Australian Securitisation Seminar London. 13 June 2016

Transcription

1 Australian Securitisation Seminar London 13 June 2016

2 Agenda 1. Welcome Vanessa Docherty Partner, K&WM London 2. Outlook for the Australian economy, banking and residential property markets 3. Australian RMBS performance trends and outlook 4. Outlook for ABS sector and other market developments 5. Closing remarks

3 Outlook for the Australian economy, banking and residential property markets Speaker Position Organisation Moderator Chris Dalton Chief Executive Officer Australian Securitisation Forum Panellists Nick Parsons Head of Markets Strategy, Europe National Australia Bank Gavin Friend Senior Market Strategist National Australia Bank

4 Housing prices AUD 000's 1, Source: NAB, CoreLogic Dwelling Value Index Capital city prices are up a cumulative 37% this growth cycle (started May 2012) and are 27% higher than its previous peak (Oct 2010) Capital City Dwell Syd Melb Bris Perth 0 May 16 May 15 May 14 May 13 May 12 May 11 May 10 May 09 May 08 May 07 May 06 May 05 May 04 May 03 May 02 May 01 May 00 May 99 May 98 May 97 May 96 Sydney prices are up 50% from its previous peak (Nov 2010), Melbourne 25% (Oct 2010) higher, Brisbane is up 4% from its previous peak (Nov 2009) while Perth is down 7% from its previous peak (December 2014). What has been driving house prices? 1. Record low mortgage rates still falling 2. Foreign demand slowing 3. Supply / demand imbalance rapid apartment construction (as well as current pipeline) has reduced undersupply in major capital cities

5 House prices over the longer term Sydney Houses Units Median Price $885,000 $680,000 Quarterly Value Change 3.8% 4.4% 12 month Value Change 8.4% 11.5% 5yr Value Change 8.3% 6.9% 10yr Value Change 6.2% 2.8% 15yr Value Change 6.9% 5.6% Change Prev Peak 46.2% 36.9% Median Rental Rate $619 $546 Gross Rental Yield 3.1% 4.0% Brisbane Houses Units Median Price $500,000 $382,500 Quarterly Value Change 3.2% -1.5% 12 month Value Change 6.7% 1.2% 5yr Value Change 2.2% 0.5% 10yr Value Change 3.9% 3.1% 15yr Value Change 8.0% 5.6% Change Prev Peak 4.7% -3.5% Median Rental Rate $436 $406 Gross Rental Yield 4.2% 5.3% Melbourne Houses Units Median Price $642,000 $489,000 Quarterly Value Change 1.0% -0.7% 12 month Value Change 10.8% 4.7% 5yr Value Change 4.7% 1.9% 10yr Value Change 7.2% 5.2% 15yr Value Change 8.2% 6.0% Change Prev Peak 21.2% 7.5% Median Rental Rate $463 $405 Gross Rental Yield 2.9% 4.0% Perth Houses Units Median Price $523,500 $415,000 Quarterly Value Change 0.8% -3.1% 12 month Value Change -2.2% -0.1% 5yr Value Change 1.3% 0.2% 10yr Value Change 2.8% 2.8% 15yr Value Change 7.9% 6.9% Change Prev Peak -4.2% -6.6% Median Rental Rate $441 $393 Gross Rental Yield 3.7% 4.3% Source: CoreLogic, Quarterly Review The Australian Residential Property Market and Economy Released May 2016

6 Australian housing affordability House Price to Income Ratios Multiple Source: ABS, CoreLogic, NAB yr Averages 8 Capital City Dwelling Price / GDP per Capita 8 Capital City Dwelling Price / Avg FT Earnings May 16 Nov 15 May 15 Nov 14 May 14 Nov 13 May 13 Nov 12 May 12 Nov 11 May 11 Nov 10 May 10 Nov 09 May 09 Nov 08 May 08 Nov 07 May 07 Nov 06 May 06

7 Households income and balance sheets Household Indebtedness % % Total Household Debt to Disposable Income Housing Debt to Disposable Income Source: RBA, NAB Owner Occupied Debt to Disposable Income 0 Dec 15 Dec 14 Dec 13 Dec 12 Dec 11 Dec 10 Dec 09 Dec 08 Dec 07 Dec 06 Dec 05 Dec 04 Dec 03 Dec 02 Dec 01 Dec 00 Dec 99 Dec 98 Dec 97 Dec 96 Dec 95 Household indebtedness has been steady since Household indebtedness rose in 1990 s due to: (1) Australia s transition from high inflation in 70 s & 80 s to low inflation in 90 s, (2) Interest rates fell, (3) Prices kept rising and (4) Availability of finance improved. Household indebtedness was tested through the Global Financial Crisis and through two periods of slowing domestic economic growth (Jun 07 Sep 09 and Mar 12 Mar 13). Recent increases has taken indebtedness to historic highs (again interest rates have fallen), but a breakout does not seem likely, nor does a fall. Owner occupied debt has been steady indicating that recent rises have been due to investors. Rise in indebtedness has made households more sensitive to interest rates.

8 Housing demand and supply Annual Chg 000's Natural Increase Natural Increase (f) Overseas Migration Overseas Migration (f) Total Increase Total Increase (f) Estimated Population Population Growth 000's 30,000 25,000 20,000 12mth Roll Source: ABS, NAB Dwelling Approvals , , Source: ABS, DIBP, NAB Dec-85 Dec-87 Dec-89 Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Dec-17 Dec-19 5, Dec-85 Dec-87 Dec-89 Houses Apartments Total Dwellings Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Dec-13 Dec-15 Population growth, from overseas migration, is forecast to be the major source of increased demand. People want to live in the cities. At just under 80%, Australia is one of the most urbanised countries in the developed world. Increase in supply of apartments is part of a long term adjustment to meet demand. From one of the lowest bases in the developed world, population density (in cities) is rising.

9 Housing demand from offshore Foreign Investment Review Board Real Estate Applications Decided Foreign Investment Review Board Applications Decided ($ Value) Note: the statistics presented by the FIRB should be treated with caution as they merely reflect foreign investor intentions and not their actual purchases of Australian assets. By value FIRB investment in residential real estate approvals rose 75% from $34.7bn to $60.8bn. $11.5bn ( : $7.5bn) of these approvals were for developed properties and 49.3bn ($27.2bn) were for development. Commercial real estate approvals fell slightly from $39.9bn in to $36.2bn in By country, China was the largest source country for approved proposed investment in with total approvals of $46.6bn and within this amount $24.3bn for real estate approvals. The next highest was the US with $25.1bn for total approvals and $7.1bn for real estate approvals.

10 Housing demand from offshore what are they buying? Source: NAB Residential Property Survey 1Q 2016

11 Housing demand and supply AUD Mill 1,000, , , ,000 ADI Residential Property Exposure Source: APRA, NAB 80.0% 70.0% 60.0% AUD Mill 700, , ,000 ADI Interest Only & Offset Facilities Source: APRA, NAB 50.0% 45.0% 40.0% 35.0% 600, % 400, % 500, , , , ,000 0 Investment Owner-occupied Investment % Owner-occupied % 40.0% 30.0% 20.0% 10.0% 0.0% 300, , ,000 0 Interest Only Interest Only (RHS) Offset Facilities Offset Facilities (RHS) 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Mar-14 Sep-14 Mar-15 Sep-15 Mar-16 Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Sep 15 Mar 16 Investment lending credit has slowed and as a proportion of the overall level of housing credit is tailing off. As has interest only lending, but not offset facilities.

12 Housing finance 90% ADI New Housing Loans 80% 70% 60% 50% 40% 30% 20% 10% 0% Source: APRA, NAB Mar 08 Sep 08 Mar 09 Sep 09 Mar 10 Sep 10 Mar 11 Sep 11 Owner Occupied Loans Interest Only LVR 80%-90% 3rd Party Originated Loans Mar 12 Sep 12 Mar 13 Sep 13 Mar 14 Sep 14 Mar 15 Investment Loans LVR<80% LVR>90% Sep 15 Mar 16 More owner occupied and less investment lending but overall steady metrics

13 Australian RMBS performance, trends and outlook Speaker Position Organisation Moderator Jacqueline Fox Head of Securitisation Origination National Australia Bank Panellists Gwenneth O Shea Head of Securitisation, Group Treasury AMP Bank Liam Carden Group Treasury Commonwealth Bank of Australia Mary Ploughman Executive Director Securitisation and Executive Director of the Board Resimac Peter Casey Deputy Treasurer ING Bank (Australia)

14 Australian RMBS a snapshot

15 Australian RMBS issuance 35,000 30,000 25,000 20,000 15,000 10,000 5,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 AU RMBS Issuance (A$m equivalent) 1H 2H CY2012 CY2013 CY2014 CY2015 CY ,000 30,000 25,000 20,000 15,000 10,000 5,000 Prime AU RMBS Issuance by Issuer Type (A$m Equivalent) AU RMBS Issuance (A$m equivalent) Non conforming YTD Regional and Large Bank Major Bank Other ADI Non ADI

16 Australian RMBS market Source: NAB PoolMaster Big 4 Banks - excludes NAB s NRMBS priced 9-Jun-16

17 Australian Prime RMBS market Source: NAB PoolMaster Big 4 Banks - excludes NAB s NRMBS priced 9-Jun-16

18 Australian RMBS market S&P rated pool metrics Source: Standard & Poor s

19 Arrears statistics prime RMBS Performance Watch Australia at 31 March 2016 (Bil. A$) Source: Standard & Poor s

20 Financial institutions comparison RMBS Performance Watch Australia at 31 March 2016 Source: Standard & Poor s

21 Cumulative gross losses as percentage of total initial issuance by year of issuance RMBS Performance Watch Australia at 31 March 2016 Source: Standard & Poor s

22 Arrears statistics non conforming RMBS Performance Watch Australia at 31 March 2016 (Bil. A$) Source: Standard & Poor s

23 Cumulative gross losses as percentage of total initial issuance by year of issuance RMBS Performance Watch Australia at 31 March 2016 Source: Standard & Poor s

24 Investor distribution by jurisdiction RMBS Investor Location: 2015 & 2016 Prime RMBS Investor Location: 2015 Australia 74.0% Asia (excl Jap) 0.3% Europe 13.0% US 8.5% NZ 2.8% Japan 1.5% Australia 77.1% Europe 15.4% US 3.2% NZ 3.9% Asia (excl Jap) 0.4% RMBS Investor Location: 2015 NC RMBS Investor Location: 2015 All RMBS CY2015 Australia 76.5% Europe 14.0% Australia 72.4% US 20.0% Source: NAB US 5.9% NZ 3.2% Asia (excl Jap) 0.4% Europe 4.4% NZ 3.2%

25 Investor distribution by jurisdiction RMBS Investor Location: 2016YTD US 20.0% Prime RMBS Investor Location: 2016YTD Japan 12.0% Australia 62.3% Asia (excl Jap) 0.04% Japan 8.5% Europe 8.1% NZ 1.2% Australia 64.9% US 13.6% Europe 8.4% NZ 1.0% Asia (excl Jap) 0.1% 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Chart Title 2016 YTD RMBS A 1+ AAA AA+ AA AA A+ A BBB+ BBB BB+ BB B Japan US NZ Europe Australia NC RMBS Investor Location: 2016YTD Australia 55.8% US 35.2% Europe 7.4% NZ 1.6% Source: NAB

26 Source: NAB Pricing

27 RMBS panel discussion

28 IDOL Programme investor distribution Source: ING Bank Australia

29 Arrears typical timeline (e.g. AMP Bank) Arrears process is managed in accordance with Australia s National Credit Code guidelines To Day 30 From Day 30 Days Days Arrears notices automatically sent to both borrowers and guarantors at 5 and 10 days Collections Officers contact the borrower from 15 days Collections Officers continue to contact the borrower to ensure payment arrangements are met Final notices are sent demanding payment LMI informed at 60/90 days If no arrangement in place or repeatedly broken, move to exercise power of sale Move to exercise power of sale from 90 days. Loans are considered in arrears when the loan balance exceeds the scheduled balance Source: AMP Bank

30 Outlook for ABS sector and other market developments Speaker Position Organisation Moderator Michael Moloney Director Structured Finance Westpac Panellists Kevin Lee Division Director Macquarie Bank Matthew O Hare Deputy Group Treasurer Pepper Richard McCarthy Stephen Magan General Manager, Sales, Strategy and Marketing Executive Director, Securitized Products Group Perpetual J.P. Morgan Australia

31 Other ABS issuer trends Whilst other markets have contracted post GFC, the number of issuers in the ABS space has increased with new issuance programmes from a broad range of entities and varying asset types Possible new sources of ABS issuance.... as well as the return of less traditional issuers in this asset class though consolidation continues to occur which could reduce supply. Westpac acquired Lloyds Banking Group s Australian asset finance business, Capital Finance Australia Limited (CFAL), and its Australian corporate loan portfolio, BOS International (Australia) Ltd in BOQ acquired Investec Bank (Australia) Limited s Professional Finance and Asset Finance & Leasing businesses in 2014.

32 Other ABS issuance 2015 was the strongest year for issuance of Other ABS on record with just over AUD6.1bn issued across 10 transactions. Investors have been attracted to this asset class by the shorter dated tenors, the higher yielding underlying assets, lower extension risks and the more generous levels of subordination issuance has been strong with $3.4bn issued to date across five transactions.

33 Other ABS issuance A diverse range of receivables have been securitised in 2016, though auto lease receivables have dominated issuance. The Flexi transaction featured a Green Bond, the proceeds of which are linked to funding the solar photovoltaic systems in the pool of receivables.

34 Other ABS stock outstanding Despite the high volumes of issuance in recent years, only ~AUD11.7bn is currently outstanding. The bulk of this is concentrated amongst a few issuers. The short term nature of the underlying securities ensures that the stock outstanding diminishes quickly in periods of low issuance. Other ABS Balance Outstanding

35 Pricing relative value Spreads on domestic RMBS have traditionally been tighter than other ABS asset classes despite the longer tenor of the notes. Crusade ABS that was placed in Dec 12 broke this nexus, trading inside RMBS. Since this time high quality ABS from large issuers have priced at or inside major bank RMBS benchmarks.

36 Question time Questions from the audience

37 Closing remarks Chris Dalton Chief Executive Officer Australian Securitisation Forum Thank you for attending Australian Securitisation Seminar London

38 Australia Macroeconomic Outlook Economy doing well in the face of challenges Gavin Friend, Senior Market Strategist June 2016

39 Australia No recession in almost a quarter of a century Real GDP growth Per cent GDP (quarterly) Source: ABS Only three negative quarters since no technical recession. Australia has had the capacity to act during the downturns. 2

40 Australia continues to have low levels of net debt relative to other advanced economies % Greece Net Government Debt in Advanced Economies Per cent of GDP; 2015 UK US Source: IMF World Economic Outlook Database, April 2016 Germany Australia New Zealand Norway 3

41 The Australian economy has continued to perform well versus its peers 4

42 Non-mining economy has been growing above trend Per cent Real GDP Growth - year-ended % Long-run average Non-mining -2-4 Mining Per cent 5 Australia is transitioning through the aftermath of the mining boom. RBA estimates the investment downturn peak is now. Q1 GDP +1.1% q/q; +3.1% y/y, with no growth from mining sector. In its latest Statement the RBA noted; other areas of domestic demand, as well as exports, have been expanding at a pace at or above-trend. It s been a long-time since the RBA has said this.

43 NAB business conditions well above long-term average NAB s monthly Business Survey reveals business conditions well above average. Conditions (profitability, employment, orders) performing well in big-picture context. 6

44 The pick-up in the non-mining economy is reflected in NAB s business survey 7 NAB s Business Survey shows Household Services, Finance, Property & Business near series highs. Manufacturing, Transport now recovering, Construction steady, Mining in doldrums but stabilising. By State WA (mining) depressed, Qld (part mining) improving, remainder (non-mining) doing well.

45 Tourist arrivals have had a positive influence on the economy Tourism continues to do well, aided by strong tourist inflows from China, but US, Japan, and UK also rising. 8

46 Tourism and Education two key drivers of economic rebalancing Lower AUD is aiding tourism by making Australia a cheaper destination for foreign travellers, while promoting domestic vacations for Australians. Education also been boosted by the weaker AUD. Tourism and Education now second largest export. The AUD has fallen by over 30% vs the USD from 1.10 peak in 2011 and by over 20% on a TWI basis. 9

47 Good Asia/China influences on Australia - Education 3 rd largest export industry Foreign Student Enrolment Numbers Rank Year Total Change in Year 1 China 114, ,206 21,026 2 India 46,020 52,404 6,384 3 Vietnam 19,653 20, Malaysia 17,594 19,567 1,973 5 South Korea 17,129 18,422 1,293 6 Thailand 14,350 16,245 1,895 7 Nepal 13,249 14,805 1,556 8 Brazil 12,472 14,269 1,797 9 Indonesia 12,442 13, Hong Kong 11,238 12,547 1, Pakistan 10,593 11, Taiwan 6,977 8,829 1, Colombia 6,886 8,292 1, Japan 7,054 7, Philippines 7,229 7, US 6,431 6, Singapore 6,960 6, Saudi Arabia 7,268 6,137 1, Sri Lanka 4,844 5, Italy 4,720 5, Total 410, ,621 49,025 Source: Department of Education and Training In k full fee-paying students came to Australia, contributing A$ 19bn to the economy 10

48 Demographics a longer term support for Australia (and NZ) growth Growth in working population is a key ingredient for economic growth Australia placed well vs peers. 11

49 The RBA has had to reduce its unemployment rate forecast 12 Resilience of non-mining economy is showing up in the labour market. To the RBA s surprise, an upturn in employment has meant new lower unemployment forecasts. Australia now creating 18-19k jobs per month more than the 14-15k needed to keep the unemployment rate steady.

50 The RBA normally hikes when unemployment falling. Why are they cutting? 13

51 Why did the RBA cut? Because inflation is uncomfortably low The RBA is a medium-term inflation-targeting central bank. Headline CPI in Q1-0.2% q/q; +1.3% y/y. Core CPI +0.2% q/q; +1.5% y/y. Core lowest ever, y/y below RBA 2%-3% target. Fuel prices -10% q/q subtracting 0.3% pts off CPI. Fruit prices q/q subtracting 0.1% pts off CPI. But there was weakness elsewhere. No pass-through from the weaker exchange rate (as anticipated by the RBA) from clothing, footwear, furnishings, household equipment, communications, recreation and culture. 14

52 Myriad factors pressing down on inflation, prompting big-picture questions No pass-through from weaker AUD on many tradeable goods. On the non-tradeable side housing inflation was subdued due to: - lower rents - lower new dwelling prices Housing is 22% of the CPI basket. Extra capacity in housing sector and regulatory measures are impacting. Downward pressure on inflation from: - Commodity supply increases/higher USD = commodity price falls (esp. oil) - Substantial increases in housing capacity restraining rental growth - Little evidence (yet) of pass-through from lower AUD (likely reflecting global excess capacity/comp from global retail - Supermarket price wars - Low global inflation now showing up in Australia? - Unusually low wages. 15

53 Weakest wage growth in decades driving low inflation outcomes 16 Wage growth continues to decline necessary to restore competitiveness with rest of world? Likely also reflects labour market spare capacity (ie Jobless rate call fall further before inflationary). Unit labour costs may be being pushed lower temporarily as exports surge, boosting productivity.

54 Lower commodity prices mostly a function of increased supply - global oil consumption has held up but supply has soared... Inflation expectations sliding need watching 17

55 Having asked itself: are monetary settings appropriate for an inflation return to the 2-3% target in the medium term? the May policy outcome suggests the RBA thinks yes. RBA s new inflation forecast The RBA s Feb 2016 and May 2016 forecast differ mostly in their starting points. If we extend the trends from their Feb and May forecasts another year, the central tendency looks the same 2½%. Other considerations: Factors depressing inflation are part cyclical or one-off. Others look globally-driven. If not a signal of deficient demand in Australia, is inflation-targeting appropriate? RBA revealed no explicit easing bias in June suggesting current policy mix is consistent with sustainable growth and CPI back to target. 18

56 GDP Outlook Good for now but caution on net exports and dwelling investment RBA: Recent data suggest overall growth is continuing, despite a very large decline in business investment.other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Australia LNG capacity rises to 85mta in 2017 (around one third of global output) and set to surpass Qatar as world s largest LNG exporter by Four projects come on line in 2016/17. But GDP boost will fade 2018/19. 19

57 Government Budget return to surplus delayed and based on improving economy Australia s fiscal revenues were hit by lower commodity prices and higher spending. Budget pushes out return to surplus timing again (now 2020/21). Heavy lifting to be done by receipts, which rise from 24% of GDP in 2015/16 to 25.9% in 2019/20, while expenses fall from 26.1% to 25.7%. Moody s commended the commitment to fiscal consolidation, but warned, the budget projects somewhat wider deficits than expected last year continuing a succession of revisions in the last 5 years. Lower commodity prices as a result of global factors remain a potential threat to revenues. 20

58 Delivery of the Budget forecasts required for AAA Australia net debt is expected to peak at 19.2% of GDP in 2017/18 vs 18.5%. This is low by international standards (OECD ave. 70%) but near mid-pack for AAA nations. Moody s Reaffirms AAA but warns, the slower pace of fiscal consolidation will leave public finances vulnerable to negative shocks. Fitch Australia Budget consistent with the AAA rating. Standard and Poor s We will look through the details of the budget over the coming weeks. As we ve previously highlighted, improving budget balances remain important to the rating to offset Australia s high vulnerability to shifts in offshore financial market sentiment. We note on S&P methodology net debt is closing in on the 30% threshold S&P considers a concern for AAA. 21

59 Record dwelling approvals have caught up with slowing population growth. House prices rolling over - absent the rate cut blip? Median House Price Index Core Logic Hedonic Series Sydney Houses Melbourne Houses 5 Capital City Aggregate Houses Canberra Houses Perth Houses Brisbane Houses Adelaide Houses Hobart Houses Supply shortage price rise arrested somewhat as population growth slows on mining drop-off and on extra dwelling capacity and pipeline (especially apartments). APRA measures continue to add to moderation. May rate cut adds to housing activity, but is that sustainable as RBA signals no explicit easing bias? Employment growth may help, but low wage growth counteracts as does price to earnings ratios. RBA signals has faith in foreign buyers long-term motivations/less price swing sensitivity. We note dwelling approvals turning down after rise; less construction down the track?

60 2 July election looms looking like a close run affair TWO PARTY PREFERRED POLLING Labor needs to wrest 19 seats from the Coalition to win control of lower house. Labor requires a 4.1% swing to secure 50.1% of the vote on a two-party preferred basis. Current polls running very close to 50:50; PM Turnbull s popularity has been imploding. Haven t had a one-term (Federal) government since the Depression (though Gillard, Howard and Hawke all came close to not being re-elected). Voters (globally) seem much more willing to turn an incumbent government out. Source: crikey.com.au 23

61 Economy travelling well amid inflation, housing, ratings risk and election uncertainty Non-mining economy travelling well and labour market still solid. NAB surveys shows business conditions above long term average. RBA policy shift entirely driven by sub-optimal inflation concerns. Weak wages growth keeps domestic inflation pressures subdued; limited pass-through from AUD drop to tradeable inflation. Medium term growth question as LNG production and dwelling construction both peak. Australian housing supply/demand coming into balance. AAA ratings at low level risk watching out for S&P. 2 July Australian election outcome highly uncertain. 24

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64 Building approvals peaked in mid Construction to peak early

65 28 Foreign investor demand waning % Q3'15 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 Q1'13 Q2'13 Q3'13 Q4'13 Q1'14 Q2'14 Q3'14 Q4'14 Q1'15 Q2'15 Q4'15 Q1'16 Share of Demand for New & Existing Properties from Overseas Buyers New Properties Established Properties Source: NAB residential property Survey, Q1 2016

66 There remains considerable uncertainty about how fast the Chinese economy is growing. Like Australia (and the US), there is considerable variability by sector 29 Tertiary includes: Transport, Wholesale & Retail, Accommodation, Financial, Real Estate, Services (Govt, Health, Education, Other Services) Secondary includes: Mining, Manufacturing, Electricity, Gas & Water, Construction 29

67 China consumer-related activities holding up and housing has recovered. Consumer in good shape Housing has recovered % yoy (3mma) Residential construction starts (LHS) % yoy Existing home prices -3 (based on former 70 city -40 series) (RHS) Source: CEIC, Datastream, NAB Economics 30 Page 30

68 Growth recovery supported by credit growth. China s debt load now matches most developed countries. 31 Page 31

69 RBA cash rate and mortgage rates 32

70 Dwelling and population increase 33