Outlook for Australian Property Markets Canberra

Transcription

1 Outlook for Australian Property Markets Canberra Update August 2009

2 Outlook for Australian Property Markets Canberra residential Update August 2009

3 International migration reaches record levels Population growth ACT Number of people Total population in the ACT increased by 1.7% in the year to December 2008, an increase of some 5,770 people. International migration reached record levels, with 2,650 people moving to the ACT in the year to December Natural increase growth continues to be the main driver at 3,100 people. Interstate migration remains quite weak, gaining just 11 people annually. We continue to expect international migration figures to slow in the global recession. Source: ABS Analysis: Westpac Property

4 Demand to buy or build new dwellings reach record levels 3 month rolling finance commitments - Canberra No of commitments (existing) Existing Dwellings New Dwellings No of commitments (New & construct) Aggressive monetary policy and first home buyer grants have helped boost Canberra s residential market. Finance commitments to buy new dwellings actually began to lift in early 2008 despite high interest rates. Between Febuary 2008 and December 2008 commitments to buy/build a new dwelling increased by 73%. In 1H 2009 they increased by a further 60.5%, reaching record levels. Finance commitments to buy an existing dwelling increased by 20% over 1H 2009 and are close to record highs. Source: ABS Analysis: Westpac Property

5 Supply meets the need created by demand 3month rolling houses and other dwellings approvals Canberra Number Houses Other dwellings The strong lift in demand since early 2008 began to flow through to dwelling approvals from early While approvals for other dwellings increased by 162% over 1H 2009, these are notoriously volatile. Dwelling approvals for houses were also strong, increasing by 112%. Population growth of 5,770 in the year to December 2008 in ACT generates a need for 2,219 new dwellings at 2.6 persons per dwelling using Census 2006 data. With 2,370 dwellings approved in the year to December 2008, the ACT residential market appears roughly in balance once it is considered that 95% of approvals commenced and properties are demolished. Source: ABS Analysis: Westpac Property

6 Rents increase despite rising vacancy Rentals and vacancy - Canberra Rental/week Vacancy rate (%) $ Rents $400 Vacancy 6.0 $ $ $ $ $ $ Despite the apparent supply/demand balance, vacancy increased over the 6 months to Q by 40bps to 2.5%. However rents continued to rise over the same period, increasing by 7%. Although vacancy has increased, it remains under the considered equilibrium level of 3%. As such pressure on rents is likely to remain. However with low interest rates, the difference between buying and renting is minimal. Any significant increase in rents could well drive tenants into ownership, thus increasing vacancy over the short term. Therefore we forecast stable rents into Source: REIA Analysis: Westpac Property

7 Affordability declines as the average home loan increases Home loan affordability indicator - Canberra Affordability (%) HLAI Long term average Housing affordability recorded its first fall in a year over Q However, affordability remains around 2003 levels and below the long term average. The fall in affordability over Q was as a result of an increase in the size of the average home loan, despite mortgage rates falling to 50 year lows in Q As interest rates increase in a stronger than expected economic environment, the impact will be to reduce affordability further over the next year. 20 Source: REIA Analysis: Westpac Property

8 Falling affordability may put pressure on prices into 2011 Median residential prices - Canberra $000s 600 Houses 500 Other Dwellings Expectations in early 2009 were for house price stability over the short term. However house prices increased over Q by 1%, while prices for other dwellings remained stable. Data from the ABS suggested further price rises into Q of 3.6% which indicates our expectation from earlier in the year were incorrect. However, if the house price increases had been driven by low interest rates assisting affordability, as interest rates rise pressure on prices could mount. Should house prices increase further over 2009, the potential for correction increases in Raw data: REIA and ABS Analysis: Westpac Property

9 Gross residential yields increase as rental growth outstrips price increases Gross residential yields against the mortgage rate - Canberra Yield 19.1% 17.1% 15.1% 13.0% 11.0% 9.0% 7.0% 5.0% 3.0% Gross yield Mortgage rate As rents grew over the 6 months to Q1 2009, gross investment yields increased to 5.7%, from 5.3%. With the mortgage rate, excluding incentives, of 5.8% the difference to the gross yield is back to late 1990s/early 2000s levels. While this could prove attractive to investors, most are aware that interest rates are likely to increase over the next year. With limited expectations on rent or price growth, we do not believe yields will move much higher. However at 5.7%, Canberra has one of the highest gross residential yields in the country. Source: REIA & RBA Analysis and Forecast: Westpac Property

10 Outlook for Australian Property Markets Canberra offices Update August 2009

11 Canberra office market vacancy to rise in 2010 to record levels as new supply completes 300, , , , ,000 Net absorption, net supply and vacancy Canberra 50,000-50,000 Sq.m. 0 Source: Forecasts: Net absorption Net supply Vacancy rate Historical data: PCA Office market report Westpac Property H Vacancy 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% -10.0% -20.0% -30.0% Vacancy rose to 9.2% in the Canberra office market in 1H 2009, the highest since the peak of 10% in The completion of 63,000m 2 with a minor fall in occupied space drove the rise. Vacancy has risen from 2.2% in Q and 7% in Q By region Civic vacancy rose to 8.5% as falling occupancy and supply pushed vacancy up from 3.1% at the start of the year. Non Civic vacancy rose to 9.4% at June from 8.6% in December Although supply was high at 39,500m 2, relocation from Civic boosted net absorption to 12,600m 2. Future supply levels peak in 2010 when some 212,920m 2 is due to complete. The majority of this is in the non civic area and will lift stock by 9% Expectations of weak demand, with high supply should lift vacancy to16.6% by end 2010 for the region, unless the withdrawal of older space is high.

12 Canberra rents fall, further to go Prime net effective rents & incentives - Canberra Rents $ Dec-91 Dec-93 Dec-95 Dec-97 Dec-99 Civic Non Civic Incentives Civic Incentives Non Civic Dec-01 Dec-03 Dec-05 Dec-07 Incentives 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Canberra s prime rentals have fallen by between 12% in Civic and 18% in non Civic since early The main driver has been an increase in incentives, although face rents fell in Q With vacancy forecast to peak at almost 17% further declines in rents are likely. A grade vacancy accounts for around one third of all vacancy in both locations. With high supply due in 2010 pressure on primes rents will continue. In the mid 1990s as vacancy reached 10%, prime net effective rents in Civic fell by just over 42% as incentives rose to 15%. In the current oversupply only 43% of 2010s supply is pre-committed. With 8%-9% vacancy in prime offices at Q landlords are likely to be more competitive than in the mid 1990s. Should rents fall to the late 1990s levels, peak to trough falls will be close to 50%. Source: CB Richard Ellis historic data to June 2009

13 Prime office yields rising but still well below 10 year average Office yields and 10 year averages - Canberra Yield 12% 11% 10% 9% 8% 7% 6% 5% 4% Mar-90 Mar-92 Mar-94 Civic Non Civic 10 year avg Civic 10 year avg Non Civic Mar-96 Mar-98 Mar-00 Mar-02 Mar-04 Mar-06 Mar-08 Canberra s prime office yields have eased by between 142 and 162bps since the peak in Q Values have fallen by an estimated 20% to 22% since the peak. Yields are some 57bps in Civic and 74bps in Non Civic below the 10-year average. With expectations of falling rents and over supply, yields are likely to move higher into In the late 1990s crash Canberra office values fell some 35%. Given the likely continued lift in yields closer to ten year averages and falling income, similar if not greater falls cannot be ruled out in the current cycle. Source: CB Richard Ellis historic data to June 2009

14 Disclaimer Past performance is not a reliable indicator of future performance. The forecasts given in this document are predictive in character. Whilst every effort has been taken to ensure that the assumptions on which the forecasts are based are reasonable, the forecasts may be affected by incorrect assumptions or by known or unknown risks and uncertainties. The ultimate outcomes may differ substantially from these forecasts. Information current as at August This information has been prepared without taking account of your objectives, financial situation or needs. Because of this you should, before acting on this information, consider its appropriateness, having regard to your objectives, financial situation or needs. The information may contain material provided directly by third parties, and while such material is published with permission, Westpac Banking Corporation (ABN ) ("Westpac") accepts no responsibility for the accuracy or completeness of any such material. Except where contrary to law, Westpac intends by this notice to exclude liability for the information. The information is subject to change without notice and Westpac is under no obligation to update the information or correct any inaccuracy which may become apparent at a later date. Westpac Banking Corporation is regulated for the conduct of investment business in the United Kingdom by the Financial Services Authority. If you wish to be removed from our mailing list please send an to westpacproperty@westpac.com.au Westpac Banking Corporation. CB Richard Ellis Ltd (CBRE) does not warrant the accuracy or completeness of the information in this publication, including any information sourced from CBRE, and CBRE accepts no, and disclaims all, liability for any loss or damage whether occasioned by reliance on such information or otherwise.