Reiq Business Luncheon Slide Presentation

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Reiq Business Luncheon Slide Presentation

  1. 1. REIQ BusinessluncheonMarch 2011Bill Evans.
  2. 2. Industry opinions: critical challenges finance/funding interest ratesconsumer confidence Source: NAB, Westpac Economics market volatility* Dec-10 staffing * including volatility in financial, economic and availabilty of stock market conditions 0 10 20 30 % 2
  3. 3. Current Forecasts-March 2011 Latest Sept-11 Dec-11 June-12RBA Cash 4.75 5.00 5.00 5.253yr swap 5.27 5.40 5.60 5.8010yr 5.44 5.60 5.50 5.80US 10 yr 3.34 3.20 3.20 3.80AUD/USD 1.03 1.05 0.99 0.93USD/JPY 81 83 79 85USD/EUR 1.42 1.43 1.45 1.35 3
  4. 4. To date, HH debt reduction has been limited $trn $trn15 15 Other* Sources: Federal Reserve, Westpac Economics Households12 Nonfarm nonfinancial firms 12 Government9 Rest of World 9 *nonfinancial noncorporate and farm6 63 3 March „080 0 1990 1994 1998 2002 2006 2010 4
  5. 5. House prices have declined for 5 months Index S&P Case-Shiller index Index240 240 Source: Factset 20-city index220 220 10-city index200 200180 180160 160140 140 Prices have fallen 4.3% in five months120 to Dec ‟10 and are 31% from peak. 120100 100 Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10 5
  6. 6. Contributions to real GDP growth ppt cont.15 2.5 2.010 2.6 0.8 0.8 6.1 8.7 0.8 0.8 5.6 1.0 5.0 4.4 4.6 5.6 4.6 4.0 3.3 5 1.4 1.5 1.1 1.2 1.1 1.2 1.1 1.1 0.9 1.0 3.7 4.1 3.4 3.2 3.0 3.0 2.8 2.8 2.9 3.2 0 Net exports -3.7 Gross investment Sources: CEIC, Westpac. Public consumption Contribution to full year growth. Private consumption-5 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 6
  7. 7. A pending overhang of property index index250 250 Sources: CEIC, Westpac. Aug-2006 = 100. Underlying data in sqm.200 Completions 200 Sales Starts150 150100 10050 50 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 7
  8. 8. China’s monetary & credit policy stance %yr %pa40 20 Sources: Westpac Economics, CEIC35 Loan growth (lhs)30 15 RRR (rhs)2520 101510 5 “Tight” “Tight”5 “Sound”, “Sound”, “Sound”, “Appropriately “Appropriately “Prudent” Easing bias tightening bias tightening bias Tight” Loose”0 0Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11 8
  9. 9. Australian commodity forecasts index index640 640 Sources: Westpac Economics, Bloomberg, ABS540 540440 metals, rurals & oil bulks 440340 340240 240140 140 40 40 Dec-83 Nov-87 Nov-91 Nov-95 Nov-99 Nov-03 Nov-07 Nov-11 9
  10. 10. AUD susceptible to event risk USD USD1.05 1.05 Source: Bloomberg Greece crisis1.00 1.000.95 0.950.90 0.90 Ireland0.85 crisis 0.850.80 0.80 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 10
  11. 11. CPI: selected discretionary items* 6m % annsd %yr4 4 Sources: ABS, Westpac Economics 6mth% annualised3 %yr 32 21 10 0 * Ice cream/other dairy; cakes/biscuits; snacks/confectionery; meals out/take away;-1 clothing & footwear; house purchase; house repairs/maintenance; furniture/furnishings; -1 h/hld appliances, utensils, tools; hairdressing/personal care services; motor vehicles; MV parts/accessories; AV & computing; sports & rec. equipt; toys/games/hobbies;-2 other rec. activities; domestic holidays -2-3 -3 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 11
  12. 12. CPI inflation: underlying still moderating %yr %qtr9 4.5 avg RBA core CPI* %qtr (rhs) * average of s.a. trimmed mean8 & weighted median CPI ex GST 4.0 headline CPI %yr (lhs) effect in 2000/017 avg RBA core CPI* %yr (lhs) 3.56 3.05 2.54 2.03 1.52 1.01 0.50 0.0 Sources: ABS, RBA, Westpac Economics-1 -0.5 Sep-94 Sep-98 Sep-02 Sep-06 Sep-10 12
  13. 13. Mortgage rate expectations by state net% net%100 100 Feb-10 % reporting expected95 Jun-10 rise minus % reporting 95 Aug-10 expected fall90 Feb-11 9085 8580 8075 7570 70 Aus NSW VIC QLD SA WA 13
  14. 14. Pace of employment growth to slow in 2011H1 %yr `000 3004 Sources: ABS, Westpac Economics 6mth change (rhs) % yr (lhs) 2503 2002 150 1001 500 0-1 -50 Jun-03 Jun-05 Jun-07 Jun-09 Jun-11 14
  15. 15. Current account balance % GDP Rolling annual % GDP3 Sources: ABS, Westpac Economics 30 0-3 -3-6 -6 Trade balance Income position f/c to Current account end-2012-9 -9 Sep-85 Sep-90 Sep-95 Sep-00 Sep-05 Sep-10 15
  16. 16. Net public debt: G7 chalk, Australian cheese %GDP %GDP100 100 Sources: Westpac, IMF, Australian Treasury. 90 90 80 1990 2000 80 70 70 60 2009 2015 60 50 50 40 40 30 30 20 20 10 10 0 0 US UK Germany France Canada Australia 16
  17. 17. The Australian dollar: actual versus fitted USD USD1.10 1.10 Fair value band1.00 AUD/USD actual 1.00 AUD/USD forecast0.90 0.900.80 0.800.70 0.700.60 0.600.50 0.50 Sources: RBA, Westpac Economics0.40 0.40 Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11 17
  18. 18. Qld: lagging – for now % ann Domestic demand growth, by state5 4.3 Dec-09 yr Dec-10 yr4 3.2 3.4 3.13 2.7 2.9 2.82.9 2.7 2.2 2.12 1.510-1 Sources: ABS, Westpac Economics -1.4 -1.3-2 Qld NSW Aus SA Vic WA Tas 18
  19. 19. Output effects from the Floods and Cyclones Activity lossMarch quarter: Coal: $2.2bn Farm: $2.5bn Tourism: $300m Other: $500mJune/September: $1.5bn (coal/tourism) RebuildingGovernment: Commonwealth: $5.6bn States: $1bnPrivate: Housing: $2.5bn 19
  20. 20. Dwelling completions – Qld’s capacity to rebuild 000 „00060 60 f/c Sources: ABS, Westpac +5.5k50 flood 50 rebuild40 decade avg 4030 3020 2010 10 0 0 1987 1991 1995 1999 2003 2007 2011 20
  21. 21. Qld: 5% growth in 2011/12 % ann 2010/11: 1.25% (3.0%); 2011/12: 5.0% (4.25%) % ann10 10 GSP GSP, ex floods State demand Qld Gov‟t fcasts8 86 64 42 20 0 Sources: ABS, Qld Govt, Westpac Economics-2 -2 1991/92 1995/96 1999/00 2003/04 2007/08 2011/12 21
  22. 22. CAPEX plans by industry % chg, yr avg % chg, yr avg80 Sources: ABS, Westpac Economics 80 mining History in real terms,60 60 manufacturing Expectations in nominal services40 40 total20 20 0 0 5th est. 1st est. financial years-20 -20 2007 2008 2009 2010 2011f 2012f 22
  23. 23. Mining investment boom ... Coming to Qld Business investment : share of GSP % of GSP % of GSP35 35 Sources: ABS, Westpac Economics30 30 SA Qld WA25 25 NSW Vic Tas20 2015 1510 105 50 0Dec-89 Dec-97 Dec-05 Dec-89 Dec-97 Dec-05 23
  24. 24. Firms: hiring ... under investing % ann % ann6 Sources: ABS; Westpac Economics * smoothed 30 Jobs (lhs) Equipment * (rhs) 254 20 152 10 50 0 Consumer recession -5-2 Asian crisis in NSW & Vic -10 AUD “collapse” Deleveraging -15-4 -20Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10 24
  25. 25. Household savings ratio-cyclical high % income % income25 2520 post 2006 avg doubled 20 equates to ~$122bn15 1510 105 50 0 Sources: ABS, Factset, Westpac Economics-5 -5Sep-59 Sep-69 Sep-79 Sep-89 Sep-99 Sep-09 25
  26. 26. Funding costs / deposit rates bid up bps bps 250 Sources: RBA, Westpac Economics 250 200 200 150 spread: 1yr term deposit vs 90 day bank bills 150 100 100 50 50 0 0 -50 -50-100 -100-150 -150-200 -200-250 -250 Oct-90 Oct-95 Oct-00 Oct-05 Oct-10 26
  27. 27. Essential: rising costs an added drag % water (1%) electricity (2%) fuel (5%) %25 25 nominal spend20 real 2015 prices 1510 10 5 5 0 0 -5 -5 *ann avg %ch figures in brackets-10 show %total spend -10 Sources: ABS, Westpac-15 -15 Mar-97 Mar-07 Mar-02 Mar-97 Mar-07 27
  28. 28. Australia’s emissions profile National Greenhouse Gas Inventory 2006; Mt CO2-e300 300 Source: Department of Climate Change250 250200 200150 150100 10050 50 0 0 Stationary Transport Fugitive Waste & Agriculture energy emissions industrial processess 28
  29. 29. Consumer sentiment and job security index index130 80120 100110 120100 14090 16080 consumer sentiment index (lhs) 180 Sources: Westpac-Melbourne Institute unemployment expectations (rhs)70 200 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 29
  30. 30. Consumer sentiment: family finances index index130 130120 120110 110100 10090 9080 consumer sentiment index 80 consumer sentiment - family finances Sources: Westpac-Melbourne Institute70 70 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 30
  31. 31. Household financial ratios % debt to income (lhs) debt to assets (rhs) %180 35 total160 housing 30140 own-occ housing 25120100 20 80 15 60 10 40 20 *all figures are to 2010Q3 5 Sources: RBA, Westpac 0 0 Mar-77 Mar-87 Mar-97 Mar-07 Mar-77 Mar-87 Mar-97 Mar-07 31
  32. 32. House price growth: all dwellings % %70 7060 Bris Melb Adel Syd Perth 6050 *six-monthly growth 50 rates, annualised40 4030 3020 2010 10 0 0-10 Sources: RP Data-Rismark, -10 Residex, Westpac-20 -20 Oct-03 Oct-05 Oct-07 Oct-09 Oct-03 Oct-05 Oct-07 Oct-09 32
  33. 33. House price growth stalls % ann % ann45 45 Brisbane35 capital cities avg. 3525 *six-monthly growth rates, annualised 2515 15 5 5 -5 -5 Sources: ABS; Westpac Economics-15 -15 Mar-90 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10 33
  34. 34. Price-income ratios: various measures times times10 10 house price to state median income June 2008 9 house price to capital city median income 9 8 all dwelling price to capital city median income 8 unit price to capital city median income 7 units Source: APM, RP Data-Residex, ABS, Westpac 7 %total 6 stock: 6 22% 38% 28% 24% 5 21% 5 4 4 3 3 2 2 1 1 0 0 Sydney Melbourne Brisbane Adelaide Perth 34
  35. 35. Housing affordability vs long run trend % %70 7065 Sydney 6560 Melbourne 6055 Brisbane 55 Perth50 5045 4540 40 deteriorate35 3530 3025 improve Sources: REIA, ABS, RBA, Westpac 2520 20 Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10 35
  36. 36. ‘Time to buy a dwelling’ by state index index180 180 *smoothed NSW Vic Qld WA160 160140 140120 120100 100 80 80 60 60 Source: Melbourne Institute, Westpac Economics 40 40 Mar-08 Mar-09 Mar-10 Mar-11 Mar-08 Mar-09 Mar-10 Mar-11 36
  37. 37. Population vs dwelling stock thousands thousands500 500 population450 Source: ABS, Westpac 450 dwelling completions400 400 dwelling stock*350 annual average change 350300 * net of demolitions – implied by Census 300 data to 2006; Westpac estimates thereafter250 250200 200150 150100 10050 50 0 0 1950s 1960s 1970s 1980s 1990s 2000s last 3 years 37
  38. 38. Population vs dwelling stock: Qld thousands thousands140 140 population Source: ABS, Westpac120 dwelling completions 120 dwelling stock*100 100 annual average change * net of demolitions – implied by Census data80 to 2006; Westpac estimates thereafter 8060 6040 4020 20 0 0 1950s 1960s 1970s 1980s 1990s 2000s last 3 years 38
  39. 39. Population growth: sharp slowdown % ann % ann3.5 3.53.0 Qld (lhs) Aust (rhs) 3.02.5 2.52.0 2.01.5 1.51.0 1.0 Sources: ABS, Westpac Economics0.5 0.5 Jun-82 Jun-90 Jun-98 Jun-06 39
  40. 40. Population growth in perspective ann% ann%3.5 3.5 population3.0 contribution from net migration 3.02.5 contribution from natural increase 2.52.0 2.01.5 1.51.0 1.00.5 0.50.0 0.0 Sources: ABS, Westpac Economics-0.5 -0.5 1926 1936 1946 1956 1966 1976 1986 1996 2006 40
  41. 41. Migrant inflows vs student visas thousands thousands600 600 student visas granted migrant arrivals 67k500 *financial years 500 drop400 400300 50k 300 Source: ABS, Dept of Immigration and drop Citizenship, Westpac Economics200 200100 100 0 0 2003 2004 2005 2006 2007 2008 2009 2010 41
  42. 42. Australian bank funding sources % %50 50 Sources: RBA, APRA, ABS, Westpac.40 40 Domestic deposits Short term debt Long term debt30 3020 2010 10 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 42
  43. 43. Major Banks’ Bond Issuance $bn AUD equivalent $bn60 60 Onshore* Offshore* Maturities Net issuance Source: RBA40 4020 20 0 0-20 -20 * Latest quarter issuance to date-40 -40 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 43
  44. 44. Westpac business lending by sector 6.1 4.6 Property 9 Agriculture Accom, Restaurant 7.2 27.9 Manufacturing 6.2 Retail Wholesale trade 7.6 Transport Other 31.4 Sources: Westpac. 44
  45. 45. Total dwelling approvals – Victoria rules! index index200 200 Vic (36%) WA (13%)180 180 Qld (17%) NSW (19%)160 smoothed, Sep 2005 = 100 160 figures in brackets show %total140 140120 120100 10080 8060 Sources: ABS, Westpac 6040 40 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 45
  46. 46. Unit approvals- Victoria overheated? index index500 500450 Vic (36%) WA (5%) 450400 Qld (13%) NSW (20%) 400 smoothed, Jan 2006 = 100350 figures in brackets show %total 350300 300250 250200 200150 150100 100 50 Sources: ABS, Westpac 50 0 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 46
  47. 47. QLD mortgage arrears well above national % %2.5 2.5 Source: Westpac Economics2.0 2.01.5 1.51.0 1.00.5 Average REDS 0.5 SPIN0.0 0.0 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 47
  48. 48. Foreign bank claims on Australia $USbn $USbn125 500 Japanese (lhs)100 European (rhs) 40075 30050 20025 100 Sources: BIS, Westpac. 0 0 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 48
  49. 49. Mortgage assets: structural shifts index400 Banks350 Securitisation vehicles300250200150100 Sources: APRA, ABS, Westpac.50 Mar-02 Mar-04 Mar-06 Mar-08 Mar-10 49
  50. 50. Lending finance- steady recovery $bn $bn 9020 construction only (lhs) 80 investor housing - individuals (rhs) 7015 60 *smoothed, annualised 5010 40 30 5 20 10 Sources: ABS, Westpac Economics0 0Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 50
  51. 51. Non res showing no recovery AUDbn/mth AUDbn/mth3.0 3.0 units (surpassed prev peak, now 11% lower)2.5 non res (still 41% below pre-crisis peak)* 2.5 Private dwelling approvals,2.0 trend, nominal 2.0 * excluding education1.5 1.51.0 1.00.5 0.5 Sources: ABS, Westpac Economics0.0 0.0 Apr-87 Apr-91 Apr-95 Apr-99 Apr-03 Apr-07 Apr-11 51
  52. 52. Brisbane office market – also a constraint ... as supply continues ‟000 sqr meters %250 20 Westpac Property Net absorption Net supply forecasts to 2012200 Vacancy rate 16 Vacancy rate150 11.3% 2009 12 13.0% 2011100 850 4 0 0 Sources: PCA, Westpac Property-50 -4 1990 1994 1998 2002 2006 2010 52
  53. 53. Key points Disclaimer• The two key challenges for the industry are interest rates and credit availability – both are of equal concern to industry participants.• The interest rate outlook will be affected by the global growth outlook; the sustainability of the mining boom and prospects for the cautious consumer.• US growth prospects are less than robust; China is tightening policy and Europe‟s problems are structural.• Australian consumers are cautious and look to stay that way with house prices under pressure and housing affordability stretched.• Any easing in consumer caution is likely to lead to higher rates since the mining boom will continue unabated.• The mining boom is set to strengthen further maintaining pressure on rates through 2012 – QLD will benefit from this.• The Australian dollar will be resilient to increasing global risk although it should weaken somewhat in 2012. 53
  54. 54. Key points Disclaimer• The key to Australia‟s world class house prices has been the increasing imbalance between new supply and population growth although there is clear oversupply in places like the Gold Coast.• Population growth has slowed sharply particularly in QLD taking some pressure off underlying demand.• New funding pressures have eased for the major banks as they take advantage of the rising savings rate to fund books through retail deposits – although maturities remain a challenge.• Foreign banks and securitisers have lost considerable ground to the majors who now dominate new lending QLD‟s reliance on regional banks has been a weakness for the state.• There is clear evidence that approvals and lending for developments is slowly improving although Victoria is dominating activity. 54
  55. 55. Key points Disclaimer• There is a clear diversity in terms of approvals across the states with Victoria showing signs of being overheated while QLD is lagging.• Property dominates banks‟ loan books although approvals for non residential have not recovered since the GFC while apartments are showing upward momentum.• While there is some improvement in residential prospects for non residential particularly in Brisbane/Gold Coast are not sound.• The stability and improvement in the housing industry is likely to need to await rate cuts which should begin in 2013 following another “round” of rate hikes in 2012. 55
  56. 56. Disclaimer DisclaimerWestpac Institutional Bank is a division of Westpac Banking Corporation ABN 33 007 457 141.Information current as at date above. This information has been prepared without taking account of yourobjectives, financial situation or needs. Because of this you should, before acting on this information,consider its appropriateness, having regard to your objectives, financial situation or needs. Westpac‟sfinancial services guide can be obtained by calling 132 032, visiting www.westpac.com.au or visiting anyWestpac Branch. The information may contain material provided directly by third parties, and while suchmaterial is published with permission, Westpac accepts no responsibility for the accuracy orcompleteness of any such material. Except where contrary to law, Westpac intends by this notice toexclude liability for the information. The information is subject to change without notice and Westpac isunder no obligation to update the information or correct any inaccuracy which may become apparent at alater date. Westpac Banking Corporation is registered in England as a branch (branch numberBR000106) and is authorised and regulated by The Financial Services Authority. Westpac EuropeLimited is a company registered in England (number 05660023) and is authorised and regulated by TheFinancial Services Authority. If you wish to be removed from our e-mail, fax or mailing list please send ane-mail to economics@westpac.com.au or fax us on +61 2 8254 6934 or write to Westpac Economics atLevel 2, 275 Kent Street, Sydney NSW 2000. Please state your full name, telephone/fax number andcompany details on all correspondence. © 2011 Westpac Banking Corporation. Past performance is not areliable indicator of future performance. The forecasts given in this document are predictive in character.Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based arereasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks anduncertainties. The ultimate outcomes may differ substantially from these forecasts.

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