Urban Development Institute of Australia (Victorian...

Urban Development Institute of Australia (Victorian Division)

UDIA URBAN IQJune 2018 Quarterly Report

Information provided by UDIA’s Partner,RPM Real Estate Group

PROPERTY MARKETUPDATE

URBAN IQ is a series of research, news, analysis and

market intelligence initiatives for the Victorian urban

development industry.

www.udiavic.com.au

THANK YOU TO UDIA PARTNER RPM REAL ESTATE GROUP FORPROVIDING THE INFORMATION CONTAINED WITHIN THIS REPORT.

DISCLAIMER: ALTHOUGH ALL REASONABLE CARE HAS BEEN TAKEN IN THE PREPARATION OF THIS REPORT, THE RPM REAL ESTATE GROUP PTY LTD AND UDIA VICTORIA TAKE NO RESPONSIBILITY FOR THE ACCURACY OF THE INFORMATION CONTAINED HEREIN. IT IS RECOMMENDED THAT ALL THE INFORMATION BE VERIFIED IF IT IS TO BE USED FOR COMMERCIAL PURPOSES.

URBAN IQ

UDIA KNOWLEDGE PORTAL

PROPERTY MARKET UPDATEJUNE QUARTER 2018

UDIA URBAN IQ

ECONOMIC MARKET UPDATE 04

RESIDENTIAL MELBOURNE MARKET PRICES 07

FINANCE ACTIVITY 08

BUILDING ACTIVITY 10

AFFORDABILITY 12

PROPERTY MARKET NEWS 14

ABOUT RPM REAL ESTATE GROUP 15

UDIA PRINCIPLES FOR THE WAY AHEAD 17

UDIA PARTNER

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• Australia’s Gross Domestic Product (GDP) in March quarter 2018 (the latest available data) increased by 1.03% from the corresponding figure in the previous quarter. This led to growth of annual GDP to March 2018 picking up to 2.56%. Public investment is a key driver of economic growth, underpinned by major state infrastructure projects and commonwealth defence projects, with new private investment in non–residential dwellings and machinery and equipment also starting to improve.

• However, GDP growth remains below the long term trend. Private consumption growth is moderate in the face of low wage growth, while new dwelling investment has declined by 2.47% over the year.

• Growth in the Victorian economy has outperformed the national average, with annual State Final Demand (SFD) at March 2018 being 4.76% higher than the same figure at March 2017. Significantly, this was also the highest growth rate amongst all states and territories.

URBAN IQECONOMIC MARKET UPDATE

ECONOMIC MARKET UPDATE

INTEREST RATES• After reducing the cash rate by 25 basis points in

both May and August of 2016, the RBA has made no further changes in following 22 monthly meetings, leaving the cash rate at a historical low of 1.50%. This persistent low interest rate environment has been attributed to below trend economic growth and low wage growth resulting in weak inflationary pressures.

• Moreover, with Sydney and Melbourne both experiencing a correction in dwelling prices in 2018, and recent directives by APRA on major banks to restrict growth in investment lending and interest only loans being successful in containing overall residential investment lending, it has removed the requirement for the cash rate to rise in the short term.

• Nevertheless, additional cuts to the cash rate are unlikely, with the next RBA move in the cash rate still likely to be up, although not until second half of 2019. Notably, non–major banks have recently increased their variable rates in response to their short term borrowing costs surging.

• The official standard variable interest rate for owner occupiers sits at 5.20% (while investor loans sits at 5.80%). However, with some bargaining owner occupiers can obtain a discounted interest rate of 4.50% (investors can obtain 5.10%) from the major lenders. Furthermore, some banks outside of the ‘big four’ currently have introductory rates of 3.65% for owner occupiers who pay principal and interest.

EmploymentVictorian StateEconomy

Public Investment

Source: Australian Bureau of Statistics

1.50%

Cash Rate(June-18)

4.50%5.20% 4.15%

Standard Variable Rate (Owner Occupiers - Jun-18)

3 Year Fixed Rate(Jun-18)

Discounted Variable Rate(Jun-18)

%-

3yr

Source: Reserve Bank Australia

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• The Consumer Price Index (CPI) increased by 2.08% across Australia in June quarter 2018, compared to the same quarter in 2017. This continued the trend of CPI remaining below or at the lower end of the RBA targeted range of 2% to 3% since late 2014. Sub–groups that experienced significant annual increases in their respective CPI index were alcohol and tobacco (7.81%), followed by transport (5.18%), and health (3.38%).

• The Consumer Price Index (CPI) escalated by a higher 2.52% in Melbourne in June quarter 2018, compared to the same quarter in 2017. In Melbourne, the CPI housing index (+4.38%) rose at a faster pace than overall CPI in June quarter 2018, highlighting the largely strong performance of the Victorian housing market during financial year 2018.

• The number of employed persons in Victoria increased by a modest 1.91% over the twelve months to June 2018. This was below national annual employment growth rate at June 2018 of 2.70%.

• Victoria’s unemployment rate edged higher in June 2018 to 5.6%, which was also slightly above the national unemployment rate of 5.4%.

• Average weekly earnings for full time adults in Victoria of $1,572.50 at November 2017, represented annual growth of 1.35%.

$

CONSUMER SENTIMENT

The Westpac-Melbourne Institute Consumer Sentiment Index is the most widely quoted barometer of consumer sentiment in Australia. A score of greater than 100 means that optimists outnumber pessimists, with readings of below 100 indicating that pessimistic consumers are in the majority.

Source: Westpac-Melbourne Institute Consumer Sentiment Index

• The Westpac-Melbourne Institute Consumer Sentiment Index continues to hold in slightly optimistic territory with a reading of 102.1 in June 2018. However, the Index is still well below levels typically associated with strong consumer sentiment.

• From May to June, expectations on house prices, job security, and the long term view of the economy all deteriorated. Furthermore, the family finances index remains below its longer run average despite the lift in June, in response to ongoing pressures on household budgets from slow growth in wages and rising petrol prices.

102.1

80.0

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CONSUMER PRICE INDEX EMPLOYMENT AND WAGES

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• Growth in business conditions has largely remained solid from the middle of 2015, with the June 2018 result of a 13.2 percentage point increase continuing the double digit monthly rises since March 2017. Business conditions are also robust across all states, with the Victorian index recording a 14 percentage point increase in June.

• Trading/sales and profitability indices both experienced improved growth in June. Although growth in employment conditions diminished, it is consistent with current jobs growth.

BUSINESS CONFIDENCE

NAB’s Business Survey has been tracking Australian business confidence levels for more than two decades. Businesses are approached quarterly, with two smaller monthly surveys conducted in the intervening months to capture changes on a more regular basis. The panel now exceeds 2,700 businesses.

Source: National Australia Bank Business Survey

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NAB

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Business Conditions

+13.2

Victoria gained 28,610 people during December quarter 2017 (latest available data), lifting its estimated resident population to 6,385,849 people. This equated to a population increase of 143,420 people or 2.30% growth in Victoria over the twelve months to December 2017, which were both the strongest in absolute terms and percentage terms amongst all states and territories.


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Peop

le

Natural Increase Net overseas migration Net interstate migration

VICTORIAN POPULATION

POPULATION COMPONENTS

A breakdown of the three components of population growth shows that in December quarter 2017 Victoria recorded;

Natural Increase

Net

In

terstate Migration Net

O

verseas Migration++3.6%* -26.4%* -23.6%*

+42,312 persons over the 12 months to December 2017 (+14.1%). Reflects 29% of the

national natural increase

+16,386 persons over the 12 months to December 2017

(-13.5%).

+84,722 persons over the 12 months to December 2017

(+23.6%). Reflects 35% of the national intake

+

* on same quarter of the previous year

• Most major industry groups are still experiencing solid business conditions, with the construction industry being particularly buoyant, attributed to a large pipeline of residential construction work which is necessary to ensure a healthy balance between supply and demand in context of Victoria’s rapidly growing population.

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Property prices in Melbourne have trended upwards since the middle of 2013, with detached houses achieving stronger growth than units.

• The established housing market to date remains robust when compared to other states with approximately 44,574 auctions held in Victoria during the twelve months to June 2018, with a clearance rate of 69.4% (REIV).

• The number of auction sales during the twelve months to June 2018 is 6.1% higher than the corresponding period a year earlier, where the clearance rate was 76.9% (REIV).

Over June quarter 2018, sales recorded a preliminary median;

• House price of $840,000 (-0.6% from the previous quarter, and +3.6% from the corresponding quarter a year earlier)

• Unit price of $604,000 (+0.5% from the previous quarter, +0.3% from the corresponding quarter a year earlier)

• Land price of $325,000 (+0.6% from the previous quarter, +19.5% from the corresponding quarter a year earlier)

MELBOURNE PRICES

4%17%

54%

89%

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31%

65%

19%

48% 55%

117%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

12 months 2 years 5 years 10 years

% ch

ange

Price Change

Melbourne House Price Melbourne Unit Price Melbourne Land Price

PRICE CHANGE PER PERIOD

Source: REIV, RPM Research Division

Source: REIV, RPM Research Division

URBAN IQRESIDENTIAL MELBOURNE MARKET PRICES

$840,000

$325,000

$604,000

$175,000

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Melbourne Prices

Melb House Price (LHS) Melb Unit Price (LHS) Melb Land Price (RHS)

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VALUE OF LOANS BY PURCHASER TYPE

VALUE OF LOANS BY DWELLING TYPE

URBAN IQFINANCE ACTIVITY: VICTORIA

• The total value of new owner occupier loans in June quarter 2018 escalated by 9.1% compared to the previous corresponding period. This was primarily attributed to the substantial 19.5% annual growth in the median lot price at June 2018, with owner occupier loans for the construction of a new dwelling increasing at a greater rate compared to that for established dwellings. This reflects a shift in demand to the relatively more affordable outer metropolitan areas, and also to new housing in developments in the greenfields.

• The total value of loans to investors during the three months to June 2018 was 12.0% lower compared to the same period in 2017. This has coincided with the ongoing limit on new interest only lending to 30% of total new residential mortgage lending, with these loans also requiring the loan–to–value ratio not exceeding 80%. Moreover, with an increasing amount of investor loans moving from interest only to principal and interest because of the mortgage rate saving, the outstanding loan amount is reducing.

$0$1,000$2,000$3,000$4,000$5,000$6,000$7,000$8,000

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)

Owner Occupier Investor


• Victoria recorded 47,612 new owner occupation loans approvals during June quarter 2018, which was 2.2% higher than the corresponding figure in the same quarter in 2017. However, owner occupier demand has subsided through 2018, with the number of loans down by 7.4% from the peak in December quarter 2017. This is evident through lower turnover activity of established dwellings, and the decline in lot sales.

• In June quarter 2018, compared to the previous corresponding period, new owner occupation loans for the construction or purchase of a new dwelling and for established dwellings both increased by 2.2%. Established dwellings accounted for the majority (83%) of total new loans for owner occupation in the three month period.


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Construction of Dwellings Purchase of New Dwellings Purchase of Established Dwellings

• Overall, the number of new owner occupation loans during financial year 2018 in Victoria was a relatively high 191,920 loans, which was 6.5% above the number of similarly financed dwellings over financial year 2017. Considerable lending activity to owner occupiers has been underpinned by strong population growth and historical low borrowing costs.

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NUMBER OF LOANS TO FIRST HOME BUYERS AND NON-FIRST HOME BUYERS

• The number of loans attributed to first home buyers reached 9,010 loans over June quarter 2018, which was a substantial 36% higher than first home buyer loans in the same period in 2017. This was the highest June quarter total of first home buyer loans since June quarter 2009 when the Federal Government’s first home owner boost scheme was in place.

• This surge in first home buyer demand was attributed to the two Victorian Government initiatives beginning July 2017 of abolishing stamp duty for first home buyers when purchasing a dwelling of up to $600,000 in value, and for owner occupation, and the doubling of the first home buyer grant to $20,000 when purchasing a new dwelling outside of Greater Melbourne.

• Dwellings financed to non-first home buyers recorded 38,602 loans during June quarter 2018, reflecting a 3.4% decline on the same quarter in the previous year.

• As a result, the proportion of total loans accounted for by first home buyers of 19% in June quarter 2018 was a notable increase from the 14% share in June quarter 2017.

AVERAGE LOAN SIZE – FIRST HOME BUYERS AND NON-FIRST HOME BUYERS

• The average loan size to first home buyers in June quarter 2018 increased by 11.0% from the previous corresponding period, while the average loan size to non-first home buyers escalated by 7.0%.

• At June 2018, the average loan size attributed to a non-first home buyer was $54,930 above the average loan size to a first home buyer ($365,600).

• While this divergence in average loan size between first home buyers and non–first home buyers remains relatively large, it closed significantly in June quarter 2018, to its lowest gap in two years.

0%

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First Home Buyers Non-First Home Buyers Share of FHBs

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FHBs - Average loan size Non-FHBs - Average loan size



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URBAN IQBUILDING ACTIVITY: VICTORIAAPPROVALS• Victoria recorded a robust 17,467 dwelling approvals in June quarter 2018, representing a sizeable

escalation of 17.2% on dwelling approvals in the same quarter in 2017. This is the third consecutive quarter of double digit annual growth in quarterly approvals, which underpinned an overall 16.0% increase in total approvals during financial year 2018 to 75,392 dwellings.

• New detached house recorded a solid 10,321 approvals in June quarter 2018, which reflected growth of 6.6% on new detached house approvals in the same quarter in 2017. Record lot sales activity through 2016 and 2017 has resulted in new house approvals strengthening as these sales starting moving into settlement. As a result, there were 39,603 new detached house approvals in Victoria during financial year 2018, reflecting a 10.4% annual increase. Significantly, this was a record for annual new detached house approvals, surpassing the previous high that occurred in the twelve month period to July 2010 when boosted first home owner grants drove demand.

• Recent strong house and lot price growth has benefit demand for semi-detached/row/terrace houses and townhouses in Victoria, as purchasers are increasingly priced out of the detached house market. Approvals of semi-detached/row/terrace houses and townhouses were up by 11.1% in June quarter 2018 to 3,432 dwellings, compared to the same quarter in 2017. Annual growth was much stronger at 18.7%, with a long term high of 13,520 semi-detached/row/terrace house and townhouse approvals during financial year 2018.

• Victoria recorded 3,203 approvals of flats/units/apartments in buildings of 4 storeys in June quarter 2018, which was almost 50% higher compared to the same quarter in 2017. However, 4 storey or higher dwellings approvals are down by almost two thirds from the record in December quarter 2017, and 42% from the previous quarter. While the timing of approvals for large developments has a significant impact on overall quarterly approvals, this trend is also likely attributed to the slowdown in investment lending and contraction in demand from overseas purchasers. Nevertheless, strong approval activity in the previous two quarterly periods has propelled approvals of flats/units/apartments in buildings of 4 storeys and higher to 20,680 dwellings during financial year 2018, which was 31.9% above approvals in the previous corresponding period.

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Approvals by dwelling type

Detached Houses Townhouses Apartments


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COMMENCEMENTS• Detached house commencements in Victoria stabilised at 35,690 starts in 2016/17, before an expected

further rise in 2017/18, increasing by an estimated 9.2% to 38,960 starts.• Over the following three years, detached house commencements are forecast to decline by an average of

16% from its peak, contracting to 30,100 starts by 2020/21. This will be similar to house contraction activity during the three year period from 2011/12 to 2013/14.

• Multi–unit dwelling commencements are expected to rebound in 2017/18, escalating by an estimated 26.4% to 36,020 starts. Significantly, this too will be a record level of activity in multi–unit dwelling commencements.

• However, this recovery is projected to be short lived, with multi–unit dwelling starts contracting by an overall forecast average of 37% over the three years to 2020/21, to average 19,510 starts.

0

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Houses Multi-units Forecast

Source: Housing Industry Association

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Over the past decade housing affordability has received an increasing share of media attention. Generally, first home buyers are noted as the age cohort that bears the brunt of consistently increasing house prices. However, in more recent times the dialogue has shifted to include all age cohorts who particularly have a desire to reside in the middle ring of Melbourne but find it increasing unaffordable to do so.

The common benchmark for identifying housing stress in Australia has historically been identified as those households that allocate at least 30% of disposable household income to finance their mortgage. This ratio has been in place for decades and in recent times there is a growing view that the ratio should be closer to 40% to reflect the market of today.

The chart below reflects 48 suburbs throughout the growth corridors of Melbourne and Greater Geelong. If considering the traditional mark of 30%, only two suburbs (St Leonards and Curlewis), both located Greater Geelong, meet this ratio. If the ratio increases to 40%, then the number of the identified suburbs that fall under this ratio is 27 suburbs—more than half. This means that a little less than half of the identified suburbs would be considered to be under mortgage stress.

More specifically, 21 suburbs recorded a mortgage to household income ratio of between 40% and 45%. The majority of these suburbs were located relatively closer to the Melbourne CBD within their respective municipality, and were a mixture of established suburbs and new development fronts. There were some exceptions, with limited competition and subdued new lot supply applying upward pressure to lot prices in Sunbury, and the regions of Clyde and Officer in the south east.

The proportion of household income required to finance a mortgage was 45% or higher in Burnside, Berwick, Greenvale, Point Cook, and Botanic Ridge. These five suburbs also contained the most expensive median lot prices in June quarter 2018, all above $410,000, which was also considerably more expensive than that for Greater Melbourne of $325,000.

Another 15 suburbs covered recorded a mortgage to household income ratio of above 35% and below 40%, with this level being synonymous with the emergence of constrained affordability. These suburbs were generally located further out within their respective municipality, and characterised as larger development fronts containing an abundance of greenfield land, which kept lot prices more affordable.

URBAN IQAFFORDABILITY

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Principal Amount (80% loan)

% share of income used for repayments

Historical 30% of income used to finance a mortgage

CALCULATION ASSUMPTIONS The chart depicts the median land price in June quarter 2018 by suburb, along with a median anticipated construction cost and net income by corridor. The median construction costs and incomes are taken from RPM’s Internal Buyer Surveys. The construction cost ranges from $234,900 (Moorabool) to $264,300 (Wyndham) while income levels reflect net levels to provide a more accurate level of disposable income. In addition, the chart also assumes a 20% deposit has been paid and mortgage repayments are based on a 30 year loan at the discounted standard variable rate at June 2018 of 4.50%.

Source: RBA, ATO & RPM Research Division

/ /

VICTORIAN PLANNING AUTHORITY UPDATES

In an effort to boost housing supply, the VPA has been set a target to complete 17 Precinct Structure Plans over 2017 and 2018, which will include the rezoning of more than 100,000 lots. The table below contains projections for the number dwellings, people and jobs each of these 17 Precinct Structure Plans are anticipated to support.

URBAN IQPROPERTY MARKET NEWS

Source: Victorian Planning Authority

Furthermore, background studies and draft structure preparation for the Precinct Structure Plans of Werribee Junction in City of Wyndham and Craigieburn West in City of Hume have commenced during 2018.

Precinct Structure Plan LGA Status Estimated Dwellings

Estimated Population

Estimated Jobs

Pakenham East Cardinia Planning Panel 7,150 21,000 1,313McPherson Casey Submitted for Approval 10,100 28,300 1,619Minta Farm Casey Planning Panel 3,000 - 10,000Lancefield Road Hume Submitted for Approval 8,000 22,000 -Lindum Vale Hume Structure Plan Finalisation 1,500 - -Sunbury South Hume Submitted for Approval 11,800 33,000 -Kororoit Melton Completed - February 2018 9,200 25,875 2,100Mt Atkinson & Tarneit Plains Melton Completed - September 2017 6,700 19,000 18,000Plumpton Melton Completed - February 2018 10,680 29,900 12,000Beveridge Central Mitchell Submitted for Approval 3,640 10,193 -Beveridge North West Mitchell Council & State Agency Consultation 11,290 31,611 6,165Donnybrook & Woodstock Whittlesea Completed - November 2017 16,400 46,000 3,316Shenstone Park Whittlesea Council Led - - -Wollert Whittlesea Completed - February 2017 15,060 42,168 8,040Quandong Wyndham Council Led - - -

RPM Real Estate Group is Victoria’s most successful residential development sales, marketing and advisory agency. We specialise in sales within master-planned communities, medium and high density developments, greenfield and infill development sites and international investment sales. We advise our clients on all aspects of the sales process from site due diligence, acquisition, planning and risk mitigation through to product mix, pricing, launch, sales and settlement. Our research-backed strategies deliver higher revenues, faster sales rates and better returns for our clients.

FULL SERVICE OFFERING

Research: in-depth analysis on current economic and housing conditions, future supply and demand assessments, and buyer demographics to enable clients to make the most informed decisions.

Communities: the market leader in sales and marketing of master-planned estates, we offer unparalleled expertise in the management of an estate, product mix and design, pricing, market dynamics and matching product to demand to ensure faster sales rates and maximum yield.

Project Marketing: specialising in sales and marketing of medium density and mid-rise apartment infill sites throughout Melbourne. Backed by unrivalled inhouse research to help clients develop the best product and sales strategy to drive maximum return in this burgeoning market.

Transactions & Advisory: specialising in development site transactions across greenfield and infill residential, commercial and medium density sites. The team’s philosophy is based on not just selling, but adding value to the selling process and unlocking the value of sites.

RPM International: helps clients including property owners, developers and investors diversify and maximise their property portfolio by connecting an expansive network of offshore buyers keen to invest in high quality residential estates and medium density projects throughout Melbourne.

Property Management: providing full service property management services for both Australian and international clients to ensure their property assets are protected and maximised.

ABOUT

RPM REAL ESTATE GROUP

• Victoria’s leading residential development sales and marketing agency

• Full-service sales and marketing, research and advisory capability

• Unsurpassed track record of delivering outstanding returns for clients

• Unparalleled breadth and depth of research to optimise client decision making

• $1.4 billion englobo land transactions

• 4,300 property sales over financial year 2017/18

• 44 active projects

• 36,000+ total yield of current projects

• Year to date group sales totals $3.7 billion

P +613 9862 9555

F +613 9862 9512

E [email protected]

W www.rpmrealestate.com.au

RPM REAL ESTATE GROUP

CONTACT RPM

THANK YOU TO UDIA PARTNER RPM REAL ESTATE GROUP FORPROVIDING THE INFORMATION CONTAINED WITHIN THIS REPORT.

UDIA PRINCIPLES FOR THE

WAY AHEADTHESE PRINCIPLES WILL GUIDE UDIA AS WE CONTINUE ON OUR JOURNEY OF GROWTH AND AS WE FURTHER SOLIDIFY OUR LONG TERM, SUSTAINABLE POSITION AS THE URBAN DEVELOPMENT INDUSTRY’S ASSOCIATION OF CHOICE.

LEADERSHIP

KNOWLEDGE

INFLUENCE

LOYALTY

EXPERTISE AND INNOVATION

DEEPLY CONNECTED

INDUSTRY SUCCESS

Drive the thought leadership agenda and exercise tangible influence with government and other stakeholders

Be the go-to organisation for industry knowledge and business building insights

Be known as the pre-eminent expert organisation on housing and urban development

Possess a deeply loyal membership base as a result of consistently providing solid member services

Offer innovative membership services that respond to the changing needs of our industry

Facilitate a fruitful business environment by connecting industry and government stakeholders

Advance and support the industry in the public arena and facilitate industry recognition and promotion

URBAN DEVELOPMENT INSTITUTE OF AUSTRALIA (VIC) udiavic.com.au +61 3 9832 9600 [email protected]

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