mid year update

The 2009 PROPERTY

OutlookOutlook

This document is not to be recreated for sales or public purposes.

Enquiry 1800 032 332 stewart.bunn@firstnational.com.au

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The 2009 Property OutlookMid Year Update

EXECUTIVE SUMMARY

QUEENSLAND

SOURCES

CONTACTS

NOTES

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CONTENTS

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First National Real Estate believe the property market has turned the corner after one of the most challenging years seen in quite some time. The upward trend is expected to continue throughout 2009, and strengthen as it gains momentum into 2010.

Record levels of housing affordability, coupled with a continuing shortage of housing supply across the nation will provide on-going support for the Australian property market in the coming years.

Housing prices are expected to rise, rental yields are forecast to continue improving and the government is investing heavily in major infrastructure and property projects. All this should ensure the Australian property market continues to thrive and will soon leave the global financial crisis (GFC) behind it.

As a result, there are plenty of bargains and opportunities for investors and owner-occupiers to realise the Australian dream of home ownership. However, these conditions won’t last for long. With the market already showing strong signs of recovery, now is the time to buy or invest before the property cycle starts to rise again.

The middle market has already been positively affected and momentum is expected to gather in the latter half of 2009. The top end should then begin to recover and the market will be well and truly in an upward cycle.

First home buyers are borrowing more, with the average first home buyers’ loan roughly $50,000 higher than it was last year. It should be remembered though, that first home buyers only represent 30 per cent of the overall property market, so there is plenty of scope for the middle and top end tiers to move too.

Strong auction clearance rates have been posted for most months in the first half of 2009, confirming that first home buyers are not the only ones taking advantage of current affordability.

In the last weekend of June 2009, Sydney and Melbourne achieved clearance results of 74 per cent and 87 per cent respectively. Recent figures indicate auction clearance rates are approaching 2007 levels on a national scale. In mid June, Sydney, Melbourne and Brisbane all recorded 52 week-high auction clearance rates

EXECUTIVE SUMMARY

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According to the experts, properties selling at auction are those popular with investors, first home buyers as well as second and third time buyers.

It is expected activity will remain buoyant for many months, with an increase in both demand and supply likely to occur in spring.

Low rates and attractive rental yields have been enough to entice a growing number of investors toward their next purchase. Investors accounted for 28 per cent of loans in May 2009, after an all-time low of 24.5 per cent in March.

CondItIonS RIpe FoR SuStAIned ReCoveRy

optimistic property market forecasts, combined with excellent consumer confidence figures confirm what First national Real estate has been indicating since January 2009 – conditions are ripe for a sustained recovery of the Australian Property Market.

Some forecasters are predicting property prices will rise in Sydney, Melbourne and Adelaide by 19 per cent (followed by Brisbane, Canberra and Hobart with between 15 and 17 per cent), in the three years to 2012, further strengthening consumer confidence. the lowest growth projections are Darwin at 11 per cent, followed closely by Perth with 12 per cent.

It is expected first home buyer activity will slow towards the year’s end, as the recovery gains momentum and the government initiatives are phased out. However, the second time home buyers and investors are already beginning to return to the market, a trend expected to grow in the second half of 2009 and throughout 2010.

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ISSUES TO CONSIDER

While the lower end of the market (driven mainly by first home buyers) has performed strongly, prestige residential properties have been hard hit. Yet overall, the residential property market has demonstrated resilience, consistent with Australia’s slowdown proving to be mild, compared with many other countries affected by the global financial crisis.

A national residential market recovery is being heralded, and the market is abuzz with buying activity, so it is timely to consider those factors that affect any property market.

As astute investors and property buyers will be quick to recognise, the property market is at the start of a new cycle that features low prices, strong rental returns and low interest rates, setting the scene for a potential ‘boom’ period.

Supply and demand underpins all property markets and the tightening credit conditions in Australia add even more pressure to an already undersupplied market.

DEMAND WILL CONTINUE TO OUTSTRIP SUPPLY

Even with the government’s announcement in the State Budget in May this year, that it will build 20,000 new homes, demand will still outstrip supply. Home building in Australia recorded its lowest levels for eight years in the first three months of 2009. Housing construction is expected by many to be the driver for the recovery of Australia’s economy next year – yet the government is not doing enough to ensure more houses will be built.

In the 12 months to September 2008, 389,300 new residents were added to our population tally with the city of Brisbane the most consistent for growth – the city recorded an average 2.3 per cent increase of new residents each year over the last five years. perth and darwin also recorded a jump in new residents, largely spurred on by an influx of workers in the mining and resources sector over the last three years.

South East Queensland remains the population growth centre of the nation with four of the top five growth regions located in the region. this region accounts for 18 per cent of the nation’s overall population growth, equating to an additional 65,348 new residents over the last year.

EXECUTIVE SUMMARY

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Australia’s residential property developers will need to build 155,000 homes annually for the next five years to cater for the additional 1.6 million people expected to live here. With an average influx of 330,000 people annually, this is well above the government’s 20,000 homes to be built for the next 12 months.

In the 2009 financial year, new housing supply built was 15 per cent lower than demand.

Queensland, NSW and the Northern Territory are believed to be undersupplied by 40 per cent and Sydney is expected to need 24,155 new dwellings each year for the next five years.

the following table forecasts dwelling stock deficiency, per state, for 2009/2010:

State June 2009 June 2010New South Wales 64,000 83,700Victoria 26,700 25,700Queensland 22,200 27,200South Australia 700 -1,800Western Australia 10,400 11,200

Tasmania 1,000 900Northern Territory 2,400 3,300Australian Capital Territory 1,600 1,500TOTAL 128,900 151,600

Strong demand is fuelling the market in all Australian capital cities, due to the population growing at its fastest rate in 40 years, record low interest rates and strong rental returns (in the first quarter of 2009, units outperformed houses - 13.3 per cent compared to 12.7 per cent respectively).

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EXECUTIVE SUMMARY

RENTAL YIELDS ARE UP

Rental yields for units across Australia are 5.25 per cent and houses 4.7 per cent, and with low vacancy rates nationally, these will move up and make residential property even more appealing to investors.

Low interest rates equate to an ideal time for investors, with price growth predicted to flow into the mid market over the next two to three years.

Investors are already seeing evidence that price growth is returning to the property market, so investor demand is expected to strengthen throughout the remainder of 2009 and accelerate towards the end of 2010.

PROPERTY HAS PROVED A SECURE INVESTMENT

Australia’s housing market recovery has been the cornerstone of the Australian economy’s stability in 2009. Existing property owners are comfortable in the knowledge that their largest investment is secure and investors have been given confidence to once again look to bricks and mortar over other asset classes, which have been decimated over the last 12 months.

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AUSTRALIA’S ECONOMY

Australia’s slowdown, due to the global financial crisis, has so far proven to be mild compared to that in many other countries.

despite low interest rates, and stimulus payments, household spending remained subdued in the first few months of 2009. Growth in consumer spending has been minimal.

The economy has reasonable momentum and the Reserve Bank and government have adequate leverage to provide the economy with a soft landing.

What should be remembered is that at some stage in the near future, higher interest rates will be a feature of the Australian economy, as the nation repays the debt it has incurred in its efforts to sustain itself through the global financial crisis and subsequent recovery.

An improvement in demand for new dwellings and a substantial rise in new dwelling approvals will manifest in an expansion of building work in the latter part of 2009.

It is not anticipated that there will be wholesale job losses, or a blow out in unemployment levels, although unemployment may reach 7 per cent – the point at which the last property growth cycle commenced.

Consequently, sharp drops in house prices are not expected and the undersupply of dwellings will effectively put a floor under construction.

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QUEENSLAND

ModeRAte GRoWtH, FueLLed By A BuRGeonInG popuLAtIon

Moderate price growth is forecast for Queensland after predictions of a bottoming out of the market by the end of the year.

the number of housing finance commitments have been climbing steadily since August 2008, forecast to reach 11,400 in February 2009.

According to some analysts, the Queensland economy, a traditional out-performer, has virtually stopped growing and is set to contract slightly over the next year or so – prices are vulnerable, but are not expected to collapse.

Housing approvals are at a rate of around 21,000, compared to an underlying requirement of 42,000 – so pent up demand will build rapidly this year.

But, despite any gloomy outlook, population growth should still be a major factor in Queensland, with the state having the highest population growth last year in Australia.

Sustained population growth, coupled with a very solid economy, ensures the state’s residential property market is likely to continue to perform very well. Combine this with a large amount of infrastructure and urban renewal projects, and Brisbane will continue to grow significantly.

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Brisbane

Brisbane house values grew by 1.5 per cent in the first three months of 2009 and it is expected moderate growth of 16 per cent will follow over the next three years.

Pent up demand for new homes will build further this year even though the Queensland state economy has stopped growing.

A weak upturn in Brisbane is expected given the decline in investment spending in the resources sector.

Brisbane recorded the most affordable units in the state for three consecutive months in the first half of 2009 (March, April and May).

The ‘urban renewal’ process has resulted in many of Brisbane’s inner suburbs being transformed from industrial eyesores to premium residential/retail precincts which are now in high demand and achieving the region’s highest price points for medium and high density living.

The Rental Market

Rental vacancies in Queensland overall are low, suggesting the supply-demand balance is already very tight.

In Queensland, Albion is one of the best suburbs to buy apartments, due to low prices and prime locations.

Kelvin Grove, with good links to the city and plenty of demand for rental accommodation, represents excellent value for money being less pricey than neighbouring inner city suburbs such as Red Hill and paddington, yet offering similar benefits.

The top rental yields for Brisbane houses are 4.8 per cent for Hemmant, 4.7 per cent for Spring Hill and Kenmore, and 4.6 per cent for Tingalpa and Keperra.

For units, rental yields are 6.4 per cent in Spring Hill, 6.1 per cent in Fortitude valley, 6.0 per cent in tingalpa and 5.9 per cent in South Brisbane and Woolloongabba.

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Gold Coast and Sunshine Coast

the Gold Coast and Sunshine Coast will follow Brisbane into the upturn – median prices should recover by 14 per cent over the next three years.

the slight lag behind Brisbane is due to the delay experienced while residents become more confident in selling their existing dwellings to move to these regions.

Continued demand for residential accommodation and non-residential development should hold the Gold Coast in good stead.

the Gold Coast property market is somewhat insulated from rate rises because of population growth, business investment and infrastructure spending.

Investment buyers have recognised the value that prestige property on the Gold Coast represents, and the potential for strong growth. Some buyers are looking for newly finished apartments to take advantage of market conditions and low interest rates, while others are opting to buy at today’s prices and settle in what is expected to be a much stronger market down the track.

Queensland’s south eastern region posted the best results for the March 2009 quarter, with the low prices around Toowoomba helping to produce a 6.3 per cent increase in median house prices, which pushed median values up to $272,000.

Toowoomba’s affordability is seen to be the catalyst for a surge in demand and price growth over the period, with the region benefiting from strong demand from first home buyers.

Ipswich finished the period as the top performer of growth in median house prices after a 4.35 per cent rise to $318,000. this also makes it the best performing area in the south east region for the 12 months to March 2009, with a total 5 per cent growth in median house prices.

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Townsville and Cairns

House prices in townsville and Cairns are expected to recover similar to the Gold Coast and Sunshine Coast, but slower than may have been earlier predicted, due to the downturn in resources investment. Median house prices should improve by 13 per cent in Townsville and 14 per cent in Cairns.

Townsville has been earmarked for some major infrastructure spending by the government including plans to expand the already major military presence in the city, as well as funding for new hospital infrastructure.

Townsville’s property market appears to be stabilising with encouraging signs of improved sales across all sectors. While activity in residential remained heavily weighted in the lower end of the market, sales were flowing through into mid-range housing priced from about $500,000.

There is also evidence of a pick-up in building approvals for Townsville over the June 2009 quarter, which are now running at about 75 a month (69 houses, six units).

Rental vacancy trend rates for Townsville have been climbing and stand at 4 per cent for houses, 4.8 per cent for units and 4.4 per cent overall.

The outlook for Townsville for the remainder of 2009 is for the market to gradually claw its way back as interest rates remain low, purchaser incentives remain in place and market confidence continues to build.

Cairns may continue to suffer in the short term as its reliance on the tourism industry has opened it up to global economic concerns. However, sales have jumped in the June 2009 quarter, demonstrating that buyers are returning to the market.

Rental yields for Cairns on investment properties have been rising too, narrowing the gap between income return and mortgage costs.

the current financial climate has delivered some attractive opportunities to buy at prices not seen for years in Cairns, however these unique opportunities won’t last.

Building approvals increased for the third consecutive month for Cairns in April 2009, to reach their highest levels since October 2008.

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Regional – General

the regional centre of Gympie, a little north of the Sunshine Coast, will have $500 million spent in its backyard through the upgrade of the Bruce Highway.

The status of the Ipswich corridor as one of Australia’s most compelling growth areas has been cemented by $884 million allocated to the Ipswich Motorway upgrade. this is the most important piece of road building in Australia, as this is the transport corridor that links central Brisbane with the region destined to absorb much of south east Queensland’s growth over the next several decades. It’s desperately needed and developers of new residential estates in the Redbank area will be buoyed by the funding boost. So too will developers of major industrial estates which are evolving in this precinct.

Major regional centres such as Fraser Coast, Bundaberg, Gladstone, Rockhampton and Mackay all experienced significant drops in median house prices during the three months to March this year. Median house prices on Fraser Coast took the biggest hit, with a fall of 7.4 per cent. Rockhampton also felt the effects of the ongoing recession with a fall of 4.3 per cent, but recording an overall growth of 10.8 per cent to a median house price of $277.000.

First home buyers are continuing to underpin the local building industry in the Mackay area. The most active segment of the market, new homes are mainly being built in Blacks Beach, Mountain View Estate in Bucasia and Marian. In the longer term, things look really good for Mackay, especially due to the expected population increases.

In Gladstone, the median unit price is now $290,000 – more expensive than the median in the Moreton Bay local government area ($289,500).

the largest coal mine in the nation, “China First”, has the capacity to generate multiple hot spots - at the mine site near the town of Alpha, at Emerald which is the nearest major centre and at Bowen, where the port facilities will be built.

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Hot Spots

The most affordable suburb for Brisbane is ethnically-diverse Woodridge, with a median house price of $260,000.

Ongoing infrastructure expenditure will continue to drive prices up in Redcliffe, making it one of the hot spots for Brisbane. Strong growth is predicted over the next three to five years, for Woody point, Clontarf, Greenslopes and Annerley.

Wollangaba is predicted as the next growth hot spot, possibly to even rival new Farm and South Brisbane, along with Manly.

Suburbs offering great bargains, with the opportunity for renovations to maximise returns, include Salisbury and Wooloowin.

Nundah is also considered a hot spot for units, being an established residential area located close to the city and the Brisbane Airport.

the continued gentrification of Kelvin Grove and its popularity with university students and workers from the numerous hospitals in the area, will continue to drive unit prices and rents upwards.

Regional Queensland’s cheapest suburbs include Cunnamulla, Augathelia, Tambo, Dirranbandi and Mitchell.

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SOURCES

Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.

SOURCES:

BIS Shrapnel – Residential property prospects 2009-2012Rp data – various reports and websiteReIA – Housing Affordability Report and media releasesReIWA – reports and websiteREIT - reportsBRW MagazineABC RadioIronfish – Australian Residential property Market update, June 2009Housing Industry Association – reports and websiteWestpac– Index of Consumer Sentiment, Residential property Monitorterry Ryder – property ReportAustralian Property Investor Planningyour Investment property Magazine – June 2009newspaper articles – the Australian, Weekend Australian, Australian Financial Review, Sydney Morning Herald, the Age, Herald Sun, AAp, Gold Coast publications, Cairns postwww.domain.com.auwww.onthehouse.yahoo.comwww.poweproperty.com.auwww.investsmart.com.auFirst national Real estate members across the country

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CONTACTS

NATIONAL OFFICE89 Hoddle Street, RichmondVIC 3121Phone: 1800 032 332

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