Intelligent Property Investment AUSTRALIAN RESIDENTIAL MARKET UPDATE Future Estate investment products enable investors to cut out typical developer’s profit and access properties at near cost price. This eBook does not constitute an investment offer. Prospective investors are recommended to read IM or PDS for further information. No guarantee with regard to future investment performance is made or implied. Whilst every effort has been made to ensure accuracy, no reliance can be placed upon it by recipients.
AUSTRALIAN RESIDENTIAL MARKET UPDATEFuture Estate investment products enable investors to cut out typical developer’s profit and access properties at near cost price.
This eBook does not constitute an investment offer. Prospective investors are recommended to read IM or PDS for further information. No guarantee with regard to future investment performance is made or implied. Whilst every effort has been made to ensure accuracy, no reliance can be placed upon it by recipients.
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE1
In this eBook, you will learn about the current conditions, drivers and outlook of the Australian residential market.
Ben AndersonManaging Director and Founder
Would you like to learn how to be a successful property investor in the current market conditions?
Would you like to learn about the best opportunities within the market?
Would you like to gain access to exclusive research and market updates from Future Estate?
If you answered ‘Yes’ to any of the above, please read on.
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1
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE 2
MACROECONOMIC SNAPSHOT
World Economy
Growth in the world economy continue to pick up in the first six months of 2012 despite ongoing uncertainty in Europe and slower than anticipated economic growth in China. Conditions in other parts of Asia have recovered from the effects of last year’s natural disasters. The United States continues to grow at a modest pace. Commodity prices have eased, which is helping to reduce inflation and providing scope for some countries to ease macroeconomic policies. Australia’s terms of trade have peaked, though they remain historically high.
World Financial Market
Financial markets have initially responded positively to signs of further progress towards longer-term sustainability in European financial affairs, but Europe will remain a potential source of uncertainty in the foreseeable future. Interest rates faced by highly rated sovereigns, including Australia, have decline to exceptionally low levels.
National Economy
Recent data suggest that the Australian economy continued to grow in the first part of 2012, at a pace stronger than had been earlier indicated. The Australian economy grew 4.3% in the year ended in March 2012. Despite job cuts in certain industries, the labour market conditions remain robust with low unemployment rate of 5.2% as of June 2012. Business credit has increased strongly in recent months and the Australian currency remains strong against all major world currencies.
Source: ABS, RBA
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE3
MACROECONOMIC SNAPSHOT
National Inflation
Inflation remains low by historical levels and below the Reserve Bank of Australia’s (RBA) target range of 2% - 3%. This provides further scope for the RBA to lower interest rates. The Consumer Price Index (CPI) rose 0.5% in the June quarter 2012, compared with a rise of 0.1% in the March quarter 2012.
Unemployment remains very low by historical levels, with Australia’s seasonally adjusted unemployment rate increased 0.1% points to 5.2% in June, as announced by the Australian Bureau of Statistics (ABS) on July 12th. The number of people unemployed increased by 7,200 people to 631,300 in June, the ABS reported. The ABS reported a decrease in the labour force participation rate of 0.2% points in June to 65.2%.
In seasonally adjusted terms, Australian GDP increased 0.4% in the December quarter; through the year GDP growth was 2.3%. On the expenditure side, the increase this quarter (in seasonally adjusted volume terms) was driven by Household final consumption expenditure (+0.3% points), Changes in inventories (+0.3% points) and Net exports (+0.3% points). Partially offsetting these rises was Private gross fixed capital formation (-0.4% points).
National GDP Growth
National Unemployment
Source: ABS, RBA
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE 4
MARKET DRIVERS
Widening supply-demand imbalance
240,000 + dwelling shortage and growing
Strong population growth
Australia has grown at 2.1% over recent years (akin to a developing, not developed, country), 1.4% in 2011 and even higher in certain regions
Robust economic fundamentals
Low inflation (1.2%), low unemployment (5,2%) and above-trend GDP growth (4.2% annualised)
Improving housing affordability
Higher incomes underpinned by continued real income growth and lower interest rates (3.5% as of July 2012)
Attractive rental returns
Rents grew by an average of 4.4% in the last 12 months
Booming Resource Sector
Mining investment continues to underpin business investment and terms of trade
$231 billion approved projects underway and a further $224 billion at earlier stages of development
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE5
Net Annual Population Growth and Long-term Average
Rolling Annual Population Growth
Long-Term Average
Perc
enta
ge C
hang
e in
Pop
ulat
ion
60%
50%
40%
30%
20%
10%
0
-10%
-20%
Projected Population Change by 2030
AustraliaGermanyUKSouthAsia
NorthernEurope
ChinaIndiaAsia(excl. China)
South America
USCanada
Source: ABS
Annual population growth is increasing and forecast to continue.
The projected Australian population growth rate from today to Year 2030 exceeds those of all major world economies.
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE 6
As real income measures of Australian household continue to climb, housing has become more affordable for the average Australian family in real terms.
Dwelling price to disposable income has not changed substantially over time, meaning housing remains relatively affordable.
housing affordability
$45,000
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
Real Australian Household Disposable Income after (1) Buying the Median Australian Dwelling at Prevailing Prices and (2) Servicing Principal & Interest Repayments at Prevailing Mortgage Rates
June 1985 to June 2011
Real Disposable Income per HouseholdReal Disposable Income per Household after All Housing Costs
Jun-11
Jun-10
Jun-09
Jun-08
Jun-07
Jun-06
Jun-05
Jun-04
Jun-03
Jun-02
Jun-01
Jun-00
Jun-99
Jun-98
Jun-97
Jun-96
Jun-95
Jun-94
Jun-93
Jun-92
Jun-91
Jun-90
Jun-89
Jun-88
Jun-87
Jun-86
Jun-85
Note: Real income after all housing costs is calculated by taking the ABS-reported disposable income per household, assuming the household buys the median priced Australian dwelling at price reported in the given quarter, and then services all principal and interest repayments on an 80% LVR home loan at prevailing mortgage rates.
Source: Australian Bureau of Statistics
Rismark All Regions Median Dwelling Price-to-Income Ratio
8x
7x
6x
5x
4x
3x
2x
1x
0x
Rismark All Regions Dwelling Price-to-Disposable Household Income Ratio
Rismark All Regions Trimmed Mean Dwelling Price-to-Income Ratio
Sep-11M
ar-11Sep-10M
ar-10Sep-09M
ar-09Sep-08M
ar-08Sep-07M
ar-07Sep-06M
ar-06Sep-05M
ar-05Sep-04M
ar-04Sep-03M
ar-03Sep-02M
ar-02Sep-01M
ar-01Sep-99M
ar-99Sep-98M
ar-98Sep-97M
ar-97Sep-96M
ar-96Sep-95M
ar-95Sep-94M
ar-94Sep-93M
ar-93
Source: ABS
Mul
tipl
ier
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE7
CAPITAL GROWTH
Melbourne
Jan-11Jul-09Jan-08Aug-06Feb-05Aug-03=100Mar-02
Australia
Adelaide
Sydney Brisbane
Canberra
Perth Hobart
Darwin
250
200
150
100
50
0
House Price Index of Eight Australian Capital Cities2002-2011
Source: ABS
Australian house prices have recorded consistent growth over the past decade, even during the post-GFC period.
Growth in rental income has been accelerating, averaging over 8% in the 5 years to 2011.
Source: SQM Research, ABS
Gro
wth
Per
Ann
um
14%
12%
10%
8%
6%
4%
2%
0
Rental Growth
NationalHobartCanberra Sydney DarwinBrisbanePerth MelbourneAdelaide
1996-2001 2001-2006 2006-2011
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE 8
HOUSING SHORTAGEA
nnua
l Apa
rtm
ent C
ompl
etio
ns
450,000
400,000
350,000
300,000
250,000
200,000
150,000
100.000
Australian Population Growth vs Growing Completions1976 - 2010
88 90 92 94 96 98 00 02 04 06 08 10868480 827876
Annual Population GainAnnual Dwelling CompletionsSource: ABS
The housing shortage continues to grow ... Did you know that only 60% of the demand for new apartments was met in 2010?
As the supply/demand imbalance continues to widen, the national housing shortage is expected to reach over 600,000 by 2030.
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE9
MARKET FORECAST
The market has been subdued over the last 12 months, with slight price declines across houses and units. The market appears to have bottomed - the peak-to-trough fall of 5.8% with 2.3% price increase over the last two months.
We consider this primarily a ‘crisis of confidence’ as the fundamentals and outlook remain strong.
Rents continue to grow (4.2% over the last 12 months) and vacancy rates remain relatively low at 3.5%.
Forecast supply is expected to decline from 2013 to well below the long run average. The reality is in stark contrasts to media commentary which suggests a sustained oversupply.
The Australian economy remains robust with the last reported (June 2012) year-on-year GDP growth rate at 2.3% and unemployment rate at 4.1%.
Population growth remains very high and is forecast to continue, which means strong demand for new housing.
We all know property is a long-term investment. So, given the positive long-term outlook of the Australian market, the astute investor is recommended to look beyond the ‘market beat-ups’ and invest for the long-term.
FUTURE ESTATE EBOOK SERIES: AUSTRALIAN RESIDENTIAL MARKET UPDATE10
