Australian housing market overview

Tim was our guest speaker at the REBAA AGM 28 th July 2014 We were very pleased to hear him say on more then one occasion that Brisbane is the Capital City he believes investors should be looking to invest. HPSBA comments: To clarify the Brisbane market referred to within this PDF is not the Brisbane City Council area but this also includes Logan and Ipswich. The Brisbane market only in the past 12 month has and is preforming much better then the outer area. Australian housing market overview July 2014 Prepared for REBAA Presented by Tim Lawless

Residential Real Estate Absolutely Underpins Australia s Wealth Position Residential Real Estate $5.5 Trillion Australian Superannuation $1.5 Trillion $1.8 Trillion (SMSF $543.4 Billion) Australian Commercial Listed Real Stocks Estate $1.6 $0.7 Trillion Commercial Real Real Estate $0.7 $0.7 Trillion 2 Source: RP Data, ASX, SPAA, PCA

Annual growth across the combined capitals index may have peaked Housing market conditions across the combined capital cities have been trending higher since June 2012 after a 7.7% peak to trough decline which lasted nineteen months. Capital city values are 10.1% higher than a year ago and 15.5% higher than their recent trough. Home values rose 3.8% over the 2012/13 financial year compared to 10.1% this financial year. 25.0% Annual and quarterly change in capital city home values 20.0% 15.0% 10.0% Annual change 5.0% 0.0% Quarterly change -5.0% -10.0% Jun-98 Jun-00 Jun-02 Jun-04 Jun-06 Jun-08 Jun-10 Jun-12 Jun-14 3 Source: RP Data - Rismark

Melbourne and Sydney have been the clear drivers of capital gain post GFC Change in state capital city home values from Dec 08 to Jun 14 45.2% 39.8% 15.3% 7.6% 5.3% -0.6% 4 Source: RP Data - Rismark

Sydney: strong conditions recently but weak long term cycle Median prices $800,000 $586,000 Capital gains + 15.4% past 12 months +23.1% over current cycle +3.4% per annum over decade 5 Source: RP Data - Rismark

Melbourne: high capital gains over three consecutive growth cycles Median prices $620,000 $468,000 Capital gains + 9.4% past 12 months +14.2% over current cycle +5.8% per annum over decade 6 Source: RP Data - Rismark

Brisbane: Gathering some momentum after consistently weak post GFC housing market conditions HPSBA comments: To clarify the Brisbane market referred to here is not the Brisbane City Council area but this also includes Logan and Ipswich. The Brisbane market only in the past 12 month has and is preforming much better then the outer area. Median prices $480,000 $385,000 Capital gains +7.0% past 12 months +8.8% over current cycle +3.5% per annum over decade 7 Source: RP Data - Rismark

Adelaide: Values are rising at the slowest pace of any major capital city over the current cycle Median prices $420,000 $345,000 Capital gains +2.9% past 12 months +5.6% over current cycle +3.8% per annum over decade 8 Source: RP Data - Rismark

Perth: Cycle has peaked and value growth is tapering Median prices $532,000 $440,000 Capital gains +5.2% past 12 months +15.2% over current cycle +7.4% per annum over decade 9 Source: RP Data - Rismark

A substantial value proposition has opened up across the Brisbane housing market HPSBA comments: To clarify the Brisbane market referred to here is not the Brisbane City Council area but this also includes Logan and Ipswich. The Brisbane market only in the past 12 month has and is preforming much better then the outer area. Median house prices over time, largest capital cities Gap btwn Sydney and Brisbane prices: 8.6% Sydney $800,000 Melbourne $620,000 Perth $532,000 Brisbane $480,000 Gap btwn Sydney and Brisbane prices: 66.7% 10 Source: RP Data - Rismark

Median value Perth Brisbane Melbourne Sydney Houses Units 10km, 20km, 50km $1m+ $750k to $999k $500k to $749k $250k to $399k <$250k 11

5 year capital gain Perth Brisbane Melbourne Sydney Houses Units 10km, 20km, 50km >=15% 10% to 14.9% 5% to 9.9% 0% to 4.9% Decline 12

Transaction numbers are 11% higher year on year but momentum of growth has slowed Monthly number of house sales - national 343,950 house sales over the past 12 months 11.9% higher YoY Monthly number of unit sales - national 131,689 unit sales over the past 12 months 9.1% higher YoY 13 Source: RP Data Note: the last eight months of sales volumes are modelled based on historic levels of revision

Buyer demand has surged in Brisbane but has eased substantially in Canberra, Perth and Darwin Year on Year change in dwelling transactions Note: the last eight months of sales volumes are modelled based on historic levels of revision 14 Source: RP Data

Weekly rents are growing at a much slower pace than dwelling values Rolling annual change in dwelling rents, combined capitals Annual change in dwelling rents, capital cities 15 Source: RP Data - Rismark

With capital gains outpacing rental growth, rental yields have been compressed Rolling annual change in dwelling rents v dwelling values, combined capitals Gross rental yields, combined capitals values rents 16 Source: RP Data - Rismark

Rental returns vary widely between the capitals Gross rental yields, capital cities Source: RP Data - Rismark 17

Yields are substantially lower in Melbourne and Sydney where high capital gains have eroded yields Gross rental yields, Sydney / Melbourne / Brisbane Brisbane 4.6% Sydney 3.9% Melbourne 3.5% Source: RP Data - Rismark 18

Gross rental yields Perth Brisbane Melbourne Sydney Houses Units 10km, 20km, 50km >=6% 5% to 5.9% 4% to 4.9% 3% to 3.9% <3% 19

Number of sales (rolling 3 month) Median selling price Lifestyle markets picking up Gold Coast Council region HOUSES Median price Num sales (year) Median price May 2014 $510,000 7,058 Median price May 2013 $485,000 5,513 Median price May 2009 $480,000 6,243 Change over past year 5.2% 28.0% Change over 5 years 6.3% 13.1% UNITS Median price Num sales (year) Median price May 2014 $350,000 9,359 Median price May 2013 $345,000 7,036 Median price May 2009 $360,000 8,581 Median house and unit price and number of sales over time 9,000 $600,000 8,000 7,000 $500,000 6,000 $400,000 5,000 4,000 $300,000 3,000 $200,000 2,000 1,000 $100,000 0 $0 May 94 May 96 May 98 May 00 May 02 May 04 May 06 May 08 May 10 May 12 May 14 Number of sales (rolling 3 month) (LHS) Median house price (RHS) Median unit price (RHS) Change over past year 1.4% 33.0% Change over 5 years -2.8% 9.1% Median discount Houses Units May-14-5.0% -5.8% May-13-6.5% -7.4% May-09-8.4% -7.8% Median vendor discount improving 0.0% -2.0% -4.0% Houses Units -6.0% -8.0% -10.0% worsening -12.0% May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 Median selling time Houses Units May-14 45 63 May-13 67 85 May-09 83 81 worsening improving Median days on market 120 100 Houses Units 80 60 40 20 0 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 20 Source: RP Data - Rismark

Number of sales (rolling 3 month) Median selling price Lifestyle markets picking up Byron Council region HOUSES Median price Num sales (year) Median price May 2014 $600,000 558 Median price May 2013 $570,000 493 Median price May 2009 $535,000 375 Change over past year 5.3% 13.2% Change over 5 years 12.1% 48.8% UNITS Median price Num sales (year) Median price May 2014 $460,000 200 Median price May 2013 $430,000 159 Median price May 2009 $417,500 139 Median house and unit price and number of sales over time 450 $700,000 400 $600,000 350 300 $500,000 250 $400,000 200 $300,000 150 100 $200,000 50 $100,000 0 $0 May 94 May 96 May 98 May 00 May 02 May 04 May 06 May 08 May 10 May 12 May 14 Number of sales (rolling 3 month) (LHS) Median house price (RHS) Median unit price (RHS) Change over past year 7.0% 25.8% Change over 5 years 10.2% 43.9% Median discount Houses Units May-14-5.9% -4.3% May-13-9.0% -4.4% May-09-10.1% -6.8% Median vendor discount improving 0.0% -2.0% -4.0% Houses Units -6.0% -8.0% -10.0% -12.0% worsening -14.0% May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 Median selling time Houses Units May-14 92 110 May-13 123 73 May-09 125 102 worsening 200 150 100 50 Houses Units Median days on market improving 0 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 21 Source: RP Data - Rismark

Number of sales (rolling 3 month) Median selling price But resources driven markets are experiencing a downturn Mackay Council region HOUSES Median price Num sales (year) Median price May 2014 $420,000 1,488 Median price May 2013 $435,000 1,981 Median price May 2009 $389,000 2,082 Change over past year -3.4% -24.9% Change over 5 years 8.0% -28.5% UNITS Median price Num sales (year) Median price May 2014 $287,500 234 Median price May 2013 $333,500 383 Median price May 2009 $295,000 392 Median house and unit price and number of sales over time 1,400 $500,000 1,200 $450,000 $400,000 1,000 $350,000 800 $300,000 $250,000 600 $200,000 400 $150,000 200 $100,000 $50,000 0 $0 May 94 May 96 May 98 May 00 May 02 May 04 May 06 May 08 May 10 May 12 May 14 Number of sales (rolling 3 month) (LHS) Median house price (RHS) Median unit price (RHS) Change over past year -13.8% -38.9% Change over 5 years -2.5% -40.3% Median discount Houses Units May-14-7.1% -8.0% May-13-4.9% -5.8% May-09-5.1% -6.5% Median vendor discount improving 0.0% Houses Units -2.0% -4.0% -6.0% -8.0% worsening -10.0% May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 Median selling time Houses Units May-14 65 104 May-13 52 65 May-09 58 80 worsening improving Median days on market 120 100 Houses Units 80 60 40 20 0 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 22 Source: RP Data - Rismark

Number of sales (rolling 3 month) Median selling price But resources driven markets are experiencing a downturn Isaac Council region HOUSES Median price Num sales (year) Median price May 2014 $325,000 90 Median price May 2013 $410,000 204 Median price May 2009 $390,000 393 Change over past year -20.7% -55.9% Change over 5 years -16.7% -77.1% UNITS Median price Num sales (year) Median price May 2014 $252,500 37 Median price May 2013 $399,500 83 Median price May 2009 $0 3 Median house and unit price and number of sales over time 350 $700,000 300 $600,000 250 $500,000 200 $400,000 150 $300,000 100 $200,000 50 $100,000 0 $0 May 94 May 96 May 98 May 00 May 02 May 04 May 06 May 08 May 10 May 12 May 14 Number of sales (rolling 3 month) (LHS) Median house price (RHS) Change over past year -36.8% Change over 5 years #DIV/0! Median discount Houses Units May-14-20.2% May-13-14.1% May-09-5.2% improving 0.0% Median vendor discount -5.0% -10.0% -15.0% -20.0% worsening -25.0% May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 Median selling time Houses Units May-14 102 May-13 86 May-09 64 worsening improving Median days on market 120 100 80 60 40 20 0 May 05 May 06 May 07 May 08 May 09 May 10 May 11 May 12 May 13 May 14 23 Source: RP Data - Rismark

Effective supply levels remain tight with fewer homes being advertised for sale compared with a year ago Capitals: number of properties advertised for sale Capital city No of new 12 mth No of total 12 mth listings change (%) listings change (%) Sydney 5,897-9.3% 18,891-14.6% Melbourne 6,334-2.5% 29,168-9.1% Brisbane 3,616-1.6% 18,328-11.8% Adelaide 1,651 1.4% 7,359-17.8% Perth 3,746-0.5% 12,518-10.8% Hobart 315-12.7% 2,717-6.8% Darwin 281-2.4% 1,304 14.3% Canberra 335-29.5% 1,470-41.8% Combined capitals 22,175-4.4% 91,755-12.2% Total listings: 98,911 (-8.4% compared with same time last year) New listings: 6.2% lower than same time last year Source: RP Data 24

Selling conditions may have peaked with the average selling time and rate of vendor discounting moving higher in May Average days on market, combined capitals 2014: 42 days 2013: 49 days Average vendor discount, combined capitals 2014: -5.8% 2013: -6.0% Source: RP Data - Rismark 25

Auction clearance rates have fallen from their recent highs but remain healthy Auction clearance rates and number of auctions held, combined capitals Number of auctions held in each capital, year to date 2014 26 Source: RP Data

RP Data s Mortgage Index rebounded strongly after the seasonal slump The RP Data Mortgage Index (RMI) tracks metadata flowing across RP Data s mortgage platforms, which account for more than 90% of all finance sector residential valuation instructions. The Index suggests that demand for mortgages is now easing from historic highs but remains elevated on an historic basis. Source: RP Data, ABS 27

Annual growth in housing finance commitments appears to have moved through the peak at the end of last year Annual growth in housing finance commitments has slipped to 15.1% from a recent high of 28.3% in December last year. Housing finance commitments are a key indicator for housing demand; the recent slowdown suggests the rate of capital gains has also likely peaked. Annual change in housing finance (ex refi) v annual change in dwelling values Source: ABS, RP Data 28

Investors now comprise more than 45% of all NSW housing finance commitments Gross value of investor housing finance commitments, Major states NSW Vic Qld WA SA Source: ABS, RP Data 29

Investment properties are mostly concentrated in the unit market Sydney Houses Sydney Units 10km 20km 10km 20km Melbourne Houses Melbourne Units 10km 10km 20km 20km 50km 50km >50% 40-49% 30-39% 20-29% <20% 30

Foreign investment mountain from a molehill? Where are the overseas residential real estate dollars coming from? 31 Source: RP Data, FIRB, Juwai

Consumer sentiment showed only a slight bounce back after the federal budget announcement Consumer Sentiment Index Consumer sentiment, major states 32 Source: Westpac-Melbourne Institute, RP Data

Consumer sentiment showed only a slight bounce back after the federal budget announcement Consumer Sentiment Index Consumer Sentiment v buyer demand 33 Source: Westpac-Melbourne Institute, RP Data

The surge in dwelling approvals appears to have peaked Total dwelling approvals Dwelling approvals, houses v units houses units 34 Source: ABS, RP Data

Victoria and New South Wales account for most of the newly approved housing supply, however the trend has been positive across all states Rolling annual dwelling approvals, major states Source: ABS, RP Data 35

More than half of all capital city dwelling approvals over the past year were for units rather than houses Over the past couple of years we have seen an unprecedented shift from a majority of approvals being for houses to one where the majority of approvals are for units. The surge in unit approvals is relatively un tested in Melbourne and Brisbane and it will be interesting to see just how many are ultimately completed in the near-term. 80% 70% Annual proportion of unit dwelling approvals Sydney Melbourne Brisbane Perth 60% 50% 40% 30% 20% 10% 0% May-86 May-90 May-94 May-98 May-02 May-06 May-10 May-14 Source: ABS, RP Data 36

Where s the new supply? Top 20 regions for dwelling approvals, 11 months to May 2014 SA4 Region State New houses New multi unit dwellings Total dwellings 1 Melbourne City Vic 14 3,842 3,880 2 Wanneroo WA 2,903 137 3,046 3 Brisbane Inner - North Qld 103 2,835 2,949 4 Whittlesea - Wallan Vic 2,255 446 2,705 5 Wyndham Vic 2,241 271 2,518 6 Casey - South Vic 2,200 182 2,386 7 Rockingham WA 2,097 200 2,302 8 Swan WA 2,072 196 2,274 9 Sydney Inner City NSW 20 2,107 2,199 10 Kogarah - Rockdale NSW 83 2,033 2,136 11 Stirling WA 1,071 1,053 2,131 12 Gungahlin ACT 1,227 798 2,025 13 Chatswood - Lane Cove NSW 98 1,912 2,021 14 Botany NSW 37 1,922 1,959 15 Stonnington - West Vic 25 1,663 1,717 16 Yarra Vic 80 1,547 1,655 17 Tullamarine - Broadmeadows Vic 1,257 361 1,624 18 Parramatta NSW 109 1,470 1,586 19 Mandurah WA 1,473 84 1,558 20 Boroondara Vic 483 1,028 1,516 Source: ABS, RP Data 37

Looking forward At a macro level the housing market appears to be moving through the peak of the growth cycle Annual rate of growth has slowed and transaction numbers aren t growing as fast. Vendor metrics are showing signs of slowing Different stages of the cycle for each city/region Interest rates, labour markets and confidence levels are key factors to watch. Compressed yields and affordability pressures are likely to be the main challenges across Sydney and Melbourne. Those cities earlier in the cycle and with a healthier yield profile are likely to show an improved performance. Investor concentrations, leverage and servicability are on the risk radar for lenders. Source: ABS, RP Data 38

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