2018 EDITION 1 MELBOURNE CAPITAL CITY REVIEW MELBOURNE

Transcription

1 2018 EDITION 1 MELBOURNE MELBOURNE CAPITAL CITY REVIEW 2018 EDITION 1

2 AT A GLANCE Type of Tenure Other, 0.8% Not Stated, 2.7% Rented, 30.0% Owned Outright, 30.4% 2018 MELBOURNE Owned with Mortgage, 36.0% Median rent for houses in Melbourne is $410 per week. There has been an approximate increase in rent of 12.6% since 2012, compared to the 56% growth in HOUSE prices. THE MELBOURNE MEDIAN HOUSE PRICE HAS GROWN 56% SINCE Per annum growth over the last three and five years has outperformed the long term growth of 8.33% compounded per annum % 2.8% YIELDS FOR HOUSES IN MELBOURNE ARE APPROXIMATELY 2.8% AND 3.7% FOR UNITS. Vacancy rates are on an overall downward trend and are currently at 2.1%. Building approval numbers for units and apartments peaked in 2015 at 33,372. Forecasted numbers for 2017 are 25,722 for units. THE CURRENT UNEMPLOYMENT RATE IS 6.0% and has been on an upward trend since This is above the current national rate of 5.6%. MELBOURNE S POPULATION HAS INCREASED ON AVERAGE 2.3% PER ANNUM SINCE PROJECTIONS SUGGEST THAT THE POPULATION WILL RISE TO 8 MILLION PEOPLE BY M 5M 7.5M 10M 2

3 CONTENTS Key Indicator 1 THE ECONOMY Key Indicator 4 SUPPLY FACTORS State Budget Positive Dwelling Approvals V. Population % Change Slightly Positive Greater Melbourne Industry Value as % of GRP Positive Bedroom Approvals V. Population Change Neutral VIC Mortgage Arrears Slightly Positive VIC Dwellings Under Construction Neutral Vacancy Rate V. Rent Slightly Positive Key Indicator 2 AFFORDABILITY Stock on Market V. Days on Market Positive Affordability Index V. Price Movement HOUSE Affordability Index V. Price Movement UNIT Income Growth V. Price Movement Rent Growth V. Price Movement FHBs as % of Population Key Indicator 3 DEMAND FACTORS Negative Slightly Negative Negative Negative Slightly Negative Key Indicator 5 INVESTMENT VALUE Current Investment Value - Per Capital City Capital City Long Term Price Comparison Long Term Trends Melbourne House V. Unit Price Comparison Melbourne V. Sydney Price Movement Negative Slightly Negative Negative Slightly Positive Neutral Population Positive VIC Population Movement Type Positive Population Pyramid Positive Unemployment Rate Slightly Positive Underemployment Rate Slightly Negative Job Creation Slightly Positive Infrastructure Spending Slightly Positive Foreign Investment Slightly Negative Airport Arrivals Positive 3

4 EXECUTIVE SUMMARY THE INDICATORS ARE SUGGESTING THAT THE MELBOURNE MARKET IS RISING. KEY INDICATOR 1 THE ECONOMY POSITIVE The economic situation is positive for Melbourne and Victoria, the state government has been operating in a surplus for the last three years and this is forecasted to continue through to Industry diversification in Melbourne exists helping to minimise risk and mortgage arrears are lower than the national rate and on a downward trend. KEY INDICATOR 2 AFFORDABILITY NEGATIVE The Affordability Index in Melbourne is currently sitting at 44%, and historically the Melbourne market has struggled to grow past this point. Our prediction is for another 10-15% growth before the natural price ceiling is hit. House prices have grown 93% since 2009 in contrast to 28% growth in the average individual income and 23% growth in rent for houses. These factors all suggest that further strong rises in house prices will not be supported by key fundamentals. First home buyer numbers have been relatively steady for the past six years, which is slightly positive given the decline in the first home buyer trend across the country. KEY INDICATOR 3 DEMAND POSITIVE Demand for housing in Melbourne is strong with the population growing at 2.7% in The strongest component of this growth was the 74,051 overseas migrants who required instant accommodation. This trend is forecasted to have increased even further in 2017 with 97,720 overseas migrants coming into Victoria. The total population increase for 2017 is forecast to be approximately 158,300 persons which will be a record for the state. Rental growth has been sluggish when compared to growth in capital values over the past 6 years. This indicates that despite the strong population growth, there has been a level of oversupply in B and C grade housing and apartment stock. KEY INDICATOR 4 SUPPLY SLIGHTLY POSITIVE The amount of properties listed for sale in Melbourne at the moment is low, at 35,000 and the days on market is also low at 30 days on average to sell a property. This indicates strong competition and subsequent price rises in the short term are likely. The vacancy rate is at 2.1%, down from 3.1% in The downward trend of stock on market, days on market and also vacancy rates are all positive for future price rises in Melbourne. KEY INDICATOR 5 INVESTMENT VALUE SLIGHLTY NEGATIVE From an investment value point of view, Melbourne is showing all the signs of a market running out of steam. It has the lowest average yields in the country with 2.8% for houses (equal with Sydney) and 3.7% for units. It is well out in front of its long-term price comparison to the other five major markets, with the exception of Sydney. Furthermore, Melbourne s median price has been compounding at 10.05% PA for the last three years and 10.5% PA for the last five years which is in excess of its long-term trend. 4

5 OUR VIEW OF THE MELBOURNE HOUSE MARKET LIMITED VALUE AVOID MELBOURNE SUBURB RANGE - HOUSES CAUTION AVOID The market is showing no value and price falls in the short term are possible. There are no fundamentals that support price growth in the short term. CAUTION LIMITED VALUE The market is showing some value opportunities. Overall, most fundamental indicators support growth. VALUE The market is close to being overvalued and/or oversupplied. We see minimal growth over the short- to medium-term. VALUE The market is showing good value on most properties. Many fundamental indicators exist which support strong growth. For more information on the Melbourne market, including individual property and suburb selections, call to speak to one of our professional property advisors on

6 OUR VIEW OF THE MELBOURNE UNIT MARKET LIMITED VALUE The market is showing some value opportunities. Overall, most fundamental indicators support growth. LIMITED VALUE AVOID CAUTION AVOID The market is showing no value and price falls in the short term are possible. There are no fundamentals that support price growth in the short term. CAUTION VALUE The market is showing good value on most properties. Many fundamental indicators exist which support strong growth. VALUE M ELB O U R N E SU B U R B R A N G E - U NITS The market is close to being overvalued and/or oversupplied. We see minimal growth over the short- to medium-term. For more information on the Melbourne market, including individual property and suburb selections, call to speak to one of our professional property advisors on

7 STATE BUDGET The Victorian State Budget is forecasted to operate in a surplus through to This will be a surplus seven years in a row after operating in deficit for seven years. This is a positive for the economy. $4,000,000,000 $3,000,000,000 $2,000,000,000 $1,000,000,000 $648,000,000 $427,000,000 $178,000,000 $1,510,000,000 $216,000,000 $1,129,000,000 $1,218,000,000 $2,869,000,000 $1,153,000,000 $994,000,000 $2,405,000,000 $2,727,000,000 POSITIVE $- -$1,000,000,000 -$2,000,000,000 -$3,000,000, $898,000,000 -$1,270,000,000 -$1,806,000,000 -$640,000,000 -$2,193,000,000 -$177,000,000 7

8 GREATER MELBOURNE INDUSTRY VALUE AS % OF GSP Victoria has a relatively even distribution of industry sectors. The latest ABS figures show the dominant industry sector is the Financial and Insurance Services Sector which represents 11.57% of GSP. Eleven years ago manufacturing represented 13.42% of GSP and now it only represents 7.78%. Over the last ten years GSP has increased approximately 3.9% per annum compounded. Overall Victoria s economy seems to be adjusting to globalization well. Ownership of dwellings, 9.74% Agriculture, Forestry and Fishing, 2.54% Mining, 1.82% Manufacturing, 7.78% Other Services, 1.93% Arts and Recreation Services, 1.03% Electricity, Gas, Water and Waste Services, 2.20% Health Care and Social Assistance, 7.66% Construction, 6.92% POSITIVE Education and Training, 6.09% Wholesale Trade, 5.02% Public Administration and Safety, 4.48% Retail Trade, 5.42% Administrative and Support Services, 3.01% Accommodation and Food Services, 2.58% Professional, Scientific and Technical Services, 8.24% Transport, Postal and Warehousing, 5.15% Information Media and Telecommunications, 3.48% Rental, Hiring and Real Estate Services, 3.34% Financial and Insurance Services, 11.57% 8

9 VIC MORTGAGE ARREARS This graph shows the percentage of mortgages that are 30+ days in arrears in Victoria from August 2001 to August 2017, supplied by Standard and Poor s Global Ratings. Arrears in Victoria are currently 0.97% which is lower than the national level of 1.21% and overall on a downward trend. 2.0% 1.8% 1.6% 1.4% 1.2% SLIGHTLY POSITIVE 1.0% 0.97% 0.8% 0.6% 0.4% 0.2% 0% Aug 2001 Dec 2001 Apr 2002 Aug 2002 Dec 2002 Apr 2003 Aug 2003 Dec 2003 Apr 2004 Aug 2004 Dec 2004 Apr 2005 Aug 2005 Dec 2005 Apr 2006 Aug 2006 Dec 2006 Apr 2007 Aug 2007 Dec 2007 Apr 2008 Aug 2008 Dec 2008 Apr 2009 Aug 2009 Dec 2009 Apr 2010 Aug 2010 Dec 2010 Apr 2011 Aug 2011 Dec 2011 Apr 2012 Aug 2012 Dec 2012 Apr 2013 Aug 2013 Dec 2013 Apr 2014 Aug 2014 Dec 2014 Apr 2015 Aug 2015 Dec 2015 Apr 2016 Aug 2016 Dec 2016 Apr 2017 Aug

10 AFFORDABILITY INDEX V. PRICE MOVEMENT - HOUSE This graph displays the relationship between affordability for houses and its impact on house price movements. 70% 63% 60% 58% 50% 51% 53% 40% 33% 36% 36% 33% 35% 38% 40% 43% 35% 42% 35% 39% 40% 44% 44% 30% 29% 23% 25% 28% 29% 25% NEGATIVE 20% 10% 9% 12% 12% 14% 7% 19% 10% 7% 7% 16% 11% 11% 17% 8% 7% 0% 4% 2% 0% 4% 0% 4% -10% -4% -5% Gross Affordability Index (Avg 39%) House Price Movement The Affordability Index (AI) is calculated using the median price, median income, an LVR of 80% and the current interest rate. Our AI is a measure of the average mortgage repayments versus the average income. Houses become unaffordable in Melbourne when the market s AI rises to around 45% - 50%, at which point prices will almost always pull back. Conversely, a low AI of 30-35% will almost always see prices rise. Currently, Melbourne s AI for houses is 44%, indicating that properties are approaching a natural ceiling. The most likely outcome is a low growth environment over the next two-three years. 10

11 AFFORDABILITY INDEX V. PRICE MOVEMENT - UNIT This graph displays the relationship between affordability for units and its impact on unit price movement. 60% 50% 49% 45% 40% 41% 43% 30% 28% 30% 24% 25% 32% 27% 31% 32% 32% 33% 35% 29% 35% 29% 30% 28% 29% 29% SLIGHTLY NEGATIVE 20% 19% 20% 23% 19% 19% 10% 0% 4% 3% 0% 5% 12% 14% 12% 6% 1% 2% 6% 14% 8% 4% 0% 2% 6% 4% 2% 7% -3% -10% Gross Affordability Index (Avg 31%) Unit Price Movement Units become unaffordable in Melbourne when the market s AI rises to around 35% at which point prices will almost always pull back. Conversely, a low AI of 20-25% will almost always see prices rise. Currently, Melbourne s AI for units is 29%, indicating that there could be some price growth remaining in the unit market. 11

12 INCOME GROWTH V. PRICE MOVEMENT This graph displays the 16 year house price history compared with 15 years of the average state income. $900,000 $852,700 $2,000 $800,000 $792,800 $1,800 $741,300 $700,000 $600,000 $500,000 $400,000 $300,000 $649,000 $1,364 $1,388 $1,314 $1,274 $1,232 $565,000 $550,000 $1,176 $560,000 $525,000 $1,116 $1,064 $1,020 $989 $450,000 $962 $442,000 $927 $415,000 $875 $808 $355,000 $365,000 $371,000 $360,000 $330,000 $302,000 $1,411 $1,477 $1,508 $1,600 $1,400 $1,200 $1,000 $800 $600 NEGATIVE $200,000 $400 $100,000 $200 $- $ Median House Price Median Weekly Income The relationship between prices and income was relatively in-sync until 2009, where prices rose moderately and this was relatively supported by rising incomes. From 2009 to 2017 however, incomes rose approximately 28% and house prices have risen approximately 93%. The outperformance of house prices against incomes is in our view unsustainable and this is a negative for future price growth in Melbourne. 12

13 RENT GROWTH V. PRICE MOVEMENT The above graph displays the 16 year price history and its relationship with rents. $900,000 $800,000 $354 $358 $364 $374 $380 $852,700 $404 $410 $392 $792,800 $741,300 $450 $400 $700,000 $322 $335 $649,000 $350 $600,000 $283 $560,000 $565,000 $525,000 $550,000 $300 $500,000 $225 $231 $233 $240 $246 $257 $415,000 $450,000 $442,000 $250 NEGATIVE $400,000 $300,000 $302,000 $365,000 $371,000 $355,000 $360,000 $330,000 $200 $150 $200,000 $100 $100,000 $50 $- $ Median Price Median Rent House Median Rent Unit Melbourne s median house prices and rents consistently rose in-sync until Since 2011, rents have grown by only 14%, in comparison to 50% growth in the median house price. Due to an outperforming median house price, we have seen yields progressively deteriorate, which is a negative for both investors and first home-buyers. The current disparity between weekly rents and weekly mortgage repayments is substantial and therefore we don t see a ground swell of renters converting into home ownership. 13

14 FHBS AS A % OF POPULATION This graphs shows the percentage of First Home Buyers (FHB), relative to the state population at the time. 1.00% 0.90% 0.88% 0.80% 0.73% 0.71% 0.70% 0.60% 0.50% 0.66% 0.62% 0.61% 0.57% 0.57% 0.50% 0.50% 0.64% 0.57% 0.67% 0.65% 0.60% 0.53% 0.50% 0.50% 0.48% SLIGHTLY NEGATIVE 0.40% 0.46% 0.44% 0.44% 0.44% 0.30% 0.20% 0.10% 0.00% As can be seen in the graph there are two notable spikes. The first occurring in 2000/2001 which coincides with the introduction of the First Home Owners Grant and the second coincided with the doubling of the first home buyer grant in 2008/2009. Forecasted figures for 2017 see only a 6% increase in the number of FHB in Victoria, despite existing first home buyer incentives. 14

15 CHANGE IN POPULATION This graph shows the change in population growth rate from 2007 to This period has seen an average growth rate of 2.28% per annum. The current growth rate for Melbourne is well above the national rate of 1.55%. This is a positive indicator for the market. 3.00% 2.7% 2.50% 2.3% 2.5% 2.3% 2.4% 2.5% 2.5% 2.2% 2.00% 2.3% 1.9% 1.8% 1.8% 1.6% 1.8% 1.7% POSITIVE 1.50% 1.4% 1.5% 1.5% 1.4% 1.55% 1.00% 0.50% 0% Melbourne National 15

16 VIC POPULATION MOVEMENT TYPE This graph demonstrates the breakdown of fertility, net overseas migration (NOM) and net interstate migration (NIM) for Victoria from Net overseas migration has been the dominant form of growth since While natural increase has remained relatively steady, net interstate migration has been on an upward trend since This is a positive indicator for the housing market. 120, ,000 80,000 60,000 POSITIVE 40,000 20, ,000-40, Natural Increase NOM NIM 16

17 POPULATION PYRAMID The population pyramid demonstrates the breakdown of the different ages and sex percentages of the population in Greater Melbourne. The age brackets from 20 to 34 are larger than the brackets from 35 to 49 and this is a positive for the market as we see a larger base replacing the existing dominant consumer base. 85 and over Males Females 85 and over POSITIVE 5% 4% 3% 2% 1% 0% 1% 2% 3% 4% 5% % of persons Source: Australian Bureau of Statistics, Census of Population and Housing, 2016 (Usual residence data) Compiled and presented in profile.id by.id, the population experts. Greater Melbourne Australia 17

18 UNEMPLOYMENT RATE The current unemployment rate for Melbourne is 6% which is slightly higher than the current national rate of 5.5%. Melbourne has seen an overall upward trend occur since However, the current rate is below the long term average of 6.5%. 9.0% 8.0% 7.0% 7.0% 6.4% 6.0% 5.0% 5.3% 5.6% 4.8% 4.9% 4.6% 4.5% 5.2% 5.0% 5.3% 6.0% 5.6% 5.8% 6.0% 5.9% 5.6% SLIGHTLY POSITIVE 4.0% 4.5% 4.5% 3.0% 2.0% 1.0% 0% Melbourne Vic National 18

19 UNDEREMPLOYMENT RATE This graph shows the relationship between the Victorian state rate for underemployment and the national rate from The state rate has been trending downward since 2014 from a high of 9.7%, but currently sits above the national rate of 8.8%. This trend for high underemployment is consistent across all states and is concerning for the health of the market. 12.0% 10.0% 9.1% 8.8% 8.0% SLIGHTLY NEGATIVE 6.0% 4.0% 3.3% 2.0% 0.0% VIC National 19

20 JOB CREATION This graph shows the Internet Vacancy Index for online job advertisements on the three major job boards. Job vacancies have been on an overall upward trend in Melbourne since SLIGHTLY POSITIVE Sep 2011 Nov 2011 Jan 2012 Mar 2012 May 2012 Jul 2012 Sep 2012 Nov 2012 Jan 2013 Mar 2013 May 2013 Jul 2013 Sep 2013 Nov 2013 Jan 2014 Mar 2014 May 2014 Jul 2014 Sep 2014 Nov 2014 Jan 2015 Mar 2015 May 2015 Jul 2015 Sep 2015 Nov 2015 Jan 2016 Mar 2016 May 2016 Jul 2016 Sep 2016 Nov 2016 Jan 2017 Mar 2017 May 2017 Jul 2017 Sep

21 INFRASTRUCTURE SPENDING Public spending on infrastructure projects in Melbourne peaked in 2017 at $7.5 billion and is forecast to be $5.7 billion in Only projects worth $10 million and over were included in this figure and a straight line method of calculation was used. The Victorian State budget for budget government infrastructure investment is $10.1 billion, up from $9.3 billion in This should have a positive effect on job creation and wage growth. $1,800 $1,672 $8,000,000,000 $1,600 $7,000,000,000 $1,400 $1,362 $1,264 $6,000,000,000 $1,200 $1,000 $5,000,000,000 SLIGHTLY POSITIVE $800 $600 $686 $697 $6,183,341,657 $7,593,855,635 $5,740,655,635 $827 $4,000,000,000 $3,000,000,000 $400 $2,959,783,333 $3,082,168,333 $3,756,680,635 $2,000,000,000 $200 $1,000,000,000 $ $- Spending Spend per person 21

22 FOREIGN INVESTMENT APPROVALS - NEW V. ESTABLISHED PROPERTY This graph shows the foreign investment approval numbers and amounts in Victoria from Foreign approvals for established property fell from 2015 to 2016 after four years of an upward trend after government restrictions were put in place for established property. However, approvals for development and off the plan purchases has continued on an upward trend, albeit, only a 4.5% increase from 2015 to 2016, which is well below the 67% increase from 2014 to ,000 $30,000,000,000 18,000 16,000 14,000 16,775 17,525 $25,000,000,000 $20,000,000,000 SLIGHTLY NEGATIVE 12,000 10,000 10,042 $15,000,000,000 8,000 6,000 $10,000,000,000 4,000 2,000 1,253 2,238 1,562 1,801 4,398 3,765 4,573 $5,000,000,000 - $ Established For Development Approval Numbers 22

23 AIRPORT ARRIVALS This graph shows the arrival numbers for international and domestic flights into Melbourne from Long term, arrivals have been on an upward trend. On average domestic arrivals have increased 6% per annum and international arrivals 7% per annum. This is a positive indicator for the housing market. 30,000,000 25,000,000 20,000,000 15,000,000 10,000,000 5,000,000 POSITIVE ,275,067 1,200,916 5,431,018 5,966,490 6,157,392 4,826,341 6,669,030 8,442,393 8,466,703 9,012,484 10,061,245 10,878,097 11,131,244 11,383,641 11,563,916 1,345,470 1,481,887 1,585,743 1,684,662 1,677,295 1,753,627 1,788,700 1,871,604 1,931,251 2,093,722 2,287,834 2,407,826 2,567,297 12,313,133 13,628,580 12,663,944 13,245,878 15,029,540 16,130,302 16,787,596 17,737,320 19,281,305 19,617,389 20,446,172 21,749,355 21,298,613 22,504,752 23,229,895 23,524,659 24,426,026 2,832,996 3,252,430 3,303,486 3,136,420 3,601,072 4,144,155 4,253,268 4,419,551 4,662,037 4,830,936 5,471,820 6,213,479 6,657,880 6,987,506 7,666,124 8,410,941 9,278,934 24,928,048 9,949,458 Domestic International 23

24 DWELLING APPROVALS V. POPULATION This graph displays dwelling approvals for houses and apartments against the population growth rate for Melbourne. Between 2012 and 2016 approvals for apartments were outpacing approvals for houses, however forecasted figures indicate house approvals will be higher than apartment approvals in 2017 for the first time in five years. Approvals appear to have peaked in 2015, however population growth continues to be strong at 2.7%. 40, % 2.7% 35,000 30,000 25,000 20,000 20, % 22, % 24, % 26, % 22,916 22, % 18, % 22,838 18, % 21, % 2.5% 22,394 27,637 24,495 33,372 26,556 31,168 26,873 25, % 2.0% 1.5% SLIGHTLY POSITIVE 15,000 12,932 18, % 10,000 9,798 9, % 5, % Houses Other Dwellings Population % Change 24

25 BEDROOM APPROVALS V. POPULATION CHANGE This graphs shows the relationship between the amount of bedrooms coming onto the market, calculated by assuming 80% of approvals commence, multiplied by Melbourne s average household size of 2.7 persons, and the change in population numbers. This graph indicates that Melbourne has been oversupplied since 2014, however with the peak in approvals in 2015 and the subsequent pull back the market has balanced and this is reflected in the low vacancy rate. 140, , , , , , , , ,000 80,000 78,597 86,227 95,939 81,855 89,793 93,541 89, ,351 86, , ,562 NEUTRAL 60,000 66,379 69,094 69,654 59,247 40,000 20, Population Change (Number) Approvals (80% X 2.7 per HH) 25

26 VIC DWELLINGS UNDER CONSTRUCTION This graph displays the number of houses and other dwellings that have commenced in Victoria since As this data is only available on a state level, it is not a strong indicator of what is happening in Melbourne itself, however, it is useful to review. 50,000 45,000 43,951 40,000 35,000 30,000 NEUTRAL 25,000 21,152 20,000 15,000 10,000 5, Houses Units 26

27 VACANCY RATE V. RENT This graph displays the relationship between rental growth and vacancy rates. While most industry experts say a 3% vacancy rate indicates a balanced market, our research suggests that in Melbourne 2% indicates a balanced market. When vacancy rates are below 2% Melbourne experiences strong rental growth, if they are above 2% we will see a stable market. Once Melbourne moves to a 3% vacancy rate, rents will fall. The current vacancy rate is 2.1% and has trended down throughout the course of 2016/2017. $ % $400 $ % 3.8% 3.9% 3.6% $322 $335 $314 $354 $331 $358 $342 $364 $346 $374 $ % $380 $361 $392 $ % $404 $388 $410 $ % 3.5% $300 $250 $200 $225 $190 $231 $198 $233 $204 $240 $ % $246 $221 $257 $234 $283 $262 $ % 2.8% 2.5% 2.1% 3.0% 2.5% 2.0% SLIGHTLY POSITIVE 1.8% $ % 1.4% 1.4% 1.5% 1.5% $ % 1.0% $50 0.5% $- 0% Median Rent House Median Rent Unit Vacancy Rate 27

28 STOCK ON MARKET V. DAYS ON MARKET This graph shows the average days on market and stock on market since From 2011 when the market fell by 7%, there were close to 50,000 properties on the market and a property spent an average 55 days on the market. More recently, SOM has fallen to approximately 35,000 properties and A-DOM has fallen to 30. Based on these indicators alone, it is fair to say that the demand is still very strong despite recent price rises and this is positive for the market. 60, ,000 49,200 48,500 48,900 49, , ,000 37, POSITIVE 30,000 30,800 30,700 35, , , , Stock on Market Avg Days on Market 28

29 CURRENT INVESTMENT VALUE This graph displays the median rental yield of a three bedroom house and two bedroom unit in each of the five major capital cities. We can see that Melbourne offers the lowest yields, equal to Sydney for houses, of the major capital cities. This reflects the outperformance in price rises against the slower growth in rental rates. 6% 5% 4.9% 5.1% 4.2% 4% 3.8% 3.8% 3.4% 3.7% 3.8% NEGATIVE 3% 2.8% 2.8% 2% 1% 0% Brisbane Adelaide Perth Melbourne Sydney House Units 29

30 CAPITAL CITY LONG TERM PRICE COMPARISON This graph displays the pricing relationships between the five major capital cities in Australia since 1970s. As can be seen in the graph above, Melbourne s median house prices typically sit around 22% behind Sydney. However, currently prices are 28% behind Sydney and on this measure alone, it could be argued that Melbourne is showing some value. On the flip side however, Melbourne is above its long-term comparisons to Brisbane, Adelaide and Perth. This is a neutral indicator, bordering on negative, for future prices rises in Melbourne. 160% % 140% 120% 100% SLIGHTLY NEGATIVE 800% 83.20% 60% 54.81% 63.82% 40% 33.24% 31.85% 20% 0% Sydney Brisbane Adelaide Perth -20% -40% % % Current Average 30

31 LONG TERM TRENDS The long-term trend for compound house price growth in Melbourne since 1980 is 8.33% per annum. While we don t expect this high compounding growth to continue in the decades ahead, it is a worthwhile exercise to compare this against recent price movements. Looking at the graph, it is clear that the three-year and five-year price movement is above trend at 10.05% and 10.5% respectively. On that basis it could be said that the Melbourne market is likely to slowdown in the short-term. On the flip side the seven and ten year performance is slightly below trend. 12% 10.50% 10% 10.05% 8.33% 8% 7.62% NEGATIVE 6.41% 6% 4% 2% 0% LT 10Yr 7Yr 5Yr 3Yr 31

32 MELBOURNE HOUSE V. UNIT PRICE COMPARISON This graph shows the comparison between house and unit movements since The median price for units is currently 66% of the median house price while the average difference is 82%. This indicator suggests that there is potential in the unit market to grow. 120% $900,000 $800, % 93% 93% 89% 89% 90% $700,000 80% 83% 80% 82% 81% 83% 82% 83% 84% 85% 85% 84% 81% 81% 85% 83% 82% 81% 82% 78% 78% 81% 83% 82% 78% 70% 66% 66% $600,000 $500,000 SLIGHTLY POSITIVE 60% $400,000 40% $300,000 $200,000 20% $100,000 0% $ House Price Unit Price % Difference (Avg 82%) 32

33 MELBOURNE V. SYDNEY PRICE MOVEMENT This graph shows the relationship between the Melbourne and Sydney median house price from Melbourne prices are currently sitting 72% behind Sydney prices. The average difference is 76%, this is a neutral indicator for the market. 120% $1,400, % 98% 95% $1,200,000 80% 60% 64% 61% 89% 91% 84% 77% 76% 73% 70% 68% 68% 70% 81% 87% 88% 77% 77% 81% 76% 80% 75% 70% 70% 83% 78% 76% 74% 78% 73% 68% 66% 71% 68% 78% 82% 80% 89% 87% 81% 79% 80% 71% 73% 72% $1,000,000 $800,000 NEUTRAL 57% 56% $600,000 40% $400,000 20% $200,000 0% $ Melbourne Median Sydney Median % Difference (Avg 76%) 33

34 WHY USE US? OUR PROCESS RESEARCH Macro Micro Property INVESTMENT PHILOSOPHY PERFORMANCE PROPERTY ADVISORY IS A DYNAMIC PROPERTY FIRM PROVIDING PROPERTY ACQUISITION SERVICES ACROSS AUSTRALIA. OUR FIRM IS COMPLETELY RESEARCH DRIVEN AND WE APPLY A SOUND COUNTERCYCLICAL INVESTMENT APPROACH. All property must pass our stringent investment criteria and is subject to a thorough due diligence process. Our low risk approach excludes 99% of all properties currently on the market. We never source properties direct from developers and we don t buy properties off the plan or in new housing developments. We have a strict no commission policy preventing us from ever taking commissions from agents or referrers. We believe in providing quality ethical advice and exceptional customer service. We pride ourselves on delivering successful outcomes every time, guaranteed. Our objective is not to buy you a property. Purchasing a property is the last step in our considered and thorough process. Our mission is to understand and satisfy your needs financial or emotional, in a low risk and efficient manner. Our objective is to build you wealth through sophisticated property investment. We believe in everything we do because we treat your investment portfolio like it was our own. PERFORMANCE PROPERTY ADVISORY SERVICES Property Acquisition Property Management Portfolio Review Sales Advisory / Vendor Advocacy ACQUIRE Find Assess Negotiate MANAGE Property Management REVIEW Annual Portfolio Review ADVISE Hold Improve Dispose DATA SOURCES: Australian Bureau of Statistics BIS Shrapnel Residex SQM Research CoreLogic RP Data Foreign Investment Review Board Australian Trade & Investment Commission 34

35 IMPORTANT INFORMATION INTELLECTUAL PROPERTY RIGHTS This Report contains information that has been supplied by third parties. While such information is published with the necessary permission, to the extent permitted by law we do not accept any responsibility or provide any warranty in relation to the accuracy, eliability, completeness or suitability of the information contained in this Report. You acknowledge that the information, figures and projections have been provided by various sources and have not been verified by us and as such and may not be relied on in any way. We have no belief one way or the other in relation to the accuracy of such information, figures and projections. You should therefore conduct your own enquiries about these matters. This information is therefore provided as general information only, current as at the time of publication and does not constitute financial advice, whether in relation to valuation or otherwise, and may not be relied on in any way. To the full extent allowed by law we exclude, and you release us from, liability in contract, tort or otherwise, for any loss, costs or damage sustained by you, or by any other person, howsoever caused, arising from or in connection with the supply or use of the whole or any part of the information in this report. This Report is comprised of matter (including copyright works and other subject matter) in which various intellectual property rights exist, including without limitation copyright, patents, designs, trade marks, goodwill, rights in computer programs and databases and any other similar rights of a proprietary nature ( Intellectual Property ). All Intellectual Property in this Report or any Content (including if it is licensed to us) is the exclusive property of McMillan Sier Pty Ltd or our licensors (as the case may be). Subject to our right to terminate permission for you to use any Intellectual Property in the Report or any Content, you may use the Intellectual Property only to the extent necessary to enable you to browse this Report (in the form it is available to the public) for your own personal use and to provide registrations of interest and Feedback. We reserve all other rights with respect to the Intellectual Property. For the avoidance of doubt, you may not use this Report or any Content for any commercial purpose and you may not reproduce, publish, communicate, transmit or incorporate into any other document or thing the whole or any part of this Report or the Content without the prior written permission of the Intellectual Property owner. We reserve the right to revoke at any time, with or without cause, your permission to use any copyright, trade mark or any other Intellectual Property in this Report or any Content. Access to this Report does not, unless and only to the extent expressly stated otherwise, confer on you any license or other rights in respect of the Intellectual Property in this Report or any Content.

36 HEAD OFFICE Level 10, 30 Collins St Melbourne VIC 3000 Phone: Visit Our Site Adelaide Suite 91, 30 King William Street, Adelaide, South Australia 5000 Licence #: (08) Brisbane Level 10, 239 George Street, Brisbane, Queensiand 4000 Licence #: (07) Sydney Level 18, 50 Bridge Street, Sydney, New South Wales 2000 Licence #: (02) Melbourne Level 10, 30 Collins Street, Melbourne, Victoria 3000 Licence #: L (03)