-97 Jul-99 Jul-1 Jul-3 Jul-5 Jul-7 Jul-9 Jul-11 Jul-13 Overnight cash rate 1 yr term deposits 5 yr bonds 1 yr bonds 6 6 Aug-77 Aug-83 Aug-89 Aug-95 Aug-1 Aug-7 Aug-13 Consumer sentiment 12 mth average Source: RP Data, Westpac-Melbourne Institute Over the 12 months to June 213, there was $ billion spent on retail across Australia. The total value of retail trade was 2.9 per cent higher over the 212/13 financial year than for the 211/212 financial year. 12% 8% 6% 4% 2% Source: RP Data, RBA and coming year, anticipated economic conditions over the coming year and five years, as well as buying conditions for major household items. When the Index is above 1 points, consumers are more optimistic than pessimistic, and when below 1 points pessimism outweighs optimism. The Consumer Sentiment Index has been above 1 points for nine of the past 12 months. While the month-to-month movement shows some volatility, the 12 month rolling average has remained above the 1 mark over the past 12 months. The result suggests that consumers are slowly responding to the low mortgage rate environment. If we look at the components of the index on a 12 month average basis, we also see ongoing improvements. Most encouraging is that the index of family finances over the next 12 months has trended higher since July of last year, with optimism outweighing pessimism over the past three months. If consumers are confident that the next year is going to be better, they are likely to show a greater propensity to spend which should translate good news for the retail and housing sector The Index also regularly tracks where consumers believe to be the best place for savings. Over the June 213 quarter, 34. per cent of respondents felt bank deposits were the wisest place for savings. If this figure is extended to all financial institutions (building societies and credit unions) it rises to 37.1 per cent. Real estate showed the second highest response, with 24.6 per cent of respondents believing that was the best savings vehicle. Interestingly, just 8.4 per cent of respondents felt that shares were the wisest place for savings. These figures highlight the significant change in consumer attitudes by Australians over recent years, away from spending and higher risk investments to increased savings and repaying debt. It is interesting to note that the percentage of respondents nominating real estate as the best place for savings rose from 21.3 per cent in March 213 to 24.6 per cent in June. With lower interest rates resulting in lower returns on savings, some are now looking to other investment vehicles in which to invest such as real estate, particularly given the rental yields available and the capital gains that are starting to crystalize. Retail trade fails to fire as consumer conservatism reigns supreme (See G13) Over the 12 months to June 213, there was $ billion spent on retail across Australia. The total value of retail trade was 2.9 per cent higher over the 212/13 financial year than the 211/12 financial year. As the chart shows, growth in retail trade has been quite low over the year, reflective of the slow credit growth and general caution which is being shown by consumers. It is also important to note that this series does not measure purchases made from overseas or on-line, only those in Australian stores. There have been much sharper rises on an annual basis across several retail sectors. Cafes, restaurants and take-away food services (4.7 per cent) and food retailing (4.4 per cent) each recorded much higher increases over the financial year. On the other hand, trade has increased at much more moderate rates over the year for household goods (1.2 per cent), clothing, footwear and personal accessories (2.3 per cent), department stores (.3 per cent) and other retailing (.8 per cent). As mentioned, the data does not include purchases from overseas, however, the categories of retail which fell over the year or grew modestly are the types of items which can be purchased from overseas and often at prices much cheaper than those available in Australia. On the other hand, the data indicates Australians are spending much more on food purchased for consumption both inside and outside of the home. 1

13 RP Data Property Capital Markets Report, Spring 213 Economic overview Loan types Australians overwhelmingly prefer variable mortgage rate loans (See G14) Historically, Australians have favoured a variable or floating rate mortgage rather than a fixed rate (note that fixed rate loans are typically three to five years in duration). Housing finance data for June 213 shows that over the month, 17.8 per cent of owner occupier loans written were on a fixed rate mortgage. Over the past 12 months, an average of 14.8 per cent of home loans written each month were on a fixed rate. The result highlights that Australian s overwhelmingly prefer a variable rate loan as opposed to the short-term security of a fixed rate loan. The fact that most Australian home loans are on a variable rate has proven to be a positive outcome for policy makers over recent years. Due to the popularity of variable mortgages, changes to monetary policy have an almost immediate impact on household balance sheets and consumer behaviour. In turn, this assists the RBA when it makes monetary policy adjustments as they directly and quickly filter through to most households. It is interesting to note that fixed rate loans are currently available at a lower interest rate than variable loans which potentially means the popularity of fixed rate mortgages will continue to grow over the coming months. The unemployment rate was at its highest level in almost four years in June and July 213 (See G15) The national unemployment rate was recorded at 5.7 per cent in July 213, at its highest level since August 29. Over the past year, the unemployment rate has slowly trended higher from 5.2 per cent in July 212. The number of employed persons has increased by 122,912 persons over the past 12 months which is the equivalent of just 1,243 persons a month. Breaking the data down further, 37,657 additional full time jobs have been created and 85,254 part-time roles have been created over this period. The data indicates that almost 7 per cent of new jobs created over the year have been part-time. Recently released figures by the Australian Bureau of Statistics (ABS) showed that employment underutilisation was most recently recorded at 12.9 per cent, highlighting that many employees would like to be working more hours than they currently do. The proportion of the working age population, either employed or actively looking for work, was recorded at 65.1 per cent as at July 213. Over the past year, the size of the labour force has expanded by 1.6 per cent to million persons, however, the number of persons unemployed that are actively looking for work has increased by 1.8 per cent to 75, persons. G13: Change in Australian retail trade Jun-3 to Jun-13 4% 3% 2% 1% -1% -2% -2% Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Monthly change Rolling 12 mth average change Source: RP Data, ABS G14: Proportion of home loans on a fixed rate mortgage Jun-93 to Jun % 2 15% 5% Jun-93 Jun-97 Jun-1 Jun-5 Jun-9 Jun-13 Proportion of fixed rate home loans Rolling 12 mth average Source: RP Data, ABS The ABS also releases a quarterly analysis of job vacancies across the country. The latest analysis which focusses on the three months to May 213 found that there were 138,9 job vacancies across Australia, which was the fewest since the three months to November 25 and 28 per cent lower than its most recent peak in November 21. Job vacancies have been trending lower over recent years as the unemployment rate has been increasing. Given this factor it is reasonable to expect further increases to the unemployment rate over the coming months. As already mentioned, Federal Treasury is forecasting that the unemployment rate will peak at 6.25 per cent during 213. First home buyer activity has increased from recent lows but remains at below average levels (See G16) In June 213, there were 7,331 housing finance commitments to first home buyers which is slightly lower than the 12 month average of 7,546 commitments. Over the past 12 months, there were 9,551 commitments by first home buyers which is 8.9 per cent lower than over 4% 3% 2% 1% -1% 3 25% 2 15% 5% The national unemployment rate was recorded at 5.8 per cent in August 213, at its highest level since August 29. Over the past year, the unemployment rate has slowly trended higher from 5.2 per cent in July

14 Economic overview RP Data Property Capital Markets Report, Spring 213 G15: National unemployment rate Jul-8 to Jul-13 12% 8% 6% 4% 2% 2, 16, 12, 8, 4, Jul-8 Jul-83 Jul-86 Jul-89 Jul-92 Jul-95 Jul-98 Jul-1 Jul-4 Jul-7 Jul-1 Jul-13 Unemployment rate G16: National number of first home buyer finance commitments Jun-93 to Jun-13 Jun-93 Jun-97 Jun-1 Jun-5 Jun-9 Jun-13 First home buyer finance commitments Rolling 12 mth average Over the past 12 months, there were 9,551 housing finance commitments by first home buyers which is 8.9 per cent lower that over the same 12 month period in 212. First home buyer commitments have accounted for 16.2 per cent of all owner occupier finance commitments over the last 12 months. Rolling 12 mth change 12% 8% 6% 4% 2% Source: RP Data, ABS 2, 16, 12, 8, 4, Source: RP Data, ABS the same 12 month period in 212. First home buyer finance commitments have accounted for 16.2 per cent of all owner occupier finance commitments over the last 12 months. As the chart shows, first home buyer finance commitments have begun to increase over recent months, off a very low base. First home buyer housing finance commitments reached a recent peak in activity back in 29 when more than 18, commitments were being made a month. At that time, the federal government had introduced additional incentives for first home buyers, over and above the First Home Buyers Grant. These incentives, coupled with the lowest mortgage rates in more than a generation, resulted in a surge of first home buyers entering the market. Since that time the number of first home buyer finance commitments have been much lower due to the pull forward of demand brought about by these favourable conditions. Interestingly, the first home owners grant is now being offered exclusively for new homes only (first home buyers purchasing an established home are no longer eligible to receive the Grant) in New South Wales, Queensland and Victoria, Australia s three largest states. The policy objective is that focussing this incentive on new homes will encourage a higher level of demand for new dwellings and consequently drive a higher level of housing construction. The change didn t come into effect in Victoria until July However, in New South Wales and Queensland, activity by first home buyers has recently slumped to record lows following these changes. The challenge is that new homes are typically available in outer areas of the city that are less desirable to first home buyers and new stock is often more expensive than pre-existing stock in these areas. Despite the incentives, the higher cost acts as a disincentive to purchase. Owner occupier finance commitments improving, largely driven by new loans rather than refinances (See G17) In June 213, there were 34,461 owner occupier finance commitments for new loans compared to 16,541 commitments for refinance purposes. There have been 379,517 owner occupier finance commitments for new loans over the 12 months to June 213, compared to 182,489 refinance commitments. On an annual basis, the number of new loan commitments are 7.1 per cent higher while refinance commitments have fallen by 2.6 per cent. The lower levels of refinancing over the year is a little surprising given that mortgage rates have been trending much lower and many financial institutions are offering competitive home loan rates. The data is further split into three categories which include both new loans and refinances: loans for new construction, loans for the purchase of new dwellings and loans for the purchase of established dwellings. Over the past year the number of loans for new construction has increased by 5.3 per cent, loans for purchase of new dwellings have risen by 3.9 per cent and loans for purchase of existing dwellings have risen by 2.1 per cent. Finance commitments for new construction and new purchase have risen at a much greater rate than commitments for existing homes over the year. Although both construction of new homes and purchase of new homes have recorded significant increases over the year, finance commitments for the purchase of established dwellings accounted for 83.5 per cent of all commitments throughout the year. Investment activity has improved markedly over the year (See G18) There was $8.3 billion worth of finance commitments for investment purposes in June 213, which was 18.3 per cent higher than in June 212. Based on commitments over the 12 months to June 213, investment finance 12

15 RP Data Property Capital Markets Report, Spring 213 Economic overview commitments were 15.3 per cent higher over the year. The total value of investment finance commitments has clearly risen significantly over the past year. In fact, investment activity is now at its highest level since it peaked in June 27. Investment activity is so strong at the moment because the returns on less risky assets are comparatively low, hence many investors are seeking a higher level of return. In Australia, housing is typically viewed as relatively low risk and when you factor in capital growth and rental yields, the return on residential property is currently quite attractive. Dwelling approvals trending higher over the year off a very low base (See G19) There were 93,554 houses and 64,96 units approved for construction nationally over the 212/13 financial year. As the chart shows, approvals have trended higher over the year with the annual number of house approvals up 2.7 per cent and unit approvals rising by 9.1 per cent. Although dwelling approvals are trending higher it is off a very low base with dwelling approvals now sitting right at the 2 year average. The data splits out dwelling approvals to those by the public and the private sector. Over the past 12 months, the public sector received just 3,436 dwelling approvals which represent 2.2 per cent of all approvals. Historically, approvals to the private sector have shown an overwhelming majority. Over the year, 4.7 per cent of new dwelling approvals were for units as opposed to 59.3 per cent for houses. Although detached houses remain the dominant dwelling type, the 4.7 per cent of units approved over the year is an almost record high proportion of unit approvals. Not only are units more affordable than detached houses, they are also largely being delivered into inner city areas and along strategically located transport spines where a large proportion of the population prefers to live. There has been a strong trend towards a greater proportion of unit approvals over recent years and we believe affordability factors will result in a continuation of this trend over coming years. G17: National number of owner occupier refinance vs. non-refiannce commitments Jun-93 to Jun-13 5, 4, 3, 2, 1, G18: Monthly value of finance commitments for investment purposes Jun-93 to Jun-13 $billion Jun-93 Jun-97 Jun-1 Jun-5 Jun-9 Jun-13 Refinances New loans Jun-93 Jun-97 Jun-1 Jun-5 Jun-9 Jun-13 G19: National house and unit approvals Jun-85 to Jun-13 14, 12, 1, 8, 6, 4, 5, 4, 3, 2, 1, Source: RP Data, ABS $billion Source: RP Data, ABS 14, 12, 1, 8, 6, 4, 2, 2, Jun-85 Jun-89 Jun-93 Jun-97 Jun-1 Jun-5 Jun-9 Jun-13 House approvals House 12 mth average Unit approvals Unit 12 mth average Source: RP Data, RBA 13

16 Commentary RP Data Property Capital Markets Report, Spring 213 Lessons from New Zealand What can be learnt from New Zealand policy makers and their efforts to put the brakes on that country s housing market? Craig MacKenzie, Head of Corporate Affairs and General Counsel, RP Data This article explores the recent decision by the Reserve Bank of New Zealand (RBNZ) to impose macro-prudential policy on the New Zealand residential policy mortgage lending market in order to help slow the rate of housing related credit growth and house price inflation in New Zealand. It explores the rationale for the potential application of such a policy in Australia and explains why the author believes such a policy is unlikely to be introduced in the near to medium term. What did the RBNZ do and why did they do it? On 2 August 213, the Governor of RBNZ, Mr Graeme Wheeler, announced a new macro-prudential tool in order to limit the rate of housing-related credit growth and house price inflation in that market. RBNZ noted that house prices increased by 16 per cent and 1 per cent respectively in Auckland and Christchurch over the 12 months. Given this strong rate of growth, RBNZ s view that house prices in New Zealand were already high by international standards and the extent of household leverage in that market (household debt at 145 per cent of household income), RBNZ felt the need to impose a new macro-prudential instrument in order to seek to limit the rate of future home price appreciation and therefore mitigate the risk of a material correction in home values in the New Zealand market. Prior to the implementation of this macro-prudential instrument, approximately 3 precent of all new lending activity by New Zealand banks had a loan to value ratio (LVR) 8 per cent or higher. The macro-prudential instrument announced by RBNZ, with effect from 1 October 213, places a speed limit on the amount of high LVR lending (over 8 per cent LVR) a financial institution is able to undertake. In summary, New Zealand banks will be required to restrict high LVR to no more than 1 per cent of the dollar value of their new housing lending loans until further notice. After taking into account certain exemptions, the impact of this new rule will mean that New Zealand banks will effectively need to halve their high LVR lending from current levels. This is expected to have a material impact on lending volumes and the availability of mortgage finance in the New Zealand market in the short to medium term. Is it likely that such a macroprudential instrument will be introduced in Australia in the near to medium term? In the author s opinion, the answer is no. The first point to make is that Australia hasn t seen nearly the level of home price appreciation that New Zealand has experienced over the past 12 months. Whilst it is fair to say that current housing market conditions in Australia, particularly lead by markets such as Sydney and Melbourne, are particularly strong, the point remains that capital city home values still remain approximately 1 per cent below their peak, having recovered 7 per cent since their trough. Markets such as Brisbane in particular remain nearly 1 per cent below their previous peak. Whilst capital city home values have increased by around 4 per cent over the past three months (a rate at which policy makers would feel uncomfortable with were it to continue at that pace over a 6 to 12 month period), the Australian housing market has not seen the rapid level of home price appreciation witnessed in parts of the Auckland market over the past 12 to 18 months. Further, the more modest.5 per cent gain in home values over the month of August is a more sustainable rate of growth and will be a welcome turn of events for policy makers. It is important to remember that the average annual capital gain over the past decade has been just 4.3 per cent across the combined capital cities. In Sydney the annual rate of growth has been a much lower level of 2.4 per cent. Also, the rate of home value growth seen across the capital cities in recent months is 14

17 RP Data Property Capital Markets Report, Spring 213 Commentary not evenly shared. The softer housing market conditions during August can be attributed mostly to a lower rate of growth across the Sydney and Melbourne housing markets, where dwelling values rose by.6 per cent and.2 per cent respectively. Several cities recorded a fall in values over the month, with Hobart seeing the largest decline with a 1.2 per cent fall and Perth values slipping by.2 per cent. Accordingly, it is argued that the problem that RBNZ is seeking to solve in New Zealand is not currently present in the Australian housing market. Second, other similarities and differences between the Australian and New Zealand housing and mortgage markets need to be understood and explored. One of the key similarities is that, like in New Zealand, approximately 3 per cent of all new lending in Australia is for LVRs over 8 per cent. A recent report issued by the Australian Prudential Regulation Authority (APRA) on property exposures by Approved Deposittaking Institutions (ADIs) noted that 32 per cent of new residential lending in the June 213 calendar quarter was for LVRs of 8 per cent or above. The level of high LVR lending in Australia has typically varied between 2 and 3 per cent over the past decade, mainly driven by first home buyer and investor activity (both of which typically fall in the high LVR category). At present first home buyers are largely sitting on the side lines, impacted by affordability constraints. In contrast, in Australia investors are very active in the market, and to a lesser degree, owner occupiers seeking to upgrade their property. Notwithstanding the similarities in the current levels of high LVR lending activity in Australia and New Zealand, this does not mean that there is a material proportion of reckless or irresponsible lending taking place in the Australian market. In particular, a key difference between the Australian and New Zealand mortgage markets is the widespread presence of lenders mortgage insurance (LMI) in Australia. LMI companies have a strong financial incentive to ensure that credit standards are maintained with respect to high LVR lending, as the risk is completely transferred by the lending institution to the LMI provider. LMI companies do not currently operate in New Zealand, with the lending institutions in that market maintaining the credit risk associated with high LVR loans on their balance sheets, having typically received a low equity premium from the borrower when applying for the loan. Their presence and market influence in Australia serves as a very useful vehicle through which to monitor and influence the extent and quality of high LVR lending in Australia. Third, there are several adverse and potentially unintended consequences likely to flow as a consequence of any regulatory intervention to limit high LVR lending in Australia. Policies such as this undoubtedly have an adverse impact on first home buyers by effectively limiting the supply of available finance. This is a very unpopular political message to deliver and arguably against the Australian ethos of promoting (responsible) home ownership. What else can APRA and the Reserve Bank of Australia do to put some breaks on an overly heated housing market? 1. Diligent Supervision This is the main weapon in APRA s armoury. APRA closely supervises its regulated institutions to monitor the quality and composition of new mortgage originations so as to ensure that each regulated institution is not growing materially over and above system credit growth, either overall or in a particular geographic market or sub market. If APRA were to form the view that a regulated institution was writing too much high LVR business or otherwise poor credit quality business, APRA would have no hesitation in reigning in the horns of that institution. This diligence and supervision, combined with repeated commentary by both APRA and the Reserve Bank of Australia that regulated institutions should not seek to counter balance weak credit growth with a loosening of credit standards, means that this weapon will be the main vehicle through which APRA ensures that prudent lending activity continues to occur and does not, of itself, act as an instrument which contributes to an overheated Australian housing market. 2. Increase capital on high loan to value ratio loans Prior to the introduction of the macroprudential instrument in New Zealand, RBNZ increased capital on high LVR loans written by New Zealand regulated institutions. Whilst APRA would have closely followed this initiative, APRA is unlikely to adopt such an approach in Australia as APRA already follows a relatively conservative approach to the capital treatment of high LVR loans, with the introduction of a minimum 2 per cent LGD floor for internally rated institutions (the international floor is 1 per cent). That is, the large banks would argue that APRA s conservative approach is requiring them to hold more capital than is necessary in respect of their respective residential mortgage portfolios, and in particular their high LVR loans in that book. 3. Product Restrictions APRA was a pioneer in defining a high quality residential mortgage. In 28 it introduced the definitions of a standard and non-standard mortgage, with non-standard mortgages requiring more capital to be held. It is important to note that the definition of standard mortgage and non-standard mortgages are not dependant on LVR. Currently, the only effective type of nonstandard loans being written in the Australian market is a small number of low doc loans by regulated financial institutions. However, were APRA to consider that a certain type of mortgage lending activity was leading to either a weakening of credit standards or credit induced home price appreciation beyond that felt comfortable, APRA could follow the lead of other global banking regulators and seek to re-define the definition of a standard mortgage. For example, in the Unites States regulators are currently implementing rules associated with qualified mortgages (QM) and qualified residential mortgages (QRM) which will influence lender s risk appetite to originate mortgages that fall outside of these definitions. For example, interest only loans and loans with a debt to income servicing ratios above 43 per cent are unable to qualify as QM loans. Similarly, in Canada the regulator (OSFI) has introduced rules which limit loan terms beyond 35 years from being originated in that market, and are currently considering lowering this to 25 years. OSFI has also placed LVR caps on loans for refinance purposes. This is a possible approach APRA may take down the track, if they consider that a certain type of lending product is leading to outcomes which they consider undesirable. Conclusion For the reasons set out above, neither the Reserve Bank of Australia nor APRA is likely to introduce macro-prudential instruments along the lines of RBNZ in the near term. However, with interest rates at historically low levels and capital city home values increasing by 4 per cent over the past three months, both institutions will have a keen eye on ensuring strong credit standards are maintained and that the rate of home price appreciation does not become unsustainable. 15

18 Housing market overview RP Data Property Capital Markets Report, Spring 213 Over the 12 months to June 213, home values across the eight capital cities of Australia, which account for 65.5 per cent of the national population, have increased by 3.8 per cent. In contrast, over the 12 months to June 212, combined capital city home values had fallen by 3.6 per cent indicating a sharp reversal of the housing market s performance over the past year. Housing market overview Sales transactions and home values are generally increasing but prudence remains the watch word for Australian households. The residential housing market is Australia s single largest and most valuable asset class with a total estimated value of $4.89 trillion as at June 213. In comparison, the total value of listed Australian equities is almost three and a half times smaller at $1.4 trillion. The national gross domestic product over the year to March 213 was $1.48 trillion indicating that the value of housing assets is 3.3 times larger than the economy s annual output. With such a large proportion of Australian wealth allocated to residential housing, providing timely, complete and accurate measurements about the performance of Australia s largest asset class is essential. This is why RP Data, together with Rismark International, developed the suite of Hedonic Indices that have become the benchmark in understanding how dwelling values have changed across Australia s housing markets. It also highlights why the stability of the housing market is so important to the overall wellbeing of the Australian economy. Over the 12 months to June 213, home values across the eight capital cities of Australia, which account for 65.5 per cent of the national population, have increased by 3.8 per cent. In contrast, over the 12 months to June 212, combined capital city home values had fallen by 3.6 per cent indicating a sharp reversal of the housing market s performance over the past year. Over the first six months of 213, home values have increased by 3. per cent indicating that much of the annual value growth has occurred during 213. Capital city home values have now been recording moderate rises over the past 12 months however, they remain 2.9 per cent lower than they were at their October 21 peak. Most encouraging is the fact that the rise in home values is being accompanied by a rise in transactions. Over the three months to May 213, capital city house and unit sales were 19.3 per cent higher than over the same period a year ago. The fact that values are rising in line with transactions suggests that the current increase in values is likely to be more sustainable. Although the number of sales transactions and home values are generally increasing, Australian households are continuing to act in a prudent nature, saving around 1 per cent of their disposable income. There also has not been any substantial increase in housing credit growth, with it continuing to increase but at near record low levels. Despite the fact that the economy continues to grow and home values and transaction numbers are now increasing, there have been ongoing reductions to interest rates over recent years by the Reserve Bank. Official interest rates have been trending lower since November 211 falling by 225 basis points since that time. As at August 213, the official cash rate was recorded at 2.5 per cent, its lowest level in more than 5 years. Adjustments to interest rates and the subsequent changes to mortgage rates generally have an almost immediate impact on consumers. Not only do interest rate changes affect the interest received on their cash at bank, the prominence of variable or floating mortgage rates means that changes to interest rates are passed directly on to anyone with money in the bank as well as the vast majority of mortgagees. Subsequently, changes to the cost of debt have a significant and immediate impact on consumer sentiment and their spending patterns. Although dwelling values are broadly climbing across the capital city housing markets, as always there are variations in the rate of growth on a city-to-city basis. The gains being recorded across the combined capital city Index are mainly being driven by a 6. per cent annual value increase in Perth and a 5.6 per cent annual increase in Sydney. Values have also risen by 6.1 per cent in Darwin but the 16

19 RP Data Property Capital Markets Report, Spring 213 Housing market overview small size of the city means it has a relatively insignificant impact on the combined capital city figure. Elsewhere, annual value growth has been recorded at 3.4 per cent in Melbourne,.6 per cent in Brisbane,.2 per cent in Adelaide and 1.1 per cent in Canberra whilst values have fallen by 1.8 per cent over the year in Australia s southernmost capital city, Hobart. Broadly speaking, the increase in home values over the year has been driven by the lower valued stock in the market as opposed to the prestige housing markets. Along with the broad rise in home values there has been a marked improvement in other lead indicators. The number of properties available for sale has fallen and is now lower than at the same time last year. Auction clearance rates are noticeably higher than they have been in a number of years. The amount of discounting by vendors has also reduced and homes are selling faster than they were a year ago. All of these signs suggest that home values are likely to continue to trend higher over the coming months. The unemployment rate is forecast to rise to as high as 6.25 per cent over the 213/14 financial year and economic growth is expected to be below trend at 2.5 per cent. Although these softening indicators may provide some headwinds for the housing market, an unemployment rate of 6.25 per cent is still quite low and the last time unemployment was that high (September 22) capital city home values were increasing at an annualised rate of 18.2 per cent. Australia s economic future is of course not certain, but forecasts indicate slowing economic growth on the back of a slowdown in mining investment. The RBA has stated that they would like to see an improvement in dwelling investment as the mining sector slows, however, the transition is unlikely to be smooth. Nevertheless, the economy is forecast to continue to grow and unemployment is forecast to remain relatively low, albeit much higher than those levels we have become accustomed to over recent years. Over the next six months we anticipate that housing market conditions will continue to improve and we expect that the current value and volume increases may gather pace as cities which have lagged in their recovery potentially begin to experience improved market conditions. On the other hand, those markets more heavily exposed to the mining and resources sector may see weakening conditions over the coming six months as housing demand falls and economic conditions taper. Capital city home values increase throughout 213 (See G1) According to the RP Data-Rismark Home G1: Rolling quarterly and annual change in Sydney home values 25% 2 15% 5% -5% G2: Capital city performance Annual change in dwelling values year ending June 213 8% 6% 4% 2% -2% Jun-97 Jun-99 Quarterly change Jun-1 Jun-3 Annual change Perth Darwin Sydney MelbourneCanberra Brisbane Adelaide Hobart Australian capitals Value Index, combined capital city home values increased by.2 per cent over the second quarter of 213. The result indicates slower market conditions given that home values rose by 2.8 per cent over the first three months of 213. However, the second quarter of the year is seasonally softer than the first quarter. Over the first six months of 213, combined capital city home values have risen by 3. per cent and they are 3.8 per cent higher than they were in June 212. The detached housing market has outperformed the unit market over the past year with values growing by 4. per cent and 2.4 per cent respectively. Based on the median selling price of homes over the three months to June 213, capital city units are $8, more affordable than houses. Although capital city home values have increased by 3.8 per cent over the past year, they remain 2.9 per cent lower than their historic high levels (See G2) The annual rise in capital city home values has been broad-based with Hobart (down Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 25% 2 15% 5% -5% Source: RP Data, RP Data - Rismark Home Value Index Along with the broad rise in home values, there has been a marked improvement in other lead indicators. The number of properties available for sale has fallen and is now lower than at the same time last year. Auction clearance rates are noticeably higher than they have been in a number of years. Vendor discounting has also reduced and homes are selling faster than they were a year ago. 8% 6% 4% 2% -2% Source: RP Data, RP Data - Rismark Home Value Index 17

20 Housing market overview RP Data Property Capital Markets Report, Spring 213 G3: Annual change across market segments Most affordable 25% vs. middle 5 vs. most expensive 25% 25% 2 15% 5% -5% - - Jun-1 Jun-4 Jun-7 Jun-1 Jun-13 Most affordable 25% Middle 5 Most expensive 25% Source: RP Data, RP Data - Rismark Home Value Index G4: Proportion of homes sold at a loss vs. homes sold for more than double their previous purchase price May-3 May-5 May-7 May-9 May-11 May-13 Proportion of homes sold for more than double purchase price Although all sectors of the housing market are improving, the premium sector has lagged where over the 12 months to June 213; the premium sector of capital city housing markets has been the weakest performer for capital gains. Proportion of homes sold at a loss 25% 2 15% 5% 1.8 per cent) the only capital city in which home values have fallen over the past year. Across the remaining capital cities, annual value growth has been recorded at 6.1 per cent in Darwin, 6. per cent in Perth, 5.6 per cent in Sydney, 3.4 per cent in Melbourne, 1.1 per cent in Canberra,.6 per cent in Brisbane and.2 per cent in Adelaide. Although home values are rising across each city except for Hobart, they remain lower than they were at the time of their respective market peaks in all cities except for Sydney. Sydney home values are now 1.2 per cent higher than their previous market peak. On the other hand, dwelling values across the combined capital cities are 2.9 per cent lower than their October 21 peak. Across the other capital cities, the decline in values from their respective market peaks are recorded at 11.1 per cent in Darwin, 1.8 per cent in Brisbane, 1.6 per cent in Hobart, 6.6 per cent in Melbourne, 4.4 per cent in Adelaide, 2.1 per cent in Canberra and 1.6 per cent in Perth. Although home values are broadly improving across the capital city marketplaces, the housing market still has a way to go, outside of Sydney, before reaching -5% Source: RP Data a technical recovery. It is also important to remember that these figures are not inflation adjusted; the decline in housing markets from their peak and the period at which the respective markets peaked varies quite dramatically once inflation is taken into consideration. Although all sectors of the housing market are improving, the premium sector has lagged (See G3) Over the 12 months to June 213, the premium sector of capital city housing markets has been the weakest performer for capital gains. RP Data and Rismark analyse the performance of the national housing market across different value segments using a stratified hedonic regression index which provides a measure of value changes across the most affordable 25 per cent of capital city suburbs, the broad middle 5 per cent of suburbs and the most expensive 25 per cent of capital city suburbs. Each of these broad value based segments of the capital city housing market has recorded growth over the past 12 months. Home values across the broad middle market have increased by 4.1 per cent compared to a 4. per cent increase across the most affordable suburbs and a 3. per cent increase in the most expensive suburbs. Dwelling values across the most affordable and the middle priced suburbs have recorded a rise in values of 4.5 per cent and the middle market has seen values rise by 5. per cent since their respective troughs. Since the most expensive suburbs reached their trough, values have increased by 4.4 per cent. Values across the most affordable suburbs were at an historic high level in June 213 while values across the middle market were.4 per cent lower than their previous peak. Values across the most expensive suburbs are still 5.3 per cent lower than they were at their previous peak. Overall, it is clear that the housing market is picking up across all sectors. Growth has initially been spurred across the more affordable sectors of the market and that is now starting to flow through to the more expensive sector of the market. We would not be surprised if the premium housing sector of the market records the strongest growth over the next six to twelve months. The instances of homes selling at a loss has begun to ease (See G4) Over the three months to May 213, 11.8 per cent of home sales were transacted at a gross loss (ie their sale price was lower than their previous purchase price). 12 months ago, 12.1 per cent of all homes sold over the three months period sold for less than their previous purchase price. 18

21 RP Data Property Capital Markets Report, Spring 213 Housing market overview On a historic basis, the 11.8 per cent of loss making sales is a historically high proportion however, the figure has fallen from a recent peak of 13.1 per cent over the three months to January 213. It should be noted that the 11.8 per cent of loss making sales over the most recent three months is the lowest proportion since the three months to January 212. Although the proportion of homes selling at a loss is declining, there is yet to be a bounce in the proportion of homes selling for more than double their previous purchase price. Over the three months to May 213, 31.2 per cent of homes sold for more than double their previous purchase price; the lowest proportion since the three months to April 23. Over the three months to May 212, 33.2 per cent of all homes sold, sold for more than double the previous purchase price. The results highlight that over recent years, the instances of sales at a loss has risen however, the vast majority of homes continue to be sold at a profit. In fact, 43.6 per cent of homes sold over the most recent quarter sold at a price that was more than 5 per cent higher than their initial purchase price. Homes are much more likely to sell at a loss within coastal and lifestyle housing markets (See G5) Although the proportion of homes selling at a loss is trending lower as home values once again start to rise, certain markets continue to have a large proportion of loss making sales. Those markets that are recording a high proportion of loss making sales are generally located in coastal housing markets which were extremely popular in the lead-up to the financial crisis. Over recent years, the market performance in these regions has been hampered by much lower housing demand as sea change migration has slowed and the tourism market has also eased. In many instances the value declines in these markets has been much more significant than the broader national benchmark. Three of Queensland s major coastal markets have had the largest proportion of homes selling at a loss over the three months to May 213. On the Gold Coast, 36.2 per cent of all homes sold at a loss over the quarter followed by 35.4 per cent of sales in the Far North region and 31.1 per cent of homes on the Sunshine Coast. All three of these regions recorded strong appreciation in home values and a high rate of population growth in the lead-up to the financial crisis. Since the on-set of the financial crisis, these markets have typically seen population growth rates fall. Tourism and investment has slowed and there has also been a subsequent decline in demand for housing. These markets G5: National housing markets with the greatest proportion of homes sold at a loss Three months to May G6: Monthly sales volumes nationally May-93 to May-13 6, 5, 4, 3, 2, 1, Gold Coast, Qld Far North, Qld Sunshine Coast, Qld Wide Bay-Burnett, Qld Lower Great Southern, WA South East, SA Richmond-Tweed, NSW Northern, Qld West Moreton, Qld Northern, Tas Mallee, Vic South West, WA Midlands, WA Yorke and Lower North, SA Murray, NSW Mackay, Qld Greater Hobart, Tas Mid-North Coast, NSW Brisbane, Qld Mersey-Lyell, Tas 6, 5, 4, 3, 2, 1, May-93 May-97 May-1 May-5 May-9 May-13 Units Houses 5 year average Source: RP Data previously saw a large proportion of holiday home buyers. Demand for this type of asset has also fallen over recent years while many owners have looked to sell these non-core assets. It is important to note that no market is recording more than half of its stock selling at a loss and the vast majority of vendors, particularly those who have owned their home for longer than five years, continue to make a profit on the sale of their home. The 2 regions listed in chart G5 have recorded 48 per cent of all loss making sales nationally over the three months to May 213. Only two capital city markets; Hobart (17.8 per cent) and Brisbane (17.4 per cent) made the list. This highlights that housing market conditions have generally been stronger within the capital city markets than those in regional lifestyle driven housing markets. Transaction volumes are generally starting to increase (See G6) RP Data s estimate of sales volumes indicates there has been a noticeable increase in transactions during 213. This increase in sales activity has occurred across both the house and unit market, indicating that the lower Source: RP Data Based on RP Data sales volumes estimates, there has been a noticeable increase in transactions during 213. The increase in sales activity has occurred across both the house and unit markets and is indicative of a lower mortgage market environment at play. 19

22 Housing market overview RP Data Property Capital Markets Report, Spring 213 G7: Rolling annual average hold period of homes sold across Australia Jun-99 to Jun-13 9% 8% 7% 6% 5% G8: Proportion of national home sales by price point 12 months to May 28 vs. 12 months to May Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Houses Less than $2, Units $2, to $4, $4, to $6, Over the past 12 months, 37.8 per cent of all home sales occurred at a price point between $2, and $4,. Sales of homes at a price point below $6, accounted for 77.2 per cent of all national sales. Home sales above $1 million only accounted for 5.8 per cent of all transactions over the past year and only 1. per cent of sales were transacted for more than $2 million. $6, to $8, $8, to $1 million $1 million to $2 million $2 million plus 9% 8% 7% 6% 5% Source: RP Data Source: RP Data mortgage rate environment is encouraging a pick-up in market activity. Over the three months to May 213, there were 9,274 house sales and 33,394 unit sales across the country. In comparison to sales transactions over the same three month period in 213, sales volumes are currently 18.9 per cent higher for houses and 14.7 per cent higher for units. Across the combined capital cities over the three months, there were 56,892 house sales (63 per cent of all house sales) and 25,494 unit sales (76 per cent of all unit sales). As the G6 chart shows, house sales were 21.1 per cent higher than over the corresponding three months in 212 and unit sales were 15.4 per cent higher. As the chart shows, sales volumes were at significantly higher levels between 21 and 23 as the national housing market experienced a boom in home values. The market experienced another (lower) spike in housing market activity in 27 and again in 29. The most recent peak in activity occurred in September 29, which was an important point for the national housing market with the partial roll-back of the boost to the First Home Owner s Grant commencing at the end of the month and interest rates starting to rise from their generational lows in October 29. Mortgage rates are now at lower levels than those recorded throughout 29 and as the chart highlights the market has started to respond with buyer demand increasing. It is important to note that the response to generational low mortgage rates has not been as strong as the response in 29, also at generational lows. This is likely due to a number of factors, namely: lower levels of consumer and business confidence, lower levels of growth in housing credit, a longer period of sustained household savings of around 1 per cent of disposable income, the slowing of the boom in mining sector investment and the absence of a boost to the First Home Owners Grant. The average hold period of homes has continued to climb as sales have generally trended lower (See G7) Although sales volumes have recently started to increase, they remain well below the peak in sales activity recorded in the middle of 23. The result of this has been that home owners are holding on to their homes for a longer period of time. In fact the average hold period has continued to rise since late 24 which coincides with the time that the housing boom had run out of steam. Of course, other factors have contributed to home owners holding on to their properties longer. Specifically, the higher price of housing means that transaction costs such as agency fees and stamp duty are much higher than they were over earlier periods. This is a significant impost on sellers and acts a disincentive for people to move homes on a more regular basis. Looking at the average hold period, at a national level it was recorded at 9.6 years for houses and 8.3 years for units in June months earlier, hold periods were recorded at 9.3 years and 7.9 years. If you go back 1 years, homes were selling after an average of just 6.7 years for houses and 5.8 years for units. The majority of home sales over the 12 months to May 213 have occurred at prices below $6, (See G8) Over the past 12 months, 37.8 per cent of all home sales occurred at a price point between $2, and $4,. This price point was the one which had recorded the greatest proportion of all sales over the year. Sales of homes at a price point below $6, accounted for 77.2 per cent of all sales nationally over the past year. Although the market for housing above $1 million gets 2

23 RP Data Property Capital Markets Report, Spring 213 Housing market overview so much attention in the national press, these sales accounted for only 5.8 per cent of all transactions over the past year and only 1. per cent of sales were transacted for more than $2 million. If we look back five years ago you can see that there has been a shift in the market to slightly higher price pointed sales. This is as a result of the impact of the growth in values over the period. Over the 12 months to May 28, 46.5 per cent of all sales were priced between $2, and $4, and 58.1 per cent of all sales were below $4,. Over the past year just 47.4 per cent of sales were under $4,. This result highlights a key challenge for price sensitive purchasers in the Australian market. Currently; there are fewer opportunities to purchase lower priced housing. In 28, 5.2 per cent of all home sales were in excess of $1 million compared to 5.8 per cent over the past year. Interestingly, 1.2 per cent of sales in excess of $1 million in 28 were for more than $2 million compared to just 1. per cent over the past year. This reflects the fact that the premium sector of the housing market has been hardest hit by the downturn over recent years. The number of homes available for sale has been trending lower (See G9) The number of properties available for sale across the country has moderated quite significantly throughout 213 as sales transactions have increased. After the number of properties available for sale peaked late in 212 there has been a noticeable reduction in properties listed for sale. Based on unique counts of properties available for sale across the country, there are currently 248,131 properties listed for sale. The number of properties available for sale is currently 14.6 per cent lower than the market peak in November 212 and 8.2 per cent lower than at the same time last year. Total listings include a combination of newly advertised properties and properties re-advertised for sale. The lower levels of stock available for sale currently is largely due to homes selling quicker, which then translates into a lower level of properties being re-listed. There are currently around 4, new listings being added to the market per month, which is 1.4 per cent lower than at the same time last year and 39.4 per cent lower than what was recorded at the peak of the market. The relatively low number of properties available for sale, particularly at a time when buyers are increasingly becoming more active, means that selling conditions are improving with increased competition from potential purchasers. G9: National number of properties advertised for sale 3, 25, 2, 15, 1, 5, G1: Rolling four week average combined capital city auction clearance rates Aug-8 to Aug Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 3, 25, 2, 15, 1, 5, Aug-7 Aug-8 Aug-9 Aug-1 Aug-11 Aug-12 Aug-13 New listings Total listings Source: RP Data Auction clearance rates much higher in 213 than over the previous two years (See G1) Auction clearance rates are widely reported in Australia as they provide a timely update on the housing market. Although auctions are popular in certain regions, at a combined capital city level they typically account for around just 15 to 2 per cent of sales, with private treaty sales accounting for the vast majority of sales. Auctions also tend to be reflective of higher priced housing stock which tends to be the most likely stock type to be taken to auction. The success rate of auctions as a means of selling a home has improved quite dramatically over the last 12 months. Throughout 212, capital city auction clearance rates were recorded at an average of 5.4 per cent on a week-to-week basis. In comparison, auction clearance rates have been recorded at an average of 64.2 per cent on a week-to-week basis throughout 213 to-date. More recently, clearance rates have been consistently recorded at around 7 per cent which is the highest level since May 21. With clearance rates at noticeably higher Source: RP Data Auction clearance rates were much higher in 213 than in previous years and although popular in certain regions, at a combined capital city level, they typically accounted for around 15 to 2 per cent of sales with private treaty sales accounting for the vast majority. RP Data s most recent auction clearance rates have been recorded at 7 per cent which is their highest level since May

24 Housing market overview RP Data Property Capital Markets Report, Spring 213 G11: Capital city rental rates and gross yields Jun-97 to Jun-13 $5 $45 $4 $35 $3 $25-2% -4% -6% -8% Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Weekly rental rate (LHS) G12: Average vendor discount combined capital city dwellings Jun-6 to Jun-13 Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 Jun-13 Gross rental yield (RHS) Across the combined capital cities housing market, the average time on market for houses as at June 213 was 47 days and for a unit it was 42 days. At the same time last year, the average time on market was slightly shorter at 6 days for houses and 54 days for units. 8% 7% 6% 5% 4% 3% Source: RP Data, RP Data - Rismark -2% -4% -6% -8% Source: RP Data, RP Data - Rismark levels, it is no surprise that overall housing market conditions and particularly conditions across the premium sector of the housing market have been showing value increases throughout 213. Rental rates showing modest increases across most cities (See G11) Over the 12 months to June 213, weekly rents across the combined capital cities increased at a moderate pace of 3.2 per cent for houses and 2.8 per cent for units. The growth in house rents have been outpaced by growth in values however, unit rental growth has outpaced unit value growth. The growth in rents over the past year has been much lower than the five year average annual rental increases of 4.9 per cent for both houses and units. As at June 213, the median rent for a capital city house was recorded at $478 per week and for a unit it was $444 per week. With rental growth having been at a similar level to growth in home values over the past year, there has been no change to gross rental yields across the combined capital cities over the period. Gross rental yields for houses are currently recorded at 4.2 per cent and for units at 4.9 per cent. With rental vacancy rates remaining tight across most capital cities, we are anticipating further moderate increases in rental rates over the year. It will be interesting to follow the growth in home values and rents because if value growth outpaces rental growth we may start to see some erosion of rental yields over the coming year. Of course if value growth slows, yields would likely improve. As sales transactions increase we may also see some pressure released from the rental market as those that were previously renting move into home ownership. Vendor discounting levels have improved as value growth has picked-up (See G12) Vendor discounting measures the percentage difference between the initial asking price of a property and the final contract price on the property. Vendor discounting levels have eased over the past year, which is reflective of an easing of stock available for sale and an increase in home values. Vendor discounting levels across the combined capital cities were recorded at 6.5 per cent for houses and 5.6 per cent for units in June 213. At the same time a year ago, houses were being discounted by an average of 7.3 per cent and units by 7. per cent. The results highlight that as the housing market has improved over the past 12 months, buyer and seller expectations have also become more closely aligned, which has resulted in lower levels of discounting. The average length of time on market has shortened as housing market conditions have improved (See G13) The average time on market is the number of days it takes from when a home is initially advertised for sale to when it ultimately sells. Note that it is only measured across actual home sales over the month and excludes sales by auction. The average time on market has fallen over the past 12 months. Across the combined capital cities housing market, the average time on market for a house as at June 213 was 47 days and for a unit was 42 days. At the same time a year earlier, the average time on market was slightly longer at 6 days for houses and 54 days for units. Much like the lower levels of vendor discounting, the fall in the average time on market reflects the pick-up in housing market activity and indicates buyers and sellers are meeting an agreeable price for sale in a more timely manner. 22

25 RP Data Property Capital Markets Report, Spring 213 Housing market overview Land prices are the real driver behind higher home values (See G14) The escalation of land prices over time has been a major contributing factor to the high values of homes in Australia s capital cities. Between June 1997 and June 213, capital city land values have increased by a total of 267 per cent. Over the same period, capital city house values have increased by 225 per cent. As this data shows, the escalation in overall home values has been driven by the higher cost of the underlying value of the land. Over the three months to June 213, the median selling price of vacant residential land across the combined capital cities was recorded at $24,25. There are a few things to keep in mind here. Firstly this is a cost just to purchase the land, when you add in the cost of physically building the home, the starting cost will be closer to $4,. While the cost of vacant residential land has escalated so much over recent years, the typical area of the land has declined. Over the three months to June 1997, the average area of capital city vacant land sold was 7 square metres. Over the three months to June 213, the average area has shrunk to 467 square metres. As a result of the compression of land sizes, the rate per square metre of capital city vacant land has increased to $ per metre compared to $93.51 per metre in Based on this, if you were to purchase a 7 square metre block of vacant land today, which was the typical size in 1997, it would cost $379,169. Vacant residential land costs across Australian capital cities are high due to a number of factors. Firstly, development approvals take time and while developers await approvals they have to pay appropriate bank or government holding costs. The development approval process is often inefficient and it can take a long time to receive approval. Unfortunately the costs are inevitably passed on to the end user, the purchaser of the vacant land. Secondly, when a council grants development approval they will often make it a requirement that the developer commits to upgrades of infrastructure. Alternatively they will charge developers a cost per lot for the additional infrastructure required to service development. Some typical infrastructure upgrades that a developer may have to pay include: a new road/roundabout, water infrastructure upgrades or sewerage infrastructure upgrades. Once again, this is a significant cost to the developer which ultimately is passed through to the purchaser of the land. Finally, local councils normally have zoning G13: Average time on market combined city dwellings Jun-6 to Jun Jun-6 Jun-7 Jun-8 Jun-9 Jun-1 Jun-11 Jun-12 Jun-13 Average days on market Source: RP Data, RP Data - Rismark G14: Combined capital city median land prices over time 25, 2, 15, 1, 5, Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 regulations and urban growth boundaries and population densities. These zonings and boundaries limit how much new housing supply can enter the market at any one time. Often these regulations will lead to land banking by developers. What this means is that they will secure large tracts of land in particular areas and feed the new supply to the market over a period of time. If demand in the area is high, it will mean that they can charge a price premium. These factors significantly contribute to the high cost of vacant land within Australian capital cities. As a result, the cost of the ultimate end product, a dwelling, is also quite high. It is also important to keep in mind that most vacant land is located on the outskirts of the city where there is less local infrastructure and amenity and travel times around a city tend to be much longer. We believe this is one of the reasons why we are seeing an increasing trend towards inner city unit development as a logical alternative to new houses on the city fringe , 2, 15, 1, 5, An escalation in land prices over time has been a major contributing factor to the high values of homes in Australia s capital cities. Between June 1997 and June 213, capital city land values increased by 267 per cent. Over the same period, capital city house values increased by 225 per cent Source: RP Data 23

26 State by State analysis RP Data Property Capital Markets Report, Spring 213 Sydney Based on median selling prices over the three months to June 213, Sydney house prices are $135, more expensive than units. The average level of vendor discounting was recorded at 6.2 per cent for houses and 4.3 per cent for units in June 213, at the same time in 212 discount levels were 7.2 per cent and 5.6 per cent respectively. Of those homes sold over the past 12 months in Sydney, houses had been owned by the vendors for an average of 1.7 years and units were owned for 8.2 years. Over the three months to May 213, 6.5 per cent of Sydney homes sold at a loss compared to their previous purchase price, compared to 7.9 per cent of homes over the same period 12 months earlier. Sydney s estimated residential population as at June 212 was almost 4.7 million persons, with the population increasing by 1.3 per cent over the year and 63.9 per cent of the State s overall population living within the city. Sydney home values rebound to a new historic high level (See G1) Sydney home values have increased by 5.6 per cent over the past 12 months and have now eclipsed their previous high point. House values have increased by 6.3 per cent over the year and unit values are 2.4 per cent higher. In June 212, Sydney house values had fallen by 2. per cent over the previous 12 month period and unit values were 2.7 per cent lower. Local dwelling values in Sydney recently eclipsed their previous peaks and are now 1.2 per cent higher than the previous record high. Sydney home values recorded a peak in early 24 following exceptional growth from 21. From 24 until 29, Sydney saw virtually no growth in home values, with many parts of the city recording actual declines. In fact, when adjusted for inflation, Sydney home values still remain below their December 23 peak. Sydney home values have recorded average annual growth of 3.8 per cent over the past five years, which is a significant improvement on the 2.5 per cent average annual growth over the past decade. Over the past ten years, Sydney has recorded the lowest average annual growth in home values of all capital cities. Transaction volumes are starting to ramp-up across the city (See G2) Over the three months to May 213, it was estimated that there were 15,864 house sales and 1,534 unit sales. In comparison to the same three month period in 212, sales volumes were 3.6 per cent higher this year for houses and 23.6 per cent higher for units. Over the 12 months to May 213, there were 52,243 houses and 35,618 units sold, which was 7.3 per cent higher and 2.9 per cent lower respectively compared to the same period last year. It is clear that the lower mortgage rate environment is having a positive impact on the Sydney housing market and resulting in not just increasing home values but also a lift in transaction activity. The lift in sales activity has been more significant for houses than it has been for units. 38 days Sydney houses took an average of 38 days to sell in June 213 compared to 58 days a year earlier. Units are taking an average of 31 days to sell currently compared to 46 days 12 months ago. Rents and yields show modest improvements over the year (See G3) Although median weekly rents across Sydney have increased over the past year, growth in home values has outpaced rental growth. Median weekly rents for houses and units have each increased by 2.9 per cent over the past 12 months and median rents are recorded at $575 per week for houses and $5 per week for units. Although there has been moderate rental growth over the past year, it has been well below the average annual growth in rents over the past five years of 5.3 per cent for houses and 5.1 per cent for units. With house value growth outstripping rental growth over the past year, gross rental yields for houses have fallen from 4.4 per cent a year ago to 4.2 per cent currently. Unit gross rental yields have remained unchanged over the past year at 4.9 per cent. 24

27 RP Data Property Capital Markets Report, Spring 213 State by State analysis Sydney key statistics June 213 Houses Units Median price $635, $5, 12 month value growth 6.3% 2.4% 5 yr average annual growth 3.7% 4.1% 1 yr average annual growth 2.4% 2.7% 15 yr average annual growth 6.1% 5. Average time on market (days) Average vendor discount -6.2% -4.3% Median weekly rental rates Gross rental yield 4.2% 4.9% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Sydney house and unit sales volumes vs. five year average Monthly sales volumes 16, 16, 12, 12, 8, 8, 4, 4, May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Sydney home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Sydney home values G3: Sydney gross rental yields and weekly rents 25% 25% % 5% -5% 2 15% 5% -5% Rental rate ($) Jun-97 Gross rental yield (%) Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional New South Wales The performance of regional New South Wales housing markets has been quite varied over the past 12 months although most regions have recorded an increase in house and unit values. For houses, the Richmond-Tweed region which adjoins Queensland s Gold Coast is the only region to have recorded a fall in house values over the year, down.3 per cent. It was also the only unit market in which values have fallen, down by.5 per cent over the year. Although house values have generally been rising in regional New South Wales markets over the past year, unlike Sydney in most areas they are yet to eclipse their previous peaks. The North Western and Far West regions of the state are the only ones in which house values are currently at their historic peak. Elsewhere, house values are as much as 4.4 per cent lower than their peak in the Central West, 3.6 per cent lower in Murrumbidgee and 3.2 per cent lower in the Mid-North Coast. In the two largest unit markets outside of Sydney, Hunter and Illawarra, values are now at an historic high level. Unit values in the Richmond-Tweed are 1.7 per cent lower than they were at their peak, in the Mid-North Coast values are.2 per cent lower than their peak and South Eastern values are 2. per cent off their peak. Change in home values over time Houses Units Region 12 mth 5 yr From peak 12 mth 5 yr From peak Hunter 5.6% 4.2% -.3% 2.7% 2.5%. Illawarra 2.4% 3.7% -.2% 3.7% 4.1%. Richmond-Tweed -.3% % -.5% -1.3% -1.7% Mid-North Coast % -3.2% 1.3% 2.2% -.2% Northern 6.7% 7.3% -1.3% North Western 7.1% 8.9%. Central West 5.1% 8.8% -4.4% South Eastern 3.5% % 2.2% 3.4% -2. Murrumbidgee 1.1% 3.8% -3.6% Murray 11.2% % Far West 5.3% 4.8%. Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 25

28 State by State analysis RP Data Property Capital Markets Report, Spring 213 Melbourne Based on median selling prices over the three months to June 213, Melbourne house prices are $79, higher than units. The average level of vendor discounting was recorded at 7.2 per cent for houses and 6. per cent for units in June 213 compared to 7.1 per cent for houses and 7.7 per cent for units a year earlier. Melbourne homes are selling much quicker than they were at the same time a year ago. In June 212, it took an average of 57 days to sell a house and 6 days to sell a unit. Currently it takes an average of 41 days to sell a house and 37 days for a unit. Amongst residential homes sold over the 12 months to June 213, vendors had owned their houses for an average of 11.1 years and units for 9.3 years. The estimated residential population of Melbourne as at June 212 was more than 4.2 million persons. The population increased by almost 1.9 per cent over the year and 75.4 per cent of the State s residents lived in the capital city. Melbourne s housing market has rebounded over the past 12 months (See G1) Home values across Melbourne have been quite resurgent over the past year increasing by 3.4 per cent, with house values up 3.3 per cent compared to a 4.1 per cent increase in unit values. Over the same period to June 212, both house and unit values had fallen by 6.6 per cent indicating quite a dramatic reversal of fortunes for the market over the past year. Although home values have increased over the past year, house values are currently 6.9 per cent lower than their historic peak and unit values are 4.9 per cent lower. Over the past decade, Melbourne house values have increased at an average annual rate of 5.6 per cent and unit values at 4.6 per cent. Over the past five years, Melbourne has been the second strongest capital city for capital growth with house values having increased at an average annual rate of just 3.5 per cent and units by 4.1 per cent. Home values in Melbourne have been through several distinct cycles over the decade, having recorded strong growth between 21 and 24, a consolidation period between 24 and 26, further strong growth in 27, value falls in 28 and a rebound during 29 and 21, with moderation thereafter. Melbourne sales volumes are back above the five year average (See G2) Over the three months to May 213, RP Data estimates that there were 15,518 house sales and 6,57 unit sales. In comparison to the same period in 212, sales volumes are currently 15. per cent higher for houses and 12.4 per cent higher for units. Over the 12 months to May 213, there have been 52,76 houses and 21,943 units sold across the city. Sales volumes for houses are 7.7 per cent higher than over the same period a year ago whereas unit sales are 3. per cent lower. Similar to Sydney, Melbourne s housing market is clearly experiencing a positive reaction to the current low mortgage rates however, the reaction has been stronger in the housing market than the unit market. 8.4% 8.4 per cent of homes sold over the three months to May 213 sold for less than their initial purchase price compared to 6.9 per cent over the same period in 212. Moderate growth in rents and the lowest yields of any capital city (See G3) Growth in Melbourne home values has outpaced the growth in rents over the year to June 213. Melbourne house rents have increased by 2.2 per cent over the year to $436 per week and unit rents are recorded at $391 per week following a 2.3 per cent increase over the year. The growth in rents over the past 12 months has been lower than the average annual increases over the past five years of 3.8 per cent for houses and 3.9 per cent for units. With growth in values outstripping the growth in rents over the past year, gross rental yields for houses have remained unchanged while unit yields have weakened. House yields are currently recorded at 3.7 per cent and unit yields are recorded at 4.4 per cent, down from 4.5 per cent at the same time a year ago. 26

29 RP Data Property Capital Markets Report, Spring 213 State by State analysis Melbourne key statistics June 213 Houses Units Median price $51, $431, 12 month value growth 3.3% 4.1% 5 yr average annual growth 3.5% 4.1% 1 yr average annual growth 5.6% 4.6% 15 yr average annual growth 8.5% 7.7% Average time on market (days) Average vendor discount -7.2% -6. Median weekly rental rates Gross rental yield 3.7% 4.4% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Melbourne house and unit sales volumes vs. five year average Monthly sales volumes 12, 12, 1, 1, 8, 8, 6, 6, 4, 4, 2, 2, May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 G3: Melbourne gross rental yields and weekly rents Rental rate ($) Jun-97 Jun-99 Gross rental yield (%) Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Melbourne home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Melbourne home values 25% 25% 2 15% 5% -5% % 5% -5% - Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional Victoria Much like Melbourne home values, regional housing markets across Victoria have typically recorded an increase in values throughout the past year. Over the 12 months to June 213, Melbourne home values have increased by 3.4 per cent and most regional areas have actually recorded a superior level of capital gain. All regions have recorded growth in house values over the year whereas the unit market in Barwon has recorded a 7.4 per cent value fall over the past year. House values have increased across each regional market over the past 12 months, however the Loddon region is the only market in which home values are now at an historic high level. The greatest value falls since the market peak in regional Victoria have been recorded in Ovens-Murray (4.9 per cent), Mallee (3.6 per cent) and Barwon (3.3 per cent). The Barwon region, which includes a large volume of units within popular coastal markets, is the only regional area of Victoria for which unit market statistics are calculated. As mentioned, values across this region have fallen by 7.4 per cent over the year and they are 15.5 per cent lower than they were at their peak. This is largely a result of weakness over recent years within many of the coastal lifestyle markets around the region. Change in home values over time Houses Units Region 12 mth 5 yr From peak 12 mth 5 yr From peak Barwon 2.1% 6.3% -3.3% -7.4% 1.1% -15.5% Western District 6.5% 7.3% -.2% Central Highlands 8.3% % Wimmera % -1.1% Mallee 2.3% 2.1% -3.6% Loddon %. Goulburn % -3.6% Ovens-Murray 3.2% 3.6% -4.9% East Gippsland 8.3% 8.6% -2. Gippsland.9% 7.1% -3.3% Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 27

30 State by State analysis RP Data Property Capital Markets Report, Spring 213 Brisbane Median house prices across the city are $8, higher than unit prices over the three months to June 213. The average level of vendor discounting in June 213 has shown an improvement compared with June 212, however discounting remains higher than average. Discounting levels are currently recorded at 7.5 per cent for houses and 7.2 per cent for units compared to 8.8 per cent for houses and 8. per cent for units a year ago. Of those Brisbane properties that sold over the past year, vendors had owned their houses for an average of 9.5 years and units for 7.9 years. It is taking a similar length of time to sell a Brisbane home to what it was a year ago. Houses and units are currently selling after an average of 62 days and 65 days respectively on the market. In June 212 it took an average of 63 days to sell a house and 68 days to sell a unit. Over the three months to May 213, 16.7 per cent of Brisbane homes sold for less than their purchase price compared to 16.9 per cent at the same time a year ago. Brisbane home values are up.6 per cent over the year, a fairly muted response to the low mortgage rate environment (See G1) Brisbane home values have increased by.6 per cent over the 212/13 financial year, driven by a.9 per cent increase in house values whereas unit values have fallen by 1.8 per cent. Although value growth is limited, it is a significant improvement on the declines of 4.6 per cent and 2.5 per cent respectively on an annual basis at the same time in 212. Although values have recorded some minor growth over the past year, house values are currently 1.8 per cent below their peak and unit values are 1.6 per cent lower. Ever since the national property market began recording strong growth post the financial crisis, Brisbane has significantly underperformed other capital city markets. Capital gains have been limited after Brisbane s housing market outperformed most other capital cities for most of the previous decade. Over the past ten years, Brisbane home values have increased at an average annual rate of 5. per cent compared to an annual average fall of 1.1 per cent over the past five years. Sales volumes in Brisbane have increased at a slower rate than most other cities (See G2) Based on RP Data estimates, there were 7,512 houses and 2,92 units sold across Brisbane over the three months to May 213. In comparison to activity over the same period a year ago, sales volumes for houses are 14.1 per cent higher and unit sales volumes are 8. per cent lower. Looking at sales over the past year, there have been 28,59 houses and 11,418 units sold across the city. The volume of house sales is 1.7 per cent higher than a year ago whereas unit sales are just.8 per cent higher. The Brisbane housing market is not responding with the same vigour as other capital cities to the low mortgage rate environment, however sales activity across the city is slowly trending higher. 2.2 million Brisbane s population was estimated to be almost 2.2 million persons as at June 212, which was 2. per cent higher over the year. Brisbane is the State s most populous city however, just 48. per cent of all QLD residents live in Brisbane. Unit rental yields in Brisbane are particularly strong and rising (See G3) The current median weekly advertised rent for a Brisbane house is $422 while median unit rents are recorded at $41. Although the annual increase in rents has been moderate over the past year, rental growth has outpaced home value growth providing an improved yield scenario for Brisbane s housing market. House rents have increased by 2.9 per cent over the past year compared to a 2.5 per cent increase in unit rents. Rental growth for both houses and units has underperformed compared to average annual rental growth over the past five years, which has been recorded at 3.9 per cent for houses and 3.8 per cent for units. With rental growth outpacing value growth, we have seen yields improve over the past 12 months. House yields have improved to 4.7 per cent currently from 4.6 per cent a year ago. Unit yields have shifted from 5.5 per cent a year ago to 5.7 per cent currently; the second highest gross yield of any capital city. 28

31 RP Data Property Capital Markets Report, Spring 213 State by state analysis Brisbane key statistics June 213 Houses Units Median price $45, $37, 12 month value growth.9% -1.8% 5 yr average annual growth -1.2% -.4% 1 yr average annual growth % 15 yr average annual growth 7.8% 5.6% Average time on market (days) Average vendor discount -7.5% -7.2% Median weekly rental rates Gross rental yield 4.7% 5.7% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Brisbane house and unit sales volumes vs. five year average Monthly sales volumes 8, 8, 6, 6, 4, 4, 2, 2, May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 G3: Brisbane gross rental yields and weekly rents Rental rate ($) Gross rental yield (%) Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Brisbane home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Brisbane home values Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional Queensland Queensland has the least centralised population of all Australian states with more than half of its residents living outside of the capital city Brisbane. As a result of these conditions, regional markets tend to be larger than in most other states and their performances have been vastly different. This is highlighted by the fact that house values have risen by as much as 16.1 per cent in the North West region over the past year and by as little as 1.6 per cent on the Gold Coast. Generally, regional markets have recorded stronger value growth over the past year than the.6 per cent increase in Brisbane. House values are currently at historically high levels in the Far North and North West regions of the state, elsewhere they remain lower than their peak. Houses on the Gold Coast are currently significantly lower than their peak (1.4 per cent), while values are 4.8 per cent lower on the Sunshine Coast and 3.4 per cent lower on the Darling Downs. The results highlight the weakness in house values in coastal markets and coupled with Brisbane it shows a weak South-East Queensland market over recent years. Change in home values over time Houses Units Region 12 mth 5 yr From peak 12 mth 5 yr From peak Gold Coast 1.6% -1.7% -1.4% -2.9% -3.2% -16. Sunshine Coast 2.1% 1.1% -4.8% -4.5% -2.5% -13.6% West Moreton 13.1% 3.9% -.2% Wide Bay-Burnett % -2.6% Darling Downs 3.4% 4.9% -3.4%.4% -2.3% -15.8% South West 4.3% 1.6% -.4% Fitzroy 8.7% 4.6% -.5% Central West 4.3% 1.6% -.4% Mackay 13.7% 6.7% -.6% Northern 7.3% % -4.5% -1.9% -16.6% Far North 5.8% 1.7%. -3.5% -3.4% -16.5% North West 16.1% 9.4%. Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 29

32 State by State analysis RP Data Property Capital Markets Report, Spring 213 Adelaide Over the three months to June 213 the median house price was $6, greater than the median unit price. Vendor discounting is at a lower level than a year ago. In June 212, discount levels for houses were 7.2 per cent, lower than the 7.6 per cent for units. In June of this year discounts were recorded at 6.4 per cent for houses and 6.8 per cent for units. Adelaide s residential population was estimated to be almost 1.3 million in June 212 with 77.1 per cent of the State s population living in the capital city. Over the year, Adelaide s population grew by 1.1 per cent. Homes are taking a shorter length of time to sell across Adelaide than they were at the same time last year. A year ago, houses took an average of 7 days to sell and units 74 days, in June 213 houses took an average of 56 days to sell and units took 54 days. Over the three months to May 212, 11.3 per cent of Adelaide homes sold for less than their purchase price, over the same period this year 12.8 per cent of homes sold for lower than their purchase price. Adelaide s housing market is showing only limited signs of recovery (See G1) Adelaide home values have increased by just.2 per cent over the 12 months to June 213. House values have increased by.2 per cent and the much smaller unit market has seen values fall by.4 per cent. Although there has been little growth in home values, the housing market has improved over the years with house values falling by 2.4 per cent and unit values down 2.3 per cent over the same 12 month period a year ago. Adelaide s housing market recorded stronger conditions than those across the combined capital cities between late 22 and early 26 and the market significantly outperformed once again in 27. Since the onset of the financial crisis, Adelaide has consistently underperformed the capital city benchmark. Capital gains in the housing market have been much stronger over the first five years of the past decade with house values increasing at an average annual rate of 1. per cent and units by 9.5 per cent annually over the period. In comparison, over the past five years house values have increased at an annual rate of.8 per cent compared to an annual.6 per cent fall in unit values. Sales activity in Adelaide has started to pick up over recent months (See G2) Over the three months to May 213, RP Data estimates that there were 4,926 houses and 1,648 units sold in Adelaide. Based on this level of activity, sales transactions are 8.5 per cent higher than over the corresponding period a year ago for houses and 16.3 per cent higher for units. Over the 12 months to May 213, there were 18,287 houses and 5,67 units sold across Adelaide. These figures indicate a 3.6 per cent lift in house sales over the year and a 1.1 per cent increase in unit sales. Overall the data indicates that the Adelaide housing market is responding to the lower mortgage rates with increased housing market activity however, it has not been a surge in activity rather just a moderate response to date. 7.8 years Of the houses that have sold within Adelaide over the 12 months to June 213, the vendors had owned them for an average of 7.8 years and units had been owned for an average of 7.6 years. Limited rental pressures across Adelaide (See G3) Adelaide median weekly rents for a house are currently recorded at $365 per week and for units they sit at $31 per week. Rental growth has been moderate for houses over the past year, increasing by 2.1 per cent while unit rents are virtually unchanged, up by.8 per cent. Although growth in rents has been low it has outstripped growth in values of houses and units. Rental growth over the past year has also been much lower than five year average annual levels which have been recorded at 3.6 per cent for houses and 3.4 per cent for units. With rental growth outstripping value growth, there has been a slight improvement in gross rental yields. House yields have shifted from 4.3 per cent a year ago to 4.4 per cent. Unit yields have increased to 4.9 per cent in June 213 from 4.8 per cent a year earlier. 3

33 RP Data Property Capital Markets Report, Spring 213 State by state analysis Adelaide key statistics June 213 Houses Units Median price $395, $335, 12 month value growth.2% -.4% 5 yr average annual growth.8% -.6% 1 yr average annual growth 5.3% 4.4% 15 yr average annual growth 8.1% 6.9% Average time on market (days) Average vendor discount -6.4% -6.8% Median weekly rental rates Gross rental yield 4.4% 4.9% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Adelaide house and unit sales volumes vs. five year average Monthly sales volumes 3,6 3,6 3, 3, 2,4 2,4 1,8 1,8 1,2 1,2 6 6 May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Adelaide home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Adelaide home values G3: Adelaide gross rental yields and weekly rents Rental rate ($) Jun-97 Gross rental yield (%) Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional South Australia Regional South Australian housing markets have generally experienced stronger levels of value growth over the past year than the.2 per cent increase in Adelaide home values. Houses are the only product type of significance in regional South Australia; values across these areas have generally risen over the past year with Yorke and Lower North (down 3.1 per cent) and Murray lands (down 2.1 per cent) the exceptions. Across the detached housing market, despite the fact that a number of regions have recorded value increases over the year, all markets have values which are currently below their historic highs. The Eyre region has the lowest magnitude of decline at just 2.2 per cent below its peak. House values in the Murray Lands region are 13.2 per cent lower than their historic high and Yorke and Lower North values are 1.6 per cent lower. Quick Fact South Australia s population increased by 1. per cent over the 12 months to June 212 to an estimated 1.65 million persons. Over the past ten years South Australia s population has increased by an average annual rate of.8 per cent each year. Change in home values over time Houses Region 12 mth 5 yr From peak Outer Adelaide 2.9% 5.4% -3.3% Yorke and Lower North -3.1% 5.8% -1.6% Murray Lands -2.1% 3.4% -13.2% South East 4.1% 2.6% -2.5% Eyre 3.1% 3.6% -2.2% Northern.5%.2% -4.2% Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 31

34 State by State analysis RP Data Property Capital Markets Report, Spring 213 Perth The average level of vendor discounting has shown a subtle improvement over the year for houses and a much greater improvement for units. Discounting levels for houses are currently recorded at 6.1 per cent and units are at 5. per cent. In June 212 they were recorded at 6.4 per cent and 6.8 per cent respectively. The length of time it takes to sell a house in Perth has also improved over the year. Houses are currently taking an average of 49 days to sell and units 52 days. In June 212 they were taking an average of 6 days and 59 days respectively. Across Perth, of the homes sold over the 12 months to June 213, vendors had on average owned their houses for 8.3 years and units for 7.7 years. 4.9 per cent of homes sold over the three months to May 213 sold for less than their purchase price compared to 11.6 per cent of homes over the same period in 212. The estimated residential population of Perth as at June 212 was more than 1.9 million persons. The population had increased by 3.6 per cent over the year, with 78. per cent of all Western Australians living in Perth. Growth in home values in Perth has been strong over the past year (See G1) Growth in home values in Perth has been strong over the past year, with local dwelling values increasing by 6. per cent. House values have increased by 6.3 per cent over the year and unit values have risen by 2.4 per cent. This is a reversal of fortunes for house values in Perth considering they fell by.2 per cent over the 12 months to June 212 compared to a 1.4 per cent annual increase in unit values. Up until the past eighteen months, the Perth housing market has recorded little growth in home values for more than five years, following exceptional growth over the preceding period. The previous surge in home values was largely associated with a boom in investment in the mining and resources sector over the period. Given that values have previously shown no increase for such a long period of time, it is clear that Perth home values overshot the mark prior to 27. Over the most recent five years, Perth house values have increased at an average annual rate of.8 per cent, whilst unit values have risen by.2 per cent annually. Over the five years to June 28, Perth house values rose at an average annual rate of 16.9 per cent and unit values by 14.9 per cent annually. Transaction volumes across Perth have been rising as market conditions improve (See G2) RP Data estimates that over the three months to May 213, there were 1,253 houses and 2,376 units sold in Perth. Based on these sales, the number of transactions was 28.8 per cent higher than a year ago for houses and 31.2 per cent higher for units. Over the 12 months to May 213, there were 35,159 Perth house sales and 8,144 unit sales. In comparison to the number of sales over the 12 months to May 212, activity over the past year has been 26.8 per cent higher for houses and 34. per cent higher for units. The data indicates that the low mortgage rate environment has resulted in a strong reaction from the market with a significant increase in sales activity as rates have fallen. $11, Median unit prices across the city were $11, lower than house prices over the three months to June 213. Rental rates surging throughout the city (See G3) Rental rates across Perth have surged over the past year, increasing by 7.7 per cent for houses and by 7.4 per cent for units. The median weekly rent is recorded at $51 per week for houses and $452 per week for units. Rental growth over the past year has been stronger than the five year average annual growth level. Although growth has been strong over the year, it is important to note rental growth has slowed over the past few months, perhaps foreshadowing slowing demand across the city. Although value growth has been outpaced by rental growth, gross rental yields for houses are unchanged over the year at 4.4 per cent. The more sluggish level of unit value growth has seen yields increase to 5.1 per cent from 4.9 per cent a year ago. 32

35 RP Data Property Capital Markets Report, Spring 213 State by State analysis Perth key statistics June 213 Houses Units Median price $518, $417, 12 month value growth 6.3% 2.4% 5 yr average annual growth.8%.2% 1 yr average annual growth 8.6% 7.3% 15 yr average annual growth 9.1% 8. Average time on market (days) Average vendor discount -6.1% -5. Median weekly rental rates Gross rental yield 4.4% 5.1% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Perth house and unit sales volumes vs. five year average Monthly sales volumes 6, 6, 5, 5, 4, 4, 3, 3, 2, 2, 1, 1, May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Perth home sales 5 year average G3: Perth gross rental yields and weekly rents Rental rate ($) Jun-97 Gross rental yield (%) Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Source: RP Data G1: Rolling quarterly and annual change in Perth home values Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional Western Australia Much like the performance of home values in Perth, regional Western Australian markets have generally recorded quite high levels of capital growth over the past year. Detached house values have risen by as much as 16.7 per cent in the Pilbara region over the year and Lower Great Southern was the only region in which values fell, down 4.5 per cent. Regional house values are currently at their historic high level in Upper Great Southern, Pilbara and the Kimberley. Elsewhere, values are down as much as 8. per cent in the Midlands, 7.3 per cent in Lower Great Southern and 2.9 per cent in the Central region. The South West region has the only significant regional unit market across the state and it has recorded a 3.3 per cent increase in values over the past year. The region has seen a significant correction in values over recent years however; the market is now clearly improving with values currently just 3.9 per cent lower than their previous highs. Change in home values over time Houses Units Region 12 mth 5 yr From peak 12 mth 5 yr From peak South West 5.6% 2.5% -1.3% 3.3% 5.4% -3.9% Lower Great Southern -4.5% % Upper Great Southern 1.7% 4.2%. Midlands 2.4% 9.8% -8. South Eastern 6.9% 1.2% -1.4% Central % -2.9% Pilbara 16.7% 5.3%. Kimberley 1.7% 4.2%. Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 33

36 State by State analysis RP Data Property Capital Markets Report, Spring 213 Hobart Based on median selling prices over the three months to June 213, houses across the city were $6, more expensive than units. Hobart houses sold over the 12 months to June 213 had been owned by the vendors for an average of 9.1 years and units had been owned for an average of 8.5 years. Over the three months to May 213, 17.4 per cent of Hobart homes sold for a lower price than what they were purchased compared to 17.1 per cent over the same period a year ago. As at June 212, Hobart was estimated to be home to almost 217, persons or 42.3 per cent of Tasmania s overall population. Hobart s population increased by.3 per cent over the period. The average number of days on the market has risen for units but fallen for houses over the past year. Houses were taking an average of 96 days to sell a year ago and units took 14 days. In June of this year, houses took an average of 78 days to sell and units took 112 days to sell. 8.5% Vendor discounting levels in Hobart have fallen for houses but increased for units over the past year. The average level of vendor discounting for a house has fallen to 8.5 per cent in June 213 from 1.5 per cent a year ago. For units, discount levels have risen from 7.9 per cent a year ago to 13.6 per cent. Hobart s housing market the weakest of all capital cities (See G1) Hobart is the only capital city in which home values have fallen over the past 12 months, down 1.8 per cent. House values have fallen by 2. per cent over the year and unit values are.1 per cent lower. Although declines have continued, the magnitude of value falls is much lower than at the same time in 212 when house and unit values had fallen by 5.1 per cent and 6.4 per cent respectively over the year. Hobart s housing market recorded exceptional capital gains between late 22 and 24 with annual value growth peaking at one point at 57.9 per cent. Since that time the Hobart housing market has largely underperformed the combined capital cities benchmark. Over the five years to June 213, Hobart house values have declined at an average annual rate of.5 per cent and unit values have fallen at a faster average annual rate of 1.1 per cent. In comparison, house values rose at an average annual rate of 11.6 per cent between June 23 and June 28 and unit values rose by 1.1 per cent annually. Hobart sales activity has started to pick up over recent months from a very low base (See G2) Over the three months to May 213, RP Data estimates that there were 919 houses and 268 units sold across the Hobart housing market. The number of sales over this three month period was 37.3 per cent higher for houses than over the same period a year ago and 39.8 per cent higher for units than a year ago. Over the 12 months to May 213, there were 3,45 houses and 91 units sold in Hobart. Based on this data, the number of house sales was 1.5 per cent higher than over the 12 months to May 212 and unit sales were 6.3 per cent higher. The Hobart housing market is clearly starting to show an increase in sales activity, however the improvement to date, at least from a capital gains perspective, has not been as strong as the pick-up seen in most other capital cities. Rental markets remain week across Hobart (See G3) The Hobart rental market has also been weak over the past year with house rents increasing by just.1 per cent over the year whilst unit rents fell by 3. per cent. Median rents are currently recorded at $332 per week for houses and $276 per week for units. Growth in house rents has outstripped house value growth while the declines in unit values have been smaller than the declines in unit rents. The limited growth in rental rates is a reflection of little growth in demand and a sufficient supply of housing. It is also reflective of the fact that housing is relatively affordable, therefore resulting in lower rental demand. Gross rental yields for houses have increased from 5.1 per cent a year ago to 5.2 per cent currently. Conversely, yields for units have fallen to 5.2 per cent from 5.4 per cent a year ago. 34

37 RP Data Property Capital Markets Report, Spring 213 State by State analysis Hobart key statistics June 213 Houses Units Median price $33, $27, 12 month value growth % 5 yr average annual growth -.5% -1.1% 1 yr average annual growth 5.4% 4.3% 15 yr average annual growth % Average time on market (days) Average vendor discount -8.5% -13.6% Median weekly rental rates Gross rental yield 5.2% 5.2% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Hobart house and unit sales volumes vs. five year average Monthly sales volumes May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Hobart home sales 5 year average G3: Hobart gross rental yields and weekly rents Rental rate ($) Gross rental yield (%) Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Source: RP Data G1: Rolling quarterly and annual change in Hobart home values Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark Regional Tasmania Home values in Hobart have fallen by 1.8 per cent over the past year. Similarly, the three regional markets of the state have also recorded falling home values. Across the three regional areas, house values have fallen by as much as 6.2 per cent in the Southern region and by as little as 1.7 per cent in the Northern region of the state. Across each of the regional detached housing markets, values remain below their historic highs and the weakness across the market is highlighted by the low rates of average annual value growth across most regions over the past five years. Values in the Southern region are 13.1 per cent lower than their peak, in the Mersey-Lyell region they are 7.8 per cent lower and they are 7.7 per cent lower in the Northern region. Quick Fact As of June 212, there was an estimated 512,19 persons residing in Tasmania, up.2 per cent, or a total of just over 8 persons over the twelve months. Over the past decade, Tasmania s population growth has been recorded at an average of.8 per cent each year. Change in home values over time Houses Region 12 mth 5 yr From peak Southern -6.2% 8.7% -13.1% Northern -1.7%.5% -7.7% Mersey-Lyell -2.4%.8% -7.8% Reference: 12 mth = 12 month change, 5 yr = Average annual change over five years, 1 yr = Average annual change over 1 years, From peak = change in values since the market peak. RP Data, RP Data-Rismark Home Value Index 35

38 State by State analysis RP Data Property Capital Markets Report, Spring 213 Darwin Units are $7, more affordable than houses currently based on median selling prices over the three months to June 213. Across Darwin, the levels of vendor discounting are currently at a similar level to what they were a year ago. Discounting has increased from 4.1 per cent a year ago for houses to 4.3 per cent currently. Unit discounts are steady at 5.3 per cent over the year. As at June 212 Darwin s estimated population was 132, persons and increased by 2. per cent over the year. Of the residential properties sold across the city over the past year, vendors had owned their houses for an average of 6. years and unit owners had held their properties for 5.5 years. 8.3 per cent of Darwin homes sold for less than their previous purchase price over the three months to May 212 compared to 1.8 per cent of homes over the same period in 213. Darwin s housing market swiftly recovering from its recent correction (See G1) Home values in Darwin have increased by 6.1 per cent over the 12 months to June 213. House values have increased by 6.1 per cent and unit values have risen by 6.4 per cent. At the same time a year earlier, house values had fallen by 1.9 per cent and unit values were down.6 per cent. Although the annual rate of value growth has been strong, values have actually fallen by.4 per cent over the first half of 213. Darwin s housing market consistently outperformed the combined capital city result between 24 and mid-21. Following this period, it experienced a short and sharp correction in values, however it has recorded strong levels of value growth over the past 12 to 18 months. House values increased at an average annual rate of 15.8 per cent over the five years to June 28 compared to 4.4 per cent growth annually over the past five years. It is a similar story in the unit market with values increasing at an average annual rate of 3.6 per cent over the past five years compared to 15.1 per cent average annual growth over the five years to June 28. Darwin sales activity has increased over the past year (See G2) Based on RP Data estimates, there were 592 houses and 286 units sold across Darwin over the three months to May 213. Over this period, house sales were 17.5 per cent higher than over the same period a year earlier while unit sales were 7.1 per cent lower. Based on RP Data s figures there were 2,113 houses and 1,9 units sold over the 12 months to May 213. Sales activity over the past 12 months has been 14.8 per cent higher for houses and 11.8 per cent higher for units than the corresponding 12 month period a year ago. Over the past year, sales activity has been trending higher across the city, clearly assisted by the low mortgage rate environment. With a slowing resources sector it will remain to be seen whether this continues. 44 days The average number of days on market has eased over the past year. Houses are currently taking an average of 44 days to sell and units 57 days. In June 212 houses took an average of 56 days to sell and units took 74 days. Rental rates surge over the past 12 months (See G3) Median rents for houses in Darwin are currently recorded at $619 per week and unit rents sit at $486 per week. Over the 12 months to June 213, house rents have increased by 9.3 per cent and unit rents have risen by 8.5 per cent. Rental growth over the past year has been stronger than the five year averages for houses and units (7.6 per cent and 7.1 per cent respectively) however, the rate of rental growth has slowed dramatically throughout 213. Growth in rents over the past year has outpaced growth in home values and subsequently yields have increased slightly. In June 212, both houses and units had a gross rental yield of 6.1 per cent and over the past year both have increased to 6.2 per cent. 36

39 RP Data Property Capital Markets Report, Spring 213 State by State analysis Darwin key statistics June 213 Houses Units Median price $52, $45, 12 month value growth 6.1% 6.4% 5 yr average annual growth 4.4% 3.6% 1 yr average annual growth 9.9% 9.2% 15 yr average annual growth na na Average time on market (days) Average vendor discount -4.3% -5.3% Median weekly rental rates Gross rental yield 6.2% 6.2% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Darwin house and unit sales volumes vs. five year average Monthly sales volumes May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Darwin home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Darwin home values G3: Darwin gross rental yields and weekly rents Rental rate ($) Gross rental yield (%) Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark 37

40 State by State analysis RP Data Property Capital Markets Report, Spring 213 Canberra The average number of days on the market has fallen over the past year. Houses and units are currently taking an average of 48 days to sell. In June 212, houses took an average of 63 days to sell and units took 72 days. Of the residential properties sold across the city over the year to June 213, vendors had owned their houses for an average of 9.3 years and unit owners had held their properties for 7.9 years. The proportion of homes selling at a loss when compared to their previous purchase price has risen from 3.8 per cent of sales over the three months to May 212 to 6.2 per cent over the same period in 213. Canberra s estimated residential population at June 212 was almost 375, persons with the population increasing by 1.9 per cent over the past year. The level of discounting by vendors has increased over the past 12 months. In June 213, houses were being discounted by an average of 6.2 per cent and units by 5.9 per cent. A year earlier, discount levels were recorded at 5.2 per cent for houses and 5. per cent for units. $145, Based on the median selling price of a home over the three months to June 213, houses are $145, more expensive than units in Canberra. Canberra home values show nominal change over the past year (See G1) Canberra home values have increased by 1.1 per cent over the 12 months to June 213. House values have increased by 1.1 per cent over the year and unit values have increased by a greater 1.7 per cent. At the same time a year earlier, Canberra house values had increased by.8 per cent over the year and unit values had fallen by 1.7 per cent. Annual growth in Canberra home values consistently outperformed that of the combined capital cities between late 1999 and mid-24 and since that time capital gains have tracked the growth of the combined capital cities benchmark fairly closely. Over the most recent five years, house values have increased at an average annual rate of 2.7 per cent and units by 2.9 per cent. Over the five years to June 28, growth in home values was much stronger with house values recording an average annual increase of 6.4 per cent and unit values increasing by 5.8 per cent annually. The future challenge for the Canberra housing market will be the likelihood of public service job cuts following the federal election, which is anticipated to have an impact on the demand for housing. There has been only a moderate increase in sales activity in Canberra over the past year (See G2) It is estimated that there were 1,39 houses and 91 units sold in Canberra over the three months to May 213. House sales were 19.5 per cent higher than over the corresponding period a year earlier and unit sales were 8.1 per cent higher. Over the 12 months to May 213, there were 4,166 houses and 3,322 units sold in Canberra. Annual transaction activity was 1.6 per cent higher than a year ago for houses and 5.2 per cent lower for units. It is clear that although sales activity has increased over the past year in Canberra the uplift has been much more moderate than that recorded across the other capital city housing markets. A lack of rental pressures prevalent in the Canberra detached housing market (See G3) Canberra houses have a current median rent of $536 per week for houses and $443 per week for units. Over the 12 months to June 213, house rents have increased by just.8 per cent and unit rents have fallen by 2. per cent. The figures indicate that there is very little rental pressure currently across the Canberra housing market. The change in rents over the past year is well below the five year average annual levels of 4. per cent for houses and 3.7 per cent for units. Gross rental yields have remained unchanged over the past year at 4.6 per cent. Unit rental yields have fallen on the back of the decline in rental rates, shifting to 5.6 per cent from 5.8 per cent a year ago. 38

41 RP Data Property Capital Markets Report, Spring 213 State by State analysis Canberra key statistics June 213 Houses Units Median price $555, $41, 12 month value growth 1.1% 1.7% 5 yr average annual growth 2.9% 1.2% 1 yr average annual growth 4.6% 3.5% 15 yr average annual growth % Average time on market (days) Average vendor discount -6.2% -5.9% Median weekly rental rates Gross rental yield 4.6% 5.6% Average hold period (years) RP Data, RP Data-Rismark Home Value Index, ABS G2: Canberra house and unit sales volumes vs. five year average Monthly sales volumes 1,5 1,5 1,2 1, May-97 May-99 May-1 May-3 May-5 May-7 May-9 May-11 May-13 Canberra home sales 5 year average Source: RP Data G1: Rolling quarterly and annual change in Canberra home values G3: Canberra gross rental yields and weekly rents Rental rate ($) Gross rental yield (%) Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Jun-97 Jun-99 Jun-1 Jun-3 Jun-5 Jun-7 Jun-9 Jun-11 Jun-13 Quarterly change Annual change Source: RP Data, RP Data - Rismark Home Value Index Median weekly rent (LHS) Gross rental yield (RHS) Source: RP Data, RP Data - Rismark 39