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Property Capital Markets Report
 

Property Capital Markets Report

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Engage through intellecutal discussion on key drivers affecting the property markets throughout Australia.

Engage through intellecutal discussion on key drivers affecting the property markets throughout Australia.

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    Property Capital Markets Report Property Capital Markets Report Document Transcript

    • Opinions Economic outlook International State by stateIndustry experts Macro view of comparison Detailed analysisshare their views underlying trends Key areas where of home values,on aspects of the affecting the Australia is different sales and rentsmarket. property sector. to other economies. across Australia. RP Data Property Capital Markets Report 2012
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    • RP DataPropertyCapital ContentsMarketsReport 02 Introduction 2012 03 summary Executive 04 Economic overview T  he micro-economic forces shaping Australia’s housing market 11 Macro forces Big picture reasons why Australia is different 14 LMI explained The role of lenders mortgage insurance 18 overview Property market Australia’s home values in perspective 24 State by state analysis Sydney and New South Wales ���������������������������������������������������� 24 Melbourne and Victoria �������������������������������������������������������������������� 26 Brisbane and Queensland ������������������������������������������������������������� 28 Adelaide and South Australia ������������������������������������������������������ 30 Perth and Western Australia ��������������������������������������������������������� 32 Hobart ����������������������������������������������������������������������������������������������������������� 34 Darwin ����������������������������������������������������������������������������������������������������������� 36 Canberra ����������������������������������������������������������������������������������������������������� 38 Publisher Andrew Stabback All rights reserved © 2012 Publisher’s Note: T: +61 2 02 9376 9501 No part of this work covered by Although every care has been taken to astabback@financialpublications.com.au the publisher’s copyright may be ensure the accuracy of the information reproduced in any form by any means, contained within this publication, Managing Editor Bernard Kellerman graphic, electronic or mechanical, neither the publishers, authors nor T: +61 2 9376 9506 including photocopying, recording, their employers can be held liable for bkellerman@financialpublications.com.au taping, or information storage and any inaccuracies, errors or omissions. retrieval, without the written permission Readers are strongly advised to contact Art Direction Six Black Pens of the publisher. Any unauthorised use of their professional advisor before www.sixblackpens.com this publication will result in immediate entering into any contract to buy or sell info@sixblackpens.com legal proceedings. any security. 1
    • Introduction | RP Data Property Capital Markets Report Introduction Seen against the backdrop of several years land mass, Australia’s population is one of of global uncertainty and weak property the most centrally urbanised in the world; markets outside of Australia, the resilience housing demand is very much concentrated of Australian home values to a material across tight geographical boundaries which decline has come under an increasing level can generally be classified as having a housing of scrutiny. under-supply.Tim Lawless Home values across Australia’s capital cities The current weakness in the AustralianResearch Director, peaked in December 2010 after recording a housing market should not be cause forRP Data solid rate of capital gain across 2009 and the alarm. The market is cyclical; a growth phase first half of 2010. Since home values peaked, is normally followed by a consolidation phase. Australia’s capital city markets have recorded The duration of the decline has been more an aggregate fall of 3.6 percent. significant in this phase than previous ones There are a wide number of factors due to the global economic conditions which that explain Australia’s housing market are dampening consumer sentiment locally. performance. The national economy has been Looking forward, there will continue to comparatively strong. Australia has avoided be challenges across the Australian housing recession, the labour force remains close to market, however we may already be seeing the capacity, interest rates are around historic first green shoots appear. Lending for home average levels and mortgage arrears remain loans has been consistently improving off a low well below one percent. base, transaction volumes were showing some Australia’s financial regulatory improvement over the last quarter of 2011 and environment is world class and has our key vendor metrics such as average selling historically been much more risk adverse time and average vendor discounting have also than the financial sector in other countries. been showing some subtle improvements. The vast majority of Australian mortgage Key to a stabilisation in Australian holders are on floating interest payments housing markets will be ongoing and it is estimated that around 50 percent improvements in consumer sentiment, are ahead of their payment cycle. stable interest rates and continued health Additionally, despite having a very large across the domestic labour markets.2
    • RP Data Property Capital Markets Report | Executive summaryExecutivesummary We don’t subscribe to the predictionsThe Australian housing sector is the Trends in affordability are also supportivecountry’s largest and, arguably, most of dwelling prices. A combination of strong that residentialimportant asset class. The total value of income growth and falling mortgage rates is housing valueshomes across the country as at December boosting affordability in the current cycle. are about to2011 was $4.54 trillion. Across the capital city markets, value By way of comparison, Australian equities declines have varied from a 0.3 percent show significanthad a total market capitalisation at the same decline in values in Sydney to a 6.8 percent fall declines.time of $1.17 trillion. This simple statistic is in Brisbane home values. Capital city homeespecially important for Australian banks given values have also become more affordable inthat, unlike their peers elsewhere, our banks real terms over the last 12 months.have the majority of their assets on balance Along with the macroeconomicsheet in the form of prime mortgages. arguments working to mitigate risk of a And according to the Australian Bureau US-style house price collapse, Australia’sof Statistics, more than 60 percent of all residential property sector benefits fromAustralians own a home – one of the highest a strong central bank and prudentialrates of home ownership in the world. regulatory regime. Nonetheless, Australia’s bankers have This regulatory oversight is backed – ashad to deal with a persistent fear amongst far as the property market is concerned – byglobal investors and commentators that the work carried out by lenders mortgageAustralia’s housing sector is overvalued and insurers, who work to maintain underwritingat risk of collapse. This view, which dates standards throughout the home loan sector.back to 2003, has been refreshed by the This approach was also reflected in theongoing European crisis. capital markets. Throughout the global These comments have been surfacing financial crisis, the Australian mortgageonce again, after the Australian housing market experience has been very differentsector experienced a sharp slowdown in from markets such as the US for a numberthe 2011 calendar year, with the estimated of reasons. First, there was not the samevolume of sales transactions in November competition to squeeze margins almostrecorded at 15 percent lower than the five flat, so the pressure to come up with risky ifyear average and 8.1 percent lower than they innovative structures was not present.were in November 2010. And in contrast to the practices adopted The slowdown in transaction activity is by Australian residential mortgage-commensurate with the slowing of property backed securities (RMBS) issuers, wherevalue growth, and we are predicting subordination was the mechanism bycontinued softness in 2012. which lenders chose to credit enhance We don’t subscribe, however, to the securitisation deals in the United States,predictions that residential housing values Australian issuers turned to lendersare about to show significant declines. mortgage insurance providers to provide the Australia’s market economists point to the backstop to their subordinate tranches.demand-supply imbalance in the Australian Even at its peak, subprime lending washousing market, arguing that it is supporting only ever a tiny fraction of the total. The so-house prices and is unlikely to change. First called ‘low-doc’ loans were also a small niche.up, Australian demographic trends are In Australia in recent years, around two-thirdsconsistent with an underlying new housing of new mortgage borrowers from banks haddemand of 180,000 to 200,000 new houses an initial loan-to-valuation ratio below 80 perper annum, with land releases and new cent. Looking across the whole mortgagebuildings falling short of that figure each year. book, that fraction is even higher. 3
    • Economic overview | RP Data Property Capital Markets Report 2012 Economic overview A macroeconomic analysis of the Australian economy reveals the forces behind the country’s strong housing market. In the following pages, some of the key Further, as the majority of home factors affecting Australia’s residential finance is through variable loans, theKey Statistics housing market are set out in detail. These central bank can influence supply andThe Consumer Price are followed by some ‘big picture’ views demand to a far greater degree thanIndex (CPI), measures from a number of economists, who explain in countries such as the US by eitherthe level of price inflation why Australia’s housing market equilibrium ratcheting up or easing the overnightwithin the economy. point is higher than many external cash rate.As at December 2011, commentators seem to realise. That said, there are a number ofthe all groups indicator While interest rates in Australia are factors to watch in coming months toshowed that annual at relatively low levels, they remain get a clearer view of the strength of theheadline inflation fell to3.1 percent which is only above rates in other countries. However, Australian housing sector. These includeslightly outside of the in contrast to many of its OECD peers, the effects of the winding back of firstRBA’s long-term target Australia has benefited from low home buyers’ incentives, the level ofrange of 2 to 3 percent. unemployment and a long-term shortfall investor housing finance commitments in construction of new dwellings in its and refinancing activity by existing owner major capital cities. occupiers.4
    • RP Data Property Capital Markets Report 2012 | Economic overviewConsumer sentiment falls following G1: Australian consumer sentimentDecember’s interest rate cut but Feb-92 to Feb-12rebounds thereafter 130 130The monthly survey of Consumer Sentiment 120 120undertaken by Westpac and the MelbourneInstitute shows that Australian consumers 110 110are slightly more optimistic than pessimistic 100 100about economic conditions. The Indexmeasures views on the financial situation 90 90of Australian households over the pastand coming year, anticipated economic 80 80conditions over the coming year and five 70 70years and buying conditions for major Feb-92 Feb-96 Feb-00 Feb-04 Feb-08 Feb-12household items. When the Index isabove 100 points, consumers are more Consumer sentiment index 6 month rolling average Source: rpdata.com, Westpac-Melbourne Instituteoptimistic than pessimistic and when itsits below 100 points it indicates there ismore pessimism than optimism. Following G2: Percentage change in GDP Sep-81 to Sep-11December’s interest rate cut consumer 8% 8%sentiment fell but has recovered most ofthat loss over the two most recent months. 6% 6%Despite the improvement, the Index iscurrently recorded at 101.1 points indicating 4% 4%consumer confidence is only slightly above 2% 2%a neutral level.See G1: Australian consumer sentiment 0% 0% -2% -2%Australia’s economic conditionsimprove after the natural disasters -4% -4%affected GDP decline recorded over Sep-81 Sep-87 Sep-93 Sep-99 Sep-05 Sep-11the March 2011 quarter Quarterly change Annual change Source: rpdata.com, ABSGross Domestic Product (GDP) measuresthe final value of all goods and servicesproduced in an economy over a givenperiod. As such, GDP is an important G3: RBA GDP growth forecasts*  Dec-11 to Jun-14indicator as it shows whether an economy is Dec-11 Jun-12 Dec-12 Jun-13 Dec-13 Jun-14expanding or contracting. End of year growth 2.75% 3.50% 3.25% 3.25% 3.50% 3.50% The latest GDP results showed * Where a range has been provided we have published the mid point of that forecast Source: rpdata.com, RBA Statement on Monetary Policy February 2012continuing overall strength in the Australianeconomy. Over the September 2011 quarter,GDP increased by 1.0 percent and over theyear GDP was up by 2.5 percent. According Recent Reserve Bank (RBA) forecasts forto the GDP calculation Australia has not GDP suggest that the Australian economy Key Statisticsslipped into a recession (defined as two will grow at an annual rate in excess of 3consecutive quarters of negative GDP percent from June 2012 onwards. The fact that the vastgrowth) since June 1991. See G2: Percentage change in GDP and majority of home loans The GDP statistics also reveal data relating G3: RBA GDP growth forecasts* in Australia are on ato household expenditure highlighting the variable rate has provengrowing propensity for consumers to save The cash rate has not been adjusted to be a positive over recent years. The highrather than spend. The household savings since December 2011 however, proportion of loans onratio was recorded at 10.1 percent over the variable interest rates have increased a variable interest ratequarter. The savings ratio hasn’t been at these Average standard variable mortgage rates means that changes tolevels since the mid 1980’s. are currently recorded at 7.39 percent and monetary policy have an Disposable household incomes are the official cash rate is set at 4.25 percent almost immediate impactalso growing fairly robustly, increasing by following successive 25 basis point interest on consumer behaviour.6.0 percent over the year however, most of rate cuts in November and December 2011.this increase is going to savings rather than The average 3 year fixed mortgage rate isspending. 6.31 percent which implies that most banks 5
    • Economic overview | RP Data Property Capital Markets Report 2012G4: Standard variable mortgage rates vs. 3 yr fixed mortgage rates vs. cash rate rates rather than to increase. The cash rate futures market is currently15% 15% pricing in around 60 basis points worth of cash rate decreases to November 2012.12% 12% The market is currently volatile and is just as likely to change substantially each day9% 9% depending on local and international news. See G4: Standard variable mortgage rates vs.6% 6% 3 year fixed mortgage rates vs. cash rate3% 3% Headline inflation just outside the RBA’s target range but underlying is0% 0% comfortably within the range Feb-92 Feb-96 Feb-00 Feb-04 Feb-08 Feb-12 The Consumer Price Index (CPI), measures Standard variable mortgage rates 3 yr fixed mortgage rates Cash rate Source: rpdata.com, RBA the level of price inflation within the economy. As at December 2011, the allG5: Consumer Price Index (CPI) groups indicator showed that annualDec-91 to Dec-11 headline inflation fell to 3.1 percent which is8% 8% only slightly outside of the RBA’s long-term target range of 2 to 3 percent.6% 6% Other inflation indicators, which are the preferred measures by the RBA,4% 4% are the weighted median (2.6 percent) and trimmed mean (2.6 percent). Both2% 2% measures are now in the middle of RBA target the RBA target range. With the RBA’s0% range 0% preferred measures well within their target range and headline inflation-2% -2% falling, inflationary pressures appear to Dec-91 Dec-95 Dec-99 Dec-03 Dec-07 Dec-11 be easing after many feared a breakout of All groups Average of trimmed mean and weighted median Source: rpdata.com, ABS, RBA inflation in the second half of 2011. Recent forecasts by the RBA included in their Statement on Monetary Policy suggestG6: Unemployment rate – seasonally adjustedJan-82 to Jan-12 they expect underlying inflation to remain12% 12% within their target range until at least the end of 2013.10% 10% See G5: Consumer Price Index (CPI)8% 8% Unemployment rate remains at low levels but workers are doing fewer6% 6% hours and employment growth is slowing4% 4% The national unemployment rate was recorded at 5.1 percent in January 2012, the2% 2% same as it was 12 months earlier. Over the Jan-82 Jan-88 Jan-94 Jan-00 Jan-06 Jan-12 year total employment has increased by 0.3 Unemployment Rate Moving annual average Source: rpdata.com, ABS percent which is well below the average rate of employment growth annually over the past ten years of 2.3 percent. The number of unemployed persons expect official rates will be cut further. The is up by 0.3 percent over the year. Over change in official interest rates in November the past year full-time jobs have increasedKey Statistics was the first adjustment in 12 months and (0.6 percent) while part-time employmentConsumers are the first cut in 31 months. has actually fallen (by 0.2 percent). Thecurrently only slightly With inflation falling and economic employment participation rate (themore optimistic than growth slowing across many economies proportion of working age populationthey are pessimistic. it seems as if the bias over the coming either employed or actively looking months will be for the RBA to cut interest for work) is currently recorded at 65.36
    • RP Data Property Capital Markets Report 2012 | Economic overviewpercent and is lower than the 65.9 percent G7: Growth in outstanding private sector housing creditrecorded in January 2011. Dec-81 to Dec-11 Across individual states and territories, 25% 25%unemployment is at its lowest level in theAustralian Capital Territory (3.7 percent) 20% 20%and highest in Tasmania (7.0 percent). 15% 15%See G6: Unemployment Rate – seasonallyadjusted 10% 10%Demand for housing credit is at 5% 5%record low levelsOver the 2011 calendar year, demand for 0% 0%housing credit by the private sector grew Dec-81 Dec-87 Dec-93 Dec-99 Dec-05 Dec-11by its lowest level on record, increasing byjust 5.4 percent over the year. To put this Source: rpdata.com, RBAin some sort of context, based on annualgrowth figures dating back to August 1977, G8: Quarterly change in population growth Jun-83 to Jun-11private sector housing credit has grown at 80,000 80,000an average of 13.9 percent over the period. The slowdown in private sectorhousing credit growth is reflective of the 60,000 60,000current cautious nature of consumerscharacterised by a high savings ratio, 40,000 40,000lower propensity to use credit cards, lowlevels of growth in retail trade and fallinghome values. 20,000 20,000 Over the 2011 calendar year, owneroccupier housing credit increased by 0 05.7 percent and investor housing credit Jun-83 Jun-87 Jun-91 Jun-95 Jun-99 Jun-03 Jun-07 Jun-11increased by 4.8 percent both of which Natural increase Net overseas migration Source: rpdata.com, ABSwere record lows. Growth in housingcredit has been trending lower since 2004at the end of our largest ever housing G9: Dwelling approvals houses vs. units (private sector)market boom. Dec-91 to Dec-11See G7: Growth in outstanding private sector 12,000 12,000housing credit 10,000 10,000Over the year, population growth is 8,000 8,000now starting to increase due to anincrease in migrant numbers 6,000 6,000In raw number terms, Australia’s population 4,000 4,000grew by 320,779 persons over the yearto June 2011. The result indicates that 2,000 2,000the rate of population growth is nowstarting to increase after easing since it 0 0peaked at 462,000 persons over the year Dec-91 Dec-95 Dec-99 Dec-03 Dec-07 Dec-11to March 2009. The previously high rate Private house approvals ( rolling 6 month average) Private unit approvals ( rolling 6 month average)of population growth was largely fuelled Source: rpdata.com, ABSby the significant increase in net overseasmigration to the country. Over the lastyear net migration has contributed an to increase. The Federal Government hadadditional 170,000 persons to the Australian previously cut skilled migration to around Key Statisticspopulation however, the recent slowdown 170,000 persons annually (which is still wellin population growth is largely the result of above long-term average levels of 120,000 Australia has not slippeda decline in net migrant numbers. persons annually) however, in the most into a recession (defined More recent monthly data on long-term recent Budget the Government increased as two consecutiveoverseas arrivals and departures shows the skilled migrant intake by a further quarters of negative GDPthat net overseas migration is continuing 16,000 persons. Despite the lower migration growth) since June 1991. 7
    • Economic overview | RP Data Property Capital Markets Report 2012G10: Dwelling approvals vs. population growth approved for construction indicating thatDec-83 to Dec-11 approvals fell by 15 percent over the 2011120,000 120,000 calendar year. See G9: Dwelling approvals houses vs. units100,000 100,000 (private sector) 80,000 80,000 With building approvals falling, the 60,000 60,000 imbalance between housing demand 40,000 40,000 and supply persists The demand-supply imbalance is 20,000 20,000 highlighted by many reports from a number of Government departments and 0 0 private institutions. With fewer dwellings Dec-83 Dec-87 Dec-91 Dec-95 Dec-99 Dec-03 Dec-07 Dec-11 being constructed, the supply shortage Total quarterly dwelling approvals Quarterly change in population growth Source: rpdata.com, ABS will continue to be exacerbated. It is likely the shortage of housing will worsen as theG11: Projected housing supply gap by state population grows further and required2011 projections (000’s) dwelling approval and commencement targets continue to go unfulfilled.NSW 83.9 Migration had been decreasing untilQld 70.5 recently but is now climbing once moreWA 33.3 and the current level of population growth remains well above long termVic 19.2 averages which indicates that in order toNT 11.2 cater for this demand the country will beTas 1.1 required to construct an above average volume of new homes.ACT -0.6 Graph 10 highlights that althoughSA -4 population growth has taken off in000’s -10 0 10 20 30 40 50 60 70 80 90 recent years the number of new dwelling Source: rpdata.com, National Housing Supply Council approvals has well and truly been unable to keep pace. See G10: Dwelling approvals vs. population numbers, the rate of natural increase is at growth heightened levels; over the year to JuneKey Statistics 2011 more than 150,000 more children were National Housing Supply CouncilOver the 2011 calendar born than persons passed away. projects a housing undersupply ofyear, demand for See G8: Quarterly population growth 214,600 homes in 2011housing credit by the Although an analysis of populationprivate sector grew New housing supply shows a short growth against approvals and/orby its lowest level on lived improvement commencements provides an indicationrecord, increasing by Although Australia’s population has of housing demand, other factors needjust 5.4 percent over been growing strongly and has recently to be taken into consideration such asthe year. To put this insome sort of context, been at record levels, dwelling approvals demolitions and household formation.based on annual have not been sufficient to cater to According to the National Housing Supplygrowth figures dating increasing demand through an increase Council’s latest Report (2011) the housingback to August 1977, in population. Dwelling approvals have supply gap in 2011 is projected to beprivate sector housing still not returned to those levels recorded 214,600 homes. The amount of homescredit has grown at an between 2002 and 2003. required in each state varies greatly.average of 13.9 percent The data shows that the number of South Australia (4,000) and the Australianover the period. approvals has fallen by 24.5 percent over Capital Territory (600) actually already the year and have fallen for three of the have a surplus of supply according to the last four months. Over the 12 months report. On the other hand, New South to December 2011 there were 149,799 Wales (83,900) and Queensland (70,500) dwelling approvals with 92,655 approvals have a severe stock deficiency with of private houses and 52,963 approvals of demand far outstripping supply. private units. Over the 2010 calendar year See G11: Projected housing supply gap by state a much greater 176,495 dwellings were 2011 projections8
    • RP Data Property Capital Markets Report 2012 | Economic overviewFirst home buyer volumes surge but G12: Owner occupier finance commitments to first home buyer vs.can it be sustained? non first home buyers Dec-93 to Dec-11First home buyer activity has been ramping 60,000 60,000up over recent months and in December 50,000 50,0002011 this buyer segment accounted for10,421 owner occupier commitments, or 20.9 40,000 40,000percent of all owner occupier commitments 30,000 30,000over the month. The volume of first homebuyer commitment in December 2011 was 20,000 20,000the highest it’s been since December 2009(11,825). In recent years first home buyer 10,000 10,000activity has eased on the back of the removal 0 0of Federal Government incentives and Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11higher interest rates however, some StateGovernments offered their own incentives. Non first home buyers (monthly finance commitments) First home buyers (monthly finance commitments) Source: rpdata.com, ABSIn New South Wales, the State Governmentprovided a stamp duty exemption for first G13: Percentage of fixed rate home loanstime buyers over the December quarter; Dec-93 to Dec-11much of the improvement is likely due to 30% 30%a last minute rush by first home buyers.Nevertheless, first home buyer volumes have 25% 25%risen by 25.8 percent over the year. 20% 20% Non-first home buyer financecommitments to owner occupiers have 15% 15%remained relatively unchanged over the year 10% 10%and this result reflects the results for thehousing market in which sales volumes are 5% 5%estimated to be 8.1 percent lower than they 0% 0%were a year ago.See G12: Owner occupier finance commitments Dec-93 Dec-96 Dec-99 Dec-02 Dec-05 Dec-08 Dec-11to first home buyer vs. non first home buyers Monthly % Rolling 12 month average Source: rpdata.com, ABSThe majority of home loans in Australiaare on a variable interest rate has proven to be a positive over recentHousing finance data reveals that most years. The high proportion of loans on ahome loans are on a variable interest rate. variable interest rate means that changes to Key StatisticsAt their absolute peak in March 2008, fixed monetary policy have an almost immediate 64.0 percent ofrate home loans accounted for just 25.5 impact on consumer behaviour. Australia’s populationpercent of all new loans over that month. See G13: Percentage of fixed rate home loans live within the eightIn December 2011, 11.7 percent of all new capital cities andloans were on a fixed rate and at the same Investor activity increasing but still 55.5 percent of the population live in thetime in 2010, at which time mortgage rates well below 2007 peaks four largest citieswere actually higher, 9.3 percent of home The total value of investor housing finance (Sydney, Melbourne,loans were on a fixed rate. The propensity commitments has risen over six of the last Brisbane and Perth).for Australian’s to favour variable rate eight months. Despite the recent increase,mortgages is not a new phenomenon. investor activity in December 2011 wasAustralian’s are typically fairly reluctant to only 1.8 percent higher than it was infix their mortgage rates and tend to only do December 2010.so at times when interest rates are at very With home values having fallen over thehigh levels. When fixed rate loan volumes last 12 months and rental rates increasing,peaked in March 2008, the standard the lure of relatively more affordablevariable mortgage rate was 9.35 percent. housing is probably increasing investorsThe recent rise in fixed rate mortgages is interest in the housing market. Investorslikely due to the fact that three year fixed accounted for about one third of the totalrate home loans are actually cheaper than value of all housing finance commitments invariable rates. December 2011. Despite the improvement The fact that the vast majority of home in investor activity, it remains 21.6 percentloans in Australia are on a variable rate below the peak. Investors that are active 9
    • Economic overview | RP Data Property Capital Markets Report 2012 G14: Total value of investment finance commitments finance commitments in December 2011 Dec-01 to Dec-11 has increased by 5.6 percent compared$9.5bn $9.5bn to volumes in December 2010. The data shows that the real strength has been$8.5bn $8.5bn within the established homes market$7.5bn $7.5bn with the volume increasing by 7.4 percent over the year compared to a 3.5 percent$6.5bn $6.5bn increase in commitments for the purchase$5.5bn $5.5bn of new dwellings and a 6.2 percent fall in commitments for the construction of new$4.5bn $4.5bn dwellings. Importantly, the data includes$3.5bn $3.5bn refinances and to get an idea of demand Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 for new loans you need to remove this Investment 3 month average Source: rpdata.com, ABS data which accounts for around one third of all owner occupier commitments. In G15: Owner occupier refinance vs. non-refinance commitments comparison to volumes in December 2010, Dec-93 to Dec-11 refinance commitments have increased 50,000 50,000 by 7.7 percent while non-refinance commitments have increased by 4.6 40,000 40,000 percent. Although the increase in non- refinance commitments has been below 30,000 30,000 that of refinances, the number of non- refinance commitments has risen over nine 20,000 20,000 of the last 10 months and they are at their highest level since February 2010. 10,000 10,000 See G15: Owner occupier refinance vs. non- refinance commitments 0 0 Dec-93 Dec-95 Dec-97 Dec-99 Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 Australia has a highly centralised Refinances Total excluding refinances Source: rpdata.com, ABS population with more than half of the population living in the four largest cities G16: Percentage of population in capital cities June 2010 Despite the fact that Australia is a vast percent of state percent of national country, much of the land is sparsely Capital city State population population populated or uninhabitable. The large Sydney NSW 63.3% 20.5% majority of Australian’s live either along Melbourne Vic 73.5% 18.3% the Eastern Seaboard or within the capital Brisbane Qld 45.3% 9.2% cities. As a result, 64.0 percent of Australia’s Adelaide SA 73.2% 5.4% population live within the eight capital cities Perth WA 74.0% 7.6% and 55.5 percent of the population live in Greater Hobart Tas 42.3% 1.0% the four largest cities (Sydney, Melbourne, Canberra ACT 99.9% 1.6% Brisbane and Perth). Sydney alone is Darwin NT 55.5% 0.6% home to one in every five Australian’s. The National 64.0% highly centralised nature of the Australian population creates a significant amount of Source: rpdata.com, ABS competition for resources as well as strong demand for homes in more desirable areas should be focusing on rental return rather of the country. This goes some way to than capital gains given the current housing explaining why property values in the capital Key Statistics market conditions. cities (in particular the major capital cities) According to the See G14: Total value of investment finance appear so high on an international basis. National Housing commitments The significant competition for homes and Supply Council’s latest an ongoing undersupply of housing has Report (2011) the Owner occupier finance contributed to significant increases in values housing supply gap in commitments continue to increase over recent years. 2011 is projected to be from a low base over recent months See G16: Percentage of population in capital 214,600 homes. The total number of owner occupier cities10
    • RP Data Property Capital Markets Report 2012 | FeatureThe economics Securitisation:of house prices bellwether for the property market In a report dating from 9 February 2012, the ratings agency, Moody’s Investors Service, said that the outlookA persistent fear amongst global investors and commentators is for Australian securitisationsthat Australia’s housing sector is overvalued and at risk of collapse. will be characterised by stable collateralThis view, which dates back to 2003, has been refreshed by the performance.ongoing European crisis. “Australia’s economic growth forecast of 3.8 perSome of Australia’s most prominent economists demand for dwellings,” said Chronican. “We cent, steady unemploymenthave, in recent times, put the debate on don’t see that in other areas – if the demand for in the low 5 per cent range,Australia’s home values into perspective. plasma TVs goes up, we make more.” official interest rates at 4.25 Since the middle of last year, Australia’s per cent, and the ability ofmajor banks have been keen to hose down Supply-demand equation policymakers to implementcriticism of the local housing market. This Michael Blythe, chief economist for the rate cuts, will support stableis especially important for them, given that Commonwealth Bank of Australia, points performance of these different asset classes inAustralian banks, unlike their peers elsewhere out that the demand-supply balance in the 2012,” said Richard Lorenzo,have the majority of their assets on balance Australian housing market is supporting house a Moody’s vice presidentsheet as prime mortgages. prices and is unlikely to change. He asserts there and senior credit officer. Philip Chronican, the ANZ Bank’s chief is limited risk of a US-style house price collapse, “The recovery rates forexecutive officer for Australia, and an noting that Australian demographic trends are asset backed securitisationseconomist by training, was keen to deal with consistent with an underlying new housing (ABS) will remain stablethe consistently raised topic of asset pricing demand of 180,000 to 185,000 new houses per due to these goodin the housing market. “If you’re using the annum. “This demand is lower than in recent macroeconomic conditions,historical ratio of rents to house prices, it puts us years but is still running well ahead of new while the stability of RMBScomfortably at the top of the table,” he said in a construction,” he wrote in a recent economics property prices will beseries of presentations to business leaders and note on the topic of house prices. supported by shortages in housing supply,” addedinvestors in July 2011. As Blythe also noted, this excess has been Treasa Boyle, a Moody’s There is a degree of contention as to in place for a number of years, so a pent-up or analyst.what constitutes the right measure for such a accumulated demand exists as well. She suggested thatcomparison of fair value, he asserted. “Low residential vacancy rates and above- CMBS property prices will “If you’re measuring by rental yields, what average growth in dwelling rents are the visible remain strong, as demand isyou’re effectively doing is assessing housing signs of this imbalance. Financial intermediaries absorbing any new supplywith other investment classes. Measuring house are willing to finance housing activity. So there is entering the market, andprices against incomes [means] you’re talking a mechanism to translate demographic demand keeping vacancy rates in theabout affordability, which is a different concept,” into real demand,” he said. low single digits.he said. In Moody’s view, RMBS The only meaningful conversation to have Affordability trends deals will become less conservative than thoseis why the price of residential land is so high in Trends in affordability are also supportive completed after the globalAustralia, suggested Chronican. of dwelling prices. “A combination of strong financial crisis, as issuers “The price of an inner city apartment in income growth and falling mortgage rates is attempt to make theirSydney or Melbourne is very similar to that boosting affordability,” Blythe noted. “Some deals more economical byas Hong Kong or Singapore,” he said, before rough estimates show that the CBA-Housing providing less subordination,pointing out that in those cities there were Institute of Australia housing affordability index while still keeping them withinnatural constraints to land use that were not at the end of 2011 was 13 per cent above year the Aaa range.apparent here. earlier levels. With a lead of a little over a year, There will be additional In Australian cities, there is clearly an the trend in affordability is a useful guide to the operating risks with RMBS,opportunity for medium density housing direction of house prices.” ABS and CMBS deals viato be improved. However, the price of land CBA’s analysis shows interest rate trends the new Personal Property Securities Act, whichin Australian cities is well in excess of land in are also consistent with a lift in residential requires transaction partiescomparably sized US cities, he observed. construction activity. “We expect new dwelling to adopt new procedures “So it’s a supply side problem, with the construction to lift a little from 148,000 units in to protect the numeroushousing market failing to keep up with the 2011 to 155,000 in 2012,” said Blythe. “Such an securities interests. 11
    • Feature | RP Data Property Capital Markets Report 2012 G1: Excess mortgage repayments ranging analysis piece on the Australian 100% 100% economy, the bank’s economics team made 90% 90% the further observation that, “despite many 80% 80% comments from observers to the contrary, 70% 70% Australia’s house prices have not actually grown 60% 60% exceptionally quickly over the past six years 50% 50% 40% 40% compared to a number of other international 30% 30% markets.” (see G2: International house prices) 20% 20% These observations notwithstanding, 10% 10% national house price measures are below recent 0% 0% peaks, noted Blythe, adding: “House prices do year 1 2 3 4 5 6 7 8 9 10 11 adjust in Australia. But nominal price falls are Borrowers ahead of schedule* Ratio to scheduled** typically small and shortlived. And the sort of * Percent of owner-occupier households with mortgages ** Percent to scheduled (principal plus interest) repayments; excludes repayments due to sales and refinancing nominal house price falls that would trouble the Sources: APRA; HILDA Release 10.0 financial system and the real economy are rare.” G2: International house prices Luci Ellis, head of the financial stability department at the Reserve bank of Australia, 250 250 followed a similar tangent when she addressed aHouse price index (March 2002=100) 230 230 mortgage industry conference, also in February 210 210 2012. She observed that the rate of home 190 190 mortgage defaults remains low in comparison to 170 170 other asset classes. 150 150 “The source of the threat to financial 130 130 110 110 stability is more often in commercial property 90 90 or property development than in home 70 70 mortgages,” she told the audience of industry 50 50 professionals. Further, home mortgage markets with Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 prudent lending standards do not generally Australia NZ Singapore US Canada Hong Kong UK China pose risks to financial stability. Sources: Australian Bureau of Statistics, ANZ, Bloomberg “So I think we need to keep the risks posed by the housing and home mortgage markets in outcome would still be a little below long-run perspective.” It is not unusual for housing prices averages and a long way below underlying to fall, especially if they had been booming Key Statistics demand.” previously, or if the economy has turned down. The typical valuation ANZ’s estimates point to an even larger But for that to translate into a big upswing in based on capital city imbalance, suggesting a shortage of dwellings mortgage defaults, the economy generally has house prices and in Australia since 2005-06 has built up to about to have weakened first. Australia-wide incomes 230,000. “This supply side is going to become “All the same, the recent US experience shows a price-to- even more critical; and control of supply rests shows that painful housing busts can happen. income ratio of 5.5. with governments,” said Chronican. We would certainly want to avoid one here. But a comparison of And governments have a vested interest Housing lending is a larger fraction of the Australia-wide dwelling in terms of revenue raising items such as land balance sheets of Australian banking institutions prices to Australia-wide rates and capital gains tax, so it is hard to get than for their US counterparts. So in the unlikely incomes reveals a “true” ratio of 4.25, not that them interested in the face of such a conflict of event a US-style bust did happen, it would be different from most other interest, asserted Chronican. harmful to financial stability in Australia,” she countries. (Source: CBA In further commentary as to why the said. Economics Update, 23 local housing market is still strong, without That was the pattern of the housing busts February 2012) being overblown, Chronican observed that of the 1930s and early 1990s in many countries. delinquency rates are low, with overall LVR “It is also what we see in Ireland, Spain and the figures are well below those of the US, for United Kingdom today. In those countries, as in instance. He pointed to the balance sheet of his the past, commercial real estate and property own bank, as at mid-year 2011. development have been the bigger problems. “Out of 800,000 home mortgages, we have The recent cycle in commercial property prices 105 mortgagee in possession [cases],” Chronican has been at least as large as that in housing said of his own bank’s portfolio. prices for essentially every country for which we In the 2 March 2012 edition of the Australian have good data, including the United States as Monthly Chartbook, ANZ’s regular and wide- well as countries like Spain and Ireland,” Ellis said.12
    • RP Data Property Capital Markets Report 2012 | FeatureAbility to pay G3: Urban population (% in two largest cities)Much of the subprime and other non-prime New Zealandlending that went on was not based on proper Australiaassessments of borrowers’ ability to service the Franceloan. Brokers and lenders did not verify incomes Belgium Canadaor other financial obligations. All they seemed Spainto care about was the value of the collateral. If Netherlandshousing prices kept rising, they assumed, the Italyborrower could either refinance or sell, and Poland Ukraineeverything would be fine. Germany So subprime markets and lax lending United Kingdomdecisions were key differences between the US Russiaand Australian markets. What happens during United States Japanthe life of the loan also matters a great deal, Source: RBA 0% 20% 40% 60%noted Ellis. Some recent research by economists This data was sourced from an RBA Research Discussion Paper using global figures from 2001 to allow comparison to be made on aat the Federal Reserve suggests that it was consistent basis.not high proportions of subprime loans thatpredicted which districts would have worse market that is rarely seen overseas.”outcomes for prices and loan defaults. Rather, By way of example, in their 2010-11 full yearit was the proportion of new lending that was results ANZ disclosed that 37 per cent of its Key Statisticsinterest-only loans. These loans were not being mortgage customers were “at least one month Australia is one of thepaid down. In some cases, the loan balance ahead” in repayments. most highly urbanisedwas increasing through cash-out refinancing or countries in the world.explicit negative amortisation options. The urban concentration effect About 54 per cent of Blythe also notes that there is what he the total capital cityAvoiding a US-style situation characterises as “a significant measurement population live in the twoAs the RBA has made clear many times before, issue” with the usual valuation calculations. largest cities (Sydney and Melbourne). Thisone important reason Australia did not go “Australia is one of the most highly urbanised share compares withdown the same road as the United States is that countries in the world. Most households reside about 16 per cent in thelending standards did not ease as much here. in the capital cities,” he says. US and 19 per cent inEven at its peak, subprime lending was only “This population concentration puts the UK. (Source: CBAever a tiny fraction of the total. The so-called upward pressure on capital city dwelling Economics Update, 23‘low-doc’ loans were also a small niche. “And we prices. So house price to income ratios should February 2012)never saw here the explosion of zero-deposit vary with urban density. And equilibriumloans – or worse, the 125 per cent loans that house price to income ratios should be higherwere available in the United Kingdom,” said Ellis. in Australia than elsewhere.” And incomes areIn Australia in recent years, around two-thirds also higher in the capitals, so valuations basedof new mortgage borrowers from banks had an on capital city prices and Australia-wideinitial loan-to-valuation ratio below 80 per cent. incomes will have a natural upward bias, heIf we look at the whole mortgage book, that points out.fraction is even higher.” High population densities have some other implications for Australia:Ahead of the game • The dominance of the larger cities meansAnother important mainstay against a US-style Australia should be more susceptible tooutcome is that many Australian households housing booms. In countries with lessactually pay their mortgages down, often quite concentrated urban populations, pricequickly (see G1: Excess mortgage repayments). booms in one city have less effect on Estimates vary, but it seems as many as half national average prices.of owner-occupiers with mortgages pay it down • Higher equilibrium house price to incomefaster than the contract requires. “The faster ratios should mean that household debt tothey pay it down, the less likely they are to end income ratios will be higher in equilibriumup in negative equity; they have a head start if as well.prices should fall,” wrote the CBA’s Blythe. The implication is that Australia’s housing “Some of them must be running their debt market is not the “bubble” that offshoredown quite fast: data from lenders suggest that observers perceive, but rather has a higherthe total amount of excess repayments made is equilibrium point due to unique domesticsimilar to the amount of required repayments. factors that are well understood and have beenThis is a welcome feature of the Australian in place for some time. 13
    • Co-published article | RP Data Property Capital Markets Report 2012 Opening the door The leading global mortgage insurer, Genworth, has a presence in 25 countries, including Australia, and is uniquely placed to support the local property market in a number of ways. Australia’s leading provider of lenders This arrangement is, in effect, leveraging mortgage insurance, Genworth, can trace the credit rating of the lenders mortgage Genworth has the its involvement in the sector back to the insurance provider. And in this area, numbers in Australia founding of its predecessor organisation Genworth has plenty of value to add, as the Genworth Australia is in 1965. What this gives Genworth is an company’s operations in Australia are rated a leading residential extensive and intimate knowledge of the AA- by Standard & Poor’s, the same as the mortgage expert and mortgage market and insights into how the country’s Big Four banks, and a notch or thought leader in the property performs across various cycles. more above all the smaller regional banks. Australian residential However, it was with the advent of mortgage market non-bank home loan providers in the late Mortgage backers 1990s, which relied on structured finance When it comes to RMBS, Australia has stuck, Genworth works in close transactions such as residential mortgage almost as a matter of principle, and almost partnership with over backed securities (RMBS) that saw lenders across the board, to prime mortgages in simple 100 lenders, including mortgage insurance really come into its own. structures and which maintained underwriting three of the four major The relatively cheap funding from RMBS standards. Contrast this to what happened Australian banks transactions allowed innovative mortgage in the US, led out by ‘innovation’ in product originators to challenge the cosy position of design and underwriting standards. Through its Australia’s retail banks and shake up the home “This was deliberately designed to lower Predecessors in Business has been an loans market. Lenders mortgage insurance was the bar and write more mortgage business,” important part of the central to making these securities attractive to notes Caputo. Australian residential capital markets fixed income investors. “Banks and other lenders started to mortgage market for Lenders mortgage insurance, by develop products that were, for instance, led almost 50 years decreasing the level of subordination needed by teaser rates on mortgages. The annual to sell an RMBS deal allows the higher tranches rates may have been kept at, say, 2 per cent Genworth has A$3.4 to be priced on a competitive basis, thereby for two years and jumped to 7 per cent in the billion of investments releasing economic value for the issuer. third year. But they were underwriting on 2 under management in “At its core, lenders mortgage insurance per cent – that is, could the borrower make Australia supporting the is a credit enhancement within the RMBS repayments at 2 per cent? ‘Yes’. Could the Australian residential structure,” explains Caputo. “It effectively person make the repayments at 7 per cent? property market. allows a lower level of subordination within ‘Let’s not ask that question’. the structure, allowing a higher proportion “There were low-docs and no-docs for of it to be more highly rated.” mortgages at 100 per cent or 105 per cent14
    • RP Data Property Capital Markets Report 2012 | Co-published articleof a home’s value; and they weren’t going AAA-rated tranches,” says Caputo.to just self-employed – they were going to “Lenders mortgage insurance effectivelyanybody. So, there were a lot of people who reduces the temptation to create more Home helpreally couldn’t afford a mortgage in the first tranches and to seek different types of With affordability concernsplace, coming into the market.” investors to lay off the risk.” keeping many out of the The Australian experience was very different property market, Genworth,for a number of reasons, explains Caputo. “First, Extra layer of certainty in its International Mortgagewe didn’t see competition squeezing margins, There are secondary benefits for investors in Trends Report, tested homebuyer attitudesso we didn’t have the pressure to come up with Australian mortgage-backed paper, according towards mortgage insurancerisky, if innovative, structures,” he says. to Caputo. “Fundamentally, when an investor (MI). The research showed In contrast to the practices adopted by buys an RMBS structure, it’s very hard for that when given a briefAustralian RMBS issuers, subordination was them to do their own due diligence, to be description of mortgagethe mechanism by which lenders chose to certain that what they are buying into is a insurance and its uses, overcredit enhance securitisation deals in the prime well-underwritten, well-performing half of current homebuyersUnited States. book of business,” he says. and potential first In the US this may have had some merit “The mortgage insurer, through the homebuyers (FHBs) in every– especially prior to the GFC – as the primary direct underwriting of a significant part of surveyed country agreedand secondary securitisation markets were the portfolio, is the only third party that is that mortgage insurancedeep and liquid. There, securitisation tranches assuring the investors that these are high would be helpful in enabling FHBs to buy a home withcould have half a dozen differently rated quality, prime mortgages.” a smaller down payment.tranches – colloquially known as “six-packs”. “Among the major third parties involved In addition, 60 per cent It got even more complex when investors in an RMBS structure, are the ratings agreed that MI would bein the lower ranked “B tranches” attempted agencies, and they aren’t doing a due helpful to enable buyers toto achieve portfolio diversification by picking diligence review of the actual underwriting purchase property earlierup tranches in different securitisation standards and policies of the lender as than they could otherwisetransactions across the country. part of their analysis of the different risk afford to. In fact, there was That option was not readily available parameters within a mortgage pool.” widespread support ofin Australia, so issuers turned to lenders “We look at the origination practices mortgage insurance for allmortgage insurance providers to provide the of those banks using information captured types of property buyersbackstop to their subordinate tranches. “We through lenders mortgage insurance including investors and repeat homebuyers.take that first-loss piece and the only risk policies,” says Alex Kyrikos, capital marketsthat’s above us are the AB tranches and the leader at Genworth.How helpful would you consider the following uses of lenders mortgage insurance?90% 90%80% 80%70% 70%60% 60%50% 50%40% 40%30% 30%20% 20%10% 10%0% 0% Mexico Canada US Australia India AVERAGE UK Ireland Italy To enable a first homebuyer to buy To enable buyers to purchase property earlier To enable buyers to purchase higher quality a home with a small down payment than they could otherwise afford to property than they could otherwise afford To enable a repeat homebuyer to buy To enable an investor to invest in a home with a small down payment property with a small down payment Source: RFi research conducted on behalf of Genworth in March 2011 15
    • Co-published article | RP Data Property Capital Markets Report 2012Profile of Australian Australia’s new covered bonds higher loan to value part of the pool,” he says.property owners Late in 2011, the regulations that had “So, while there’s credit enhancement for prevented Australian banks from issuing the banks and the mortgage pool, we are a covered bonds were replaced by a regime third set of credit enhancement, specifically to allow up to 8 per cent of assets to be used for the higher LVR loans.” to back their covered bond pools. About Furthermore from the Australian Prudential A$20 billion in several currencies was raised Regulation Authority’s perspective, the place in a matter of months as investors across the of lenders mortgage insurance in the covered globe snapped up the new class of securities. y bond regime is currently backed by its draft There’s no doubt lenders mortgage prudential standard, APS 121: “If the selection insurance will provide additional credit of assets for the cover pool leads to the overall enhancement on a covered bond portfolio. level and/or concentration of risks remaining However, with the amount of over- in the ADI becoming excessive relative to its Own home to live in only collateralisation that goes with any deal, capital, APRA may consider adjusting an ADI’s Own home and investment along with further access to all the balance prudential capital ratio to reflect the ADI’s property and/or a holiday home sheet of the bank, the need for credit overall risk profile…” [para 21]. Own investment property/ enhancement reduces. “This means an issuer should not ‘cherry holiday home only “In a period of global uncertainty, having pick’ their mortgage assets to boost their Own property that is currently under construction only lenders mortgage insurance standing covered bond pools,” says Kyrikos. behind the mortgage pools, and having “So, the proportion of the mortgageSource: RFi research conducted on behalf of the value of lenders mortgage insurance book which currently has lenders mortgageGenworth in March 2011 appropriately understood, may well open insurance – the mix of loans in the cover that market to a broader range of potential pool and on the bank’s balance sheet – need investors,” says Caputo. to be very much the same.According to the “Obviously Australia’s Big Four banks have “Clearly APRA won’t let the banks giveAustralian Bureau ofStatistics, more than 60 brand recognition in the global markets. If too many of the better assets as collateral, toper cent of all Australians we were to see one of the next-tier banks test the detriment of depositors or the unsecuredown a home – one of the market with a covered bond, definitely creditors of the bank.”the highest rates of lenders mortgage insurance would be anhome ownership in the enhancement from that perspective – where Early fraud warningworld. However, while they may not have as strong a branding in the Caputo also notes that Genworth hasowning a home to live in market as the majors. sophisticated risk management tools,is important, it is not the “This is despite the fact that their such as its credit scoring tool, which worksonly motivator behind underwriting processes and underlying assets especially well for the high LVR loans.owning a property. are equal in quality to those of the Big Four.” “We have developed our own fraud tool,Indeed, investing in “Again, it comes down to a which has been in use since 2007, that weproperty is also verypopular in Australia and, communication and education process use at the front end to identify potentialof the eight countries around what lenders mortgage insurance issues ‘at the underwriting stage,” he says.surveyed in the 2011 does do, and what it provides. What it “What we’re finding is that the level ofGenworth International should do is give greater assurance that fraud we are detecting has reduced in recentMortgage Trends Report, what is sitting there as underlying collateral years, and this is due to the tightening ofit had the highest rate is good quality,” says Caputo. practices and standards and the ongoingof investment property training provided by Genworth to lenders.ownership. In total, 30 High value adding “However, the problem with all fraud isper cent of Australian Alex Kyrikos, Genworth’s capital markets that someone will always find a loophole.property owners leader, notes that lenders mortgage insurance The issue here is to make sure that we cansurveyed owned at least adds particular value to pools of mortgages identify the risk early on in the process toone investment property,and 5 per cent of these that have a high loan-to-value ratio. For limit the exposure or recognise the potentialproperty owners owned instance, some mortgages originated by the loopholes and close them before someoneinvestment property Australia’s Big Four banks, and which are else sees them.exclusively. backing the spate of recent AAA-rated covered “It’s really a combination of looking at the bond deals, have over 80 per cent loan to value economic drivers, it could be an overhang of ratio (LVR). Those mortgages, while in the product in the market. It could be that we’ve minority, typically have mortgage insurance. seen early indications on delinquencies “That’s where the investors are more It also goes back to the disciplines we have interested, and that’s where they’ll be around monitoring the portfolio, looking at the focussing on. So, they can look to the broader various trends, whether by regions, postcodes pool for reassurance, but we’re there for the or LVRs.”16
    • RP Data Property Capital Markets Report 2012 | Co-published articleWhy LMIPaul Caputo, chief risk officer and senior vice president capitalmarkets for Genworth in Australia, explains why lendersmortgage insurance has been such a valuable proposition forAustralia’s residential property lending sector.Traditionally, lenders mortgage insurance what’s happening in Europe, the US orhas been perceived as supporting mortgages Canada. It’s a matter of looking at Australia,with more than 80 per cent loan-to-value and asking ‘how are we leveraging theratios (LVRs), to provide borrowers with a less benefits from here?’than 20 percent deposit with opportunity to Think back to the 2006-08 period, whereown their own home. That’s why the Federal low-doc loans were becoming an increasingGovernment introduced mortgage insurance proportion of the industry’s business,back in 1965. particularly among lenders mortgage That said, a number of lenders have used insurance providers. Many of thelenders mortgage insurance across their New business being written in the low lessons learnedbook, from a risk management perspective. doc sector – for some lenders – was creeping from the GFC and Fundamentally, lenders mortgage up beyond 5 per cent.insurance is used by financial institutions Many of the lessons learned from the from our overseasfor a number of reasons. For the high LVR GFC and from our overseas experiences experiences areplayers, there is no doubt that it is a risk are reflected in our current practices. What reflected in ourmitigant for them. It transfers potentially we did see was the need for more frequentwhat are some of the higher risk loans on and in-depth reviews and audits of lenders, current practices.their book obtaining third party support where our people were randomly looking at Paul Caputofrom a lenders mortgage insurance provider. quite sizable proportions of a lender’s new Investors and boards alike have the business to ensure that standards were beingadded comfort of what we call “a second set maintained. We’ve learned of the need to runof eyes”. those checks more frequently. We do regular audits of mortgage For example, for some of our largerportfolios and of underwriting processes. We lenders, we’re doing monthly reviews.provide benchmarking of their performance, A lot of the changes that we have madeboth at the front-end and at the back-end of to processes as a result of the GFC have beenthe underwriting process, identifying areas more about getting into stronger routineswhere lenders can perform better. and getting a deeper understanding of the It goes back to the wealth of information quality of the business earlier in the process.that we have on the market across alllenders, across cycles, which allows us to Setting minimum standardsidentify particular issues within a lender’s Underwriting standards can be ratcheted upportfolio an early stage, allowing them to through a couple of levers. Where there aretake action. certain products or policies in the market that we’re uncomfortable with, there willOverseas knowledge flow be situations where we say: ‘We’re just notGenworth is a global organisation and a going to insure that business’.global provider of mortgage insurance. In most cases, though, we workGiven our experience locally and globally, with the lender and can recommendand given the size of our book, we’re often changes. For some lenders, particularlyseeing trends earlier than the individual those with more sophisticatedlenders are seeing them. We are leveraging underwriting processes and routines, we’llour knowledge, information and view of collaboratively look at alternative changesmarket trends continuously, looking at to get the best outcome. 17
    • Property market overview | RP Data Property Capital Markets Report 2012 Property market overview A review of the performance of the Australian housing market and the fundamentals behind its current position. The Australian housing market is the is clearly of high importance. country’s largest and arguably, most Over the 2011 calendar year, home Key Statistics important asset class. The total value of values across Australia’s eight capital Over the 2011 homes across the country as at December cities, which account for 64 percent of the calendar year, 2011 was $4.54 trillion. In comparison, nation’s population, recorded a fall in value home values across Australian equities had a total market of 3.6 percent. This period marked just the Australia’s eight capital capitalisation at the same time of $1.17 second year over the past decade in which cities, which account trillion. The result highlights that the capital city home values have recorded an for 64 percent of the Australian housing market is worth more annual fall. nation’s population, than three and half times that of the equities The Australian housing market has recorded a fall in value market and the total value of superannuation experienced a sharp slowdown with the of 3.6 percent. funds at around $1.3 trillion. Providing a estimated volume of sales transactions in sophisticated and timely measure about the November recorded at 15 percent lower performance of such an important asset class than the five year average and 8.1 percent18
    • RP Data Property Capital Markets Report 2012 | Property market overview lending finance commitments, building approvals, retail trade and the volume of home sales transacting across Australia. While the resources sector is benefiting from strong terms of trade, many other sectors have continued to struggle. As a The total value result of these conditions together with of homes across the uncertain economic conditions being the country as at recorded across Europe and the United States, the Reserve Bank saw it fit to reduce December 2011 official interest rates by 25 basis points at was $4.54 trillion. their November board meeting and again In comparison, at their December meeting with the hope that bringing rates back to a more normal Australian setting would enhance economic stability equities had and consumer confidence. a total market Unlike many other countries, the decision to adjust the official cash rate by capitalisation the Central Bank has an immediate effect at the same on most mortgage holders. The reason time of $1.17 being that the vast majority of mortgages in Australia are on variable or ‘floating’ rates trillion. The result rather than the fixed rate loans preferred highlights that in many other countries. As a result, any the Australian changes to official interest rates are typically passed directly through to consumers and housing market immediately impact on household budgets is worth more and subsequently their spending patterns than three and and overall sentiment. Despite these conditions, the Australian half times that housing market remains susceptible to of the equities downturns as we are currently experiencing. market and the Demand for housing credit by the private sector is at historic lows, consumers are total value of showing fairly low levels of confidence and superannuation are saving at some of the highest levels funds at around seen over the past 24 years and demand for loans remains at very low levels (although $1.3 trillion. mortgage commitments have been improving since March 2011).lower than they were in November 2010. Over 2012 we anticipate that housingThe slowdown in transaction activity is market conditions will remain soft relativecommensurate with the slowing of property to the performance over the past 10 tovalue growth. According to the RP Data- 15 years. We anticipate that some regionsRismark Home Value Indices capital city will continue to record modest fallshome values have fallen by 3.6 percent while other regions are likely to see theirand in comparison over the 12 months to performance improve. We don’t subscribeDecember 2010 capital city home values had to the predictions that residential housingincreased by 5.1 percent. values are about to show significant Across most of Australia there remains declines; the market is still supported bylimited activity by consumers and this a shortage of housing compounded byis being reflected by a number of key limited new housing supply, above averageindicators which are all showing low levels of population growth, relativelyreadings: consumer sentiment, housing and low unemployment, wages growth above 19
    • Property market overview | RP Data Property Capital Markets Report 2012 G1: Rolling quarterly and annual change in home values, are having to discount their initial asking combined capital cities, all dwellings prices by 7.4 percent in order to achieve a 20% 20% sale compared to just 6.8 percent during the same period last year. Despite the fact 16% 16% that it is taking longer to sell a home and a 12% 12% larger amount of discounting is taking place, there has been some stabilization in these 8% 8% numbers over recent months. 4% 4% From an economic perspective, Australia is still well positioned. Consumer sentiment 0% 0% has improved over the second half of 2011 and -4% -4% now shows that optimists slightly outweigh pessimists. Housing finance commitments are Dec-01 Dec-03 Dec-05 Dec-07 Dec-09 Dec-11 trending upwards but remain at low levels as Quarterly change Annual change Source: rpdata.com - Rismark do building approvals. Retail trade is growing at a slower rate than average and economic growth remains below long-term levels. On the G2: Capital city performance other hand, wages are growing at a level slightly Annual change in dwelling values – year ending December ’11 above inflation, unemployment is sitting at 5.1 2% 2% percent, commodity prices remain high and our terms of trade remain at extremely high levels. 0% 0% For the remainder of the year we are forecasting negligible property value -2% -2% growth. The market continues to favour buyers and buyer demand remains relatively -4% -4% sedate. On the other hand, limited activity by first home buyers and restricted new -6% -6% housing supply is likely to result in further rental growth across select capital cities, in -8% -8% particular Sydney, Brisbane and Perth. Sydney Canberra Darwin Australian Perth Adelaide Hobart* Melbourne Brisbane Capitals *Hobart data is to August 2011 Source: rpdata.com - Rismark Rate of value decline moderates over the December quarter Residential home values across the combined inflation and strong lending and regulatory capital cities fell by 0.5 percent over the practices around home ownership. December 2011 quarter. In comparison, Key Statistics Although values across the residential home values fell by 0.8 percent over both Over the 2010 calendar property market have fallen by 3.6 percent the September and June quarters of 2011 year, home values had over the past year the performance across and by 1.5 percent in the March 2011 quarter. risen by 5.1 per cent the capital cities has varied significantly. The residential housing market across the over the year and this Across the capital city markets, value capital cities peaked in December 2010 and result highlights the declines have varied from a 0.3 percent since that time home values have fallen by 3.6 sharp slowdown in decline in values in Sydney to a 6.8 percent percent to December 2011. At the same time value growth over the fall in Hobart home values. Capital city in 2010, home values had risen by 5.1 percent last 12 months. home values have become more affordable over the year. This result highlights the sharp in real terms over the last 12 months. slowdown in value growth over the 2011 Different sectors of the market are showing calendar year. Over December 2011, home quite varied performances with the most values across the combined capital cities fell expensive suburbs actually recording the by 0.2 percent following an increase of 0.4 greatest declines in property values which percent in November 2011. Over the quarter, are well in excess of those recorded in the units (0.6 percent) have recorded a slightly more affordable suburbs. With housing superior performance to that of houses (0.7 market conditions soft it appears as if percent). This result has also been reflected vendors have not yet adjusted their price over the last year, with units (1.5 percent) expectations sufficiently to meet the market. outperforming houses (4.3 percent). The average selling time for a house has See G1: Rolling quarterly and annual change increased to 59 days from 49 days at the in home values, combined capital cities, all same time in 2010 and on average vendors dwellings20
    • RP Data Property Capital Markets Report 2012 | Property market overviewCapital city dwelling values have fallen G3: Most affordable 20% v middle 60% v most expensive 20% RP Data–Rismark Stratified hedonic Home Value Index, all dwellings, combined cap citiesby as little as 0.3 percent in Sydneyand by as much as 6.8 percent in 20% 20%Brisbane over 2011 15% 15%Home values have fallen across each ofthe eight Australian capital city markets 10% 10%however, there has been some substantial 5% 5%variation in the performance across eachcity. Values have fallen by as much as 6.8 0% 0%percent in Brisbane and are down by as littleas 0.3 percent in Sydney. In contrast, as at -5% -5%the end of the 2010 calendar year, home -10% -10%values had risen in each capital city except Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11for Brisbane and Perth, highlighting the swift Most affordable 20% Middle 60% Most expensive 20% Source: rpdata.com - Rismarkchange in market conditions in 2011. Sydney(0.3 percent) and Canberra (2.2 percent)have fared comparatively well with valuesdown by the lowest amount over the past 12 G4: Monthly sales volumes – nationally Nov-01 to Nov-11months. Over the final quarter of 2011, homevalues increased in Hobart (1.0 percent) and 60,000 60,000Sydney (0.7 percent) but fell in each other 50,000 50,000capital city with the greatest fall recorded inPerth (2.1 percent). 40,000 40,000See G2: Capital City Performance: Annual 30,000 30,000change in dwelling values 20,000 20,000The weak performance of thepremium sector continues to weigh 10,000 10,000down the overall market 0 0Over the last quarter and the last year the Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09 Nov-10 Nov-11premium priced homes have been the National 5 yr averageweakest performing sector of the market. The most recent five months of sales transactions have been modelled based on the historic level of revision Source: rpdata.comOver the 12 months to December 2011the most affordable suburbs have shownthe most resilience with values falling the last seven months with house and unitby 2.2 percent. In comparison, the most transactions currently 15 percent belowexpensive end of the residential market the five year average. Sales volumes have Key Statisticshas recorded value falls of 7.1 percent and been trending lower since September Home values havethe broad ‘middle market’ has recorded 2009 after interest rates started to rise. fallen across each of thea value fall of 3.0 percent. A similar trend With interest rates cut in November and eight Australian capitalwas recorded over the December quarter. December of 2011 and potential further city markets. However,The most expensive markets are likely rate cuts on the cards it is likely the there has been someto continue to be weighed down by number of home sales will show some substantial variation in the performance acrosspoor consumer and business sentiment, improvement. This is in line with the trend each city. Values haveglobal economic uncertainty and poorly of improving finance commitment volumes fallen by as much as 6.8performing equities markets. These witnessed over the past 10 months. We per cent in Brisbane andfactors are likely to dampen demand believe that sales volumes are currently are down by as little asfor all housing but premium housing in at low levels due to a number of factors 0.3 per cent in Sydney.particular. namely: housing affordability constraintsSee G3: Most affordable 20% v Middle 60% v and lower levels of consumer confidenceMost expensive 20% and the general cautious attitude of consumers. Across the country, estimatedTransaction volumes have remained sales volumes have remained belowlevel since early 2011 and were around average since March 2010. Estimated sales15 percent below average in November volumes for November 2011 are aroundlast year 8 percent lower than those recorded 12RP Data’s estimate of sales volumes show months ago.that transaction activity has stabilised over See G4: Sales volumes – nationally 21
    • Property market overview | RP Data Property Capital Markets Report 2012 G5: Combined capital city auction clearance rates (should that occur) would likely result in an Feb-09 to Feb-12 improvement in clearance rates. 80% 80% See G5: Combined capital city auction clearance rates 70% 70% Effective housing supply is starting 60% 60% to rise again after the seasonal fall in December and January 50% 50% The effective supply of housing is simply the difference between the number of 40% 40% unique properties listed for sale and the volume of sales expressed in months i.e. at 30% 30% the current rate of sale, how long would it Feb-09 Aug-09 Feb-10 Aug-10 Feb-11 Aug-11 Feb-12 take to absorb all the listings in the market. Rolling 4 week clearance rate Weekly clearance rate Source: rpdata.com Across Australia, the effective supply of housing was increasing sharply in late 2011 as listings mounted and transaction volumes G6: Australian capital city effective housing supply* fell. Across the combined capital cities Months of supply, Feb-07 to Feb-12 the effective housing supply is currently 7 7 recorded at 5.7 months, at the same time in 2011 it sat at 5.1 months. Although the 6 6 supply is at elevated levels it remains below its peak of 6.5 months which it reached in 5 5 December 2011. Across the capital cities the effective supply varies greatly; those cities 4 4 which have recorded the smallest value falls over the last year continue to have the 3 3 lowest effective supply: Sydney (3.9 months), 2 2 Canberra (4.0 months) and Darwin (4.6 Feb 07 Aug 07 Feb 08 Aug 08 Feb 09 Aug 09 Feb 10 Aug 10 Feb 11 Aug 11 Feb 12 months). On the other hand, cities that have recorded larger value falls typically have Months of supply *does not include Hobart data Source: rpdata.com higher levels of effective supply such as; Brisbane (9.7 months), Adelaide (7.0 months) and Melbourne (6.8 months). Clearance rates are fairly steady See G6: Australian capital city effective between 40 and 50 percent, well down housing supply Key Statistics from the highs recorded back in 2009 Over the last 12 Across the combined capital cities, the Rental rates and yields continue months, median weekly success rate across properties taken to to improve rents have recorded auction is quite low with clearance rates Over the past five years median weekly growth of 7.1 per cent having remained below 50 percent since rents have increased at an average annual for houses and 4.2 per the week ending 3 July 2011. Auction growth rate of 5.8 percent for houses cent for units. clearance rates over 2011 and early 2012 and 6.2 percent for units. Over the last have been well below the levels recorded 12 months, median weekly rents have over the preceding two years. The low recorded growth of 7.1 percent for houses rate of clearance implies an ongoing and 4.2 percent for units. Rental rates across disconnect between buyers and sellers. the combined capital cities are currently Buyers currently have a higher than normal recorded at $453/week for houses and amount of leverage when it comes to $432/week for units. Rental yields are also negotiation which is reflected in the low starting to improve as rental growth returns clearance rate. Despite the weak clearance and home values decline. Gross rental yields rate there was still a large number of are recorded at 4.4 percent for houses and properties being taken to auction. This 5.1 percent for units, the highest average is likely to be reflective of the long yields since May 2009 for houses and July average length of sale and high levels of 2009 for units. With the prospect for capital discounting being recorded across private gains remaining low over the short term, treaty sales. Lower mortgage rates and a consumers preferring to save rather than lower level of properties advertised for sale spend and new housing supply limited,22
    • RP Data Property Capital Markets Report 2012 | Property market overviewwe anticipate rental rates will continue G7: National rental rates and gross yieldsto increase in 2012 particularly across Dec 05 – Dec 11Sydney, Perth and Brisbane where rental $500 5.4%conditions appear to be the tightest.In most capital cities, rental vacancy $450 5.0%rates are currently at low levels, further $400 4.6%amplifying the pressure on rental rates.See G7: National rental rates and gross yields $350 4.2%Vendor discounting has peaked $300 3.8%Vendor discounting measures theaverage amount home sellers are $250 3.4%discounting their properties from the Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11initial list price in order to sell theirproperty. Vendor discounting has eased Rental rate – dwellings (LHS) Gross rental yield – houses (RHS) Gross rental yield – units (RHS) Source: rpdata.com - Rismarkover recent months however, the rate G8: Average vendor discount – combined capital cities houses (red) andof discounting remains higher than units (grey) Dec 05 – Dec 11average. Across the capitals, vendor 0% 0%discounting is recorded at 7.4 percent forhouses and 6.2 percent for units. At the -2% -2%same time last year, vendor discounting -4% -4%was recorded at 6.8 percent for houses -6% -6%and 6.2 percent for units. Over the pastfive years the average vendor discount -8% -8%has been recorded at 6.6 percent for -10% -10%houses and 5.7 percent for units which Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11indicates that discounting is still above 0% 0%average levels. The level of vendordiscounting peaked in July 2011 at 7.9 -2% -2%percent for houses and 6.9 percent for -4% -4%units and is slowly starting to improve.See G8: Average vendor discount – -6% -6%combined capital cities -8% -8%Time on market is easing after Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11peaking in February 2011 houses units Source: rpdata.com - RismarkThe average time on market is simplythe time it takes from when a property G9: Average time on market - combined capital cities houses (red) andis initially advertised for sale to when units (grey) Dec 05 – Dec 11it ultimately sells. On a national 80 80basis houses are currently taking anaverage of 59 days to sell and 47 days 60 60is the average selling time for a unit. In 40 40December 2011 it took an average of59 days to sell a house and 47 days for 20 20units. On average, houses have taken56 days and units 48 days to sell over 0 0the last five years highlighting that both Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11measures are currently at levels around 80 80average. The average time on market 60 60has eased over recent months as thehousing market performance has shown 40 40some slight improvement. The figuressuggest that buyers and sellers price 20 20expectations are beginning to get closerto one another. 0 0 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11See G9: Average time on market (days) –combined capital cities. houses units Source: rpdata.com - Rismark 23
    • State by state data | RP Data Property Capital Markets Report 2012 Sydney Sydney values remain steady over the year Over the 2011 calendar year, Sydney has experienced a slight fall in Key Statistics capital values with home values down 0.3 percent. House values fell In comparison to the Across those homes by 0.9 percent while unit values increased by 0.9 percent. Overall, last five years and the sold over the last year, Sydney was the best performing capital city housing market across last decade, property vendors had owned the country. Sydney property values recorded a peak in early 2004 value growth has been houses for an average following exceptional growth from 2001. From 2004 until 2009 the city below typical levels of 9.7 years and unit saw virtually no growth in property values and many areas actually over the last year in vendors had owned Sydney. their properties for 7.7 recorded declines. In fact, when adjusted for inflation, Sydney property years. values still remain below their December 2003 peak. See G1 The average level of vendor discounting is Sydney’s population Sydney transaction volumes are tracking above the five currently recorded at sits at almost 4.6 million year average 7.0 percent for houses persons and has grown Over the past five years the number of home sales has sat at an and 4.9 percent for by 1.7 percent over the average of 7,470/month. Sales volumes across the city remained at units and at the same last year. quite low levels between 2004 and 2009 as home values showed no time in 2010 discount increase. For most of the period since 2009, sales activity has been levels were recorded at Based on the estimated at an above average level. After sales volumes had been trending 6.6 percent for houses population and lower since mid 2009, there has been a recent improvement with the and 5.8 percent for household projections, number of sales currently recorded at 16 percent above the five year units. Sydney dwellings average level. Despite values falling, 50 basis points worth of interest currently house an rate cuts in November and December 2011 may encourage a greater Sydney properties were average of 2.7 persons. volume of sales activity for the start of 2012. This may be offset taking longer to sell in somewhat by the stamp duty concessions offered to first home December 2011 than buyers across the state which expired at the end of 2011 See G2 they were at the same time the previous year. Rents and yields on the improve across Sydney The median rent for a Sydney house is recorded at $563/week and the median unit rent is at $512/week. Over the five years to December 49 days 2011, Sydney rental rates have increased at an average annual rate of 5.5 percent for houses and 6.3 percent for units. Rental rates recorded very little growth from the end of 2008 until late 2010 however, over the past 12 months there has been an increase in rental growth. Rental Houses were taking 49 days to sell rates have increased by 6.8 percent for houses and 5.1 percent for units. Gross rental yields had been easing over much of the last two years compared to 45 days the previous however, there has been some improvement over the past year as year and units took 37 days to value growth slows. Rental yields are currently recorded at 4.5 percent sell in December 2011 and a year for houses and 5.2 percent for units. At the same time in 2010, yields were recorded at 4.2 percent for houses and 5.0 percent for units. Tight beforehand they took an average vacancy rates and a lack of new housing supply are likely to result in an of 34 days to sell. increase in rents and yields over the short-term. See G324
    • RP Data Property Capital Markets Report 2012 | State by state dataSydney key statistics, December 2011 G2: Sydney sales volumes vs. five year average Houses Units 14,000 14,000Median price $535,000 $445,000 12,000 12,000 Monthly sales volumes12 month value growth 0.9% 0.9% 10,000 10,0005 yr average annual growth 3.7% 5.0% 8,000 8,00010 yr average annual growth 4.3% 3.7% 6,000 6,000Average time on market 49 37Average vendor discount 7.0% 4.9% 4,000 4,000Median rental rate $563 $512 2,000 2,000Gross rental yield 4.5% 5.2% 0 0Average hold period 9.7 7.7 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 4,575,532Population change 2009 to 2010 1.7%Household projections 2010 1,671,802 Sydney 5 yr average Source: rpdata.comG1: Sydney annual capital gains vs. combined capitals G3: Sydney rental rate vs. gross yields25% 25% 550 6.020% 20% 500 5.5 Gross rental yield (%)15% 15% Rental rate ($) 450 5.010% 10%5% 5% 400 4.50% 0% 350 4.0-5% -5% 300 3.5-10% -10% Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Syndey Source: rpdata.com - Rismark Sydney rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark New South Wales House values in Sydney outperform those in Annual change in house values regional areas of New South Wales (Sydney vs. NSW rest of state) In 2011, house values in Sydney fell by 0.9 percent over 40% 40% the year while outside of Sydney, market conditions 35% 35% were weaker with values falling by 2.0 percent. Since the 30% 30% Sydney housing market rallied out of the Global Financial 25% 25% Crisis, housing markets outside of Sydney have slightly 20% 20% underperformed Sydney however, it is noteworthy that 15% 15% during the property boom of 2001 to 2004 regional areas of New South Wales recorded house value growth well in 10% 10% excess of that recorded in Sydney. 5% 5% While Sydney house values have increased at an average 0% 0% annual rate of 3.7 percent over the last five years, the value -5% -5% of homes located in regional New South Wales values have -10% -10% increased by a lower 2.6 percent annually. Over the decade, Dec –01 Dec –03 Dec –05 Dec –07 Dec –09 Dec –11 average annual house value growth in regional New South Wales (8.0 percent) has eclipsed that of Sydney (4.3 percent pa). Sydney Rest of state Source: rpdata.com-Rismark 25
    • State by state data | RP Data Property Capital Markets Report 2012 Melbourne Melbourne values now correcting after strong value growth since 2007 Key Statistics Over the 2011 calendar year, Melbourne house values have fallen by Capital gains over the At the same time in 6.8 percent and unit values have fallen by a lower 3.6 percent. Over past 12 months have 2010 the average time the past decade Melbourne’s housing market has recorded the been significantly lower on market was recorded second lowest long-term annual rate of growth amongst the capital than both the five and at 36 days for houses cities. That is despite the significant over performance recorded in ten year average level and 43 days for units. 2007 and 2009/10. Home values in Melbourne have been through of value growth. several distinct cycles over the decade having recorded strong Across properties sold growth between 2001 and 2004, a consolidation period between Average discount over the 12 months 2004 and 2006, further strong growth in 2007, value falls in 2008 levels currently sit at 7.5 to December 2011, percent for houses and vendors had owned and a rebound during 2009 and 2010. See G1 7.9 percent for units, houses for an average a year ago discount of 10.2 years and unit Sales volumes trending lower as the Melbourne market cools levels were recorded at vendors had owned their Over the last five years, sales volumes have been recorded at an a lower 5.6 percent for properties for 8.3 years. average of 7,262/month. The number of home sales fell significantly houses and 6.3 percent in 2008 as the economy slowed but rebounded strongly in 2009 for units. On average, Melbourne in response to Government stimulus. In recent months transaction dwellings are home volumes have fallen and are currently recorded at an estimated 28 Comparatively, to 2.7 persons percent below the five year average. The fall in transaction volumes Melbourne properties based on the ratio of across the city is inline with the general slowdown of market are selling at a much estimated population conditions. Given the strong growth in values over recent years slower rate than last to the projection of we don’t expect that the recent interest rate cuts will encourage year with houses selling households. substantially higher levels of buyer activity. See G2 on average in 59 days and units selling after an average of 68 days. Gross yields in Melbourne are the weakest amongst all capital cities The median rent for a Melbourne house is recorded at $413/week and for units sits at $362/week. Over the five years to December 2011, rents have increased at an average annual rate of 7.2 percent for houses and 6.5 percent for units. Since the end of 2008 there has been fairly limited growth in rental rates at a time when there has generally been particularly strong growth in property values. Over the last 12 2.1% months, rental rates have increased by 10.8 percent for houses and by 1.5 percent for units. Although there has been some growth in houses rents, because Melbourne’s housing supply has been so responsive we don’t expect rental pressures to be as strong in Melbourne as they are Melbourne’s population sits at just in most other capital city markets. Gross rental yields have improved from 3.4 percent last year to 4.0 percent this year for houses and from over 4 million persons and has grown 4.1 percent to 4.3 percent for units. Despite the improvement, yields in at 2.1 percent over the last year. Melbourne remain the weakest amongst the capital cities. See G326
    • RP Data Property Capital Markets Report 2012 | State by state dataMelbourne key statistics, December 2011 G2: Melbourne sales volumes vs. five year average Houses Units 12,000 12,000Median price $485,250 $425,000 10,000 10,000 Monthly sales volumes12 month value growth 6.8% 3.6% 8,000 8,0005 yr average annual growth 7.4% 7.9%10 yr average annual growth 7.0% 7.5% 6,000 6,000Average time on market 59 68 4,000 4,000Average vendor discount 7.5% 7.9%Median rental rate $413 $362 2,000 2,000Gross rental yield 4.0% 4.3% 0 0Average hold period 10.2 8.3 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 4,077,036Population change 2009 to 2010 2.1%Household projections 2010 1,504,024 Melbourne 5 yr average Source: rpdata.comG1: Melbourne annual capital gains vs. combined capitals G3: Melbourne rental rate vs. gross yields30% 30% 440 5.425% 25% 400 5.020% 20% Gross rental yield (%) 360 4.6 Rental rate ($)15% 15%10% 10% 320 4.25% 5% 280 3.80% 0% 240 3.4-5% -5%-10% -10% 200 3.0 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Melbourne Source: rpdata.com - Rismark Melbourne rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark Victoria Regional Victoria showing greater resilience to falls Annual change in house values in house values compared with Melbourne (Melbourne vs. VIC rest of state) Over the 2011 calendar year, house values in Melbourne 35% 35% fell by 6.8 percent while housing markets across regional 30% 30% Victoria performed better, despite recording a value fall 25% 25% of 2.0 percent. Melbourne has had a very strong run of value growth in recent years with house values increasing 20% 20% by a total of 43.1 percent since the start of 2007 compared 15% 15% to value growth of 24.1 across regional Victoria. The 10% 10% stronger performance of regional markets over the past 5% 5% year is reflective of their cheaper price points and the swift slowdown of the Melbourne market. 0% 0% Over the five years to December 2011, house values in -5% -5% Melbourne have increased at an average annual rate of 7.4 percent -10% -10% compared to growth in regional house values of 4.4 percent Dec –01 Dec –03 Dec –05 Dec –07 Dec –09 Dec –11 annually. Over the decade, regional house values have recorded superior levels of capital growth to that of capital city houses with Melbourne Rest of state Source: rpdata.com-Rismark average annual growth of 9.1 percent compared to 7.0 percent. 27
    • State by state data | RP Data Property Capital Markets Report 2012 Brisbane Brisbane’s housing market remains the weakest performer after a long run of above average capital gains Key Statistics Growth in home values in Brisbane over the last 12 months has been Brisbane’s capital gains Of those Brisbane significantly lower than the five year and ten year average levels with have been well below dwellings sold over house values falling by 6.8 percent and units by 6.5 percent. Since the combined capital the last year vendors the national property market began recording strong growth post city average since the had on average owned GFC, Brisbane has well and truly underperformed and has recorded start of 2009. houses for 8.9 years limited value growth after outperforming for most of the decade. and units for 7.0 years. When adjusted for inflation, Brisbane property values peaked in the Compared to December 2007 quarter and have fallen by around 15 percent to Brisbane’s long-term Brisbane’s population December 2011. See G1 and medium term was estimated to sit gains, the last 12 at just above 2 million months has recorded persons at June 2010 Brisbane sales volumes are currently at their lowest an extremely weak and has grown at 2.3 levels since 1996 performance. percent over the 12 Over the last five years, sales volumes have sat at an average of 4,134/ months. month. The number of home sales in Brisbane were harder hit than Average discount levels most other capital cities during 2008 as the GFC unravelled. In 2009 across the city currently On average, Brisbane there was a slight rebound in sales activity however, volumes have sit at 9.7 percent for dwellings are home to been trending lower since mid to late 2009 and are currently at houses and 8.8 percent 2.8 persons based on around their lowest levels in 16 years. Current estimated sales volumes for units and at the the ratio of estimated are 40 percent below their five year average levels. The improved same time in 2010 population to the affordability scenario accompanied by a likely lower interest rate discount levels were projected number of environment and strong population growth is expected to bring recorded at 8.9 percent households. improved sales activity in 2012. See G2 for houses and 7.4 percent for units. Rents and yields improving as home values fall The median rent for a Brisbane house is recorded at $401/week and for In comparison, 12 units it sits at $360/week. Over the five years to December 2011, house months prior houses took 66 days and units rents in Brisbane have increased at an average annual rate of 3.9 percent 55 days to sell. while unit rents have increased by 5.2 percent annually. Since the beginning of 2009 until the end of 2010, rental rates across Brisbane had been falling despite the fact that construction activity has been low and value growth sluggish, rents remain slightly below their peaks. Over the 72 days 12 months to December 2011, rental rates have increased by 3.2 percent for houses and unit rents are up 4.6 percent. With the rental market tight and limited new construction we anticipate upwards pressure on rental rates to persist in 2012. Gross rental yields were generally falling since Houses in Brisbane are currently the beginning of 2009 however, there has been some substantial recent improvement with yields recorded at 4.8 percent for houses and 5.6 taking an average of 70 days to sell percent for units. At the same time last year they were recorded at 4.3 and units 72 days. percent and 5.0 percent respectively. See G328
    • RP Data Property Capital Markets Report 2012 | State by state dataBrisbane key statistics, December 2011 G2: Brisbane sales volumes vs. five year average Houses Units 8,000 8,000Median price $435,000 $375,000 7,000 7,000 Monthly sales volumes12 month value growth 6.8% 6.5% 6,000 6,0005 yr average annual growth 3.5% 4.2% 5,000 5,00010 yr average annual growth 8.0% 8.5% 4,000 4,000Average time on market 70 72 3,000 3,000Average vendor discount 9.7% 8.8% 2,000 2,000Median rental rate $401 $360 1,000 1,000Gross rental yield 4.8% 5.6% 0 0Average hold period 8.9 7.0 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 2,043,185Population change 2009 to 2010 2.3%Household projections 2010 738,867 Brisbane 5 yr average Source: rpdata.comG1: Brisbane annual capital gains vs. combined capitals G3: Brisbane rental rate vs. gross yields40% 40% 450 6.035% 35%30% 30% 400 5.5 Gross rental yield (%)25% 25% Rental rate ($)20% 20% 350 5.015% 15%10% 10% 300 4.55% 5%0% 0% 250 4.0-5% -5% 200 3.5-10% -10% Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Brisbane Source: rpdata.com - Rismark Brisbane rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark Queensland House values down in regional Queensland but not Annual change in house values by as much as they are in Brisbane (Brisbane vs. QLD rest of state) Brisbane house values fell by 6.8 percent in 2011 while regional 40% 40% Queensland fared slightly better with values down by 4.4 35% 35% percent. The weak performance of coastal and lifestyle markets 30% 30% in regional Queensland were off-set somewhat by the much 25% 25% stronger performance of regions linked to the mining and 20% 20% resources sector. As a result the regional market overall has outperformed Brisbane although regions such as the Gold 15% 15% and Sunshine Coasts, Cairns and the Whitsunday’s have been 10% 10% particularly weak. House values in Brisbane have increased 5% 5% at an average annual rate of 3.5 percent over the last five 0% 0% years compared to the weaker performing regional market -5% -5% where values have risen by an average of 1.8 percent each -10% -10% year. Despite the weaker recent performance, house values Dec –01 Dec –03 Dec –05 Dec –07 Dec –09 Dec –11 in regional markets have increased at an average annual rate of 9.0 percent over the past decade compared to 8.0 percent Brisbane Rest of state Source: rpdata.com-Rismark annually for Brisbane houses. 29
    • State by state data | RP Data Property Capital Markets Report 2012 Adelaide The Adelaide market is now underperforming the combined capitals benchmark Key Statistics House values in Adelaide have recorded average annual growth of Over the last decade, comparison, 12 months 7.8 percent over the last decade and units values have increased Adelaide houses and ago houses took 52 at a greater 9.4 percent annually indicating that both houses unit have recorded days and units 41 days and units have enjoyed an above average performance over the comparatively strong to sell. period. Over the last 12 months house value growth has tracked levels of value growth. below the national average at 5.3 percent while units have slightly Of the houses which outperformed with a fall of 1.1 percent. In inflation adjusted terms, Over the last year, the have sold within Adelaide home values peaked in June 2010 and are currently 9.4 change in values for Adelaide over the year percent below their peak. The last 10 years has seen periods of both houses and units has to December 2011, the been well below the vendors had owned strong and subdued growth in home values which has generally average annual growth them for an average acted in concert with trends seen nationwide. See G1 rate over both five and of 7.5 years and units ten years. had been owned for an Sales volumes falling as market conditions continues to average of 7.0 years. slow Average discount levels Over the last five years, sales volumes have been recorded at are recorded at 7.3 Based on the estimated an average of 2,030/month. The current level of dwelling sales percent for houses and population and the activity is estimated to be 23 percent below the five year average 6.9 percent for units. projected number of levels. Sales activity across the city is currently at lower levels households across than those which were recorded during the GFC. Sales activity Over December Adelaide, the average has been below average since early 2010 however, lower interest 2010 discount levels Adelaide household is rates and recent falls in home values may result in an increase in were recorded at 5.6 home to 2.5 persons. transaction activity over the coming months. See G2 percent for houses and 4.9 percent for units. Rental rates and yields Adelaide houses are The median rent for an Adelaide house is recorded at $352/week taking an average of and for units the median rent sits at $325/week. Over the five years 65 days to sell and units take 62 days in to December 2011, house rents have increased at an average annual rate of 2.8 percent and unit rents have increased at a rate of 4.21.2 million percent. Adelaide rental rates have recorded the slowest rate of average annual growth over the past five years of any mainland capital city. Until recently, rental growth has been virtually flat since the end of 2008. Over the year to December 2011, house rents have increased by 0.3 percent and unit rents have increased by Estimates of Adelaide’s population 1.3 percent. Upwards pressure on rents is not intensifying at the as at the end of June 2010 show same rate in Adelaide as it is in other capitals. Gross rental yields a population just over 1.2 million, have been fairly flat with some slight improvement in recent times. Rental yields are currently recorded at 4.3 percent for houses and increasing by 1.2 percent between 4.7 percent for units. At the same time last year, gross rental yields 2009 and 2010. were recorded at 4.1 percent and 4.6 percent. See G330
    • RP Data Property Capital Markets Report 2012 | State by state dataAdelaide key statistics, December 2011 G2: Adelaide sales volumes vs. five year average Houses Units 3,000 3,000Median price $385,000 $320,000 2,500 2,500 Monthly sales volumes12 month value growth 5.3% 1.1% 2,000 2,0005 yr average annual growth 5.7% 7.8%10 yr average annual growth 7.8% 9.4% 1,500 1,500Average time on market 65 62 1,000 1,000Average vendor discount 7.3% 6.9%Median rental rate $352 $325 500 500Gross rental yield 4.3% 4.7% 0 0Average hold period 7.5 7.0 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 1,203,186Population change 2009 to 2010 1.2%Household projections 2010 484,620 Adelaide 5 yr average Source: rpdata.comG1: Adelaide annual capital gains vs. combined capitals G3: Adelaide rental rate vs. gross yields30% 30% 360 6.225% 25% 340 5.820% 20% Gross rental yield (%) 320 5.4 Rental rate ($)15% 15%10% 10% 300 5.05% 5% 280 4.60% 0% 260 4.2-5% -5%-10% -10% 240 3.8 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Adelaide Source: rpdata.com - Rismark Adelaide rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark South Australia Regional house values are slightly outperforming Annual change in house values those in Adelaide (Adelaide vs. SA rest of state) House values across regional South Australia fell by 3.8 35% 35% percent over 2011 while in Adelaide house values fell by a 30% 30% greater 5.3 percent over the year. Most regions outside of 25% 25% Adelaide have fared better than those within the capital city and this is largely the result of houses outside of Adelaide 20% 20% being more affordable. 15% 15% The value of houses in Adelaide have increased at 10% 10% an average annual rate of 5.7 percent over the past five 5% 5% years compared to 4.2 percent average annual growth for regional houses over the same period. Over the last decade, 0% 0% Adelaide has also recorded stronger growth at an average -5% -5% annual rate of 7.8 percent slightly eclipsing the 7.7 percent -10% -10% average annual rate of growth for regional houses. Dec –01 Dec –03 Dec –05 Dec –07 Dec –09 Dec –11 Adelaide Rest of state Source: rpdata.com-Rismark 31
    • State by state data | RP Data Property Capital Markets Report 2012 Perth Perth market starting to stabilise Over the last decade, Perth house and unit values have Key Statistics recorded average annual growth of 10.1 percent and 9.9 percent The Perth market has average of 62 days to respectively which places Perth as one of the best performing been the weakest sell in December 2011 markets over the last ten years. Although the last decade has seen performer of the capital and units took 85 days strong property value growth across the city, over the past five cities over the last five to sell. years houses have recorded average annual growth of 0.1 percent years however, over and units 0.9 percent. Over the year to December 2011, Perth the long term Perth has In comparison, 12 been one of the better house values have fallen by 4.3 percent and unit values are down months prior houses markets for capital by 4.2 percent. When adjusted for inflation, Perth home values and units took 60 and growth. 61 days respectively peaked in December 2007 and are currently 14.1 percent below to sell. their peak. See G1 This is largely due to the high rate of capital Perth volumes improving from a very low level Across Perth, of the gains between 2002 houses sold over the 12 Over the last five years, Perth sales volumes have been recorded and 2007. months to December at an average of 2,888/month. The volume of residential 2011, vendors had on property sales had been easing since middle to late 2009 but Average discounts for average owned these has stabilised and improved slightly in recent months. Current houses are currently properties for 7.8 years estimated sales volumes are 5 percent above the five year recorded at 7.7 percent and the units which average level. Given that home values have remained virtually and for units average sold had been owned unchanged over the past five years, we would expect that the discounting levels sit at for 7.4 years. lower interest rate environment is likely to encourage increasing 9.3 percent. sales activity across the Perth market in 2012. It is important The estimated to keep in mind that this increase is coming off the back of an 12 months previously, population of Perth as extremely low base. See G2 discount levels were at the end of June 2010 recorded at 7.5 percent was almost 1.7 million Rental rates and yields for houses and 8.6 with the population The median rent for a Perth house is recorded at $431/week and percent across the unit growing by 2.7 percent market. during the year. for units the median weekly rent sits at $435/week. Rental growth in Perth has been very strong over the past five years with house rents increasing at an average annual rate of 8.5 percent and unit Perth houses took an 2.6 persons rents at 7.1 percent. Over the past 12 months, Perth rents have increased at above average levels with house rents increasing by 10.3 percent and units by 7.6 percent. Gross rental yields recorded a steep decline between the beginning of 2009 and the end of 2010, despite the fact that Perth had underperformed in terms of Based on the estimated population and property value growth. Over the past year yields have shown a the projected number of households marked improvement due to value falls and strong rental growth. Gross rental yields are currently recorded at 4.5 percent for houses across Perth, the average household is and 5.2 percent for units compared to 3.9 percent and 4.6 percent home to 2.6 persons. respectively last year. See G332
    • RP Data Property Capital Markets Report 2012 | State by state dataPerth key statistics, December 2011 G2: Perth sales volumes vs. five year average Houses Units 6,000 6,000Median price $465,000 $395,000 5,000 5,000 Monthly sales volumes12 month value growth 4.3% 4.2% 4,000 4,0005 yr average annual growth 0.1% 0.9%10 yr average annual growth 10.1% 9.9% 3,000 3,000Average time on market 62 85 2,000 2,000Average vendor discount 7.7% 9.3%Median rental rate $431 $435 1,000 1,000Gross rental yield 4.5% 5.2% 0 0Average hold period 7.8 7.4 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 1,696,065Population change 2009 to 2010 2.7%Household projections 2010 640,092 Perth 5 yr average Source: rpdata.comG1: Perth annual capital gains vs. combined capitals G3: Perth rental rate vs. gross yields50% 50% 500 5.540% 40% 450 5.0 Gross rental yield (%)30% 30% 400 4.5 Rental rate ($)20% 20% 350 4.010% 10% 300 3.50% 0% 250 3.0-10% -10%-20% -20% 200 2.5 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Perth Source: rpdata.com - Rismark Perth rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark Western Australia Regional markets slightly outperform Perth in 2011 Annual change in house values House values in regional Western Australia fell by 2.0 (Perth vs. WA rest of state) percent in 2011 compared to a 4.3 percent fall in the value 50% 50% of houses within Perth. The market performance outside 40% 40% of Perth has been quite varied with coastal and lifestyle markets having seen ongoing weakness in house values 30% 30% whereas those regions linked to the mining and resources sector have in some instances recorded quite robust levels 20% 20% of value growth. 10% 10% Perth house values have moved virtually nowhere over the past five years with average annual growth recorded 0% 0% at 0.1 percent however, regional house values have fallen -10% -10% by 0.1 percent annual over the same period. Despite the absence of value growth over the last five years, over the -20% -20% past decade Perth house values have risen at an average Dec –01 Dec –03 Dec –05 Dec –07 Dec –09 Dec –11 annual rate of 10.1 percent and regional houses values have increased by 11.8 percent annually. Perth Rest of state Source: rpdata.com-Rismark 33
    • State by state data | RP Data Property Capital Markets Report 2012 Hobart Hobart value growth has been trending lower since late 2009 Key Statistics Over the last ten years Hobart house values have recorded Property value growth The estimated average annual growth of 11.7 percent and units have over the last 12 months population of Hobart at recorded annual growth of 12.2 percent, both of which has been well below the end of June 2010 place Hobart as one of the best performing capital city ten year average levels was almost 215,000 markets of the last decade. The significant gains recorded for houses and units with the population between 2002 and 2004 are the primary reason for the and weaker than five growing by 1.1 percent year averages for during the previous strong long-term performance. Over the year to November houses but not units. year. 2011 house values have fallen by 7.1 percent and unit values have increased by 7.2 percent. Although Hobart is Hobart houses have Based on the estimated the most affordable capital city market, at one point in recorded an average population and the 2003 property values had recorded annual growth of more discount of 7.6 percent projected number of than 56 percent. See G1 and units have seen households across discounts of 6.7 Hobart the average Sales volumes on the improve? percent. 12 months household is home to Over the last five years, sales volumes across Hobart have been previous discount 2.5 persons. recorded at an average of 392/month. Estimated transaction levels were recorded at numbers are currently right on the five year average after a 5.8 percent for houses sharp rise in November. It will be interesting to see if the rise is and 6.4 percent across sustained over the coming months. Given that there was two the unit market. successive interest rate cuts in November and December of 2011 and the prospect of more cuts we may see a sustained Hobart houses sold recovery in sales volumes across the city. Should this occur, it over the year had been is likely due to the fact that Hobart well and truly remains the owned by the vendors for an average of 7.9 most affordable capital city housing market. See G2 years and units had been owned for 6.9 Rental rates decline in Hobart over the year while years. they rise in most other cities. The median rent for a Hobart house is recorded at $315/week 61days and the median unit rent sits at $273/week, both of which are the most affordable rental rates amongst capital city markets. Over the last couple of years rental growth has been fairly limited in Hobart, similar to conditions across all capital cities. On average houses are currently Over the last 12 months, rental rates for houses have fallen by 10.0 percent while unit rents have fallen by 1.3 percent. taking 61 days to sell and units With rents and values declining, gross rental yields have also are taking 74 days, 12 months ago fallen over the past year. Gross rental yields were recorded at houses took an average of 49 days 5.0 percent for houses and units as at November 2011. At the same time in 2010, gross rental yields were recorded at 5.1 to sell and units took 40 days. percent for houses and 5.4 percent for units. See G334
    • RP Data Property Capital Markets Report 2012 | State by state dataHobart key statistics, December 2011 G2: Hobart sales volumes vs. five year average Houses Units 700 700Median price $340,000 $275,000 600 600 Monthly sales volumes12 month value growth 7.1% 7.2% 500 5005 yr average annual growth 2.7% 5.4% 400 40010 yr average annual growth 11.7% 12.2% 300 300Average time on market 61 74Average vendor discount 7.6% 6.7% 200 200Median rental rate $315 $327 100 100Gross rental yield 5.0% 5.0% 0 0Average hold period 7.9 6.9 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 214,705Population change 2009 to 2010 1.1%Household projections 2010 86,617 Hobart 5 yr average Source: rpdata.comG1: Hobart annual capital gains vs. combined capitals G3: Hobart rental rate vs. gross yields70% 70% 350 6.560% 60%50% 50% 330 6.0 Gross rental yield (%)40% 40% Rental rate ($) 310 5.530% 30%20% 20% 290 5.010% 10%0% 0% 270 4.5-10% -10%-20% -20% 250 4.0 Nov-08 Nov-09 Nov-10 Nov–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Hobart Source: rpdata.com - Rismark Hobart rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark 35
    • State by state data | RP Data Property Capital Markets Report 2012 Darwin Darwin values fall over the year but outperform the capital city benchmark Key Statistics Over the last decade Darwin house values have recorded Capital gains have Of the residential average annual growth of 12.7 percent which was the nation’s been consistently properties sold across strongest capital city performance as was the unit market with high over most of the the city over the last values increasing at an average annual rate of 13.1 percent. past 10 years due year, vendors had Over the 12 months to December 2011 house values in Darwin to a tight housing owned their houses for have fallen by 2.2 percent and unit values have fallen by 2.6 supply, high level of an average of 5.6 years population growth, low and unit owners had percent. Since 2004, Darwin value growth had consistently unemployment and held their property for outperformed the combined capital cities. When adjusted for ongoing infrastructure 5.0 years. inflation, Darwin home values peaked in June 2010 and are and resource projects. currently 7.1 percent below their peak. See G1 The estimated In recent months population of Darwin at Darwin sales volumes trending lower as market discounting in Darwin the end of June 2010 conditions slow has been easing after was just over 127,000 Over the last five years there has been an average of 246 sales/ reaching very high levels. with the population month in Darwin. Sales volumes across the city held up well growing by 2.8 percent during the GFC however, the number of sales are now trending Unit discounting has during the previous lower. Estimated sales volumes are currently 10 percent below increased from 5.8 year. the five year average. With lower mortgage rates there may be percent in December some improvement in sales volumes over the coming month 2010 to 7.5 percent in Based on the estimated however, they are likely to be limited due to the exceptional December 2011. population and the growth in home values over recent years. See G2 projected number of Darwin houses as at households across Rents and yields have started to improve over December 2011 were the city the average household is home to the last half year taking an average of The median rent for a Darwin house is the highest of any 95 days to sell and 2.8 persons. capital city recorded at $579/week and unit rents sit at $490/ units were taking 73 days. 12 months prior, week. Over the past five years rental growth within Darwin houses were taking has been exceptionally high with house rents increasing at an an average of 77 days average annual rate of 9.9 percent and units at 11.9 percent. and units 67 days. Over the past 12 months, Darwin rental rates have increased 6.2% by 9.1 percent for houses while unit rents have increased by a much lower 4.4 percent. Rental rates across the city have been below their historic highs since the end of 2008. Darwin has the nation’s highest gross rental yields however, yields are well below their peaks recorded in late 2008 and Units are being discounted by an early 2009. Gross rental yields are currently recorded at 5.6 average of 6.2 percent compared to percent for houses and 6.0 percent for units. At the same time in 2010. Yields were recorded at 5.0 percent and 5.6 percent 7.0 percent in December 2010. respectively. See G336
    • RP Data Property Capital Markets Report 2012 | State by state dataDarwin key statistics, December 2011 G2: Darwin sales volumes vs. five year average Houses Units 500 500Median price $490,000 $395,000 Monthly sales volumes 400 40012 month value growth 2.2% 2.6%5 yr average annual growth 7.9% 12.5% 300 30010 yr average annual growth 12.7% 13.1%Average time on market 95 73 200 200Average vendor discount 6.2% 7.5% 100 100Median rental rate $579 $490Gross rental yield 5.6% 6.0% 0 0Average hold period 5.6 5.0 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 127,532Population change 2009 to 2010 2.8%Household projections 2010 44,817 Darwin 5 yr average Source: rpdata.comG1: Darwin annual capital gains vs. combined capitals G3: Darwin rental rate vs. gross yields30% 30% 650 7.025% 25% 550 6.520% 20% Gross rental yield (%) Rental rate ($)15% 15% 450 6.010% 10% 350 5.55% 5%0% 0% 250 5.0-5% -5% 150 4.5-10% -10% Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Darwin Source: rpdata.com - Rismark Darwin rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark 37
    • State by state data | RP Data Property Capital Markets Report 2012 Canberra Canberra values have shown only small declines relative to other cities Key Statistics Over the last decade Canberra house values recorded Canberra has recorded At the same time in average annual growth of 8.4 percent and units have solid capital growth 2010 houses were recorded annual growth of an average of 8.7 percent. Over over both the medium taking 37 days to sell the 12 months to December 2011 house values have fallen by and long term across and units were taking 1.5 percent while unit values have declined by 1.4 percent. the house and unit an average of 33 days. Inflation adjusted values show the peak of the market markets however, the last 12 months was in June 2010 and current home values are 7.1 percent Of the residential has seen the market below their peak. Since 2004 the performance of Canberra’s properties sold across underperform. the city over the year residential property market has tracked the performance of to December 2011, the combined capital cities closely. See G1 Canberra houses and vendors had owned units are recording their houses for an Sales volumes are below average and trending low levels of vendor average of 8.5 years lower discounting currently and unit owners had Over the past five years, Canberra has recorded an average at 4.9 percent and 3.5 held their property for of 746 sales each month. Estimated sales volumes suggest percent respectively. 7.2 years. that current sales activity in Canberra is 22 percent below 12 months previous, the five year average level. As property values have recently discount levels were Based on the estimated begun to decline there has also been a deterioration in the recorded at 3.4 percent population and the level of transaction activity. With successive interest rate for houses and 4.4 projected number of cuts at the end of 2011 and ongoing low unemployment, percent across the unit households across market. there may be a rebound in sales activity throughout 2012. the city the average See G2 household is home to Canberra houses are 2.6 persons. taking an average of 42 Rental growth above average levels in 2011 days to sell and units The median rent for a Canberra house is recorded at $505/ are taking 30 days. week and for units weekly rents sits at $423/week. Over the last five years rental rates have recorded average annual growth of 3.7 percent for houses and 3.1 percent for units. 358,000 Over the 12 months to December 2011, rents have increased by 3.8 percent for houses and unit rents have risen by 4.1 percent. Although rents have increased at a greater levels than the five year average annual growth, the increases The estimated population of have been comparatively low. Gross rental yields have shown little change during recent years due to limited Canberra at the end of June 2010 rental growth and improving property values. Gross rental was slightly above 358,000 with the yields are currently recorded at 5.0 percent for houses and population growing by 1.7 percent 5.5 percent for units. At the same time last year, gross rental yields were recorded at 4.7 percent for houses and 5.2 during the previous year. percent for units. See G338
    • RP Data Property Capital Markets Report 2012 | State by state dataCanberra key statistics, December 2011 G2: Canberra sales volumes vs. five year average Houses Units 14,000 14,000Median price $535,000 $420,000 12,000 12,000 Monthly sales volumes12 month value growth 2.5% 1.4% 10,000 10,0005 yr average annual growth 4.9% 5.1% 8,000 8,00010 yr average annual growth 8.4% 8.7% 6,000 6,000Average time on market 42 30Average vendor discount 4.9% 3.5% 4,000 4,000Median rental rate $505 $423 2,000 2,000Gross rental yield 5.0% 5.5% 0 0Average hold period 8.5 7.2 Nov–01 Nov–02 Nov–03 Nov–04 Nov–05 Nov–06 Nov–07 Nov–08 Nov–09 Nov–10 Nov–11Estimated population June 2010 358,222Population change 2009 to 2010 1.7%Household projections 2010 135,682 Canberra 5 yr average Source: rpdata.com - RismarkG1: Canberra annual capital gains vs. combined capitals G3: Canberra rental rate vs. gross yields35% 35% 550 7.030% 30%25% 25% 500 6.5 Gross rental yield (%)20% 20% Rental rate ($) 450 6.015% 15%10% 10% 400 5.55% 5%0% 0% 350 5.0-5% -5%-10% -10% 300 4.5 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Dec–01 Dec–02 Dec–03 Dec–04 Dec–05 Dec–06 Dec–07 Dec–08 Dec–09 Dec–10 Dec–11 Source: Combined capital cities Canberra Source: rpdata.com - Rismark Canberra rent rates (LHS) Houses (RHS) Units (RHS) rpdata.com - Rismark 39
    • Disclaimers | RP Data Property Capital Markets Report 2012Disclaimers In compiling this Queensland Data of Victoria will constitute a breach of the publication, RP Data has © The State of Queensland (Department Copyright Act 1968 (Cth). The State of relied upon information of Environment and Resource Victoria does not warrant the accuracy supplied by a number Management) 2012. Based on data or completeness of the information of external sources. The provided with the permission of the contained in this report and any person publication is supplied Department of Natural Resources and using or relying upon such information on the basis that while Mines: [QVAS 2012)]. The Department does so on the basis that the State of the RP Data believes of Environment and Resource Victoria accepts no responsibility or all the information in it is deemed reliable at Management makes no representations liability whatsoever for any errors, faults, the time of publication, or warranties about accuracy, reliability, defects or omissions in the information it does not warrant completeness or suitability of the data supplied. its accuracy or for any particular purpose and disclaims completeness and to all responsibility and all liability Western Australian Data the full extent allowed (including without limitation, liability Based on information provided by and by law excludes liability in negligence) for all expenses, losses with the permission of the Western in contract, tort or and damages (including indirect or Australian Land Information Authority otherwise, for any loss consequential damage) and costs which (2012) trading as Landgate. or damage sustained might be incurred as a result of the data by subscribers, or by being inaccurate or incomplete in any Australian Capital Territory Data any other person or body corporate arising way and for any reason. The Territory Data is the property of from or in connection the Australian Capital Territory. No part with the supply or use South Australian Data of it may in any form or by any means of the whole or any part This information is based on data (electronic, mechanical, microcopying, of the information in this supplied by the South Australian photocopying, recording or otherwise) publication through any Government and is published by be reproduced, stored in a retrieval cause whatsoever and permission. The South Australian system or transmitted without prior limits any liability it may Government does not accept any written permission. Enquiries should be have to the amount paid responsibility for the accuracy or directed to: Director, Customer Services to RP Data for the supply completeness of the published ACT Planning and Land Authority GPO of such information. information or suitability for any purpose Box 1908 Canberra ACT 2601. of the published information or the underlying data. Tasmanian Data This product incorporates data that is New South Wales Data copyright owned by the Crown in Right Contains property sales information of Tasmania. The data has been used in provided under licence from the Land the product with the permission of the and Property Information (“LPI”). RP Crown in Right of Tasmania. The Crown Data is authorised as a Property Sales in Right of Tasmania and its employees Information provider by the LPI. and agents: give no warranty regarding the data’s accuracy, completeness, Victorian Data currency or suitability for any particular To the extent that this report has been purpose; and developed using information owned by • do not accept liability howsoever the State of Victoria, the State of Victoria arising, including but not limited to owns the copyright in the Property Sales negligence for any loss resulting from Data which constitutes the basis of this the use of or reliance upon the data. report and reproduction of that data in • Base data from the LIST © State of any way without the consent of the State Tasmania http://www.thelist.tas.gov.au40
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