Embargoed until: 11.3am Wednesday 11 April 212 Quarterly ial Property Survey: March 212 NAB Residential Property Index rises as the pace of house price decline moderates and rents continue growing. WA overtakes NSW as the strongest state and Victoria the weakest. House prices to bottom this year. Modest price growth in 213 with WA outperforming, Queensland the big improver and Victoria lagging. The NAB Residential Property Index rose to + points in March. WA now the best performing state and Victoria the weakest. WA expected to out-perform over next 2 years. Victoria continues to lag but overall conditions weakest in SA/NT by March 214. National house prices fell -1.3 in March (-2 in Q4 11). Prices down in all states with WA (-.1) the best and Queensland (-2.4) the worst. National house prices tipped to fall -.2 over next year and grow 1.6 over next 2 years. WA the standout for price growth. Victoria the most pessimistic state. Nationwide house rents increased 1.1 in Q1 12, but there was a notable softening in rental markets in SA/NT and Victoria. National rents forecast to climb 2.9 over the next year and 4.3 over next 2 years. Rental returns forecast to be strongest in WA and NSW. First home buyers and resident investors less active in the market for new property, but overseas buyer activity increases. Demand for new property still strongest for inner city houses and low rise apartments/townhouses. Tight credit conditions and housing affordability cited as the most significant constraints on new housing development. Lack of development sites and construction costs becoming problematic, especially in WA. Overall demand for existing property improved slightly. Houses still the most preferred type of property, especially in the inner city. Low and high rise middle ring apartments/townhouses the least preferred option for existing property buyers. Capital growth expectations remain strongest for existing property in the sub-$, price range. Outlook for premium property remains poor. Access to credit still viewed as the biggest impediment to purchasing existing property but the level of concern is being slowly pared back. Employment security has emerged as the next biggest concern, with Victoria the most pessimistic state. Index 7 NAB Residential Property Index 1. House Price Expectations (next 12 months) 6 1. 4. 3 2. 1 -. -1. -1-2 -1. Jun-11 Sep-11 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14-2. WA NSW Australia Qld SA/NT Victoria Index (December 211) Index (March 212) NAB Residential Property Index: March Quarter 212 Jun-11 Sep-11 Sep-12 Mar-13 Mar-14 Victoria 23-16 -3-22 -16-4 13 47 NSW 39 18 21 31 28 43 6 Queensland - -27-4 -18-13 12 37 6 South Australia/Northern Territory -8-6 -36-17 -11 11 22 33 Western Australia 12 11 18 44 6 71 82 Residential Property Index 16 - -14 1 23 38 8 For more information contact: Alan Oster, Chief Economist (3) 8634 2927 414 444 62 Robert De Iure, Senior Property Economist (3) 8634 4611 Dean Pearson, Head of Industry (3) 8634 2331
Embargoed until 11.3am Wednesday 11 April 212 Residential Property - Market Performance House prices continued falling in Q1 12, but with values falling at a slower rate for the second straight quarter, the downturn in house prices may be bottoming out. According to our survey, house prices were down -1.3 in Q1 12, from -2 in Q4 11 and -2.4 in Q3 11. Stronger outcomes were recorded in all states bar NSW, where house prices fell by -.4 (-.3 in Q4 11). However, NSW was still the best performing market after WA, where prices fell -.1 (-1.4 in Q4 11). Prices were significantly weaker in Queensland (-2.4), SA/NT (-1.9) and Victoria (-1.8). Forward expectations were broadly unchanged at the national level with prices tipped to fall by -.2 over the next year (-.4 forecast in Q4 11). However, there is still wide market variance. WA (1.3) and NSW (.4) are expected to lead the way with Victoria (-1.), SA/NT (-.6) and Queensland (-.2) the weakest states for house price growth in the next year. National house prices still falling, but we may have seen the bottom. WA the standout for price growth over the next 1-2 years 4 3 2 1-1 -2-3 -4 - Jun-11 Sep-11 House Price Expectations Jun-12 Sep-12 Australia Victoria NSW Qld SA/NT WA Dec-12 Mar-13 Jun-13 Expectations National house prices are expected grow by 1.6 by March 214 (1.2 previously). WA is forecast to significantly out-perform, with house prices expected to rise by 3.4 as the state resources boom drives strong population and employment growth. In NSW, expectations were pared back to 1.6 (1.9 in Q4 11), but optimism has risen in Queensland where prices are now tipped to rise by 1. (. previously). SA/NT house prices are also forecast to rise by 1.1 (.8 previously). Victoria remains the most pessimistic state with prices tipped to rise by just.9 over the next two years, although this was also upgraded from.3 in Q4 11. These forecasts are broadly in line with our own, with NAB also expecting house prices to remain flat or fall slightly in 212 with a modest recovery in prices expected in 213. Growth in rental yields is continuing Sep-13 Dec-13 Mar-14 6 Rental Expectations Rental Expectations (next 12 months) 4 4 3 2 3 1 2-1 -2 Expectations 1 Jun-11 Sep-11 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Victoria Qld SA/NT Australia NSW WA Australia Victoria NSW Qld SA/NT WA Positive rents and falling home values continue to support rental yield growth. Nationwide house rents were broadly unchanged at 1.1 in Q1 12 (1.2 in Q4 11), although there was a notable softening in the rental market in SA/NT and Victoria. In SA/NT, rents were flat after rising by.6 in Q4 11. We have also seen a big turnaround in the Victorian rental story over the past year. With slower population growth and higher construction rates contributing to rising residential vacancy rates in metropolitan Melbourne, Victorian rents fell -.2 in Q1 12, compared with a.4 increase in the previous quarter. In contrast, rental growth was strongest in WA (2.6) and NSW (2.2). Forward rental expectations softened in Q1 12 with survey respondents expecting national rents to rise by 2.9 over the next year (3.2 previously). While the outlook for rents in WA (4.) and Queensland (2.4) was broadly unchanged, expectations softened in SA/NT (2.6 from 3.7 previously), Victoria (1. from 1.8 previously) and in NSW (3.8 from 4. previously). Demand for rental property is set to strengthen over the next 2 years, but expectations for national rental growth were pared back to 4.3 (4.6 previously). Expectations softened in all states bar Victoria (2.9 from 2.8 previously), but it remains the weakest state for rental growth overall. Rental expectations over the next 2 years remain strongest in WA (.7), NSW (.2) and SA/NT (). 2
Embargoed until 11.3am Wednesday 11 April 212 NAB s Residential Property Index rose in the March quarter, but is still well below year earlier levels Index NAB Residential Property Index Index NAB Residential Property Index 1 4 8 3 6 2 4 1-1 -2 2-2 -4-6 Expectations -3 WA NSW Australia SA/NT Queensland Victoria Jun-11 Sep-11 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Australia Victoria NSW Qld SA/NT WA Further moderation in the pace of house price decline and continued rental growth underpinned another improvement in NAB s Residential Property Index to + points in Q1 12, up from +1 point in Q4 11. However, the index is still well down on year earlier levels (+16 points). WA emerged as the strongest market in the country in Q1 12, with the state index rising to +44 points in Q1 12 (+18 points in Q4 11). NSW was the only other state recording a positive index, although it fell slightly to +28 points (+31 in Q4 11). In contrast, overall conditions remained negative in Victoria (-16 points), where there has been a marked deterioration in housing market conditions over the past year, Queensland (-13 points) and SA/NT (-11 points). Looking ahead, NAB s Residential Property Index is forecast to rise to +38 by March 213 and +8 points by March 214. WA is set to out-perform with the state index rising to +71 point by Q1 13 and +82 points in Q1 14. NSW is next best with the state index at + points over the next year and +6 points by Q1 14. Queensland emerges as the biggest improver with the state index expected to rise to +6 points by Q1 14. Market conditions will remain weakest in Victoria over the next year (+13 points), but improve quite rapidly after that with the state index reaching +47 points by Q1 14. In contrast, our respondents expect housing market conditions in SA/NT to be the weakest in the country by Q1 14. Residential Property - New Developments First home buyers less active, but foreign demand growing Percentage Share of Buyers - New Developments (current quarter) Percentage Share of Buyers - New Developments (next 12 months) 4 4 3 4 4 3 3 3 2 2 2 2 1 1 1 1 First Home Buyers Owner Occupiers Investors Overseas Buyers First Home Buyers Owner Occupiers Investors Overseas Buyers There was drop off in first home buyers and resident investors in the new property market. The share of first home buyers in the market fell to 18 in Q1 12 (24 in Q4 11), although they were more active in SA/NT (2) and WA (28). The share of resident investors in the new property market also fell to 2 nationally (27 in Q4 11), but accounted for 31 of demand in Queensland. Resident owner occupiers are still the biggest players in the new property market and their share of demand rose to 43 in Q1 12 (38 in Q4 11). Owner occupiers were most active in SA/NT (7), WA (3) and NSW (4). Overseas buyers - predominantly Asian based - accounted for 1 of total demand - its highest level since we first compiled this data. Overseas buying activity was identified as strongest in Queensland (16) and Victoria (12). These trends are expected to stay broadly unchanged over the next 12 months. 3
Embargoed until 11.3am Wednesday 11 April 212 Demand for new property remains strongest for inner city houses and low rise apartments and townhouses Demand for New Residential Property Developments (current) Inner City Detached/Semi-Detached Houses Inner City Detached/Semi-Detached Houses Demand for New Residential Developments (next 12 months) Inner City Low Rise Apartments (<4 stories) & Townhouses Inner City Low Rise Apartments (<4 stories) & Townhouses Middle/Outer Ring Detached/Semi- Detached Houses Middle/Outer Ring Detached/Semi- Detached Houses Inner City Apartments (>4 stories) Inner City Apartments (>4 stories) CBD Apartments CBD Apartments Middle/Outer Ring Low Rise Apartments (<4 stories) & Townhouses Middle/Outer Ring Low Rise Apartments (<4 stories) & Townhouses Middle/Outer Ring Apartments (>4 stories). Poor 1. Fair 2. Good 3. Very Good 4. Excellent. Middle/Outer Ring Apartments (>4 stories). Poor 1. Fair 2. Good 3.Very Good 4. Excellent. Demand for new residential property strengthened mildly in all locations and for all property types in Q1 12, with the exception of middle ring housing. However, demand continues to be categorised as only fair in all categories and well down on year earlier levels. The inner city remains the preferred location for new property, with demand strongest for inner city houses (especially in NSW) and low rise apartments and townhouses (NSW and WA). Middle ring housing was the next best option nationally, although demand weakened slightly. Respondents from NSW expressed the strongest demand for this property type with demand weakest in WA. Demand for high rise inner city apartments was strongest in NSW and weakest in Queensland. Demand for new CBD apartments was also strongest in NSW and weakest in Victoria. Demand for new property is still considered to be weakest for middle ring apartments and townhouses, with demand for these property types especially poor in Queensland. Demand for new residential property is expected to strengthen across all property types over the next 12 months, led by inner city houses and low rise apartments and townhouses, where demand conditions are expected to be good. Demand is expected to remain weakest for apartments and townhouses in the middle/outer ring although marginally stronger than forecast in our December survey in all categories except for CBD apartments, where demand is expected to be slightly weaker. Survey respondents nationally are still citing tight credit conditions as the most significant constraint on new housing development, with SA/NT the most pessimistic state and WA the most optimistic. Housing affordability was the next biggest constraint but slightly less significant than in Q4 12. Concerns over housing affordability are most pronounced in Victoria and NSW - also the two states with the highest median house prices. Queensland was the most optimistic state with regards to housing affordability. We noted a big increase in the number of respondents nationally citing a lack of development sites as a significant constraint on new housing developments. Whereas concerns in SA/NT, Queensland and Victoria were seen as somewhat significant, they were judged as significant in WA and NSW. Tight credit and housing affordability still cited as major impediments to new building Major Constraints on New Housing Developments Tight Credit for New Residential Development Housing Affordability Rising Interest Rates Sustainability of House Price Gains Construction Costs Lack of Development Sites Labour Availability. Not at all 1. Not Very 2. Somewhat 3. Significant 4. Very. Significant Significant Significant Significant Following recent interest rate cuts, the extent of concern over rising interest rates also fell, but they are still seen as significant. SA/NT remains the pessimistic state with regards to interest rates. Around 16 of our survey panel is now anticipating higher interest rates over the next 12 months (9 in Q4 11). On average, survey respondents see interest rates falling by around 1 bps over the next 12 months. NAB has also pencilled in another 2 basis point cash rate cut in May 212 - but it is no certainty. As the growth momentum builds later in the year, we expect that cut - if it happens - may well need to be unwound in mid to late- 213. Construction costs have also emerged as a significant constraint to new building, especially in WA where rising construction costs are reportedly being driven by higher energy costs, material and skilled labour shortages. 4
Embargoed until 11.3am Wednesday 11 April 212 Residential Property - Existing Properties Owner occupiers dominating demand for existing properties Percentage Share of Buyers - Existing Properties (current) Percentage Share of Buyers (current) Existing Properties vs New Developments 6 6 Existing Properties New Developments 4 4 3 3 2 2 1 1 First Home Buyers Owner Occupiers Investors Overseas Buyers First Home Buyers Owner Occupiers Investors Overseas Buyers Resident owner occupiers continue to underpin demand for existing property. In Q1 12, owner occupiers accounted for 3 of total demand for existing properties, compared with 43 for new properties. Demand from resident investors rose to 22 in Q1 12 (21 in Q4 11), which was slightly below that for new properties (2). Activity from this group was weakest in Victoria (19) and strongest in NSW (24) and WA (24). In contrast, the share of demand from first home buyers in the existing property market fell to 18 in Q1 11, from 2 in Q4 11. First home buyers were most active in Victoria (21) and SA/NT (21) and least active in NSW (1). Overseas buyers accounted for less than of total demand for existing properties, compared with 1 in the new property market. Our survey suggests that these trends will remain broadly unchanged at the national level over the next year. Overall demand for existing property improved slightly in Q1 12. Capital growth prospects still much stronger in the sub-$, market. Demand for Existing Property Expected Capital Growth by Price (next 12 months) Inner City Detached/Semi-Detached Houses Middle/Outer Ring Detached/Semi- Detached Houses Less than $2, $2,1 - $, Houses Apartments Inner City Low Rise Apartments (<4 stories) & Townhouses $,1 - $7, CBD Apartments $7,1 - $1,, Inner City Apartments (>4 stories) $1,,1 - $2,, Middle/Outer Ring Low Rise Apartments (<4 stories) & Townhouses Middle/Outer Ring Apartments (>4 stories) $2,,1 - $,,. Poor 1. Fair 2. Good 3.Very Good 4. Excellent. Next 12 months $,,1+. Poor 1. Fair 2. Good 3. Very Good4. Excellent. Demand for existing property improved slightly in all locations and for all property types in Q1 12. Houses remain the most preferred type of property, especially in the inner city, led by NSW. National demand for middle-ring houses improved to good, with demand strongest in NSW and SA/NT. National demand for inner city low rise apartments/townhouses was also good, led by NSW but demand in Victoria was assessed as only fair. There was an improvement in demand for CBD apartments, with demand strongest in NSW and weakest in SA/NT. National demand for high rise inner city apartments also improved relative to our previous survey, but Victorian respondents were the least optimistic, with demand just scraping in as fair. Low and high rise middle ring apartments/townhouses continue to be the least preferred option for existing property buyers. Demand for existing residential property is expected to improve in all locations and by all property types over the next 12 months, except for inner city housing, although it will remain the preferred choice for existing property. Capital growth expectations remain strongest for existing property in the sub-$, price range. Capital growth over the next 12 months is expected to remain good in both housing and apartment markets, although houses will enjoy a premium. Capital growth expectations for existing property valued between $,-2,, are assessed as fair in both the housing and apartment markets. The outlook for the $-million+ market remains poor in both the housing and apartment markets, which is consistent with anecdotal reports that the top end of the market remains under pressure from a short-term cash squeeze and stronger A$.
Embargoed until 11.3am Wednesday 11 April 212 Access to credit is still viewed as the biggest impediment to purchasing existing property. However, the level of concern is being slowly pared back relative to a year earlier. Across the nation, access to credit continues to be classified as a significant constraint. Employment security has emerged as a key concern for home buyers, which is consistent with the recent softening seen in the domestic labour market. Victoria - which NAB sees as the weakest state economy in 212-13 - is the most pessimistic state with regards to employment security. The extent of concern over interest rates continues to recede, but it is still seen as a significant constraint to purchasing existing property. This is especially true in SA/NT where interest rate concerns are seen as very significant. We note that SA is also the only state that has seen housing affordability weaken recently. Access to credit the biggest impediment to purchasing existing property; concerns over employment security growing Access to Credit Employment Security Rising Interest Rates Relative Returns on Investments Level of Prices Lack of Stock Major Constraints on Existing Property. Not At All 1. Not Very 2. Somewhat 3. 4. Very Significant. Significant Significant Significant Significant Gladstone (Qld) still the most popular town/city for capital growth Darwin For the sixth consecutive quarter, the harbour town of Gladstone (Qld) was the most nominated response as the location expected to grow fastest in terms of capital values over the next 12 months. nominations from Queensland included the mining services town of Emerald, Mackay and Townsville. Karratha Emerald Townsville Mackay Gladstone In WA, respondents identified the mining town of Karratha and Perth as the best prospects. Bowden (SA) and Darwin (NT) are also expected to enjoy above average capital growth over the next year. NSW was well represented on the list this quarter with Sydney, Marrickville and Maitland. There were no nominations from Victoria. Perth Bowden Maitland Sydney Marrickville Survey Respondents Expectations House Price Expectations () Jun-11 Sep-11 Sep-12 Mar-13 Mar-14 Victoria -. -2.4-3.8-2.8-1.8-1.6-1..9 NSW -.4 -.9-1.1 -.3 -.4.2.4 1.6 Queensland -1.9-3.7-3.2-3.2-2.4-1.2 -.2 1. South Australia/NT -2.1-2.7-2.9-2. -1.9-1.6 -.6 1.1 Western Australia -1.6-1.1 -.8-1.4 -.1.6 1.3 3.4 Australia -1.1-2. -2.4-2. -1.3 -.7 -.2 1.6 Rental Expectations () Jun-11 Sep-11 Sep-12 Mar-13 Mar-14 Victoria 2. 1.1.1.4 -.2.6 1. 2.9 NSW 2.6 1. 2. 2.2 2.2 2.9 3.8.2 Queensland.6.4 -..4.8 1.4 2.4 3.7 South Australia/NT 1.2 2.4-1..6. 1.4 2.6. Western Australia 1.6 2. 1.3 2. 2.6 2.8 4..7 Australia 1.7 1.3.7 1.2 1.1 1.8 2.9 4.3 6
Embargoed until 11.3am Wednesday 11 April 212 About the Survey In April 21, NAB launched the inaugural NAB Quarterly Australian Commercial Property Survey with the aim of developing Australia s pre-eminent survey of market conditions in the Commercial Property market. The large external panel of respondents consisted of Real Estate Agents/Managers, Property Developers, Asset/Fund Managers and Owners/Investors. Given the large number of respondents who are also directly exposed to the residential market, NAB expanded the survey questionnaire to focus more extensively on the ial market. Around 3 panellists participated in the March 212 Survey and the breakdown of our Survey respondents - by location, property sector and business type - are shown below. Respondents by State Respondents by Property Sector Respondents by Business Type SA/NT Western Australia 11 ACT 2 Tasmania 1 Victoria 23 Hotels/ Entertainment Infrastructure 6 1 3 Office Property 1 Retail Property 16 Fund Managers (Real Estate) Owners/Investors in 4 Real Property 19 Valuers 7 Real Estate Agents and Managers 3 Queensland 2 New South Wales 3 Residential Property 44 Industrial Property 16 Property Developers 2 Asset Managers/ Property Operators 13 7
Embargoed until 11.3am Wednesday 11 April 212 Macroeconomic, Industry & Markets Research Australia Alan Oster Group Chief Economist +(61 3) 8634 2927 Jacqui Brand Personal Assistant +(61 3) 8634 2181 Rob Brooker Head of Australian Economics & Commodities +(61 3) 8634 1663 Alexandra Knight Economist - Australia +(61 3) 928 83 Vacant Economist - Australia & Commodities +(61 3) 8634 862 Michael Creed Economist - Agribusiness +(61 3) 8634 347 Dean Pearson Head of Industry Analysis +(61 3) 8634 2331 Robert De Iure Senior Economist - Property +(61 3) 8634 4611 Gerard Burg Economist - Industry Analysis +(61 3) 8634 2788 Brien McDonald Economist - Industry Analysis & Risk Metrics +(61 3) 8634 3837 Tom Taylor Head of International Economics +(61 3) 8634 1883 John Sharma Economist - Country Risk +(61 3) 8634 414 Tony Kelly Economist - International +(61 3) 928 49 James Glenn Economist - International +(61 3) 928 8129 Global Markets Research - Wholesale Banking Peter Jolly Head of Markets Research +(61 2) 9237 146 Robert Henderson Chief Economist Markets - Australia +(61 2) 9237 1836 Spiros Papadopoulos Senior Economist - Markets +(61 3) 8641 978 David de Garis Senior Economist - Markets +(61 3) 8641 34 New Zealand Tony Alexander Chief Economist - BNZ +(64 4) 474 6744 Stephen Toplis Head of Research, NZ +(64 4) 474 69 Craig Ebert Senior Economist, NZ +(64 4) 474 6799 Doug Steel Markets Economist, NZ +(64 4) 474 6923 London Tom Vosa Head of Market Economics - Europe +(44 2) 771 173 David Tinsley Market Economist - Europe +(44 2) 771 291 Foreign Exchange Fixed Interest/Derivatives Sydney +8 929 11 +(61 2) 929 1166 Melbourne +8 842 331 +(61 3) 9277 3321 Wellington +8 64 642 222 +8 64 644 464 London +8 747 461 +(44 2) 7796 4761 New York +1 8 12 62 +1877 377 48 Singapore +(6) 338 19 +(6) 338 1789 DISCLAIMER: [While care has been taken in preparing this material,] National Australia Bank Limited (ABN 12 4 44 937) does not warrant or represent that the information, recommendations, opinions or conclusions contained in this document ( Information ) are accurate, reliable, complete or current. 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