Status of Qld Property Market Page 7 & 8
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Status of Qld Property Market Page 7 & 8 Status of Qld Property Market Page 7 & 8 Document Transcript

  • 1 CBRE Global Research and Consulting © 2013 CBRE Pty Ltd Australia Residential MarketView AUSTRALIAN RESIDENTIAL – BUYER ACTIVITY TRENDING UP Sales volume growth in conjunction with scarcity of stock boosts capital values There has been an increase in sales volumes across most major residential markets in Australia over the past 12 months, although overall turnover levels are still quite low. House markets in particular have begun to benefit from the improved levels of buyer activity as scarcity of stock drives increased competition. This trend is most pronounced for houses in lower price brackets (as close to employment hubs as possible) where there is improved affordability and the short term outlook has been assisted by an environment of lower debt costs. The higher volume of stock that is brought to market over Q3 and Q4 will be a more accurate illustration on the strength of the residential market as although buyer sentiment indicators such as auction clearance rates are currently quite high, a more complete view of the residential market will be available when buyers have greater choice than is currently available. The role of interest rates in the recent improvement of residential activity levels should not be underplayed, with investors in particular being attracted by stronger net yield positions. Longer term however, the outlook for the Australian economy should remain the core consideration for prospective buyers of residential property. Future economic growth expectations are not without challenges, GDP growth and forecasts are trending down in the short term and jobs and income growth is commensurately soft. The emergence of broad based growth in job markets is therefore still fundamental before a sustained recovery in residential capital values is likely over the longer term. Currently, we expect the economy to improve in 2H, 2014. Key trends in markets across Australia include: • Sydney buyer competition increasing (page 3), Melbourne vacancy rate pressure (page 5), Brisbane capital growth emerging (page 7) and Perth to slow as resource investment contracts (page 9) Q2 2013 NATIONAL HOUSE SALES VOLUME 7.3% (JUN ‘13 Y-O-Y) Chart 1: National house market Source: Residex (July 2013) Table 1: Residential trends in major Australian markets over 12-months to June 2013 Chart 2: National unit market Source: Residex (July 2013) Note: The above indicators are sentiment based market indicators intended to show property trends * Auction clearance rates show quarterly movement NATIONAL UNIT SALES VOLUME 9.1% (JUN ‘13 Y-O-Y) QUARTERLY NATIONAL HOUSE CAPITAL VALUES 2.2% (JUL ‘13) QUARTERLY NATIONAL UNIT CAPITAL VALUES 1.4% (JUL ‘13) QUARTERLY NATIONAL BUILDING APPROVALS 11.1% (JUL ‘13 Y-O-Y) Market Sales volume Value/price ($) Vacancy rates Rents Yields Building approvals (qtr) Auction clearance rates* Sydney        Melbourne        Brisbane        Perth        Adelaide        ACT       
  • © 2013 CBRE Pty Ltd 2 Demand drivers have been reasonable over the past 12 months, employment pressure emerging Although there remains a general sense that the residential property market has entered a growth phase, a steep upward trajectory of capital values is unlikely. The Federal Election result is likely to assist a short term bump in consumer confidence but a sustained improvement in sentiment is unlikely from the change in government. A higher rate of savings from Australian households over the past 5-years, which has trended up since the GFC in combination with a low interest rate environment has many commentators linking these factors to form a trigger point for accelerated buyer activity that will substantially improve capital values. Whilst we believe key demand drivers such as population growth, a scarcity of stock in some price brackets and strong rental markets in major markets across Australia will provide stability and an improved sales volume outlook, employment concerns stemming from an economy in transition limits the potential for rapid capital growth. RESIDENTIAL DEMAND DASHBOARD CONSUMER IMPROVING BUT STEEP UPWARDS TRAJECTORY UNLIKELY Chart 3: Residential owner occupier and investor credit growth - Australia Chart 6: Australian Residential Market Indicators, June 2013 Source: Reserve Bank of Australia (June 2013) *Note: Growth rate annualised QoQ Source: CBRE Mapping; ABS; AFG (June 2013) 2 Q22013AustraliaResidential|MarketView Note All indicators show annual change to June 2013
  • © 2013 CBRE Pty Ltd 3 The South West has seen a noticeable increase in demand for house and land packages with product that is available in the $500,000 to $600,000 range well received by buyers. Suburbs that border the M7 Westlink continue to benefit from higher levels of buyer demand and are outperforming the wider South West residential market. The proposed Edmonstone Park rail link has also triggered a strong response from buyers with recent land releases absorbed by the market very quickly. The Eastern Suburbs and areas extending down towards the Sutherland Shire is showing a good level of demand for units priced up to $750,000 with property that has development potential attracting buyers. Higher density development allowances from the State Government in certain areas is also increasing the likelihood of improved infrastructure that would assist price growth expectations. SYDNEY RESIDENTIAL MARKET SUPPLY NOT MEETING DEMAND Source: REIA (June 2013); REINSW; Residex (June 2013) 3 Q22013AustraliaResidential|MarketView Chart 7: Sydney building approvals v Sydney median house & unit price Chart 8: Sydney vacancy rate and weekly rents Source: ABS 8731.0; Residex (June 2013) Entry level sectors experience increased demand Entry level price brackets for residential property in Sydney have generally been the best performed sector of the market over the past 12 months. The sustained levels of buyer demand, although not initially triggering any great degree of price growth, has now transitioned entry level properties to a position of significant supply shortages in the midst of growing demand from both owner occupiers and investors. Indeed, stock on the market in Sydney has reduced from an already low base, by 0.8% and 1.1% in the year to June 2013 for houses and units respectively. Rental growth has continued to be a primary driver of market demand in Sydney with a combination of strong yields and low interest rates a persuasive mix for investors in particular. Confidence boosted by Barangaroo sales result The residential market in Sydney has been showing a more stable base of sales activity than most other major residential markets for some time now. With clearance rates hovering in the mid to high 70% range, sentiment is clearly on an upward trajectory. The recent and very rapid response from buyers to the marketing of the first Barangaroo offering, where deposits were taken for every unit within a day, is an indication that buyers are increasingly willing to invest in Sydney residential property. Local market trends The North West (including Parramatta, Blacktown, Holroyd and Penrith) has seen lower end properties such as units, townhouses and villas benefitting from yields ranging from 5% to 7% which has driven high levels of buyer demand. Price growth has been significant, with some areas seeing value increases of approximately 10-15% from levels experienced just 6 months prior.
  • © 2013 CBRE Pty Ltd 4 SYDNEY RESIDENTIAL MARKET INDICATORS Source: Residex (June 2013) 4 Q22013AustraliaResidential|MarketView Chart 9: Sydney house price capital growth v rental yield Chart 11: Sydney Sales Volumes Chart 10: Sydney unit price capital growth v rental yield Source: Residex (June 2013) Chart 12: First home buyers Source: Residex (June 2013) Source: ABS 5609.0 (June 2013) The house market in Sydney has continued to build momentum in terms of capital growth, with the 12-months to June 2013 showing a significant 7.4% increase in median values. Whilst the key features of the house market in Sydney have remained intact, namely low vacancy rates and reasonable levels of rental growth, an emerging issue of low listing numbers is placing upward pressure on prices as buyer competition grows for available stock. Rental growth for the 12-months to June 2013 sat at 4.5%, which exceeded the national result for the house market, 3.9% over the same time period. The median weekly rent in Sydney at June 2013 was $585, up from $560 at June 2012. The level of buyer activity in Sydney has seen moderate increases, although not to the extent that it could be described as a major recovery. A low number of properties being listed for sale has restricted a substantial boost to sales volumes and the period leading into Spring should provide a more tangible indication of buyer sentiment levels when it is expected there will be a greater choice of properties for sale. The 12-months to June 2013 showed sales volumes in the house market increased by 4.2% while the unit market increased by a more modest 1.4%. With clearance rates moving into the mid 70%’s over July, indications are that buyer sentiment is stronger, however greater stock levels over Spring are likely to slow price growth as choice expands from the current low levels. The Sydney unit market has also recorded a positive capital growth result over the past 12-months to record an increase in values of 2.3% as at June 2013. The role of lower interest rates in the Sydney unit market is significant and continues to provide a strong incentive for both owner occupiers and investors. Investors assessing investment decisions particularly in the new unit market remain conscious of interest rates movements with net yield still a major consideration in the purchasing process. Weekly rentals in Sydney for the past 12-months has been unchanged, at $505, however a decline is unlikely due vacancy rates remaining relatively low, sitting at 2.1% as at June 2013. Following the cessation of the $7,000 first home owners grant for all homes and introduction of the $15,000 grant restricted to new homes (October 2012), there has been declining first home buyer activity in NSW. The fall has been significant, down from 17.8% of financed purchases being to first home buyers in September 2012 to just 7.3% in June 2013. Affordability of new unit stock remains an issue with CBRE analysis showing that average prices for new unit stock in significant developments (greater than 50 units) within 10 kilometres of Sydney CBD increasing 13.8% over the period from March 2007 to March 2013 ($752,000). Over the short term, affordably priced unit developments located close to public transport remain critical to attracting first home buyers.
  • © 2013 CBRE Pty Ltd 5 Although there is evidence of stability in the Melbourne market after a reasonable recovery in sales volumes, capital growth and clearance rates over the past 12 months, high levels of new supply are a major concern. Indeed, vacancy rates in Melbourne recorded the largest jump of any major market over the past 12 months, up by 1.6% to 3.4% at June 2013. Construction activity creating supply issues Strong levels of construction in Melbourne has boosted supply over the past few years, with house and land markets in the fringe areas of Melbourne plagued by subdued levels of buyer activity. Incentives have been needed in order to stimulate buyer interest and although this has been somewhat successful, with stock slowly being absorbed, oversupply remains a problem. The significant amount of pre-sale unit stock that is available in inner Melbourne and around the CBD also indicates that vacancy rates are likely rise over the short to medium term. With stock levels already increasing, the noticeable jump in vacancy rates for Melbourne is expected to place downward pressure on weekly rents as prospective tenants are faced with a greater choice of accommodation options. Prestige property beginning to attract buyers The Melbourne prestige market was the most heavily impacted sector during the wider residential slowdown commenced over the second half of 2010. Unrealistic vendor price expectations impacted on sales volumes, which were very low over the past 2 years, but as vendors have realigned asking prices, buyer activity has begun to trend up. There has been a number of notable high value sales recently with foreign buyers responsible for the emergence of a recovery in this sector of the market. Capital growth is not yet evident and a sustained period of economic stability and improving sales volumes is needed before upwards price movement can be expected for prestige property in Melbourne. Investor market remains active The generally low number of first home buyers that are active in the market (predominantly due to affordability concerns) is not a trend evident in investor activity. With reasonable yields available in the Melbourne market for properties priced under $500,000 amid relatively stable rental growth, the role of investors has been critical to maintaining sales activity. Upwards pressure on vacancy rates is however expected to slow rental growth which will reduce investor activity if expected returns profiles contract. MELBOURNE RESIDENTIAL MARKET VACANCY RATES INCREASING RAPIDLY 5 Q22013AustraliaResidential|MarketView Chart 13: Melbourne building approvals v Melbourne median house & unit price Chart 14: Melbourne vacancy rate and weekly rents Source: REIA (June 2013); REIV; Residex (June 2013) Source: ABS 8731.0; REIA; Residex (June 2013)
  • © 2013 CBRE Pty Ltd 6 The Melbourne median unit price of $436,000 in June 2013 was a 1.9% increase on the June 2012 value. After a decrease in median unit prices over 2012 due to a high degree of stock entering the market, there has been a slight improvement in price levels as investors continue to be attracted by low interest rates. The rental market has continued to see reasonable growth levels with weekly rents up by 4.1% to $385 for the 12-months to June 2013 (Residex). Although rental yields increased by 12 basis points to 4.6% as at June 2013, increasing vacancy rates are expected to flatten out rental growth which will reduce rental yields over the short to medium term. There has been a recent uptick in first home buyer activity in Victoria, driven by the increase in activity prior to the winding up of the $7,000 first home owners grant for all residential property at 30 June 2013. A revised grant, applicable to new homes only, of $10,000, has not been successful in other states to attract first home buyers when available only to new buildings and Victoria is expected to show a similar trend over the short term. A strong unit development pipeline in inner city areas and high stock levels of new houses on the Melbourne fringe, in addition to increasing vacancy rates, is expected to restrict entry level price growth which will assist first home buyers in a low interest rate environment. Following a slowdown in residential house prices over 2011 and 2012 due to low levels of buyer confidence, there has been a rebound in price levels with a 4.8% increase in capital values over the year to June 2013. Weekly rents for houses also increased, by 6.2% on June 2012 values and now sit at $430 per week. Rental yields of 3.8% are sitting at the lowest level of all major markets across Australia, however there has been a slow rise from the low base of 3.3% in June 2011. Following a strong period of auction clearance rates, buyer demand is expected to continue to build, albeit gradually, with the assistance of interest rates that are enticing buyers to the market. House sales volumes in Melbourne recorded a strong 12.9% year on year increase following 43,187 sales up to June 2013. The Melbourne market is moving from a low base after subdued levels of buyer confidence but interest rate reductions and continued incentives from developers have boosted sales volumes. The unit market has seen a substantial increase to sales volumes over the past 12- months with a 17.2% increase up to June 2013. Similar to the house market, unit volumes had been flat after affordability concerns in Melbourne but sales volumes are trending up following downward corrections in price levels and increasing stock being released to the market. MELBOURNE RESIDENTIAL MARKET INDICATORS 6 Q22013AustraliaResidential|MarketView Chart 15: Melbourne house price capital growth v rental yield Chart 17: Melbourne Sales Volumes Chart 16: Melbourne unit price capital growth v rental yield Chart 18: First home buyers Source: Residex (June 2013)Source: Residex (June 2013) Source: Residex (June 2013) Source: ABS 5609.0 (June 2013)
  • © 2013 CBRE Pty Ltd 7 Buyer activity translating into capital growth Although general sentiment levels for residential property in South East Queensland (SEQ) have been indicating a gradual turnover improvement since the end of 2012, increased sales volumes did not have an immediate impact on capital values. However, the recent evidence has now shown the emergence of price uplifts, mainly in Brisbane, as a sustained boost in sales volumes, although moving from a low base, has begun to impact on price expectations. A low interest rate regime which is working in conjunction with improving population growth for Queensland has assisted the residential market with investors in particular increasingly active in the market. Affordability has continued to be a major issue for first home owners, particularly for those seeking inner city houses, with no immediate signs that this buyer group is likely to move away from very subdued sales levels at present. The rental market in SEQ continues to be underpinned by relatively tight vacancy rates with most areas still below 2%, an indication that rental growth is likely to continue for at least the short term. Brisbane demand levels improving Although the Brisbane residential market has lagged other major market capital growth rates, recent evidence suggests that the house market in particular is beginning to experience an uplift in values. The sub-$500,000 range continues to attract good levels of buyer demand with short selling periods for stock located in convenient positions. The middle market ($500,000 to $1 million) has seen improving levels of confidence with trading up from entry level housing quite common. Properties priced above $1 million have seen transaction levels slightly increasing but marketing periods are still prolonged. Gold Coast stabilising at a low base The Gold Coast residential market, after a sustained period of declining sales volumes and falling capital values, is stabilising. Amongst lower price brackets sales volumes are trending up following revised prices from vendors. A perception of good value buying has boosted the prestige market although overall sales volumes are still at very low levels. The new unit market remains fragile with the revised pricing structures at complexes such as The Oracle critical to an improving sell down rate. The Sunshine Coast market has experienced a slow down in buyer activity following an increase in sales volumes over Q1, 2013. Affordability remains a major issue in this market with job security still a concern given the reliance on tourism and construction activity in the region. SOUTH EAST QUEENSLAND RESIDENTIAL MARKET CAPITAL VALUES BEGINNING TO IMPROVE 7 Q22013AustraliaResidential|MarketView Chart 19: Brisbane building approvals v Brisbane median house & unit price Chart 20: Brisbane vacancy rate and weekly rents Source: REIA; Residex (June 2013) Source: ABS 8731.0; Residex (June 2013)
  • © 2013 CBRE Pty Ltd 8 BRISBANE RESIDENTIAL MARKET INDICATORS 8 Q22013AustraliaResidential|MarketView Chart 21: Brisbane house price capital growth v rental yield Chart 23: Brisbane Sales Volumes Chart 22: Brisbane unit price capital growth v rental yield Chart 24: First home buyers Source: Residex (June 2013)Source: Residex (June 2013) Source: Residex (June 2013) Source: ABS 5609.0 (June 2013) After two years of downward movement in capital values, the Brisbane median house price ($439,000) in June 2013 showed 6.4% growth over the 12-month period from June 2012, according to Residex. This was a significant improvement in house values for Brisbane and illustrates the uplift in buyer sentiment. The unemployment market in Brisbane has tightened recently, with July 2013 at 4.8%, down from 5.5% in July 2012 which has assisted to stabilise the confidence levels of prospective buyers. Low interest rates have also had an impact, with buyers attracted by the historically low rates currently available. House rents have also increased, up 6.2% (to $430) over the 12-months to June 2013. Subdued pricing levels in the Brisbane residential market has seen affordability increase and stimulate a gradual improvement in sales volumes, albeit at low levels by recent history. House sales volumes in Brisbane increased by 9.8% in the year to June 2013 to reach 29,972. A more moderate 4.7% increase in unit sales for the year to June 2013 (12,804) has also maintained the gradual improvement in sales activity that has been evident recently. Affordability is a key factor in Brisbane, with CBRE Research finding that Brisbane is currently at pricing levels that make it the most affordable of all capital cities across Australia. With a low interest rate environment expected to be maintained over the medium term, sales volumes in Brisbane are expected to continue to improve. Over the 12-months to June 2013, capital values in the Brisbane unit market declined by 0.9%. The fall of median values in Brisbane is due in large part to a high proportion of units being sold in more affordable price brackets as buyer demand has focused on lower priced stock in locations proximate to public transport. The median weekly rent for units has increased by 7.1% in the year to June 2013 ($375) and was the second largest median weekly rent increase with only Perth (7.2%) recording a bigger uplift in values. Unit yields have increased to 5.6% in June 2013, are the highest of all capital city markets. A strong development pipeline for units is however expected to limit substantial capital growth over the medium term. Demand from first home buyers has shown a slight increase following a period of low activity after the winding up of the $7,000 First Home Owners Grant for all residential property in October 2012. First home buyer numbers reached a ten year low of 750 for the month of January 2013, however since then levels have shown some growth, improving to 1,066 in June 2013. The introduction of the $15,000 Great Start Grant for new homes in September 2012 doesn’t appear to have received much traction with first home buyer activity at 14.3% in June 2013, down from 19.3% at June 2012. Developer incentives, improved affordability of new stock and reasonable population forecasts are expected to assist demand levels from first home buyers.
  • © 2013 CBRE Pty Ltd 9 Property outlook appears patchy The Perth residential market has been a strong performer over the past 12-months with good levels of capital growth and a rapidly expanding sales volume profile. Indeed, it has outperformed the remainder of Australia with market demand being underpinned by good levels of population growth and low unemployment that have combined to assist confidence levels and attract buyers back into the market. The lack of previous new supply being released to the market also played a role, with competition from buyers quite strong and further boosted by reduced interest rates. The outlook for Perth residential property is not however expected to contain a similar quantum of growth to the past 12 months. The influence of a reduction in demand for highly skilled and highly paid resources investment related positions will become more prevalent over the medium term. The high level of residential construction activity under way is likely to enter the market at a time when demand levels will begin to contract as resources spending continues to contract. This mix of factors, despite interest rates expected to remain at historical lows over the medium term, will slow the Perth property market as some caution will impact on prospective purchasers investment decisions. Notwithstanding, recent activity in the Perth market has been positive. The number of listings has declined with sales volumes increasing across established dwellings, vacant land and new house and unit sectors. This follows an extended period of subdued price performance where capital growth was generally absent from 2007 through to 2011 after a stronger boom earlier in the 2000’s. The unit market, which was plagued by oversupply issues following low levels of buyer activity has also seen surplus stock gradually absorbed over the past 12 month period. PERTH RESIDENTIAL MARKET SLOWDOWN IN RESOURCE SPENDING TO IMPACT ON PROPERTY 9 Q22013AustraliaResidential|MarketView Chart 25: Perth building approvals v Perth median house & unit price Chart 26: Perth vacancy rate and weekly rents The rental market in Perth has been showing signs of pressure as vacancy rates trend up and now sit in the mid 3% range. Rents are now flattening out with tenants actively looking for other rental options at cheaper rates. In this environment, tenants have been willing to break leases in order to move into cheaper accommodation. The prestige executive rental market has also suffered with demand levels falling following a reduction in the number of highly skilled employees being employed in the resources sector. Absence of capital growth in Mandurah and Peel Although sales volumes in these areas remain steady in the sub $500,000 range, there has been little evidence of upwards price movement. As values move towards $1 million and beyond, the market remains soft with extended marketing campaigns required before a sale can be achieved. An absence of strong demand drivers in these markets continues to limit the potential for recovery. Source: REIA (June 2013); REIWA; Residex (June 2013) Source: ABS 8731.0; Residex (June 2013)
  • © 2013 CBRE Pty Ltd 10 After an extended period of flat performance in the Perth house market, there has been significant improvement in sentiment following capital value increase of 8.2% in the 12- months to June 2013. A shortage of listings has played a role in the degree of price growth. These results represented the most significant price growth of all major regions in Australia which illustrates the escalation in buyer activity over the past year. The job market continues to outperform national results with a June 2013 unemployment rate of 4.9%, well below the national unemployment rate of 5.7%. Median weekly house rents increased by 6.7% to $480 in June 2013 with yields in June 2013 at 5.0%. The past 12 months in Perth has seen a notable increase in buyer activity with the annual sales volumes in the house market recording a jump of 20.8% for the year ending June 2013 (28,712) in comparison with the year to June 2012 (23,771). Similarly, the annual volume of unit sales grew by 23.0% from June 2012 (11,356) to June 2013 (13,972). Annual building approvals have also increased, with growth of 28.0% in the 12-months to June 2013 (19,043), compared to June 2012 (14,880). With positive employment prospects and forecasts of a circa 10.% increase in job numbers over the five year period to November 2017 (Department of Education, Employment and Workplace Relations) the residential market is expected to be well supported but wages growth will slow due to resource investment contraction. Perth unit values also improved with an annual increase of 5.4% in the June 2013 quarter after showing a median unit price of $444,000. A gross rental yield of 5.2% was the equal second lowest of all capital cities, with Adelaide (5.2%) at the same level and Melbourne at 4.6%. A median weekly rent of $445 showed an increase of 7.2% over the past 12-months and although there has been a substantial rise in vacancy rates in Perth, population growth is expected to safeguard rental levels from significant falls in the medium term. More generally, the recent increase in development activity in Perth is likely to slow price growth as buyers will have a greater choice of stock that is coming to market. The WA residential market has experienced a relatively strong increase in sales activity over the past 12 months with generally good economic conditions that have been underpinned by nation leading population growth. First home buyer activity has benefited from improved levels of affordability with this sector of the market contributing 24.1% of all residential dwellings financed in June 2013. Despite having the highest average first home buyer loan size in Australia at June 2013 ($313,500), WA has shown a gradual uptrend in activity over the past 2-year period. This contrasts with other states across Australia where first home buyer activity has been subdued due to lower levels of economic growth and higher levels of unemployment. PERTH RESIDENTIAL MARKET INDICATORS 10 Q22013AustraliaResidential|MarketView Chart 27: Perth house price capital growth v rental yield Chart 29: Perth Sales Volumes Chart 28: Perth unit price capital growth v rental yield Chart 30: First home buyers Source: Residex (June 2013)Source: Residex (June 2013) Source: Residex (June 2013) Source: ABS 5609.0 (June 2013)
  • © 2013 CBRE Pty Ltd 11 Sluggish growth drivers for the South Australian economy The Adelaide residential market is showing gradual improvement with both sales volumes and capital growth levels increasing. However, there is not expected to be a rapid build up of momentum in the Adelaide market with the employment outlook continuing to be hindered by a manufacturing sector that is struggling amid tough international trading conditions. The Holden manufacturing plant at Elizabeth remains the subject of longer term viability concerns which is symbolic of many manufacturing operations in Adelaide which have generally been downsizing employment numbers. The impact on buyer confidence that this uncertainty continues to create has meant that interest rate reductions are not having the same level of positive impact that has been observed in other capital city markets. Affordability concerns and cost of living pressures are more influential driver of the Adelaide market at present. Clearance rates gradually trending up Although buyer sentiment in the Adelaide market has been constrained by a subdued outlook in the job market, with unemployment sitting at 6.0% in June, clearance rates have slowly been improving over the past 12 months. After recording very low clearance rates that were sub 40% in mid 2012, current levels have improved by approximately 10%- 15% which, despite still being quite low, indicate the bottom of the property cycle in Adelaide has passed, with buyer demand now trending up, albeit at a slow rate. ADELAIDE RESIDENTIAL MARKET A GRADUAL IMPROVEMENT 11 Q22013AustraliaResidential|MarketView Chart 31: Adelaide building approvals v Adelaide median house & unit price Chart 32: Adelaide vacancy rate and weekly rents Government grants having an impact on new unit market The new unit market in Adelaide is subject to a wide range of government grants that is geared towards engaging the first home market. At present, first home owners can access grants and exemptions from stamp duty that provide in excess of $20,000, a substantial contribution, especially in entry level price brackets. There has been a relatively sustained level of growth in first home owner activity in Adelaide since the lows experienced in mid 2011 and although well below the peak of 2009, construction activity is gaining momentum as demand for well positioned apartments with good access to the CBD improves. The difficulties experienced by developers obtaining debt has also meant that new unit supply has been quite low, which has assisted buyer competition for the relatively low number of inner city dwellings currently available. Source: REIA; Residex (June 2013) Source: ABS 8731.0; Residex (June 2013)
  • © 2013 CBRE Pty Ltd 12 Capital values in the Adelaide unit market have continued to move sideways rather than showing a distinct positive or negative trend. Over the 12-months to June 2013, the median unit price ($306,000) has increased by a nominal 0.4%. Flat economic conditions in Adelaide that have kept job security as a primary concern for households has meant that rapid increases to buyer activity are not likely. The rental market for Adelaide units is also subdued with weekly rents at $305, the second lowest of all capital cities and only exceeding Hobart at $265. Rental yield for units sits at 5.2%, increasing from 4.5% in 2010. Decreasing vacancy rates (down from 3.9% in June 2012 to 3.0% in June 2013) is expected to underpin stability in rental values. After a period of low activity in 2011 in the midst of subdued state economic performance and limited population growth, there has been a noticeable increase in the proportion of first home buyers with June 2013 showing 17.5% of all dwellings financed being from first home owners. State Government stimulus incentives that have included an increase to the first home owners grant for new homes from $7,000 to $15,000, the Housing Construction Grant for $8,500 and stamp duty concession for new apartments in the Adelaide CBD have proven to be a good mix of grants but equally important has been improved affordability. In an environment of relatively flat residential price movement and low interest rates, first home owners activity has slowly improved. The median house price in Adelaide as at June 2013 was $392,500, an increase of 1.9% from June 2012. The median weekly rent in Adelaide remains low, at $355, with Hobart ($330) the only capital city with a lower weekly rent. Despite rental growth over the past 12-months of 4.4%, which exceeded the national average (3.9%), Adelaide rents still trail the national median by $60 per week. Yields for the house market in Adelaide have been steadily increasing over the past three years and now sit at 4.7%. Affordability concerns have slightly eased in Adelaide recently and after a period of flat residential performance, the market has stabilised with buyer activity expected to slowly trend upwards. An increase in Adelaide house sales volumes of 4.8% over the 12-months to June 2013 (16,324) compared to June 2012 (15,583) indicates that although sales volumes are still at historical lows, there has been some signs of a bottoming in buyer activity. The unit market in Adelaide, which had recorded 10 consecutive quarters of declines in sales volumes has also seen a slight improvement following an annual increase of 5.9% up to June 2013 following 4,035 sales being completed. Despite the recent improvement in sales volumes, it is noteworthy that both house and unit sales volumes are 17.4% and 24.0% below ten year per annum averages indicating the relatively flat level of demand currently being experienced in Adelaide. ADELAIDE RESIDENTIAL MARKET INDICATORS 12 Q22013AustraliaResidential|MarketView Chart 33: Adelaide house price capital growth v rental yield Chart 35: Adelaide Sales Volumes Chart 34: Adelaide unit price capital growth v rental yield Chart 36: First home buyers Source: Residex (June 2013)Source: Residex (June 2013) Source: Residex (June 2013) Source: ABS 5609.0 (June 2013)
  • © 2013 CBRE Pty Ltd 13 Buyers remain cautious about proposed public sector job cuts Although Federal Elections are often put forward as a reason for subdued real estate markets, the actual impact on buyer activity is usually exaggerated. In the Canberra residential market however, the very high level of reliance on public sector employment relative to the remainder of the jobs market does mean buyers are cautious when there is a possible change of government, particularly when both major political parties have discussed the need for a substantial reduction in public sector spending levels. The clear result in the Federal Election will at least provide a better level of certainty to the Canberra market but the outlook does appear to contain some significant challenges due to the expected contraction of the public service. Price bracket performance quite varied The lower price brackets in Canberra have continued to experience better levels of buyer activity with demand levels generally quite strong and price levels relatively steady. Low interest rates have been a major factor in the sub $500,000 range. The impact of the Federal Election has been most noticeable in price brackets between $500,000 and $1 million which is where middle management in the public sector is generally most active. Middle management has been targeted as a primary area for upcoming jobs cuts which has meant caution has been apparent from buyers in this price range. Properties that are priced above $1 million have continued to experience limited turnover with long selling periods quite common. Vendors are still discounting in order to attract buyer interest. The vacant land market has been under pressure with new estates in Googong and Traille, just over the border in NSW, offering cheaper land than is available in the ACT. Unit market suffering from high supply levels The unit market has had a large number of settlements occurring from recently completed construction activity. In the North, buildings such as the Manhattan, Altitude and Harrison Green have added large numbers of stock to the market while the Kingston Foreshore precinct has also seen high stock levels entering the market. In order to boost demand levels, developers have been actively seeking foreign buyers to boost demand levels in the midst of slowing local demand. The proportion of investors buying units has been high which has further softened the rental market as greater rental supply now exists. The outlook for residential property in Canberra is therefore quite reliant on the extent of contraction in public sector spending. Buyer confidence is expected to be flat over the medium term with sales volumes unlikely to show any major recovery despite the low interest rates currently available. CANBERRA RESIDENTIAL MARKET COALITION TO FORM GOVERNMENT 13 Q22013AustraliaResidential|MarketView Chart 37: Canberra building approvals v Canberra median house & unit price Chart 38: Canberra vacancy rate and weekly rents Source: REIA; Residex (June 2013) Note: December 2012 vacancy rate assumed to be same as September 2012 due to lack of information Source: ABS 8731.0; Residex (June 2013)
  • © 2013 CBRE Pty Ltd 14 After relatively consistent capital growth levels from June 2004 to June 2012, there has been a downward price correction in the Canberra unit market with median unit prices decreasing by 8.8% in the year to June 2013 with the median price at $397,500. High stock levels are impacting on price with a strong period of construction illustrated by a record volume of annual residential completions of 5,169 up to March 2013, according to the Australian Bureau of Statistics. Higher levels of stock have also had a significant impact on the unit rental market in Canberra. There has been a drop of 7.6% in median unit weekly rents with rents in June 2013 at $425, well below the weekly rent of $460 recorded in June 2012. First home buyer activity in the ACT has been tracking sideways for a number of years. Speculation about cuts to public sector employment numbers has been a recurring theme in Canberra in recent times which has been a key factor maintaining first home owner activity at relatively low levels. The average loan size for first home owners has been trending down which is in line with the wider residential market where price levels have been gradually contracting in the ACT. The average loan size for first home buyers was $305,500 at June 2013 which represents a decrease of 11.3% from the historical peak in June 2012 ($344,300). House prices in Canberra have experienced little price movement over the past year with the median house price sitting at $529,500, according to Residex. Rental growth has also been subdued with weekly rents at $510 which was a decrease of 1.0% in the year to June 2013. The gross rental yield for houses decreased by 10 basis points to 5.0% in June 2013, compared to 5.1% in June 2012. The absence of buyer activity in the Canberra house market remains closely linked to the outlook for public sector employment. Federal Government spending remains focused on contraction rather than growth and in such an environment, market activity is not expected to rapidly change until employment prospects become more certain. House sales volumes have recorded a slight fall of 1.4% in the year to June 2013 following 4,780 sales being completed. This continues a downtrend trend in sales volumes for houses in Canberra. The unit market, which has been subject to high levels of new stock has seen a substantial increase of 10.7% from June 2012 (3,589) to June 2013 (3,972). Over the short to medium term, further supply is expected to be completed over the remainder of the year with the unit market likely to face continued price pressure as supply levels exceed demand following a substantial development cycle that has been in operation for the past few years. CANBERRA RESIDENTIAL MARKET INDICATORS 14 Q22013AustraliaResidential|MarketView Chart 39: Canberra house price capital growth v rental yield Chart 41: Canberra Sales Volumes Chart 40: Canberra unit price capital growth v rental yield Chart 42: First home buyers Source: Residex (June 2013)Source: Residex (June 2013) Source: Residex (June 2013) Source: ABS 5609.0 (June 2013)
  • © 2013 CBRE Pty Ltd 15 CONTACTS Australia Research Stephen McNabb Head of Research Australia Research CBRE Level 21 363 George Street Sydney t: +61 2 9333 3493 e: stephen.mcnabb@cbre.com.au For more information about this MarketView, please contact: Sam Reilly Senior Research Manager Australia Research CBRE Level 3, Waterfront Place 1 Eagle Street Brisbane t: +61 7 3833 9739 e: sam.reilly@cbre.com.au + FOLLOW US GOOGLE+ https://plus.google.com/1106 40413332542089478#11064 0413332542089478/posts FACEBOOK http://www.facebook.com/pag es/CBRE/85277065893 TWITTER http://twitter.com/cbreAPresea rch Global Research and Consulting This report was prepared by the CBRE Australia Research Team which forms part of CBRE Global Research and Consulting – a network of preeminent researchers and consultants who collaborate to provide real estate market research, econometric forecasting and consulting solutions to real estate investors and occupiers around the globe. Disclaimer CBRE Limited confirms that information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt their accuracy, we have not verified them and make no guarantee, warranty or representation about them. It is your responsibility to confirm independently their accuracy and completeness. This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior written permission of CBRE. For more information on residential valuations, please contact the appropriate State contacts: Duncan Guthrie National Director CBRE Level 5 3350 Pacific Highway Springwood QLD 4127 t: +61 7 3826 2091 e: duncan.guthrie@cbre.com.au Peter Fallon – NSW/ACT Director CBRE Level 5 10-14 Smith Street Parramatta NSW 2150 t: +61 2 4926 6409 e: peter.fallon@cbre.com.au Peter Butler– QLD Director CBRE Level 5 3350 Pacific Highway Springwood QLD 4127 t: +61 7 3826 2041 e: peter.butler@cbre.com.au Jarrod Frazer – VIC/TAS Director CBRE Level 10 Como Centre, 650 Chapel Street South Yarra VIC 3141 t: +61 3 9863 5324 e: jarrod.frazer@cbre.com.au Michael Veletta – WA Director CBRE Level 2 216 St George’s Terrace Perth WA 6000 t: +61 8 9320 0007 e: michael.veletta@cbre.com.au Melissa Gow – SA Director CBRE Level 11 80 King William Street Adelaide SA 5000 t: +61 8 8110 3365 e: melissa.gow@cbre.com.au Liability limited by a scheme approved under Professional Standards Legislation. Tom Edwards Executive Managing Director CBRE Level 5 3350 Pacific Highway Springwood QLD 4127 t: +61 3826 2090 e: thomas.edwards@cbre.com.au