australian economic and property report · 2019-09-11 · •qld, nsw, and vic state governments...

Australian Economic and Property Report

State Of The Market

Where are we now, and where are we going?

National Observations – Market Update

• 1st Half 2018 - Higher percentage

of ‘up’ arrows:

o 49% up and 42% down

• 2nd Half 2018 - Trend started to

change dramatically:


• 1st Half 2019 - Higher percentage

of ‘down’ arrows:


• Provides an overall feel in terms

of state of the market

• Australian Economic and Property Report 2019

• Annual publication – 12th year

• Key insights into:

o Several economic indicators

o Monetary and fiscal policy

o Key events and how they impacted the property market

• Australian property market has been extremely volatile in

major markets in the past 12 months

• Light at the end of the tunnel

• Highlights encouraging environment for 2nd half of 2019

Critical Events Pre-AEPR 2019

• Change in Australia’s Prime Minister August 2018 and call for Federal Election in May 2019

• March 2019 Labour re-announced its position on negative gearing and capital gains tax

• Final report by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry

• APRA potentially loosening investment lending policies

• QLD, NSW, and VIC State Governments considering dropping stamp duty tax rates

• RBA cutting the cash rate

Property Clock

• Most capital markets (except Hobart and

Adelaide) on the downswing

• Metropolitan markets experiencing similar

trends, with VIC and NSW nearing the

bottom of the market

• Regional markets remained relatively

resilient, with some still showcasing positive

growth

• Similar trend across all states, except for

TAS and SA

• Capital city and metropolitan markets softened, by -3.2% and -6.2%, in the 12 months to 1st half of 2019

• Regional markets remain resilient, recording a growth of 1.7%

• Sydney, Melbourne and Brisbane experienced an increase in days on market for sales, of 6.4%, 15.8%, and 1.9% in the 12 months to May 2019

• Median vendor discount widened by -6.7% (Sydney), -6.3% (Melbourne), -5.0% Brisbane. All pointing to a slower market

Average Growth In Median House Price

Consumer Confidence• 100.7 index points – June 2019

• Boost in consumer confidence = an increase in consumer spending across all industries, including property

• 100.0 index points – August 2019

• Average of 100.2 index points over the past 8 months in 2019

• Positive but cautious society

• Resilient against a myriad of uncertainties and events – key to having stable economic growth

Business Confidence

• Radical surge in May 2019 post-

Federal Election

• Steady decline since December

2017, the lowest reading of -1.0

in March 2019

• Political stability is crucial for

those doing business

• Increase in business confidence will have a positive multiplier effect on all parts of the Australian economy

Residential Construction• $16.3B in March quarter 2019

• 4.2% increase in past 12 months

o Relief to many in the industry, as

NAB predicted a decline in dwelling

investment would lead to 50-150K

job losses

• -13.5% decline in past 6 months

o Allows for current and planned stock

to be absorbed

• A slight correction is needed to ensure market competitiveness

Housing Finance Commitments

• $356.3B in the 12 months to April

2019 – a -9.7% decline

• Not a surprise due to tighter

lending requirements

• Owner-occupier commitments

declined by -18.9%

• Owner-occupier/investor split 65%/35% over the past 10 years. Currently at 71.5%/28.5%, due to tighter APRA investment lending policies

Home Loan Affordability

• Australia home loan affordability

increased by 3.4% in the 12

months to March quarter 2019

• NSW and VIC increased by

3.3% and 5.1%

• TAS and ACT declined by -3.4%

and -3.0% due to high demand

• Number of first home buyer approvals declined by -11.6% Australia-wide, signalling price is not the only deciding factor

Dwelling Approvals

• Reached peak in August 2016 with 20,239 approvals

• High vacancy rates in some capital cities – Inner Brisbane

• Steady decline in the past 3 years

• 13,391 in April 2019

• Shifts of -23.6% over the past 12 months and -25.8% in the past 6 months

• Ensures current and planned stock are absorbed by market

Time to Buy a Dwelling Index

• Showing positive signs

• 12.1% increase in the past 12

months to June quarter 2019

• On the back of improved

consumer sentiment and post-

Federal Election results

• NSW and VIC sentiment grew the most, by 18.4% and 18.8% respectively

• QLD increased by 0.8%, a good change since its declining trend

Vacancy Rates

• Vacancy rates have remained healthy, Australia average of 2.6%, below REIA healthy benchmark of 3.0%

• Most capital cities experienced an increase in vacancy rates

• Brisbane decreased to 2.4% as of July 2019

• Biggest decline was Perth – from 5.1% to 2.4%

• Canberra lowest at 0.6%

• Sydney highest at 3.6%

‘Quadrella’ of Positive News• Sworn in Federal Government, thus upholding Federal Budget 2019 proposals

o Includes the proposed first home buyers’ loan deposit scheme

o No changes to negative gearing and capital gains tax

o More political certainty

• A double interest rate cut by RBA, held stable in August 2019

• Conducive property market environmento Higher home loan affordability

o Median prices in capital and metro markets softening

o Wider vendor discount and less competition in the market

o Healthy increase of Auction clearance rates for main capital cities of Sydney, Melbourne and Brisbane.

• APRA’s lending standards reviewed and investment lending standards loosened

• Anecdotal evidence of more buyers at open homes, pick up in number of sales

Strata Development Pipeline Report

State Of The Market

Strata Development

Apartment and Unit Sentiment

• Confidence in the market appears to be in decline

• Increasing reports of defects and associated costs to owners

o Particularly in large scale projects (high-rise)

o Widely reported cases have grown awareness (Opal Tower, Mascot Towers)

• Decline in sentiment and defect reports is poorly timed for the market

o Softening property market already increased valuation/settlement risk

o This hurts developers just as market conditions started to improve

• Buyers are generally more cautious as a result

• Push for mandatory insurances to protect buyers

o This would help restore much needed confidence

Apartment and Unit Sentiment – Capital Cities

• Largest issues presented in the most competitive/developed markets

o Primarily Sydney and Melbourne (and Brisbane to an extent)

• Most capital cities also recently faced oversupply issues, magnifying negative sentiment

NSW VIC QLD SA WA NT ACT

1,411 1,069 570 69 154 31 157

Source: Equity Economics (Shaky Foundations, August 2019).

Estimated number of residential apartment buildings (more than 3 storeys) in Australia with combustible cladding

• Recent topical reporting of negative cases has put all markets on watch

• Some of this reporting indicates where most concern lies

Strata Development Pipeline Report

• An up-to-date snapshot of the development pipeline

o Annualised from 2018-2020

• Overviewed by Capital City Metro areas

o Proceeding and Deferred/Abandoned stock

o National benchmarking

o Highlights major project details

National Metro Projects: 2018-2020

• 6,052 known strata projects between

2018-2020 across all capital city metro

areas

• Only includes projects with non-

commercial residential component

• Excludes aged care, student

accommodation, etc.

• 81.2% categorised as proceeding

• 18.8% deferred

• Confident market

Prepared by PRDnationwide Research. Source: Cordell Connect database, last updated August 2019.Note: Development data only includes projects with a known status. Projects with no project status information available are excluded.

81.2%

18.8%

Proceeding Deferred

• 361,396 apartment and units are

planned

• 82.6% are scheduled to proceed

• 17.3% deferred or abandoned

• The largest number of apartment

and units are planned for 2020

• Percentage split remain stable

between 2019 and 2020

National Metro Apartments & Units: 2018-2020


82.7%

17.3%

Proceeding Deferred

Metro Area Projects: 2018-2020

• NSW Metro and VIC Metro

lead the way in number of

total projects

• TAS Metro and ACT have

the smallest percentage of

deferred projects, which is

key strategy for their market

• WA Metro has the highest

percentage of deferred

projects, providing current

stock to be absorbed by the

market


128

1,865

710

142

1,841

51

424

242

360

174

0 500 1,000 1,500 2,000 2,500

ACT

NSW Metro

NT Metro

QLD Metro

SA Metro

TAS Metro

VIC Metro

WA Metro

Proceeding Deferred

Sydney Development Map: 2018-2020

Metro Area Apartments & Units: 2018-2020

• NSW Metro leads the nation

in terms of number of

apartments and units planned

• Not unexpected due to the

size of the market

• QLD Metro the largest

deferred percentage,

appropriate strategy

• ACT has the smallest

percentage of deferred units

and apartments, followed

closely by TAS Metro


14,715

130,128

35,838

99,595

11,261

20,743

14,156

23,459

0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000

ACT

NSW Metro

NT Metro

QLD Metro

SA Metro

TAS Metro

VIC Metro

WA Metro

Proceeding Deferred

Gold Coast Projects: 2018-2020

• Steady increase in the

number of strata projects

• Percentage of projects

deferred is comparable each

year

• 2020 being “the year” for

strata development

• Good news for the industry

in terms of jobs

• May lead to an oversupply in

the next 2 years


55

76

108

16

20

31

0 20 40 60 80 100 120 140 160

2018

2019

2020

Proceeding Deferred

Gold Coast Vacancy Rates

Prepared by PRDnationwide Research. Source: SQM Research, last updated June 2019.2019* Vacancy Rates reported at June 2019

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

2013 2014 2015 2016 2017 2018 2019*

Sydney Metro Brisbane Metro Melbourne Metro Gold Coast Main

Gold Coast Development Map: 2018-2020

Gold Coast Apartments & Units: 2018-2020

• Significant increase in the number of apartments and units between 2018 and 2020

• Largest percentage in deferred since 2018

• Potential oversupply, many landlords have had issues with finding tenants

• Vacancy rates have been increasing since December 2018

• Declined for the first time in July 2019 to 2.6%


3,027

6,053

9,149

1,478

2,093

6,811

0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000

2018

2019

2020

Proceeding Deferred

What do buyers want?• An overall increasing preference for “more space”

oOwner-occupiers holding onto the lifestyle benefits of apartment living

o Investors also benefit - tenants less likely to move, increasing income security

• First home buyers:

oModern features, cost savings (ownership and repairs/maintenance)

▪ Especially important to consider given recent quality and cost issues

oA variety of shared amenities (gyms, pools, outdoor areas)

• Downsizers:

• Similar desires in terms of amenities to first home buyers

• Willing to pay a premium for high-end finishes and upgrades

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australian economic and property report · 2019-09-11 · •qld, nsw, and vic state governments...

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