REI FORMS TREND JUNE 2017 QUARTER. A Joint Publication of:

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1 REI FORMS TREND JUNE 2017 QUARTER A Joint Publication of:

2 SPEND TREND 2015 ANALYSIS & KEY FINDINGS 4 Australian retailers still hot on the tails of international counterparts BDO s analysis of Australian and international retailers reveals that while Australian retailers saw slower growth across key performance indicators such as sales revenue and gross profit margin, it is clear that they have worked out how to weather the storm of changing market conditions, and are beginning to adapt to a much tougher, more global, digital retail world. PUTTING THE SOCIAL INTO A SOCIAL MEDIA STRATEGY FOR RETAILERS 9 Social media is now having a major effect on organisational performance so how can retail executives contribute to this important communication platform? We recap on the key elements of a social media strategy that executives need to be aware of, including insights from these leading retailers: LUSH cosmetics How to generate high social engagement IKEA Australia The IKEA challenge: integrating ecommerce on a mass global scale

3 JUNE 2017 QUARTER TENANCY AGREEMENTS - REI FORMS 4 Tenancy Agreements Written Average Rent Paid SALE AGREEMENTS - REI FORMS 6 Residential Sales Agreements Fixed Professional Fee Preferred Settlement Days Agent Estimate v Vendor Price Average Deposit Size COMPILATION REPORT 9 REI FORMS TREND JUNE 2017 QUARTER 3

4 TENANCY AGREEMENTS WRITTEN Tenancy Written Agreements Direk (5.1%) Eden Valley (4.7%) 2,214 Agreements Apr 17 2,900 <$1 bn Agreements May 17 2,717 Blyth (4.5%) Agreements >$3 bn Roxby Downs (4.2%) Jun 17 Adelaide (3.9%) The month of April showed the lowest amount of tenancy agreements written for the quarter at 2,214 agreements. It is not surprising to see such a trend with the impact of the Easter period as well as school holidays creating a relatively limited timeframe for transactions. Bowden (3.5%) Munno Para West (3.4%) As expected, May was the strongest month of the quarter, likely due to the carry over from the April month. The month of May provided a 31% increase in agreements written when compared to April. Port Augusta (3.4%) In the June 2017 Quarter there were however 12.4% less tenancy agreements written than that written in the March 2017 Quarter. Wayville (3.4%) When apportioning tenancy agreements written against the number of households for each suburb, we find the highest performing suburbs include Direk (5.1%), Eden Valley (4.7%), Blyth (4.5%), Roxby Downs (4.2%) and Adelaide (3.9%) Penneshaw (3.3%) Excluding Adelaide CBD and the rural areas, the highest performing suburbs included Direk (5.1%), Bowden (3.5%), Munno Para West (3.4%), Wayville (3.4%) and Mawson Lakes (2.9%). Whyalla Jenkins (3.0) Penrice (3.3%) Mawson Lakes (2.9%) Marryatville (2.5%) Whyalla (2.5%) Top 15 Suburbs Written Agreements 5 REI FORMS TREND JUNE 2017 QUARTER 6

5 MEDIAN WEEKLY RENT PAID Median weekly rent paid during the June 2017 Quarter was $310 per week Median weekly rent paid experienced a similar trend to that of the average management fee with a gradual increase throughout the quarter, the highest monthly average being June ($315) and the lowest being April ($310), a modest increase of 1.6% across the months. The quarter average was steady at $310. Hill, Westbourne Park and Kidman Park with both Hahndorf and Kent Town being top performing suburbs in the March 2017 Quarter. It is noted that Kent Town, Flagstaff Hill, Kidman Park and Westbourne Park all showed a significant increase on their average from the previous quarter, with Westbourne Park showing the highest increase of 60% on the previous quarter. There was no average growth on the March 2017 Quarter, with the March 2017 Quarter average also being $310. The upward trend in the average rent paid from April to June correlates with more tenancy agreements being written in May and June when compared to April, suggesting more demand for rental tenancies in later months may have created an upward adjustment to the weekly rental amount. $310 Similar to average management fee, there was a wide range in the result for average rent paid where the highest result was $510 and the lowest $145. It was noted that 17 of the bottom 20 results were from rural suburbs. Suburbs that recorded the highest median weekly rental amount for the June 2017 Quarter (more than 10 agreements) were Kent Town, Flagstaff 0% CHANGE Mar 17 Qtr $310 Jun 17 Qtr Movement in gearing Median Rent Comparison - March 17 to June 17 Quarters $400 Kent Town Flagstaff Hill $450 $425 Kidman Park $405 $600 $650 $700 $490 $468 $475 $455 $450 Suburbs with the highest median weekly rental amount REI FORMS TREND JUNE 2017 QUARTER $550 $510 Hahndorf Westbourne Park $500 Mar 17 Jun 17 5

6 RESIDENTIAL SALES AGREEMENTS FIXED PROFESSIONAL FEE Residential Sales Agreements Fixed Professional Fee APR 17 MAY 17 JUN 17 1,149 3,118 SALES AGREEMENTS 1,485 SALES AGREEMENTS 1,391 SALES AGREEMENTS 18.7% Of sales contracts written in the June 17 quarter were on a fixed fee Residential Sales Agreements - Jun 17 Qtr Fixed Professional Fees Analysis Sales agreements showed a similar trend to that of tenancy agreements, with April 2017 being the lowest performing month with 1,149 sales agreements written. May 2017 was the best performing month with 37% of the total quarter s agreements being written. There was a significant decline of 15.4% in sales agreements written compared with the March 2017 Quarter. The June 2017 Quarter was also 12.2% lower than the December 2016 Quarter for sales agreements written. This trend correlates with a general slowdown during the cooler months of the year. A reasonable proportion of sales agreements this quarter have been from metropolitan areas, with 83% of the top 25 suburbs in number of agreements written being from Adelaide and metropolitan suburbs. This has been a significant change from the March 2017 Quarter, where 84% of agreements were from rural areas. The top 25 suburbs account for 22.8% of the total sales agreements written. Last quarter we commented on the continual marketing of flat fee approaches into the Australian real estate market place and the perception this is likely to increase, at least in the medium term. We noted that agents would need to adapt and ensure they align their conversations to promote their core values of personal relationship, service and quality as being the qualities that set them apart and backs up the value proposition to the vendor. The June 2017 Quarter demonstrates a slight increase on the previous quarter with 18.7% of sales contracts written utilising fixed professional fees. The March 2017 Quarter highlighted 17.2% of sales contracts using fixed professional fees. 6 REI FORMS TREND JUNE 2017 QUARTER

7 PREFERRED SETTLEMENT DAYS AGENT ESTIMATE V VENDOR PRICE Preferred Settlement Days Agent Estimate v Vendor Price Below $250K 55.8 DAYS $250K to $350K 48.3 DAYS 350K to $450K 48.2 DAYS $450K to $550K 3,118 $550K to $650K 54.3 DAYS 56.3 DAYS $650K to $750K 56.3 DAYS $750K to $850K 74.4 DAYS $850K to $950K 54.2 DAYS Above $950K 72.6 DAYS 2,958 <$1 bn Average Settlement Days by Sale Amount - June 17 Qtr 2,866 >$3 bn Settlement Days $AGENT S BEST ESTIMATE EQUATED TO 100.0% OF THE Agent Estimate v Vendor Price Analysis PRICE DURING THE JUNE 2017 QUARTER Vendors have again slightly changed their expectations in respect of their preferred settlement timeframes. The preferred timeframes have continued to increase month on month to an average of 55 days for the month of June 2017, increasing from January 2017 where the average was 39 days for the month. The April and May months were 53 and 51 days respectively. The increase in average preferred settlement days on the March 2017 Quarter was 6%, which would align with a slowdown in sales agreements written. While the average for the June 2017 quarter was 53 days, there is some variance when looking at the average preferred days across sale price ranges. With the reduction of price from $2 million to $750,000 that needs an ATO Clearance Certificate from 1 July 2017, the settlement periods for above that new lower amount would suggest there should be no concern in delivery of the required Clearance Certificate. Prior to the reduction, the time frame for delivery of such a certificate from the ATO was ten days. The agent s best estimate has fluctuated over the course of the June 2017 Quarter. The quarter average at 100.0% suggests that the agents have a very good understanding of their market, and this has improved somewhat on the previous two quarters with the March 2017 Quarter at 98.9% and the December quarter at 97.1% There has however not been any consistency throughout the June 2017 Quarter with this measure being lowest during May at 96.6% and highest in June at 103.4%. Interestingly the lowest month being May correlates with the best month of the quarter for sales agency agreements written. When considering the type of pricing, the June 2017 Quarter again suggests more confidence when estimating ranges for property sales against single pricing estimates. The average across the quarter for single pricing was 95.6%, with a low of 90.0% in May and a higher average of 99% in April. REI FORMS TREND JUNE 2017 QUARTER 7

8 AVERAGE DEPOSIT SIZE Despite the general rule of thumb for deposits on purchase of a property being 5% or 10%, the average deposit size for the June 2017 Quarter was lower at 3.8%, which showed a minor increase from the March 2017 Quarter which was 3.7%. Across the quarter, there was very little variance between the months, with April being 3.7% and the months of May and June both being 3.8%. The percentage spread in deposits however again did vary between house price brackets. The smallest spread being 6.0% between the lowest and highest deposit amounts was in the sale price of $350K to $450K, again correlating closely with the Adelaide Median house price. The biggest spread of 10.0% from smallest to highest deposit amounts was in the sale price bracket above $950K. In the sale price bracket of above $950K the highest deposit amount paid was 10% of the sale price. In the previous quarter, the sales brackets of below $250K witnessed the biggest range of 33.3%, however in the June 2017 Quarter, the spread was only 8.9%. The average deposit percentage across the price ranges are: AVERAGE DEPOSIT SIZE- MAR 17 & JUN 17 QUARTERS 8% 7% 6% 5% 4% 3% Jan Feb Mar Apr May Jun Below $250K $250K to $350K 3.2% IKEA will be ready $350K to $450K 3.0% 3.5% 4.0% 4.5% 5.0% 5.5% 6.0% 3.5% 3.7% $450K to $550K 3.7% $550K to $650K 4.2% $650K to $750K 4.4% $750K to $850K 4.5% $850K to $950K 3.6% Above $950K 4.4% Average Deposit Size by Sale Value Jun 17 8 REI FORMS TREND JUNE 2017 QUARTER

9 COMPILATION REPORT ADVISORY TEAM We have prepared this analysis based on data supplied for South Australia by REI Forms Live for the December 2016, March 2017 and June 2017 Quarters and the 2016 ABS Census of Population and Housing. REAL ESTATE OUR APPROACH We have consolidated data received from FM6100, FM6200, FM2100 and FM1110 during the Period. Our procedures use accounting expertise to consolidate, cleanse, calculate and summarise information provided but do not include verification or validation processes. No audit or review of this information has been conducted and accordingly no assurance is expressed. INTENDED AUDIENCE MATT LAMING Partner The purpose of this analysis is to provide useful and up to date information to REISA Members on key measures and trends in residential tenancy and residential sales transactions occurring in South Australia. As a new initiative, we welcome feedback on the usefulness of this analysis together with any thoughts on additional measures that could be incorporated. DISCLAIMER While we have exercised due care and professional skill to cleanse data and compile this analysis, any errors, omissions or irregularities presented in the source data may have carried through to this analysis. We do not accept responsibility to any person for the content of this analysis. To the extent permitted by law, neither the firm nor any member or employee of the firm undertakes responsibility in any way whatsoever to any person in respect of this analysis, including any errors or omissions therein. No person should rely on the report without having a review or audit conducted. EYTHAN BARRACLOUGH Assistant Manager eythan.barraclough@bdo.com.au JAMES VARRICCHIO Supervisor james.varricchio@bdo.com.au REI FORMS TREND JUNE 2017 QUARTER 9

10 ABOUT THE AUTHOR Insights from Matt Laming, Partner, BDO With more than 18 years experience advising small, medium and large businesses and private clients, my expertise spans the accounting, taxation, business advisory, finance broking and superannuation sectors. In my current role as Business Services Partner and National Head of Business Services, I am responsible for driving business growth for my clients and providing expert advice on compliance, management reporting requirements, cash flow, superannuation, finance and group structuring needs. My passion is in assisting real estate businesses grow and reach their full potential. By using cloud software, innovative solutions and an eye on data, I can bring forward thinking to the industry. Most recently, I led the development of a unique set of digital benchmarking tools and dashboards to help real estate agents and professionals harness the power of data to build their businesses. Under the banner of REagility, I have launched two specialised business management tools for the real estate sector: compare and REach. Both are cloud-based platforms that measure and monitor business performance in real time to inform business decisions and help agency principals consolidate and grow their businesses. 10 REI FORMS TREND JUNE 2017 QUARTER

11 BDO KNOWS REAL ESTATE BDO helps real estate clients to identify business growth opportunities and maximise potential, providing strategic advice across the full scope of audit, tax and advisory services. Integrated service delivery is the key element providing both value and growth to our clients. We identify opportunities and implement solutions in a connected and considered way, so that we deliver value where it makes the biggest difference to the growth of your business. At BDO, we work with you using cloud systems to design and implement solutions to provide accurate and real time financial data and intuitive insights to assist with decision making and implementing changes to enhance performance. This includes: Graphical and tabular reports highlighting trends and relationships between sales, settlements and commissions and impacts on cashflow and other key metrics Non financial indicators to capture key information influencing listings, conversions and sales such as sales calls, days on market, etc Budgeting and forecasting based on historical data pattern Cost analysis and benchmarking to ensure efficient use of resources Data visualisation tools to assist and gain insights into patterns or trends in your business. To improve your revenue you must actively respond to the insights generated. BDO s real estate specialists will regularly meet with your management team to discuss the changes being implemented and the resulting performance enhancement and revenue growth. requirements. At BDO, our partner-led service teams are committed to meeting your specific business needs. OUR SERVICES Our real estate services provide sensible options and alternatives for continuing the growth of your business. The following is a summary of our real estate services. Tax advice and compliance services Cloud accounting solutions Trust account audits Strategic planning Leadership and development training Business valuations and due diligence Buy/sells Profitability enhancement and benchmarking services Specialised budgeting and forecasting programmes Superannuation planning. At BDO, we focus on delivering a value-driven service that is based on long term relationships. We constantly strive to demonstrate this in everything we do with the ultimate outcome of this approach being solid growth and benefit to all stakeholders. REAL ESTATE EXPERTISE BDO s Real Estate specialists provide a wide range of financial and consulting services to the Real Estate sector throughout Australia. Working with BDO s Real Estate experts gives you direct access to experienced local real estate advisers who bring a depth of knowledge within the sector. Our partner-led approach delivers the highest quality of service by using short, functional chains of communication to aid decision-making. Clients benefit from our fresh thinking, constructive challenges and practical understanding of the issues they face. Developing strong, personal relationships with our clients is at the forefront of our service. The BDO approach is designed to focus on key issues and areas and provide clients with constructive ideas for improving their operations - with the ultimate aim of adding value to businesses. The difference in the BDO approach can be found within our people and their dedication to tailoring our service to ensure that we meet your REI FORMS TREND JUNE 2017 QUARTER 11

12 NEW SOUTH WALES NORTHERN TERRITORY QUEENSLAND SOUTH AUSTRALIA TASMANIA VICTORIA WESTERN AUSTRALIA Distinctively different it s how we see you AUDIT TAX ADVISORY bdo.com.au This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact the BDO member firms in Australia to discuss these matters in the context of your particular circumstances. BDO (Australia) Ltd and each BDO member firm in Australia, their partners and/or directors, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it. BDO is the brand name for the BDO network and for each of the BDO member firms. BDO Advisory (SA) Pty Ltd ABN is a member of a national association of independent entities which are all members of BDO Australia Ltd ABN , an Australian company limited by guarantee. BDO Advisory (SA) Pty Ltd and BDO Australia Ltd are members of BDO International Ltd, a UK company limited by guarantee, and form part of the international BDO network of independent member firms. Liability limited by a scheme approved under Professional Standards Legislation (other than for the acts or omissions of financial services licensees) in each State or Territory other than Tasmania BDO Advisory (SA) Pty Ltd. All rights reserved.