prdnationwide quarterly economic and property report ed 2 2012

7/31/2019 PRDnationwide Quarterly Economic and Property Report Ed 2 2012

1/28

Quarterly Economic

and Property ReportAustralia

Quarter 2 | 2012


2/28

It appears that times are tough all round ifyou are not part of the mining boom.

Retail spending remains low, the housing

and building markets have contracted

while exports are still struggling with the

high Australian Dollar. A case of dj-vu?

Or is it? As predicted commodity prices

have decreased, due to the slowdown in

demand from the emerging global

economies. This combined with the effects

of natural disasters and mining employee

strikes appear to have taken their toll, with

the surprised closure of the Norwich ParkCoal Mine. This was a blunt reminder of

the boom to bust conundrum that is the

mining industry.

The rate of GDP growth continues to

decrease in China, with the major trading

partner of Australia registering growth at

8.1 per cent, down from a forecasted 8.5

per cent. Since 2007 the Chinese current

account has dropped from 12 per cent to

4.0 per cent of GDP, reflecting a rise in

imports and fall in exports, as the economyshifts towards domestic consumption.

Consumption is likely to continue growing

because of the upward trend in workers'

wages, which increases manufacturing

costs but is generally good for the

domestic economy. On top of this, there is

high scepticism on the validity of the

economic data being released in China,

with claims of fabrication.

Europe is still doing it tough, with

substantial social and economic problemsin Greece, Spain, Portugal, Italy and even

France. There is scope for this to get

worse as elections in Greece and France

could bring forth a crisis in these countries.

The US Federal Bank has found itself in a

challenging position as inflation starts to

move, partly as a result of rising gasoline

prices. More quantitative easing in

response to the anaemic US recovery is

very unlikely. In fact a discussion will have

to be had at some point about how todrain the excess liquidity from the

economy before 2013.

Furthermore, US corporate profits are nearrecord levels and only likely to fall, so after

a big run over the past months the equity

markets on Wall Street now look set for a

correction.

Here on Australian soil, we are in the midst

of our own interesting times, as banks are

increasing rates while the Reserve Bank of

Australia (RBA) is trying to get them down.

The property market continues to contract,

as shown by housing finance approvals

data, while bank rate increases and a tightfiscal federal budget will likely prevent any

substantial green shoots in the market from

gaining significant traction. So far

unemployment has been fairly contained,

but any significant change will hurt the

property market.

However, according to the International

Monetary Fund (IMF), the Australian

economy is expected to outpace all

advanced economies with projected

growth of 3.0 per cent in 2012 and 3.5 in2013. It has also increased the forecast of

global growth over 2012 to 3.5 per cent,

from 3.3 per cent. In comparison the US is

forecasted to grow at 2.1 per cent, up from

a prior estimate of 1.8 per cent.

Looking at the macro level property market,

the reality is that while the rate of decline in

values have slowed and could be even

stagnant, a quick recovery to where sales

activity and prices were at prior to the

Global Financial Crisis of 2008 would beunthinkable, considering what global

markets face in the near future. However

investors could now be tempted back into

the property market as the rate of decline in

values erodes away, while the equity

market remains not only turbulent, but has

provided returns inferior to fixed bonds

over the past five years.

Economic and Property Overview

Key Facts:

CPI: 1.6%

SVHL Rate: 7.4%

AUS Unemployment Rate:5.0%

AUS Population Growth: 1.29%

Average AUS Fuel Price:$1.50pl

1


3/28

Early 2012 has seen negative sentimentlinger from 2011, as the long-term six

month moving average Australian

Consumer Sentiment Index decreased

by a further 0.1 point over the month to

register 98.3 points. When compared to

the previous year, a total decrease of

10.7 points has been recorded.

On a monthly basis the Australian

Consumer Sentiment Index decreased

further by 5.0 points over the month of

March 2012, to record a score of 96.1points.

Optimists will point to a likely rise in

household consumption growth over the

next year. Over the past year the

Treasury has noted that spending has

been in line with the longer term trend.,

despite natural disasters, anxiety over the

global economic turmoil and declining

global growth. Optimists now predict that

household consumption will increase as

they become less cautious. Employmentgrowth is expected to increase at 1.25

per cent next year, pointing to a peaking

unemployment rate. Furthermore, it is

likely that the Reserve Bank will cut the

cash rate again during 2012.

Looking ahead to the most recent surveyon consumer sentiment in April 2012, out

of the five states measured for the Index,

sentiment was highest in South Australia

at 103.8 points. This score equated to a

monthly increase of 20.4 per cent.

Western Australia recorded a 3.4 per cent

decrease over the month to register an

Index score of 103.4 points. Pessimists

continue to outweigh optimists in New

South Wales (92.2 points), Queensland

(91.1 points) and Victoria (93.2 points).

However, Queensland resisted the trendof declining sentiment by recording an

increase of 5.0 per cent over the month.

ConfidenceSentiment strongest in South Australia

Australian Consumer Sentiment

Graph (right):

The Consumer Sentiment Indexindicates short-run changes toconsumer willingness topurchase goods in theforthcoming quarter.

The Index is based on a monthlysurvey of 1,200 Australianhouseholds conducted by theMelbourne Institute andWestpac.

It represents current and future

perspectives of the broadeconomic climate andhousehold financial state.

Australian Consumer Sentiment

60

70

80

90

100

110

120

130

Apr

-92

Apr

-93

Apr

-94

Apr

-95

Apr

-96

Apr

-97

Apr

-98

Apr

-99

Apr

-00

Apr

-01

Apr

-02

Apr

-03

Apr

-04

Apr

-05

Apr

-06

Apr

-07

Apr

-08

Apr

-09

Apr

-10

Apr

-11

Apr

-12

ConsumerSentimentIndex

Au str al ia n C ons ume r S en ti me nt Ind ex S ix Mo nt h Mo vi ng Av er ag e

Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012

2


4/28

Confidence decreased over the March2012 quarter, to record -1.2 index points

on the NAB Quarterly Index, equating to

a fall of 2.6 points. The double cut to the

official Cash Rate by the RBA in the

fourth quarter of 2011 appears to have

had only a temporary affect on business

confidence, which did not carry through

to the New Year. Considering the

persistent concerns with the European

debt crisis and sluggish US recovery, the

Index result is not overly pessimistic, but

is nevertheless still below the longer-term10 year average of +5.1 points

Over the March 2012 quarter, business

confidence fell in most states, but

increased dramatically in Western

Australia (up 11 points). Victoria

decreased the most at -6 points, while

New South Wales, Queensland and

South Australia all registered a fall of 1.0

Index point in confidence. Confidence is

now weakest in Victoria and Tasmania,

while slightly negative in the remainingstates.

Confidence improved over the March2012 quarter in mining and recreational

services, while a rapid deterioration was

felt in wholesale and retail. Most

industries are expecting a contraction in

activity over the June 2012 quarter.

Confidence is weakest in the wholesale

and transportation & utilities, followed by

manufacturing and retail.

The Business Conditions Index marginally

increased by one point to +1 in the March

2012 quarter. Trading conditions arereported to be stronger, but employment

remains subdued. This suggests the

economy is effectively moving sideways.

According to a recent report from ASIC,

the number of corporate insolvencies hit

a 14 year high in February, with retail,

tourism and the construction sectors the

hardest hit.

Confidence cont.Business confidence improves in 2012

Business Confidence Graph

(right):

The Business Confidence Indexindicates expectations ofbusiness conditions for theupcoming quarter.

The Index is based on a surveyof approximately 900 small tolarge businesses in the non-

farm sectors and is conductedby the National Australia Bank(NAB).

Business Confidence

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Mar-95

Sep-95

Mar-96

Sep-96

Mar-97

Sep-97

Mar-98

Sep-98

Mar-99

Sep-99

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

Indexvalue

Quarter

ImprovingConfidence

Prepared by PRDnationwide Research

Source: National Australia Bank (NAB), last updated Apr-12

3


5/28

The March 2012 CPI figures recorded anannual change of 1.6 per cent, which

equates to a dramatic decrease from the

previous quarter of 3.1 per cent, and is

well below the RBA target range of two

to three per cent.

The underlying inflation figure, as

measured by the RBA removes volatile

items such as fruit and fuel, remains

inside the target range but has increased

marginally from the September 2011

quarter by 0.2 per cent to 2.5 per cent asat the end 2011.

Global financial and commodity markets

have improved as a result of the

European Central Bankss decision to

further add substantial liquidity into the

banking system (increasing the bail-out

by 200 billion). Improved employment

data from the US has also assisted in

reducing market volatility and despite

several emerging economies slowing in

2011 (such as China), the outlook for2012 looks favourable. The NAB

predicts GDP to remain at 3.25 per cent

in 2012 and 2013, equating to low

pressure on core inflation between 2.2

per cent to 2.5 per cent.

Surprisingly, the official Balance of Traderecorded a deficit of $673 million in

January, down from a $1.3 billion surplus

in December. This was a result of an

immense 8.0 per cent drop in exports,

mainly focused around the large falls in

the volume of iron ore (down 21 per cent)

and coal (down 9 per cent). It is

anticipated that exports have improved

over February, leading back into a trade

surplus.

Macroeconomic ClimateWeak inflationary pressure over 2011

Inflation Graph (right):

Inflation is measured as achange in the Consumer PriceIndex (CPI), calculated by theAustralian Bureau of Statisticsas the price of a weighted'basket' of goods and serviceswhich account for a highproportion of expenditure bymetropolitan households.

The Reserve Bank of Australia(RBA) aims to constrain inflation

in a long-run target range of 2-3% through the setting ofinterest rates.

Inflation

0%

2%

4%

6%

8%

Mar-0

2

Sep-0

2

Mar-0

3

Sep-0

3

Mar-0

4

Sep-0

4

Mar-0

5

Sep-0

5

Mar-0

6

Sep-0

6

Mar-0

7

Sep-0

7

Mar-0

8

Sep-0

8

Mar-0

9

Sep-0

9

Mar-1

0

Sep-1

0

Mar-1

1

Sep-1

1

Mar-1

2

AnnualChangeinCPI

Quarter

Al l g rou ps E xc lud in g v ol ati le i tem s

Reserve Bank's Target Range

Prepared by PRDnationwide ResearchSource: ABS Cat 6401, last updated May- 2012

4


6/28

The RBA has painted a rosy picture onthe Australian economy. The possibility of

a catastrophic outcome in Europe has

receded, global activity on the whole has

picked up, while Australian growth is

close to trend and inflation near target.

This combined with the depreciation of

the Australian Dollar had led the RBA

adopting a wait and see approach over

the first quarter of 2012. Largely due to

the significant drop in inflation at the end

of April, the RBA decided to cut the

official Cash Rate by 50 basis points to3.75 per cent.

While the RBA has kept rates on hold

over the beginning of 2012, the major

banks have mostly increased their

lending rates by around 0.1 per cent,

after several banks decided not to follow

the official Cash Rate due to higher

overseas lending costs. The ANZ was the

latest bank to raise their lending rates

independently. CLSA has stated that the

cost of funds for the banks will likelycontinue to rise. So far, the standard

variable home loan rate has remained at

7.4 per cent for the month of March

2012, but is expected to fall with the

amount dependant on how much the big

banks decided to pass on.

The RBA has consistently said bankshave just cause when they argue their

margins have been eroded by rising

funding costs. The RBA takes this into

account during its own rate deliberations.

The RBA has also stated that official rate

would be a full percentage point higher if

the banks had simply been passing on

official rate movements.

The Federal Budget seeks to encourage

foreign bank competition to directly target

the big four Australian banks. The rate ofinterest withholding tax (IWT) paid by

foreign bank branches which borrow

from their overseas head office will fall

from 5.0 per cent to 2.5 per cent in 2014-

15, and then be phased out entirely in

2015-16. Meanwhile, the IWT for other

financial institutions that borrow from

foreign financial institutions or offshore

retail deposits will fall from 10 per cent to

7.5 per cent in 2014-15, and 5.0 per cent

in 2015-16. The government says the

measure will help local subsidiaries andbranches of foreign banks to access

cheaper offshore funding from their

parents, ultimately putting more

competitive pressure on the major banks.

Macroeconomic Climate cont.Rate cut in May expected

Housing Loan Interest Rate

Graph (right):

The housing loan interest rate isthe average rate of interestbeing offered by housing

lenders. It is higher than theRBAs target cash rate due to

lending costs and profitmargins.

Interest rates are set by theRBA, who acts independently ofgovernment and sets interestrates with the goal ofmaintaining inflation in a long-run target range of 2% and 3%.The RBA meets monthly toreview the current interest rate

and is only required to justify itsdecision if it chooses to alter therate.

Housing Loan Interest Rate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Apr-82

Apr-83

Apr-84

Apr-85

Apr-86

Apr-87

Apr-88

Apr-89

Apr-90

Apr-91

Apr-92

Apr-93

Apr-94

Apr-95

Apr-96

Apr-97

Apr-98

Apr-99

Apr-00

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12 S

tandardBankHousingLoanInterestRate%

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F05, last updated May-2012

5


7/28

As foreseen in the earlier edition of thisreport, there has been lower Chinese

economic growth, with commodity prices

reaching a peak. This has resulted the

Australian terms of trade decreasing,

resulting in a lower AUD. During the

month of April 2012, the Australian Dollar

Exchange Index only increased

marginally by 0.1 per cent to register an

Index value of 77.0, while decreasing 2.4

per cent over a 12 month period.

The Treasury expects Australianconsumers will take advantage of the

strong Australian dollar by spending

more on overseas travel and imported

consumer goods. Import volumes are

likely to rise by 7.5 per cent in 2012-13

and by 5.5 per cent in 2013-14.

The NAB Export Index has increased inMarch by 3 points to record an Index

score of zero, its highest level since July

2011. This was led by manufacturing (up

15 points) and aided by the softening in

the Australian Dollar.

The Australian Dollar continues to be

above parity with the US Dollar since

September 2011, but has only

appreciated by 0.5 per cent over the

month of April 2012. Over the 12 month

period ending April 2012, the AustralianDollar has depreciated the most against

the Chinese Renminbi (down 6.8 per

cent), while appreciating the most to the

Euro (up 7.4 per cent).

The strength of the Australian Dollar is

proving to be a handicap for exporters of

transformed manufactured goods, and

for firms that sell services, such as

tourism and education-related travel to

foreigners.

Foreign ExchangeAustralian Dollar subsides

Trade Weighted Exchange Rate

Index (right):

The trade weighted exchangerate index is compiled monthlyby the Reserve Bank and ranksthe Australian dollar against thecurrencies of our significanttrading partners.

Exchange rates directly affectthe prices of our exports inforeign trade dollars.

Trade Weighted Exchange Rate Index

40

45

50

55

60

65

70

75

80

Dec-01

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

TradeWeightedIndex

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F11, last updated May-12

ImprovingAffordabilityof Imports

Apr-11 Apr-12 % Change

EU Euro 0.73 0.79 7.4%

JP Yen 88.91 83.77 -5.8%

NZ Dollar 1.36 1.27 -6.5%

UK Pound 0.65 0.64 -1.9%

US Dollar 1.09 1.05 -4.1%

Source: RBA Bulletin F11

6


8/28

In dollar value terms, the nationexperienced an increase of 2.7 per cent

to the average petrol price during the

month ending March 2012. The average

price Australians pay at the pump

increased to $1.50 per litre. During the

year petrol prices increased at an

average rate of 4.4 per cent across the

nation.

Melbourne continues to be the capital

city where motorists pay the least but is

now joined by Canberra at $1.46 perlitre. Melbourne experienced 5.8 per cent

increase over the quarter, while Canberra

increased at 0.8 per cent. In Darwin

consumers continue to pay the most at

$1.57 per litre, followed closely by Hobart

at $1.55.

Over the three month period ending

March 2012, all other capital cities

experienced an increase to petrol prices

with Perth increasing the most at 7.2 per

cent. This was followed by Brisbane (6.3per cent), while Adelaide increased by

5.8 per cent.

During the course of the 12 monthperiod, Adelaide petrol prices increased

the most at 7.3 per cent, while Canberra

increased the least at 2.2 per cent.

Despite demand for fuel falling in both the

US and Europe, prices are expected to

keep rising. Demand has risen

substantially in the Americas and in Asia

(mainly China) with several global

refineries recently closing, cutting supply

at a crucial time during the Iran trade

sanctions.

Fuel PricesFuel prices expected to increase over winter

Retail Fuel Prices Graph (right):

Sourced from Fueltrac, thischart tracks the average retail

price for unleaded petrol acrossa broad range of suppliers inmetro areas.

Retail Fuel Prices

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Mar-06

Sep-06

Mar-07

Sep-07

Mar-08

Sep-08

Mar-09

Sep-09

Mar-10

Sep-10

Mar-11

Sep-11

Mar-12

AverageRetailPriceofULP

Month

Brisbane Melbourne Sydney

Prepared by PRDnationwide ResearchSource: AAA/Fueltrac, last updated May-2012

7


9/28

During the month of April 2012, theCommodity Price Index increased by 0.4

per cent to reach 99.5 points. When

compared to the previous year, the Index

has fallen by 5.2 per cent. Commodity

prices are still above the longer-term 10

year average of 71.8index points.

The town of Dysart, Queensland has

been rocked with the news that BHP

Billiton will close this Norwich Park coal

mine. The impact of floods, rising

production costs and softening coal

prices were cited as the principal reasons

for the mine closure. Although the town

of Dysart supports seven mines, the

closure still delivers a timely reminder of

the boom to bust challenge that many

regional towns face. Comparisons have

been made to the town of Ravensthorpe,

Western Australia, in which the BHP

Billiton nickel mine closed in January

2009. This mine was only opened in

2008 with a predicted life span of 21

years and the closure meant a direct loss

of 1,800 jobs.

The last financial year approximately $86

billion in revenue was registered from the

mining services sector. This is expected

to increase by 17 per cent this year.

Deloitte Access Economics estimates

that there is $189 billion in investment

being spent with a further $217 billion on

projects within the industry awaiting

approval.

The International Monetary Fund (IMF)

has played devils advocate and stated

that the uncertainty in the global marketscombined with the slowdown in the

emerging economies (such as China) has

softened demand on commodities. The

IMF believes that price growth in the

commodity market will not reach the

highs experienced in 2011. Copper

prices have contracted to a three month

low, and the price for coal has also

declined, while iron ore remains stable.

Australia could face a large balance of

payments deficit if a sharp slow-down in

China results in a drop in export earnings

while imports of capital goods soar as

resource companies complete their major

investment projects. According to the

latest budget projections, Australias

current account deficit is expected to

increase to 4.75 per cent of GDP in

2012-13, and to 6.0 per cent of GDP the

following year. According to Treasury, the

deterioration reflects the fact that the

trade balance is likely to fall into deficit as

miners step up their imports of foreign-

made investment equipment while export

earnings fall as a result of lower

commodity prices.

Even though commodity prices appear to

have peaked in the third quarter of 2011,

Treasury expects that our export earnings

will remain relatively buoyant in the next

two years, due to continuing strong

demand from China and India.Australias

coal and iron ore exports are likely to rise,

following major expansions in resource

projects in Western Australia and alongthe east coast.

Commodities PricesCommodity prices to fall in 2012?

RBA Commodity Price IndexGraph (right):

Primary commodities accountfor more than half of Australias

export earning.

The Reserve Banks Commodity

Price Index provides an indicatorof primary commodity pricemovements. The index includes17 commodities with separateweightings, the highest of whichare coal, gold and iron ore.

High commodity prices are oneof the primary drivers behindAustralias robust economy,

influencing real estate pricesparticularly in Western Australia,Northern Territory, NorthernQueensland and as of lateSouth Australia. Coupled withthe resource industry boom,employment and populationgrowth follow, which spursdemand for housing and rental

accommodation, particularly inneighbouring resource richregions.

RBA Commodity Price Index

0

20

40

60

80

100

120

140

Apr-02

Oct-02

Apr-03

Oct-03

Apr-04

Oct-04

Apr-05

Oct-05

Apr-06

Oct-06

Apr-07

Oct-07

Apr-08

Oct-08

Apr-09

Oct-09

Apr-10

Oct-10

Apr-11

Oct-11

Apr-12

RBAcom

moditypriceindexvalue

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin G5, last updated May-12

8


10/28

The national gross spend onconstruction (other than houses)

decreased during the December 2011

quarter by 2.4 per cent. When compared

to the previous quarter, the gross spend

in the December 2011 quarter was at a

similarly high level, recording just over

$26 million. The overall spend for the

year ending December 2011 was just

over $101 million, up 6.3 per cent from

the previous year.

The ABS has released recent datashowing a decline in both new housing

and major alteration spending for the

December 2011 quarter, equating to a

third consecutive decrease. The

seasonally adjusted figures decreased by

1.8 per cent to $44.5 billion. The largest

fall occurred in Queensland, with a

decrease of 4.9 per cent over the

quarter, followed by 3.9 per cent in New

South Wales. Spend for new residential

construction improved the most over the

quarter in Tasmania, by 11.7 per cent.

A recent report from the Centre forInternational Economics (CIE) has found

that new housing is the second most

heavily taxed of Australias largest

sectors, being those valued over $10

billion. The HIA has followed with a

statement that exclaims in some states

the total tax bill amounts to over 40 per

cent of the final price of new home taxes

on new housing. The taxes are a brake

on economic activity, and represent a

constraint on housing affordability and

labour productivity.

From the Federal Budget, the

government plans an allocation of $3.6

billion to duplicate the Pacific Highway, in

a 50:50 funding partnership with the New

South Wales state government. The

highway, due for completion by 2016, is

expected to improve freight efficiency

along with other initiatives including

development of the Moorebank

Intermodal Terminal in New South Wales

and the contribution of $232 million toAdelaides Torrens and Goodwood rail

project. The measures come under the

umbrella of a total of $36 billion spending

on roads, rails and ports in the six years

to fiscal 2014.

Construction MarketConstruction spend contracts while residential continues to struggle

National Construction Gross

Spend Graph (right):

The construction industry is oneof the driving areas in theeconomy, having a significantcontribution to GDP and amultiplier effect on the activity inother industries. Indicators ofprice movement of constructionoutputs will be a valuable tool ineconomic analysis.

Construction industry outputprice indexes are beingdeveloped to measure changes

over time in the price of newconstruction outputs, other thanhouses.

3.7%

1.8%

-0.1%

2.1%

4.7%

0.0%

1.5%

0.9% 1.0%

5.0%

-2.4%-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

Percentagechangefrompreviousquarter

Quarter

Prepared by PRDnationwide ResearchSource: ABS Cat 1350, last updated Apr-2012

National Construction Gross Spend

9


11/28

The gross spend on housing finance was$20.3 billion during the month of

February 2012. Compared to the

previous year, the total spend has

increased by 4.9 per cent, equating to $1

billion more. The spend on housing

finance has yet to reach the levels

experienced prior to the Global Financial

Crisis of 2008.

Investor spend increased slightly to just

under $7 billion, and largely follows the

greater trend established at the start of2011. For the month of February 2012,

investor financial commitment increased

by $400 million to record $6.9 billion.

During the month of February 2012,

owner occupier spend decreased by

$700 million to equate to $13.4 billion.

Approximately 33.9 per cent of the

property market is now investor financed

and is expected to increase as rental

yields across the nation continue to

become more attractive.

The seasonally adjusted number of loansfor new housing fell by 5.8 per cent in

New South Wales, 1.3 per cent in

Victoria, 2.1 per cent in Western

Australia, and 26.9 per cent in the

Northern Territory. There was a rise of 4.9

per cent in Queensland while increases

were also recorded for South Australia

(+2.8 per cent), Tasmania (+18.3 per

cent), and the Australian Capital Territory

(+7.0 per cent).

Lending for the purchase of newdwellings is down $66 million to $605

million in February, while the purchase for

established dwellings has fallen $529

million to $11.4 billion. Lending for

renovations is also down $26 million to

$341 million.

The ABS finance releases show

borrowers and lenders becoming more

cautious in early 2012. Personal finance

fell 3.8 per cent, while commercial finance

decreased 8.4 per cent in February. Thefall in commercial finance equates to four

consecutive months of decreases.

House FinanceSpending slides in the month of February

Housing Finance Commitments

Graph (right):

Housing finance commitmentstrack the volume of financecommitments made bysignificant lenders to individualsfor the purchase of housing.

This graph tracks the value ofloans approved for both owneroccupiers and investors.

Housing Finance Commitments

0

2

4

6

8

10

12

14

16

18

20

Feb-02

Feb-03

Feb-04

Feb-05

Feb-06

Feb-07

Feb-08

Feb-09

Feb-10

Feb-11

Feb-12

ValueofCommitments($billion)

Month

Owner Occupied Investment

Prepared by PRDnationwide ResearchSource: ABS Cat. No. 5609, last updated Apr-2012

10


12/28

During the month of April 2012unemployment decreased to 5.0 per cent

and is on par with the longer-term five

year average. Since the turn of the year

unemployment remained stubbornly

above 5.0 per cent. When looking at the

moving annual average, the rate has

been steady at 5.1 per cent since the

corresponding period in the prior year.

For the month of April 2012, the nations

lowest rate of unemployment occurred in

the ACT at 2.9 per cent, a rate that hassignificantly decreased by 1.5 per cent

from the previous month. Tasmania

continues to have the highest rate of

unemployment at 7.5 per cent, up 0.5

per cent over the month.

Unemployment in Queensland increased

by 1.0 per cent to 5.1 per cent during the

month of April, while Victorian

unemployment also increased at 0.8 per

cent to 5.5 per cent. Unemployment in

New South Wales has remained fairly

stagnant over the month at 5.0 per cent.

The ABS Jobs Vacancies data displays a

tight labour market, with a marginal rise

of 0.7 per cent in February, following a

3.4 per cent rise in the fourth quarter of

2011. The ANZ Job Ads Index also

increased in February by 3.3 per cent,

after increasing by 7.5 per cent in

January.

The US has registered an improvedunemployment rate of 8.2 per cent while

Spain has 23 per cent of its workforce

unemployed. Another staggering statistic

is that of Spain's workforce aged 25

years or under, approximately 51 per

cent is unemployed (as well as in Greece),

36 per cent in Portugal & Italy and 30 per

cent in Ireland. France is in better shape,

but only just with one in five young people

out of work. Nicolas Sarkozy was the

eighth leader of a Eurozone member

country to have been removed from officein little over a year. Is the grass always

greener on the other side?

There is growing discontent regarding the

misleading method utilised by the ABS in

recording the official unemployment rate.

Many leading economists cite a rival

employment survey produced from Roy

Morgan Research as portraying a more

accurate rate. This research currently

puts Australian unemployment at 9.7 per

cent, almost twice that of the ABS rate.

The Federal Government has struck a

deal with GM Holden in which $275

million was spent to ensure the car

manufacture remains on Australia soil for

the next ten years. The automotive

manufacturing industry is worth $7.7

billion, with annual turnover at $160

billion. In 2012 the industry employed

59,000 people directly, representing the

largest sector of Australian

manufacturing.

Labour MarketUnemployment picks up in 2012

Unemployment Rate Graph

(right):

Unemployment is calculated asthe proportion of people in thelabour force that wereunemployed and activelyseeking work during the surveyperiod.

The labour force is defined asthe number of people agedbetween 16 and 55 who wereeither employed or activelylooking for work during thesurvey period.

This graph tracks theunemployment rate on a

monthly and moving annualaverage basis over the last 30years.

Unemployment Rate

2%

4%

6%

8%

10%

12%

Apr-82

Apr-83

Apr-84

Apr-85

Apr-86

Apr-87

Apr-88

Apr-89

Apr-90

Apr-91

Apr-92

Apr-93

Apr-94

Apr-95

Apr-96

Apr-97

Apr-98

Apr-99

Apr-00

Apr-01

Apr-02

Apr-03

Apr-04

Apr-05

Apr-06

Apr-07

Apr-08

Apr-09

Apr-10

Apr-11

Apr-12

UnemploymentRate

Month

Unemployment Rate Australia

Moving Annual Average Australia

Prepared by PRDnationwide ResearchSource: ABS Cat 6202, last updated May-12

11


13/28

On the whole, the Australian SecuritiesIndex has remained stable since the turn

of the year. The Index increased its

monthly average value during the month

of April 2012 to reach 4,332 points, up

from February's average of 4,255 points,

equating to an increase of 1.8 per cent

over the month.

Equity markets could be set for further

turbulent times in 2012, as the US

economy will face its biggest fiscal

contraction ever, labeled the fiscal cliff.

Next year will see the end of the Bush tax

cuts, the expiration of the 2010-11

payroll tax cut, expiration of emergency

unemployment benefits and most

importantly, $1.2 trillion of spending cuts

that will commence automatically. It

could be a potential mix to cause another

recession in 2013.

While not normally known for producinghigh returns, Australian fixed interest

bonds have outperformed the equity

market over the past five years. A

Morgan Stanley report advises investors

to not relocate from bonds to equities as

a result of continued turbulence in the

global environment. The report is

sceptical that US growth will accelerate,

with the high price of oil a significant risk

to growth. There is substantial uncertainty

surrounding Chinas economic data while

recent data from Europe has beendisappointing.

After comments released from the

Treasury, investors would be wise to

consider mining related stocks.

Approximately 60 per cent of capital

expenditure on buildings and structures

over the past year have been mining

related, up from 29 per cent in 2003.

This has supported growth in insurance

and finance, scientific and technical

services, which have increased by 40 percent. Over the past decade, professional

and scientific equipment exports have

tripled while chemical related product

exports have increased by 60 per cent.

Stock MarketCautious times ahead for equity markets

S&P / ASX 200 Graph (right):

The S&P/ASX 200 is recognizedas the primary investablebenchmark in Australia. Theindex covers approximately 78%of Australian equity marketcapitalization. Index constituents

are drawn from eligiblecompanies listed on theAustralian Stock Exchange. Thisindex is designed to addressinvestment managers' needs tobenchmark against a portfoliocharacterized by sufficient sizeand liquidity.

The S&P/ASX Australian Index isa real-time, market capitalisationweighted index that include thelargest and most liquid stocks in

the Australian equity marketlisted on the Australian StockExchange (ASX).

S&P / ASX 200

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

IndexValue

DayPrepared by PRDnationwide ResearchSource: Standard & Poors, last updated May-2012

12


14/28

Superannuation contributions to June2011 totalled $104.8 billion, equating to

an increase of 4.8 per cent over the year.

Employers contributed $71.4 billion (68.7

per cent) and members contributed

$32.5 billion (31.3 per cent). Other

contributions, which include spouse

contributions and government co-

contributions, totalled $0.9 billion.

Total superannuation assets increased

by 11.5 per cent during the year to 30

June 2011 to $1.34 trillion. Of this total,$810.6 billion are held by APRA-

regulated superannuation entities and

$407.6 billion are held by self-managed

superannuation funds (SMSFs), which

are regulated by the ATO. The remaining

$117.0 billion comprises exempt public

sector superannuation schemes ($80.9

billion) and the balance of life office

statutory funds ($36.1 billion).

There is an increasing trend of more

retirees shifting their pension funds into aself-managed superannuation fund. As

Australians reach retirement, they have

more time available to manage their

superannuation. Between 2007 to

2011, the ATO reported that the number

of SMSFs increased by 31 per cent.

Currently, superannuation is a $1.3 trillion

industry.

There is a growing debate on whethersuperannuation funds should increase

the portion of bonds at the expense of

shares. Typically Australian pension funds

have a high share allocation with a low

bond allocation, at 50 per cent to 18 per

cent. When observing longer-term

periods, shares have tended to return a

higher return (of 11.9 per cent) than

bonds (6.0 per cent).

The Federal Budget shows plans to

increase the superannuation guarantee to12 per cent by 2019-20, a measure that

will boost retirement savings by $500

billion by 2037. Also among

superannuation reforms funded by MRRT

revenue, a higher concessional

contributions cap will be available for

older Australians with super balances

below $500,000, from July 1, 2014.

Government will reduce the super tax

break on concessional contributions for

the top 1 per cent of earners. Around

128,000 people earning over $300,000per annum will have the tax break on their

super contributions cut from 30 per cent

to 15 per cent. Tax receipts from

superannuation funds are expected to

grow by 10.9 per cent, to $711 million, in

fiscal 2012, and by 11.3 per cent, to

$820 million, in the following year.

SuperannuationSMSFs become popular with baby boomers

Superannuation Contributions

Graph (right):

The APRA AnnualSuperannuation Bulletincomprises statistics on thesuperannuation industry whichhave been prepared from thefollowing sources:

I. superannuation returnssubmitted to APRA

II. data from quarterly returnssubmitted to APRA by selectexempt public sector

superannuation schemes inAustralia.

III. data provided by the ATO onself-managed superannuationfunds

IV. returns submitted to APRAunder the Life Insurance Act1995 by registered lifecompanies in Australia

V. returns submitted to APRA byretirement savings account(RSA) providers

Superannuation Contributions

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

TotalContributions($million)

Financial Year

Employer Member Total Contributions

Prepared by PRDnationwide ResearchSource: APRA Bulletin, last updated Apr-12

13


15/28

The Home Loan Affordability Index hascontinued to increase since the June

2011 quarter, with affordability increasing

by a further 0.6 points in the December

2011 quarter to an Index score of 30.4

points.

Over the quarter the states were divided

in changes to affordability, with Victoria,

Queensland, Western Australia and

Tasmania all experiencing increasing in

the Index. New South Wales, South

Australia, the ACT and the NorthernTerritory all experienced declines in the

Index. The state that experienced the

largest growth in affordability was

Victoria, increasing by 2.1 per cent over

the quarter. The ACT experienced the

largest decrease at 2.3 per cent to

register 53.7 points.

On average, Australian households now

need approximately 32.9 per cent of the

family income to service their home loan.

New South Wales continued to be theleast affordable state, with households

requiring 37.9 per cent of the family

income to service their home loan,

equating to 5.0 per cent above the

national average.

Queensland families requireapproximately 31 per cent of the average

family income to service the average

home loan, while Victoria requires 33.1

per cent. The ACT requires the least

amount, with 18.6 per cent of the

average income. According to the REIA,

the proportion of family income needed to

meet the average rental payment has

increased slightly during the December

2011 quarter to 24.9 per cent.

The Real Estate Institute of NSW(REINSW) has tried to source an

innovative way to stimulate the market by

urging the state government to allow first-

home buyers to pay off their stamp duty

over three years rather than in one

upfront lump sum.

Home AffordabilityAffordability on the way up

Home Loan Affordability Index

Graph (right):

The Home Loan AffordabilityIndex measures average loanrepayments against medianwages and tracks these valuesover time.

Continued price growth in theproperty market without anaccompanying rise in incomesaw a long period of decline inthe home loan affordability indexacross the nation.

The Home Loan Affordabilityindex commenced its rapiddescent during 2002. After ashort leveling between 2004 and

2006, affordability levels haveagain continued to trenddownwards.

Home Loan Affordability Index

20.0

30.0

40.0

50.0

60.0

70.0

Dec

-81

Dec

-82

Dec

-83

Dec

-84

Dec

-85

Dec

-86

Dec

-87

Dec

-88

Dec

-89

Dec

-90

Dec

-91

Dec

-92

Dec

-93

Dec

-94

Dec

-95

Dec

-96

Dec

-97

Dec

-98

Dec

-99

Dec

-00

Dec

-01

Dec

-02

Dec

-03

Dec

-04

Dec

-05

Dec

-06

Dec

-07

Dec

-08

Dec

-09

Dec

-10

Dec

-11

Indexvalue

Quarter

ImprovingAffordability

Prepared by PRDnationwide ResearchSource: REIA / Deposit Power, last updated Apr-2012

14


16/28

The total number of dwellingcommencements drastically decreased

during the December 2011 quarter by

8.6 per cent, equating to 3,245 less new

homes for the quarter. When compared

to the previous year, commencements

have decreased by 13 per cent.

On a state-by-state basis, Victoria

continued to record the highest number

of dwelling commencements during the

December quarter, representing 35 per

cent of all dwellings commencednationally. New South Wales followed

with 22 per cent and Queensland

contributed with 17 per cent of

commencements.

The least amount of dwellings

commenced for a state during the

December 2011 quarter was the

Northern Territory (down 21.7 per cent to

260), followed by Tasmania (up 16.7 per

cent to 637).

Larger Australian developers havecommented on the amount of green

tape put in place by the Federal

Government to overcome, costing

millions of dollars. Requests have been

made for the environmental approval

process to be given back to State

Government, in an attempt to streamline

the process.

The latest figures to be release by the

ABS have shown that building approvals

has increased by 7.4 per cent over themonth of March 2012. New South Wales

lead the way, with an increase in multi-

residential units of 49.3 per cent. Dwelling

approvals increased in Western Australia

(up 11.1 per cent) and South Australia (up

4.2 per cent) but decreased in

Queensland (down 8.7 per cent),

Tasmania (down 6.7 per cent) and

Victoria (down 5.0 per cent). The number

of dwellings approved are still 15 per cent

below from the previous year.

Dwelling MarketNew dwellings plummet

Dwelling Commencements

Graph (right):

Dwelling commencementsindicate the number of newdwellings that have commencedtheir construction phase.

A moving yearly average is usedto filter out seasonal fluctuationsin the number of dwellingscommenced.

Nationally, the annual number ofdwelling commencements havebeen on a downward trendsince Sep-04 (earlier in NSWand VIC).

Dwelling Commencements

25,000

30,000

35,000

40,000

45,000

50,000

55,000

Dec-95

Dec-96

Dec-97

Dec-98

Dec-99

Dec-00

Dec-01

Dec-02

Dec-03

Dec-04

Dec-05

Dec-06

Dec-07

Dec-08

Dec-09

Dec-10

Dec-11

MovingAnnualAvg.of

Commencements.

Quarter

Dwelling Commencements Australia

Annual moving average

Prepared by PRDnationwide ResearchSource: ABSCat.No. 8750, last updated Apr-2012

15


17/28

Over the March 2012 quarter, the Timeto Buy a Dwelling Index significantly

decreased in the two mining related

states while South Australia, New South

Wales and Victoria all experiencing an

increase in the Index. The mining boom

states of Queensland and Western

Australia experienced dramatic

decreases of 13.4 per cent and 22.4 per

cent respectively.

For the month of March 2012 South

Australia registered the highest indexvalue at 138.5 points, but was followed

closely by Queensland at 129.5 and

Victoria at 121.2 points. This represents

an increase from the previous quarter of

19.9 per cent for South Australia, a fall of

13.4 per cent for Queensland and an

increase of 3.1 per cent increase for

Victoria.

According to the Westpac-MelbourneInstitute Survey of Consumer Sentiment,

family financial conditions deteriorated

over the 12 month period ending April

2011 in four of the five measured states,

with the largest decline felt in New South

Wales (down 29.8 per cent) and Victoria

(down 27.7 per cent). Queensland

experienced a decline of 12.3 per cent,

while South Australia fell 17.2 per cent.

The only state to improve its family

financial condition was Western Australia,

by 35 per cent. Indications for the coming12 months show a strong decrease in

Queensland (down 19.9 per cent) while

South Australia could rise by 8.2 per

cent.

Dwelling Market Cont.Mining states decrease in the Time to Buy a Dwelling Index

Time to Buy a Dwelling Index

Graph (right):

The Time to Buy a DwellingIndex indicates short-runchanges in consumer sentimentregarding whether it is a goodtime to buy a dwelling.

It is a component of the

Melbourne Institutes ConsumerSentiment Index which isundertaken monthly.

Time to Buy a Dwelling Index

40

60

80

100

120

140

160

180

Mar-02

Mar-03

Mar-04

Mar-05

Mar-06

Mar-07

Mar-08

Mar-09

Mar-10

Mar-11

Mar-12

MovingannualaverageofTimetoBuyaDwellingIndex

Moving Annual Average

NSW VIC QLD WA SA

Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012

16


18/28

According to the ABS House Price Index,all capital cities, except Darwin,

experienced a decline in value over the

12 month period ending March 2012.

On average, property values have fallen

by 4.5 per cent, with the largest declines

felt in Hobart (-6.7 per cent) Melbourne (-

6.6 per cent) and Sydney (-4.6 per cent).

Brisbane and Adelaide only experienced

a slight decrease of 3.7 and 3.6 per cent

respectively, with Perth decreasing by

1.7 per cent. Darwin experienced an

increase of 3.5 per cent, while Canberraremained fairly stagnant over the year,

decreasing by 0.5 per cent.

When observing changes in home values

over the quarter, green shoots appear in

Canberra, Brisbane, Darwin and Perth,

as marginal, but still positive growth was

recorded, while the rate of decline in the

other capital cities increased on the

December quarter.

According to the RPData-Rismark HomeValue Index, Canberra was the best

performing capital city over a 12 month

period ending in April 2012, by only

experiencing a softening in the Index of

0.72 per cent to $577,820. This was

followed by Darwin, experiencing a

decrease in the Index by 1.10 per cent, to

$479,330. According to the Index, the

largest decline was felt in Hobart,

recording a 8.47 per cent fall in the Index

to $326,490.

Home PricesHome values fall in 2011

ABS House Price Index Graph

(right):

The chart to the abovemeasures the annual change in

house prices in the capital cities,together with the weightedaverage of the eight capitalcities.

ABS House Price Index Change by Capital City

-4.6

-6.6

-3.7

-3.8

-1.7

-6.7

3.5

-0.5

-4.5

-1.8

-2.2

0.4

-0.9

1.1

-2.7

4.4

1.2

-1.1

-8 -6 -4 -2 0 2 4 6

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Average of all capitals

Change in house price index (%)

CapitalCity

March 2012 Quarterly Change

March 2012 Annual Change

Prepared by PRDnationwide ResearchSource: ABS Cat 6416, last updated May 2012

17


19/28

The Australian average vacancy rate

remained steady at 2.5 per cent over the

most recent December 2011 quarter.

Sydney remains the tightest rental market

with a 1.6 per cent vacancy rate, followed

by Canberra at 1.9 per cent.

Three capital cities experienced a

marginal decrease in vacancy rates over

the quarter, with Perth leading the way at

a drop of 0.5 per cent, followed by

Melbourne (-0.4 per cent) and Canberra

(-0.2 per cent). The rate increased the

most in Adelaide, by 0.3 per cent and now

has the highest vacant rate at 3.4 per

cent.

Darwin maintains the highest median

rental price for a standard three bedroom

house at $523 per week, despite this price

decreasing by 4.0 per cent over the

quarter ending December 2011. Adelaide

remains the most affordable city to rent in,

with a median rental price of $320 per

week.

Rental prices for a standard threebedroom house in Melbourne, Brisbane

and Adelaide have remained steady over

the December 2011 quarter. Rental prices

in Sydney and Perth increased by 5.0 per

cent, while Hobart experienced an

increase of 3.0 per cent. The Australian

capital city average increased to $397 per

week, equating to a 1.2 per cent shift over

the quarter.

According to the Australian Property

Monitors Rental Price Series, the national

median weekly asking rent for houses

increased by 1.1 per cent over the

December 2011 quarter, with units

increasing by 1.4 per cent.

Rental MarketCapital city vacancy rate stabilises

Quarterly Vacancy Rates Graph

(right):

An industry benchmark forvacancy rates is considered tobe 3%. Vacancy rates lowerthan 3% indicate strongdemand for rental

accommodation, whilst rateshigher than 3% reflect anoversupply of rentalaccommodation.

Quarterly Vacancy Rates

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

SydneyMelbourneBrisbaneAdelaidePerthHobartDarwinCanberraAus Average

QuarterlyVac

ancyRate

Capital City

Dec-10 Dec-11

Dec-11 Average 2.5%

Prepared by PRDnationwide. Source: REIA

Last Updated Apr- 2012

18


20/28

The Property Councils latest Office

Market Report shows Australias office

vacancy dropped from 9.0 per cent to

7.9 per cent during the six months to

January 2012.

Perth CBD is now has the lowest level

amongst the major Australian CBDs with

a vacancy rate of 3.0 per cent, followed

by Melbourne CBD and Hobart CBD at

5.0 per cent.

The Brisbane CBD experienced thelargest net absorption in the 12 months

to January 2012, at 92,140 sq. m,

followed by Perth CBD at 80,054 sq. m.

The vacancy rate by grade increased only

in Premium Grade (up 2.8 per cent to 5.1

per cent), with all other grades

experiencing a decrease (an average fall

of 1.1 per cent) in the vacancy rate.

Office MarketOffice vacancy rates continues to decline

National Office Vacancy Rate

7.9

10.3

0

5

10

15

20

25

Jan-90

Jul-90

Jan-91

Jul-91

Jan-92

Jul-92

Jan-93

Jul-93

Jan-94

Jul-94

Jan-95

Jul-95

Jan-96

Jul-96

Jan-97

Jul-97

Jan-98

Jul-98

Jan-99

Jul-99

Jan-00

Jul-00

Jan-01

Jul-01

Jan-02

Jul-02

Jan-03

Jul-03

Jan-04

Jul-04

Jan-05

Jul-05

Jan-06

Jul-06

Jan-07

Jul-07

Jan-08

Jul-08

Jan-09

Jul-09

Jan-10

Jul-10

Jan-11

Jul-11

Jan-12

VacancyRate%

National Vacancy Rate Historical Aver age

Source: Property Council of Australia / PRDnationwide Research

19


21/28

Over the quarter ending September2011, the Australian rate of population

growth increased slightly by 0.33 per

cent to 1.29 per cent, equating to 75,421

new residents. Although the increase in

the growth rate is marginal, the outcome

is the first increase to the population rate

since September 2009 and equates to

288,300 new residents over the year.

The growth rate in Western Australia

continues to increase, with an annual

increase of 2.63 per cent (up from 2.18per cent), equating to 60,690 new

residents. Victoria registered the highest

number of new residents with 73,770

during the 12 month period ending

September 2011. This is just above

Queensland with 67,093 new residents

and New South Wales with 64,117.

The Northern Territory has registered the

slowest population growth at 0.44 per

cent for the 12 month period ending

September 2011. This represents anincrease of only 1,006 new residents for

the state. Tasmania was not far behind,

recording only 0.48 per cent growth

(2,418 new residents) during the twelve

month period.

The rate of the natural increase in theAustralian population has decreased, with

3,366 less net newborns over the

September 2011 quarter than the

previous year, equating to fall of 9.3 per

cent. The sharp rate of decline in the

number of immigrants entering Australia

over the past year has stopped, with

Australia realising two consecutive

quarters of an increase in the rate of net

international migrant growth. The most

recent quarter experienced a 5.2 per cent

increase from the previous year. Over theSeptember 2011 quarter, the slight

majority of the overseas migrants tended

to take up residence in New South Wales

(25 per cent), followed by Victoria (24 per

cent) and Western Australia (24 per cent).

DemographicsNatural increase appears to have peaked

Population Growth Graph

(right):

Population change tracks thechange in population across thestates and territories of

Australia. Population growth isseen as the key driver ofdemand for housing.

Population Growth 2006 v 2011

1.4%

1.9%

2.4%

1.1%

2.9%

0.8%

1.8%

1.9%

1.8%

0.9%

1.3% 1

.5%

0.7%

2.6%

0.5%

0.4%

2.0%

1.3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

N

SW

VIC

Q

LD

SA

WA

T

AS

NT

A

CT

AU

ST

Annualpercentagechange

State

Annual Percentage change over five years

Annual % change year ending Sep-11

Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3101, last updated Apr-2012

Australian average 1.3%

20


22/28

The number of net migrants enteringWestern Australia continued to increase

at an exponential rate of 66.6 per cent

over the 12 month period ending

September 2011. The state recorded a

net 2,002 new residents, which equates

to the second largest number of net

residents entering a state (behind

Queensland).

Queensland net migration has increased

once again, with 2,665 new interstate

migrants during the September 2011quarter. This high level of growth has not

been experienced since the December

2009 quarter.

The rate of interstate migrant growth has

slowed in Victoria over the September

2011 quarter. Approximately 259 net

migrants decided to call Victoria home,

equating to the smallest amount since

September 2009.

New South Wales still records the highestoutward migration of residents

nationwide and until recently, this rate

was in decline. However this rate has

increased again, with the September

2011 quarter registering an outward net

migration of 3,786 residents.

South Australia continued to lose

residents, with 693 net residents

departing during the quarter, while the

ACT increased a net 45 interstate

migrants.

Demographics Cont.Western Australia proves to be popular

Net Interstate Migration Graph

(right):

Net interstate migration tracksthe net population change ineach state attributable tointerstate migration.

Net interstate migration figures

fluctuate with the seasons, so amoving yearly average is shownto filter out these changes.

Net Interstate Migration

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

Sep-85

Sep-86

Sep-87

Sep-88

Sep-89

Sep-90

Sep-91

Sep-92

Sep-93

Sep-94

Sep-95

Sep-96

Sep-97

Sep-98

Sep-99

Sep-00

Sep-01

Sep-02

Sep-03

Sep-04

Sep-05

Sep-06

Sep-07

Sep-08

Sep-09

Sep-10

Sep-11

AnnualAvg.ofNumberofPersons.

Quarter

NSW

VIC

QLD

WA

Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3401, last updated Apr- 2012

21


23/28

After retail expenditure declined at theend of 2011 (over the build-up to the

holiday season), the first two months of

2012 recorded stronger growth, albeit

only marginal. January recorded an

improved 0.3 per cent from December,

with February continuing to add a further

0.2 per cent.

Over the 12 month period ending

February 2012, Australias annual

change in retail expenditure increased

2.03 per cent from the previous year, butremained fairly flat during the month

itself.

Western Australia continued to incur the

greatest increase in retail spending over

the 12 month period ending February

2012, with an 8.2 per cent surge,

followed by Victoria at 3.2 per cent. New

South Wales was the only state to

experience less spending for retail from

the previous year, at -0.4 per cent.

The largest growth in expenditureoccurred in other retailing, registering an

annual growth of 6.6 per cent. This was

followed by other cafes, restaurants and

takeaway food which registered an

annual growth of 5.0 per cent.

Department stores experienced a

softening of 2.8 per cent from the

previous year, while clothing and soft

good retailing also softened by 1.5 per

cent.

Australian households spent on average

$5,100 each on Chinese-made product

last year (up 16 per cent). This was

mainly focused on telecommunications

equipment, clothing and computers.

Retail TradeModest consumer spending set for 2012

Annual Change in Retail

Expenditure Graph (right):

Retail spending figures areestimated by the ABS based onthe Retail Business Surveyconducted monthly amongst4,350 retail and selected servicebusinesses.

The annual change in retailspending indicates how activeconsumers are in themarketplace and the degree towhich consumers are willing tospend.

The seasonally adjusted figures

are used to smooth outseasonal factors associated withthis data.

Annual Change in Retail Expenditure

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Mar-02

Jun-02

Sep-02

Dec-02

Mar-03

Jun-03

Sep-03

Dec-03

Mar-04

Jun-04

Sep-04

Dec-04

Mar-05

Jun-05

Sep-05

Dec-05

Mar-06

Jun-06

Sep-06

Dec-06

Mar-07

Jun-07

Sep-07

Dec-07

Mar-08

Jun-08

Sep-08

Dec-08

Mar-09

Jun-09

Sep-09

Dec-09

Mar-10

Jun-10

Sep-10

Dec-10

Mar-11

Jun-11

Sep-11

Dec-11

Mar-12

Annualpercentagechange

MonthPrepared by PRDnationwide ResearchSource: ABS Cat No: 8501.0 Seasonally adjusted figures last updated May-2012

22


24/28

The government has upheld its promiseto return the federal budget to surplus in

2013, through the largest budget

turnaround in over 50 years, despite a

larger than expected deficit forecast for

the current year. Originally it was thought

that the surplus would come from

'saving' its way out of deficit, but when

scrutinised it hasnt, only managing to

find $4.7 billion in savings in this budget

while increasing $39.6 billion in tax

revenues. A large portion of the new

revenue derives from the carbon tax.Overall, this appears to be a big taxing,

big spending budget, with an increase

spending by $201.2 million, culminating

from a total of 284 separate increases in

spending in the budget.

One difference between Australia and the

US is demonstrated in the 2012-13

Australian budget. In the 2012

Presidential election campaign, Mitt

Romney desires to cut US taxes to 25

per cent while President Obama wantsthem cut to 28 per cent. The Australian

government was planning a 1.0 per cent

reduction in company tax and was

expecting consequent growth dividends

to benefit all Australians and reduce

unemployment. The company tax cut

was to come out of the revenue that the

government speculates can be raised

from the mineral resources tax. The

corporate tax cut was rejected by the

opposition who plan to abandon the

resources tax. The government hasresponded by not cutting corporate tax,

so the Australian company tax rate will

stay at 30 per cent. That will boost the

budget bottom line by $300 million in

2012-13, $1.2 billion in 2013-14, and

$1.55 billion in 2014-15. Total money

that the 1.0 per cent tax cut would have

returned to the corporate sector over

four years was $4.5 billion.

So where will the revenue be generatedfrom? The Treasury is expecting higher

than normal tax receipts for starters. Tax

receipts usually grow by about 8 per cent

a year, a result of fiscal drag (taxpayers

moving into higher marginal brackets),

but this years increase is expected to be

11 per cent.

The resources sector of the economy is

expected to grow at around 8.5 per cent

from fiscal 2012 to 2014. In comparison,

the non-resources part of the economy isexpected to grow at a below-trend

average annual rate of 2.0 per cent over

the next two years, with a high Australian

dollar and shifts in household spending

attitudes towards debt assisting the

disparity. However, iron ore and coal

companies arent expecting to pay any

Minerals Resource Rent Tax (MRRT), so

the $3.5 billion budgeted from that in

2012-13 could be a challenge, with the

remaining increase dependant on

economic growth of 3.25 per cent. TheTreasury expects carbon permit money to

provide $4.02 billion in the coming

financial year, followed by an estimated

$6.61 billion in 2013-14. Yet the two

major contributors to income (the carbon

tax and the claimed mineral resources tax

revenue) are both measures that the

opposition has guaranteed to drop.

Where does the Treasury plan its

expenditure? In total, welfare payments,

including the school kids bonus and theextra family welfare, will increase by $4.8

billion. In the schoolyard, parents who

have combined income below $112,000

with two children will be celebrating the

kids' bonuses of $820 for a secondary

student and $410 for primary school

students (a carbon tax dividend). In

income taxes, the tax-free threshold

jumps from $6,000 to $18,200, but the

next $18,800 is taxed at 19 per cent (up

from 15 per cent), and between $37,000

and $80,000 the tax take rises from 30 to32.5 per cent.

Federal BudgetAn overview with an insight into how it affects property

23


25/28

A significant change that is propertyrelated will be the removal of the Tax

Breaks for Green Buildings program.

This scheme, worth $405 million over

four years, is deemed surplus and the

Department of Climate Change's

suggestion to firms who wished to use

the old scheme is to seek low-cost

financing of energy savings measures

from the Clean Energy Finance

Corporation (CEFC) instead. The CEFC

has $10 billion to directly invest in

renewable energy or energy efficiencyprojects over the next four years.

Currently Australia has a legislated

requirement for 20 per cent of our energy

needs to be sourced from renewable

energy by 2020.

The federal government has also

allocated $29.8 million to a

Manufacturing Technology Innovation

Centre in an effort to boost the troubled

industry, which has been hit by the high

Australian dollar and reductions inpersonal and business spending

following the global financial crisis. An

additional $25 million will be spent in the

six years from 2013 on assistance for

automotive manufacturers, including $20

million on grants covering up to 50 per

cent of costs on activities intended to

expand companies customer bases or

product range.

On the whole, the budget has receivedcriticism from leading property groups in

response to the industry being largely

ignored. The Housing Industry

Association has described a lack of

initiative to boost the housing supply, the

Green Building Council was against the

scrapping of tax breaks for building

retrofits and Australian Industry Group is

negative about the focus on short term

consumption at the expense of long term

growth. The broken promises regarding

the retrofits and also company tax ratereductions has provoked poor sentiment

from the construction industry.

A shift into surplus will help ease pressure

on monetary policy and give the Reserve

Bank more flexibility to alter interest rates

than would otherwise have been the

case. In addition, its a significantly

positive message that Australia portrays

to the international scene as an

investment destination after the

governments fiscal discipline relative tointernational peers.

The announced measures allowing

companies which make losses in a given

financial year to carry back these losses

against any profits made in previous

years (and thus claim back some of the

taxes paid on profits in those years) are

particularly useful in the building industry

given the cyclical nature of the industry,

and will be especially important in helping

construction firms to survive through leanyears.

Federal Budget Cont.

24


26/28

We setindustrybenchmarkswhenpartnering

with ourclients toanswer keyquestions andsolve complexissues in theresidential

developmentarena.

PRDnationwides research division provides

reliable, unbiased, and authoritative property

research and consultancy to clients in metro and

regional locations across Australia. Our extensive

research capability and specialised approach

ensures our clients can make the most inormed

and fnancially sound decisions about residential

and commercial properties.

Our Knowledge

Access to accurate and objective research is

the oundation o all good property decisions.As the frst and only truly knowledge based

property services company, PRDnationwide

shares experience and knowledge to deliver

innovative and eective solutions to our clients.

We have a unique approach that integrates

people, experience, systems and technology

to create meaningul business connections We

ocus on understanding new issues impacting the

property industry; such as the environment and

sustainability, the economy, demographic and

psychographic shits, commercial and residential

design; and orecast uture implications around

such issues based on historical data and act.

Our People

Our research team is made up o highly qualifed

researchers who ocus solely on property analysis.

Skilled in deriving macro and micro quantitative

inormation rom multiple credible sources, we

partner with clients to provide strategic advice

and direction regarding property and market

perormance. We have the added advantage o

sourcing valuable and actual qualitative market

research in order to ensure our solutions are the

most well considered and fnancially viable.

Our experts are highly sought ater consultants or

both corporate and government bodies and their

advice has helped steer the direction o a number

o property developments and secured successul

outcomes or our clients.

About PRDnationwide Research

Our Services

PRDnationwide provides a ull range o property

research services across all sectors and markets

within Australia. We have the ability and systems to

monitor market movements, demographic changes

and property trends. We use our knowledge o

market sizes, price structure and buyer profles to

identiy opportunities or clients and provide market

knowledge that is unbiased, thorough and reliable.

Our services include:

Advisory and consultancy

Market Analysis including profling and trends

Primary qualitative and quantitative research

Demographic and target market analysis

Geographic inormation mapping

Project Analysis including product and pricing

recommendations

Rental and investment return analysis

Competitive project activity analysis

Economic indicators

Social research, including ocus groups


27/28

Join PRDnationwide

PRDnationwide welcomes

passionate individuals who are

interested in business ownership.

When you join our amily o more

than 110 ofces you proft rom

proven marketing tools, leading-

edge technology, specialised

training and powerul brand

recognition. I you are interested

in knowing more about owning

and operating a PRDnationwide

business either now or in the

uture, please contact:

Elias Sleiman

0438 184 [email protected]

PRDnationwide

32-36 Doggett Street

Newstead QLD 4006

GPO Box 2750

Brisbane QLD 4001

P 07 3229 3344 F 07 3221 7744

E [email protected]

www.prdnationwide.com.au

Researcher

Aaron MaskreyDirector | Research

07 3370 1702

[email protected]

Prepared by PRDnationwide Research.

For urther details, contact Aaron

Maskrey on 07 3370 1702

www.prdnationwide.com.au

PRDnationwide is a Colliers

International company.

Property Watch Reports

Over 130 snapshots o various areas around

Australia, as well as specifc reports on property

topics o interest such as resale growth, inra-

structure planning, luxury properties, and supply

and demand.

Highlight Reports

Major annual reports examining the macro and

micro economic inormation o larger catchment

areas within select city, rural, and coastal regions.

Quarterly Economic and Property Report

Produced quarterly to examine economic and

property trends nationally.

Niche Reports

Covering topical subjects such as mixed use and

transit oriented developments, marina berths,

waterront property and luxury property markets.

Our Research Reports

Suburb Reports

Detailed demographic and sales inormation or

statistical local areas (suburbs) in Queensland,

New South Wales, Victoria, and Australian

Capital Territory.

Residential Unit Reports

Quarterly reports based on primary research into

the sale o new units within major metro and coastal

cities identiying trends and opportunities.

Research Consultancy Service

We set industry benchmarks when partnering with

our clients to answer key questions and solve com-

plex issues in the residential development arena.

Our specialised consultancy service adds value to

our clients business by identiying the best means

or gaining a competitive advantage. We have

extensive experience in providing advice on virtually

every type o residential property and the issues

and considerations that surround them.

We simpliy your decision-making process

by providing comprehensive inormation and

recommendations including (but not limited to):

PRDnationwide does not give any warranty in relation to the accuracy o the inormation contained in this report. I you

intend to rely upon the inormation contained herein, you must take note that the inormation, fgures and projections have

been provided by various sources and have not been varifed by us. We have no belie one way or the other in relation to

the accuracy o such inormation, and projections.

PRDnationwide will not be liable or any loss or damage resulting rom any statement, fgure calculation or any other

inormation that you rely upon that is contained in the material. COPYRIGHT - PRDnationwide 2012.


28/28

prdnationwide quarterly economic and property report ed 2 2012

Documents