Quarterly Economic and Property Report Australia

Quarter 2 | 2012

It appears that times are tough all round if

you are not part of the mining boom.

Retail spending remains low, the housing

and building markets have contracted

while exports are still struggling with the

high Australian Dollar. A case of dѐjά-vu?

Or is it? As predicted commodity prices

have decreased, due to the slowdown in

demand from the emerging global

economies. This combined with the effects

of natural disasters and mining employee

strikes appear to have taken their toll, with

the surprised closure of the Norwich Park

Coal Mine. This was a blunt reminder of

the boom to bust conundrum that is the

mining industry.

The rate of GDP growth continues to

decrease in China, with the major trading

partner of Australia registering growth at

8.1 per cent, down from a forecasted 8.5

per cent. Since 2007 the Chinese current

account has dropped from 12 per cent to

4.0 per cent of GDP, reflecting a rise in

imports and fall in exports, as the economy

shifts towards domestic consumption.

Consumption is likely to continue growing

because of the upward trend in workers'

wages, which increases manufacturing

costs but is generally good for the

domestic economy. On top of this, there is

high scepticism on the validity of the

economic data being released in China,

with claims of fabrication.

Europe is still doing it tough, with

substantial social and economic problems

in Greece, Spain, Portugal, Italy and even

France. There is scope for this to get

worse as elections in Greece and France

could bring forth a crisis in these countries.

The US Federal Bank has found itself in a

challenging position as inflation starts to

move, partly as a result of rising gasoline

prices. More quantitative easing in

response to the anaemic US recovery is

very unlikely. In fact a discussion will have

to be had at some point about how to

drain the excess liquidity from the

economy before 2013.

Furthermore, US corporate profits are near

record levels and only likely to fall, so after

a big run over the past months the equity

markets on Wall Street now look set for a

correction.

Here on Australian soil, we are in the midst

of our own interesting times, as banks are

increasing rates while the Reserve Bank of

Australia (RBA) is trying to get them down.

The property market continues to contract,

as shown by housing finance approvals

data, while bank rate increases and a tight

fiscal federal budget will likely prevent any

substantial green shoots in the market from

gaining significant traction. So far

unemployment has been fairly contained,

but any significant change will hurt the

property market.

However, according to the International

Monetary Fund (IMF), the Australian

economy is expected to outpace all

advanced economies with projected

growth of 3.0 per cent in 2012 and 3.5 in

2013. It has also increased the forecast of

global growth over 2012 to 3.5 per cent,

from 3.3 per cent. In comparison the US is

forecasted to grow at 2.1 per cent, up from

a prior estimate of 1.8 per cent.

Looking at the macro level property market,

the reality is that while the rate of decline in

values have slowed and could be even

stagnant, a quick recovery to where sales

activity and prices were at prior to the

Global Financial Crisis of 2008 would be

unthinkable, considering what global

markets face in the near future. However

investors could now be tempted back into

the property market as the rate of decline in

values erodes away, while the equity

market remains not only turbulent, but has

provided returns inferior to fixed bonds

over the past five years.

Economic and Property Overview

Key Facts:

• CPI: 1.6%

• SVHL Rate: 7.4%

• AUS Unemployment Rate: 5.0%

• AUS Population Growth: 1.29%

• Average AUS Fuel Price: $1.50pl

1

• Early 2012 has seen negative sentiment

linger from 2011, as the long-term six

month moving average Australian

Consumer Sentiment Index decreased

by a further 0.1 point over the month to

register 98.3 points. When compared to

the previous year, a total decrease of

10.7 points has been recorded.

• On a monthly basis the Australian

Consumer Sentiment Index decreased

further by 5.0 points over the month of

March 2012, to record a score of 96.1

points.

• Optimists will point to a likely rise in

household consumption growth over the

next year. Over the past year the

Treasury has noted that spending has

been in line with the longer term trend.,

despite natural disasters, anxiety over the

global economic turmoil and declining

global growth. Optimists now predict that

household consumption will increase as

they become less cautious. Employment

growth is expected to increase at 1.25

per cent next year, pointing to a peaking

unemployment rate. Furthermore, it is

likely that the Reserve Bank will cut the

cash rate again during 2012.

• Looking ahead to the most recent survey

on consumer sentiment in April 2012, out

of the five states measured for the Index,

sentiment was highest in South Australia

at 103.8 points. This score equated to a

monthly increase of 20.4 per cent.

Western Australia recorded a 3.4 per cent

decrease over the month to register an

Index score of 103.4 points. Pessimists

continue to outweigh optimists in New

South Wales (92.2 points), Queensland

(91.1 points) and Victoria (93.2 points).

However, Queensland resisted the trend

of declining sentiment by recording an

increase of 5.0 per cent over the month.

Confidence Sentiment strongest in South Australia

Australian Consumer Sentiment Graph (right):

• The Consumer Sentiment Index indicates short-run changes to consumer willingness to purchase goods in the forthcoming quarter.

• The Index is based on a monthly survey of 1,200 Australian households conducted by the Melbourne Institute and Westpac.

• It represents current and future perspectives of the broad economic climate and household financial state.

Australian Consumer Sentiment

60

70

80

90

100

110

120

130

Apr-

92

Apr-

93

Apr-

94

Apr-

95

Apr-

96

Apr-

97

Apr-

98

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Co

nsu

me

r S

en

tim

en

t In

de

x

Australian Consumer Sentiment Index Six Month Moving Average

Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012

2

• Confidence decreased over the March

2012 quarter, to record -1.2 index points

on the NAB Quarterly Index, equating to

a fall of 2.6 points. The double cut to the

official Cash Rate by the RBA in the

fourth quarter of 2011 appears to have

had only a temporary affect on business

confidence, which did not carry through

to the New Year. Considering the

persistent concerns with the European

debt crisis and sluggish US recovery, the

Index result is not overly pessimistic, but

is nevertheless still below the longer-term

10 year average of +5.1 points

• Over the March 2012 quarter, business

confidence fell in most states, but

increased dramatically in Western

Australia (up 11 points). Victoria

decreased the most at -6 points, while

New South Wales, Queensland and

South Australia all registered a fall of 1.0

Index point in confidence. Confidence is

now weakest in Victoria and Tasmania,

while slightly negative in the remaining

states.

• Confidence improved over the March

2012 quarter in mining and recreational

services, while a rapid deterioration was

felt in wholesale and retail. Most

industries are expecting a contraction in

activity over the June 2012 quarter.

Confidence is weakest in the wholesale

and transportation & utilities, followed by

manufacturing and retail.

• The Business Conditions Index marginally

increased by one point to +1 in the March

2012 quarter. Trading conditions are

reported to be stronger, but employment

remains subdued. This suggests the

economy is effectively moving sideways.

• According to a recent report from ASIC,

the number of corporate insolvencies hit

a 14 year high in February, with retail,

tourism and the construction sectors the

hardest hit.

Confidence cont. Business confidence improves in 2012

Business Confidence Graph (right):

• The Business Confidence Index indicates expectations of business conditions for the upcoming quarter.

• The Index is based on a survey of approximately 900 small to large businesses in the non-farm sectors and is conducted by the National Australia Bank (NAB).

Business Confidence

-40

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

Ma

r-95

Sep

-95

Ma

r-96

Sep

-96

Ma

r-97

Sep

-97

Ma

r-98

Sep

-98

Ma

r-99

Sep

-99

Ma

r-00

Sep

-00

Ma

r-01

Sep

-01

Ma

r-02

Sep

-02

Ma

r-03

Sep

-03

Ma

r-04

Sep

-04

Ma

r-05

Sep-0

5

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Mar-

08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep-1

0

Ma

r-11

Sep

-11

Ma

r-12

Ind

ex v

alu

e

Quarter

ImprovingConfidence

Prepared by PRDnationwide ResearchSource: National Australia Bank (NAB), last updated Apr-12

3

• The March 2012 CPI figures recorded an

annual change of 1.6 per cent, which

equates to a dramatic decrease from the

previous quarter of 3.1 per cent, and is

well below the RBA target range of two

to three per cent.

• The underlying inflation figure, as

measured by the RBA removes volatile

items such as fruit and fuel, remains

inside the target range but has increased

marginally from the September 2011

quarter by 0.2 per cent to 2.5 per cent as

at the end 2011.

• Global financial and commodity markets

have improved as a result of the

European Central Banks’s decision to

further add substantial liquidity into the

banking system (increasing the bail-out

by €200 billion). Improved employment

data from the US has also assisted in

reducing market volatility and despite

several emerging economies slowing in

2011 (such as China), the outlook for

2012 looks favourable. The NAB

predicts GDP to remain at 3.25 per cent

in 2012 and 2013, equating to low

pressure on core inflation between 2.2

per cent to 2.5 per cent.

• Surprisingly, the official Balance of Trade

recorded a deficit of $673 million in

January, down from a $1.3 billion surplus

in December. This was a result of an

immense 8.0 per cent drop in exports,

mainly focused around the large falls in

the volume of iron ore (down 21 per cent)

and coal (down 9 per cent). It is

anticipated that exports have improved

over February, leading back into a trade

surplus.

Macroeconomic Climate Weak inflationary pressure over 2011

Inflation Graph (right):

• Inflation is measured as a change in the Consumer Price Index (CPI), calculated by the Australian Bureau of Statistics as the price of a weighted 'basket' of goods and services which account for a high proportion of expenditure by metropolitan households.

• The Reserve Bank of Australia (RBA) aims to constrain inflation in a long-run target range of 2-3% through the setting of interest rates.

Inflation

0%

2%

4%

6%

8%

Mar-

02

Sep-0

2

Mar-

03

Sep-0

3

Mar-

04

Sep-0

4

Mar-

05

Sep-0

5

Mar-

06

Sep-0

6

Mar-

07

Sep-0

7

Mar-

08

Sep-0

8

Mar-

09

Sep-0

9

Mar-

10

Sep-1

0

Mar-

11

Sep-1

1

Mar-

12

An

nu

al C

ha

nge

in

CP

I

Quarter

All groups Excluding volatile items

Reserve Bank's Target Range

Prepared by PRDnationwide ResearchSource: ABS Cat 6401, last updated May- 2012

4

• The RBA has painted a rosy picture on

the Australian economy. The possibility of

a catastrophic outcome in Europe has

receded, global activity on the whole has

picked up, while Australian growth is

close to trend and inflation near target.

This combined with the depreciation of

the Australian Dollar had led the RBA

adopting a ‘wait and see approach’ over

the first quarter of 2012. Largely due to

the significant drop in inflation at the end

of April, the RBA decided to cut the

official Cash Rate by 50 basis points to

3.75 per cent.

• While the RBA has kept rates on hold

over the beginning of 2012, the major

banks have mostly increased their

lending rates by around 0.1 per cent,

after several banks decided not to follow

the official Cash Rate due to higher

overseas lending costs. The ANZ was the

latest bank to raise their lending rates

independently. CLSA has stated that the

cost of funds for the banks will likely

continue to rise. So far, the standard

variable home loan rate has remained at

7.4 per cent for the month of March

2012, but is expected to fall with the

amount dependant on how much the big

banks decided to pass on.

• The RBA has consistently said banks

have just cause when they argue their

margins have been eroded by rising

funding costs. The RBA takes this into

account during its own rate deliberations.

The RBA has also stated that official rate

would be a full percentage point higher if

the banks had simply been passing on

official rate movements.

• The Federal Budget seeks to encourage

foreign bank competition to directly target

the big four Australian banks. The rate of

interest withholding tax (IWT) paid by

foreign bank branches which borrow

from their overseas head office will fall

from 5.0 per cent to 2.5 per cent in 2014-

15, and then be phased out entirely in

2015-16. Meanwhile, the IWT for other

financial institutions that borrow from

foreign financial institutions or offshore

retail deposits will fall from 10 per cent to

7.5 per cent in 2014-15, and 5.0 per cent

in 2015-16. The government says the

measure will help local subsidiaries and

branches of foreign banks to access

cheaper offshore funding from their

parents, ultimately putting more

competitive pressure on the major banks.

Macroeconomic Climate cont. Rate cut in May expected

Housing Loan Interest Rate Graph (right):

• The housing loan interest rate is the average rate of interest being offered by housing lenders. It is higher than the RBA’s target cash rate due to lending costs and profit margins.

• Interest rates are set by the RBA, who acts independently of government and sets interest rates with the goal of maintaining inflation in a long-run target range of 2% and 3%. The RBA meets monthly to review the current interest rate and is only required to justify its decision if it chooses to alter the rate.

Housing Loan Interest Rate

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Apr-

82

Apr-

83

Apr-

84

Apr-

85

Apr-

86

Apr-

87

Apr-

88

Apr-

89

Apr-

90

Apr-

91

Apr-

92

Apr-

93

Apr-

94

Apr-

95

Apr-

96

Apr-

97

Apr-

98

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Apr-

06

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12 Sta

nd

ard

Ba

nk H

ou

sin

g L

oa

n In

tere

st R

ate

%

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F05, last updated May-2012

5

• As foreseen in the earlier edition of this

report, there has been lower Chinese

economic growth, with commodity prices

reaching a peak. This has resulted the

Australian terms of trade decreasing,

resulting in a lower AUD. During the

month of April 2012, the Australian Dollar

Exchange Index only increased

marginally by 0.1 per cent to register an

Index value of 77.0, while decreasing 2.4

per cent over a 12 month period.

• The Treasury expects Australian

consumers will take advantage of the

strong Australian dollar by spending

more on overseas travel and imported

consumer goods. Import volumes are

likely to rise by 7.5 per cent in 2012-13

and by 5.5 per cent in 2013-14.

• The NAB Export Index has increased in

March by 3 points to record an Index

score of zero, its highest level since July

2011. This was led by manufacturing (up

15 points) and aided by the softening in

the Australian Dollar.

• The Australian Dollar continues to be

above parity with the US Dollar since

September 2011, but has only

appreciated by 0.5 per cent over the

month of April 2012. Over the 12 month

period ending April 2012, the Australian

Dollar has depreciated the most against

the Chinese Renminbi (down 6.8 per

cent), while appreciating the most to the

Euro (up 7.4 per cent).

• The strength of the Australian Dollar is

proving to be a handicap for exporters of

transformed manufactured goods, and

for firms that sell services, such as

tourism and education-related travel to

foreigners.

Foreign Exchange Australian Dollar subsides

Trade Weighted Exchange Rate Index (right):

• The trade weighted exchange rate index is compiled monthly by the Reserve Bank and ranks the Australian dollar against the currencies of our significant trading partners.

• Exchange rates directly affect the prices of our exports in foreign trade dollars.

Trade Weighted Exchange Rate Index

40

45

50

55

60

65

70

75

80

De

c-0

1

Ma

r-0

2

Jun-0

2

Sep-0

2

De

c-0

2

Ma

r-0

3

Jun-0

3

Sep-0

3

De

c-0

3

Ma

r-0

4

Jun-0

4

Sep-0

4

De

c-0

4

Ma

r-0

5

Jun-0

5

Sep-0

5

De

c-0

5

Ma

r-0

6

Jun-0

6

Sep-0

6

De

c-0

6

Ma

r-0

7

Jun-0

7

Sep-0

7

De

c-0

7

Ma

r-0

8

Jun-0

8

Sep-0

8

De

c-0

8

Ma

r-0

9

Jun-0

9

Sep-0

9

De

c-0

9

Ma

r-1

0

Jun-1

0

Sep-1

0

De

c-1

0

Ma

r-1

1

Jun-1

1

Sep-1

1

De

c-1

1

Ma

r-1

2

Tra

de

We

igh

ted

In

de

x

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F11, last updated May-12

ImprovingAffordabilityof Imports

Apr-11 Apr-12 % Change

EU Euro 0.73 0.79 7.4%

JP Yen 88.91 83.77 -5.8%

NZ Dollar 1.36 1.27 -6.5%

UK Pound 0.65 0.64 -1.9%

US Dollar 1.09 1.05 -4.1%

Source: RBA Bulletin F11

6

• In dollar value terms, the nation

experienced an increase of 2.7 per cent

to the average petrol price during the

month ending March 2012. The average

price Australians pay at the pump

increased to $1.50 per litre. During the

year petrol prices increased at an

average rate of 4.4 per cent across the

nation.

• Melbourne continues to be the capital

city where motorists pay the least but is

now joined by Canberra at $1.46 per

litre. Melbourne experienced 5.8 per cent

increase over the quarter, while Canberra

increased at 0.8 per cent. In Darwin

consumers continue to pay the most at

$1.57 per litre, followed closely by Hobart

at $1.55.

• Over the three month period ending

March 2012, all other capital cities

experienced an increase to petrol prices

with Perth increasing the most at 7.2 per

cent. This was followed by Brisbane (6.3

per cent), while Adelaide increased by

5.8 per cent.

• During the course of the 12 month

period, Adelaide petrol prices increased

the most at 7.3 per cent, while Canberra

increased the least at 2.2 per cent.

• Despite demand for fuel falling in both the

US and Europe, prices are expected to

keep rising. Demand has risen

substantially in the Americas and in Asia

(mainly China) with several global

refineries recently closing, cutting supply

at a crucial time during the Iran trade

sanctions.

Fuel Prices Fuel prices expected to increase over winter

Retail Fuel Prices Graph (right):

• Sourced from Fueltrac, this chart tracks the average retail price for unleaded petrol across a broad range of suppliers in metro areas.

Retail Fuel Prices

$0.40

$0.60

$0.80

$1.00

$1.20

$1.40

$1.60

$1.80

Ma

r-02

Sep

-02

Ma

r-03

Sep

-03

Ma

r-04

Sep

-04

Ma

r-05

Sep

-05

Ma

r-06

Sep

-06

Ma

r-07

Sep

-07

Mar-

08

Sep

-08

Ma

r-09

Sep

-09

Ma

r-10

Sep

-10

Ma

r-11

Sep

-11

Ma

r-12

Ave

rag

e R

eta

il P

ric

e o

f U

LP

Month

Brisbane Melbourne Sydney

Prepared by PRDnationwide ResearchSource: AAA/Fueltrac, last updated May-2012

7

• During the month of April 2012, the

Commodity Price Index increased by 0.4

per cent to reach 99.5 points. When

compared to the previous year, the Index

has fallen by 5.2 per cent. Commodity

prices are still above the longer-term 10

year average of 71.8index points.

• The town of Dysart, Queensland has

been rocked with the news that BHP

Billiton will close this Norwich Park coal

mine. The impact of floods, rising

production costs and softening coal

prices were cited as the principal reasons

for the mine closure. Although the town

of Dysart supports seven mines, the

closure still delivers a timely reminder of

the boom to bust challenge that many

regional towns face. Comparisons have

been made to the town of Ravensthorpe,

Western Australia, in which the BHP

Billiton nickel mine closed in January

2009. This mine was only opened in

2008 with a predicted life span of 21

years and the closure meant a direct loss

of 1,800 jobs.

• The last financial year approximately $86

billion in revenue was registered from the

mining services sector. This is expected

to increase by 17 per cent this year.

Deloitte Access Economics estimates

that there is $189 billion in investment

being spent with a further $217 billion on

projects within the industry awaiting

approval.

• The International Monetary Fund (IMF)

has played devil’s advocate and stated

that the uncertainty in the global markets

combined with the slowdown in the

emerging economies (such as China) has

softened demand on commodities. The

IMF believes that price growth in the

commodity market will not reach the

highs experienced in 2011. Copper

prices have contracted to a three month

low, and the price for coal has also

declined, while iron ore remains stable.

• Australia could face a large balance of

payments deficit if a sharp slow-down in

China results in a drop in export earnings

while imports of capital goods soar as

resource companies complete their major

investment projects. According to the

latest budget projections, Australia’s

current account deficit is expected to

increase to 4.75 per cent of GDP in

2012-13, and to 6.0 per cent of GDP the

following year. According to Treasury, the

deterioration reflects the fact that the

trade balance is likely to fall into deficit as

miners step up their imports of foreign-

made investment equipment while export

earnings fall as a result of lower

commodity prices.

• Even though commodity prices appear to

have peaked in the third quarter of 2011,

Treasury expects that our export earnings

will remain relatively buoyant in the next

two years, due to continuing strong

demand from China and India. Australia’s

coal and iron ore exports are likely to rise,

following major expansions in resource

projects in Western Australia and along

the east coast.

Commodities Prices Commodity prices to fall in 2012?

RBA Commodity Price Index Graph (right):

• Primary commodities account for more than half of Australia’s export earning.

• The Reserve Bank’s Commodity Price Index provides an indicator of primary commodity price movements. The index includes 17 commodities with separate weightings, the highest of which are coal, gold and iron ore.

• High commodity prices are one of the primary drivers behind Australia’s robust economy, influencing real estate prices particularly in Western Australia, Northern Territory, Northern Queensland and as of late South Australia. Coupled with the resource industry boom, employment and population growth follow, which spurs demand for housing and rental accommodation, particularly in neighbouring resource rich regions.

RBA Commodity Price Index

0

20

40

60

80

100

120

140

Apr-

02

Oct-

02

Apr-

03

Oct-

03

Apr-

04

Oct-

04

Apr-

05

Oct-

05

Apr-

06

Oct-

06

Apr-

07

Oct-

07

Apr-

08

Oct-

08

Apr-

09

Oct-

09

Apr-

10

Oct-

10

Apr-

11

Oct-

11

Apr-

12

RB

A c

om

mo

dit

y p

ric

e in

de

x v

alu

e

MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin G5, last updated May-12

8

• The national gross spend on

construction (other than houses)

decreased during the December 2011

quarter by 2.4 per cent. When compared

to the previous quarter, the gross spend

in the December 2011 quarter was at a

similarly high level, recording just over

$26 million. The overall spend for the

year ending December 2011 was just

over $101 million, up 6.3 per cent from

the previous year.

• The ABS has released recent data

showing a decline in both new housing

and major alteration spending for the

December 2011 quarter, equating to a

third consecutive decrease. The

seasonally adjusted figures decreased by

1.8 per cent to $44.5 billion. The largest

fall occurred in Queensland, with a

decrease of 4.9 per cent over the

quarter, followed by 3.9 per cent in New

South Wales. Spend for new residential

construction improved the most over the

quarter in Tasmania, by 11.7 per cent.

• A recent report from the Centre for

International Economics (CIE) has found

that new housing is the second most

heavily taxed of Australia’s largest

sectors, being those valued over $10

billion. The HIA has followed with a

statement that exclaims “in some states

the total tax bill amounts to over 40 per

cent of the final price of new home taxes

on new housing. The taxes are a brake

on economic activity, and represent a

constraint on housing affordability and

labour productivity.”

• From the Federal Budget, the

government plans an allocation of $3.6

billion to duplicate the Pacific Highway, in

a 50:50 funding partnership with the New

South Wales state government. The

highway, due for completion by 2016, is

expected to improve freight efficiency

along with other initiatives including

development of the Moorebank

Intermodal Terminal in New South Wales

and the contribution of $232 million to

Adelaide’s Torrens and Goodwood rail

project. The measures come under the

umbrella of a total of $36 billion spending

on roads, rails and ports in the six years

to fiscal 2014.

Construction Market Construction spend contracts while residential continues to struggle

National Construction Gross Spend Graph (right):

• The construction industry is one of the driving areas in the economy, having a significant contribution to GDP and a multiplier effect on the activity in other industries. Indicators of price movement of construction outputs will be a valuable tool in economic analysis.

• Construction industry output price indexes are being developed to measure changes over time in the price of new construction outputs, other than houses.

3.7%

1.8%

-0.1%

2.1%

4.7%

0.0%

1.5%

0.9% 1.0%

5.0%

-2.4%-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11

Pe

rcen

tage

ch

an

ge

fro

m p

revio

us q

ua

rter

Quarter

Prepared by PRDnationwide ResearchSource: ABS Cat 1350, last updated Apr-2012

National Construction Gross Spend

9

• The gross spend on housing finance was

$20.3 billion during the month of

February 2012. Compared to the

previous year, the total spend has

increased by 4.9 per cent, equating to $1

billion more. The spend on housing

finance has yet to reach the levels

experienced prior to the Global Financial

Crisis of 2008.

• Investor spend increased slightly to just

under $7 billion, and largely follows the

greater trend established at the start of

2011. For the month of February 2012,

investor financial commitment increased

by $400 million to record $6.9 billion.

• During the month of February 2012,

owner occupier spend decreased by

$700 million to equate to $13.4 billion.

Approximately 33.9 per cent of the

property market is now investor financed

and is expected to increase as rental

yields across the nation continue to

become more attractive.

• The seasonally adjusted number of loans

for new housing fell by 5.8 per cent in

New South Wales, 1.3 per cent in

Victoria, 2.1 per cent in Western

Australia, and 26.9 per cent in the

Northern Territory. There was a rise of 4.9

per cent in Queensland while increases

were also recorded for South Australia

(+2.8 per cent), Tasmania (+18.3 per

cent), and the Australian Capital Territory

(+7.0 per cent).

• Lending for the purchase of new

dwellings is down $66 million to $605

million in February, while the purchase for

established dwellings has fallen $529

million to $11.4 billion. Lending for

renovations is also down $26 million to

$341 million.

• The ABS finance releases show

borrowers and lenders becoming more

cautious in early 2012. Personal finance

fell 3.8 per cent, while commercial finance

decreased 8.4 per cent in February. The

fall in commercial finance equates to four

consecutive months of decreases.

House Finance Spending slides in the month of February

Housing Finance Commitments Graph (right):

• Housing finance commitments track the volume of finance commitments made by significant lenders to individuals for the purchase of housing.

• This graph tracks the value of loans approved for both owner occupiers and investors.

Housing Finance Commitments

0

2

4

6

8

10

12

14

16

18

20

Feb-0

2

Feb-0

3

Feb-0

4

Feb-0

5

Feb-0

6

Feb-0

7

Feb-0

8

Feb-0

9

Feb-1

0

Feb-1

1

Feb-1

2

Va

lue

of C

om

mitm

en

ts (

$ b

illio

n)

Month

Owner Occupied Investment

Prepared by PRDnationwide ResearchSource: ABS Cat. No. 5609, last updated Apr-2012

10

• During the month of April 2012

unemployment decreased to 5.0 per cent

and is on par with the longer-term five

year average. Since the turn of the year

unemployment has remained stubbornly

above 5.0 per cent. When looking at the

moving annual average, the rate has

been steady at 5.1 per cent since the

corresponding period in the prior year.

• For the month of April 2012, the nation’s

lowest rate of unemployment occurred in

the ACT at 2.9 per cent, a rate that has

significantly decreased by 1.5 per cent

from the previous month. Tasmania

continues to have the highest rate of

unemployment at 7.5 per cent, up 0.5

per cent over the month.

• Unemployment in Queensland increased

by 1.0 per cent to 5.1 per cent during the

month of April, while Victorian

unemployment also increased at 0.8 per

cent to 5.5 per cent. Unemployment in

New South Wales has remained fairly

stagnant over the month at 5.0 per cent.

• The ABS Jobs Vacancies data displays a

tight labour market, with a marginal rise

of 0.7 per cent in February, following a

3.4 per cent rise in the fourth quarter of

2011. The ANZ Job Ads Index also

increased in February by 3.3 per cent,

after increasing by 7.5 per cent in

January.

• The US has registered an improved

unemployment rate of 8.2 per cent while

Spain has 23 per cent of its workforce

unemployed. Another staggering statistic

is that of Spain's workforce aged 25

years or under, approximately 51 per

cent is unemployed (as well as in Greece),

36 per cent in Portugal & Italy and 30 per

cent in Ireland. France is in better shape,

but only just with one in five young people

out of work. Nicolas Sarkozy was the

eighth leader of a Eurozone member

country to have been removed from office

in little over a year. Is the grass always

greener on the other side?

• There is growing discontent regarding the

misleading method utilised by the ABS in

recording the official unemployment rate.

Many leading economists cite a rival

employment survey produced from Roy

Morgan Research as portraying a more

accurate rate. This research currently

puts Australian unemployment at 9.7 per

cent, almost twice that of the ABS rate.

• The Federal Government has struck a

deal with GM Holden in which $275

million was spent to ensure the car

manufacture remains on Australia soil for

the next ten years. The automotive

manufacturing industry is worth $7.7

billion, with annual turnover at $160

billion. In 2012 the industry employed

59,000 people directly, representing the

largest sector of Australian

manufacturing.

Labour Market Unemployment picks up in 2012

Unemployment Rate Graph (right):

• Unemployment is calculated as the proportion of people in the labour force that were unemployed and actively seeking work during the survey period.

• The labour force is defined as the number of people aged between 16 and 55 who were either employed or actively looking for work during the survey period.

• This graph tracks the unemployment rate on a monthly and moving annual average basis over the last 30 years.

Unemployment Rate

2%

4%

6%

8%

10%

12%

Apr-

82

Apr-

83

Apr-

84

Apr-

85

Apr-

86

Ap

r-8

7

Apr-

88

Apr-

89

Apr-

90

Apr-

91

Apr-

92

Apr-

93

Apr-

94

Apr-

95

Apr-

96

Apr-

97

Apr-

98

Apr-

99

Apr-

00

Apr-

01

Apr-

02

Apr-

03

Apr-

04

Apr-

05

Ap

r-0

6

Apr-

07

Apr-

08

Apr-

09

Apr-

10

Apr-

11

Apr-

12

Un

em

plo

ym

en

t R

ate

Month

Unemployment Rate Australia

Moving Annual Average Australia

Prepared by PRDnationwide ResearchSource: ABS Cat 6202, last updated May-12

11

• On the whole, the Australian Securities

Index has remained stable since the turn

of the year. The Index increased its

monthly average value during the month

of April 2012 to reach 4,332 points, up

from February's average of 4,255 points,

equating to an increase of 1.8 per cent

over the month.

• Equity markets could be set for further

turbulent times in 2012, as the US

economy will face its biggest fiscal

contraction ever, labeled the ‘fiscal cliff’.

Next year will see the end of the Bush tax

cuts, the expiration of the 2010-11

payroll tax cut, expiration of emergency

unemployment benefits and most

importantly, $1.2 trillion of spending cuts

that will commence automatically. It

could be a potential mix to cause another

recession in 2013.

• While not normally known for producing

high returns, Australian fixed interest

bonds have outperformed the equity

market over the past five years. A

Morgan Stanley report advises investors

to not relocate from bonds to equities as

a result of continued turbulence in the

global environment. The report is

sceptical that US growth will accelerate,

with the high price of oil a significant risk

to growth. There is substantial uncertainty

surrounding China’s economic data while

recent data from Europe has been

disappointing.

• After comments released from the

Treasury, investors would be wise to

consider mining related stocks.

Approximately 60 per cent of capital

expenditure on buildings and structures

over the past year have been mining

related, up from 29 per cent in 2003.

This has supported growth in insurance

and finance, scientific and technical

services, which have increased by 40 per

cent. Over the past decade, professional

and scientific equipment exports have

tripled while chemical related product

exports have increased by 60 per cent.

Stock Market Cautious times ahead for equity markets

S&P / ASX 200 Graph (right):

• The S&P/ASX 200 is recognized as the primary investable benchmark in Australia. The index covers approximately 78% of Australian equity market capitalization. Index constituents are drawn from eligible companies listed on the Australian Stock Exchange. This index is designed to address investment managers' needs to benchmark against a portfolio characterized by sufficient size and liquidity.

• The S&P/ASX Australian Index is a real-time, market capitalisation weighted index that include the largest and most liquid stocks in the Australian equity market listed on the Australian Stock Exchange (ASX).

S&P / ASX 200

2,500

3,000

3,500

4,000

4,500

5,000

5,500

6,000

6,500

7,000

7,500

Ind

ex V

alu

e

DayPrepared by PRDnationwide ResearchSource: Standard & Poors, last updated May-2012

12

• Superannuation contributions to June

2011 totalled $104.8 billion, equating to

an increase of 4.8 per cent over the year.

Employers contributed $71.4 billion (68.7

per cent) and members contributed

$32.5 billion (31.3 per cent). Other

contributions, which include spouse

contributions and government co-

contributions, totalled $0.9 billion.

• Total superannuation assets increased

by 11.5 per cent during the year to 30

June 2011 to $1.34 trillion. Of this total,

$810.6 billion are held by APRA-

regulated superannuation entities and

$407.6 billion are held by self-managed

superannuation funds (SMSFs), which

are regulated by the ATO. The remaining

$117.0 billion comprises exempt public

sector superannuation schemes ($80.9

billion) and the balance of life office

statutory funds ($36.1 billion).

• There is an increasing trend of more

retirees shifting their pension funds into a

self-managed superannuation fund. As

Australians reach retirement, they have

more time available to manage their

superannuation. Between 2007 to

2011, the ATO reported that the number

of SMSFs increased by 31 per cent.

Currently, superannuation is a $1.3 trillion

industry.

• There is a growing debate on whether

superannuation funds should increase

the portion of bonds at the expense of

shares. Typically Australian pension funds

have a high share allocation with a low

bond allocation, at 50 per cent to 18 per

cent. When observing longer-term

periods, shares have tended to return a

higher return (of 11.9 per cent) than

bonds (6.0 per cent).

• The Federal Budget shows plans to

increase the superannuation guarantee to

12 per cent by 2019-20, a measure that

will boost retirement savings by $500

billion by 2037. Also among

superannuation reforms funded by MRRT

revenue, a higher concessional

contributions cap will be available for

older Australians with super balances

below $500,000, from July 1, 2014.

Government will reduce the super tax

break on concessional contributions for

the top 1 per cent of earners. Around

128,000 people earning over $300,000

per annum will have the tax break on their

super contributions cut from 30 per cent

to 15 per cent. Tax receipts from

superannuation funds are expected to

grow by 10.9 per cent, to $711 million, in

fiscal 2012, and by 11.3 per cent, to

$820 million, in the following year.

Superannuation SMSFs become popular with baby boomers

Superannuation Contributions Graph (right):

• The APRA Annual Superannuation Bulletin comprises statistics on the superannuation industry which have been prepared from the following sources:

I. superannuation returns submitted to APRA

II. data from quarterly returns submitted to APRA by select exempt public sector superannuation schemes in Australia.

III. data provided by the ATO on self-managed superannuation funds

IV. returns submitted to APRA under the Life Insurance Act 1995 by registered life companies in Australia

V. returns submitted to APRA by retirement savings account (RSA) providers

Superannuation Contributions

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

$180,000

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

To

tal C

on

trib

uti

on

s (

$ m

illi

on

)

Financial Year

Employer Member Total Contributions

Prepared by PRDnationwide ResearchSource: APRA Bulletin, last updated Apr-12

13

• The Home Loan Affordability Index has

continued to increase since the June

2011 quarter, with affordability increasing

by a further 0.6 points in the December

2011 quarter to an Index score of 30.4

points.

• Over the quarter the states were divided

in changes to affordability, with Victoria,

Queensland, Western Australia and

Tasmania all experiencing increasing in

the Index. New South Wales, South

Australia, the ACT and the Northern

Territory all experienced declines in the

Index. The state that experienced the

largest growth in affordability was

Victoria, increasing by 2.1 per cent over

the quarter. The ACT experienced the

largest decrease at 2.3 per cent to

register 53.7 points.

• Queensland families require

approximately 31 per cent of the average

family income to service the average

home loan, while Victoria requires 33.1

per cent. The ACT requires the least

amount, with 18.6 per cent of the

average income. According to the REIA,

the proportion of family income needed to

meet the average rental payment has

increased slightly during the December

2011 quarter to 24.9 per cent.

• The Real Estate Institute of NSW

(REINSW) has tried to source an

innovative way to stimulate the market by

urging the state government to allow first-

home buyers to pay off their stamp duty

over three years rather than in one

upfront lump sum.

Home Affordability Affordability on the way up

Home Loan Affordability Index Graph (right):

• The Home Loan Affordability Index measures average loan repayments against median wages and tracks these values over time.

• Continued price growth in the property market without an accompanying rise in income saw a long period of decline in the home loan affordability index across the nation.

• The Home Loan Affordability index commenced its rapid descent during 2002. After a short leveling between 2004 and 2006, affordability levels have again continued to trend downwards.

Home Loan Affordability Index

20.0

30.0

40.0

50.0

60.0

70.0

De

c-8

1

De

c-8

2

De

c-8

3

De

c-8

4

De

c-8

5

De

c-8

6

De

c-8

7

De

c-8

8

De

c-8

9

De

c-9

0

De

c-9

1

De

c-9

2

De

c-9

3

De

c-9

4

De

c-9

5

De

c-9

6

De

c-9

7

De

c-9

8

De

c-9

9

De

c-0

0

De

c-0

1

De

c-0

2

De

c-0

3

De

c-0

4

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

Ind

ex v

alu

e

Quarter

ImprovingAffordability

Prepared by PRDnationwide ResearchSource: REIA / Deposit Power, last updated Apr-2012

14

• The total number of dwelling

commencements drastically decreased

during the December 2011 quarter by

8.6 per cent, equating to 3,245 less new

homes for the quarter. When compared

to the previous year, commencements

have decreased by 13 per cent.

• On a state-by-state basis, Victoria

continued to record the highest number

of dwelling commencements during the

December quarter, representing 35 per

cent of all dwellings commenced

nationally. New South Wales followed

with 22 per cent and Queensland

contributed with 17 per cent of

commencements.

• The least amount of dwellings

commenced for a state during the

December 2011 quarter was the

Northern Territory (down 21.7 per cent to

260), followed by Tasmania (up 16.7 per

cent to 637).

• Larger Australian developers have

commented on the amount of ‘green

tape’ put in place by the Federal

Government to overcome, costing

millions of dollars. Requests have been

made for the environmental approval

process to be given back to State

Government, in an attempt to streamline

the process.

• The latest figures to be release by the

ABS have shown that building approvals

has increased by 7.4 per cent over the

month of March 2012. New South Wales

lead the way, with an increase in multi-

residential units of 49.3 per cent. Dwelling

approvals increased in Western Australia

(up 11.1 per cent) and South Australia (up

4.2 per cent) but decreased in

Queensland (down 8.7 per cent),

Tasmania (down 6.7 per cent) and

Victoria (down 5.0 per cent). The number

of dwellings approved is still 15 per cent

below from the previous year.

Dwelling Market New dwellings plummet

Dwelling Commencements Graph (right):

• Dwelling commencements indicate the number of new dwellings that have commenced their construction phase.

• A moving yearly average is used to filter out seasonal fluctuations in the number of dwellings commenced.

• Nationally, the annual number of dwelling commencements have been on a downward trend since Sep-04 (earlier in NSW and VIC).

Dwelling Commencements

25,000

30,000

35,000

40,000

45,000

50,000

55,000

De

c-9

5

De

c-9

6

De

c-9

7

De

c-9

8

De

c-9

9

De

c-0

0

De

c-0

1

De

c-0

2

De

c-0

3

De

c-0

4

De

c-0

5

De

c-0

6

De

c-0

7

De

c-0

8

De

c-0

9

De

c-1

0

De

c-1

1

Mo

vin

g A

nn

ua

l A

vg

. o

f C

om

me

nc

em

en

ts .

Quarter

Dwelling Commencements Australia

Annual moving average

Prepared by PRDnationwide ResearchSource: ABS Cat. No. 8750, last updated Apr-2012

15

• Over the March 2012 quarter, the Time

to Buy a Dwelling Index significantly

decreased in the two mining related

states while South Australia, New South

Wales and Victoria all experiencing an

increase in the Index. The mining boom

states of Queensland and Western

Australia experienced dramatic

decreases of 13.4 per cent and 22.4 per

cent respectively.

• For the month of March 2012 South

Australia registered the highest index

value at 138.5 points, but was followed

closely by Queensland at 129.5 and

Victoria at 121.2 points. This represents

an increase from the previous quarter of

19.9 per cent for South Australia, a fall of

13.4 per cent for Queensland and an

increase of 3.1 per cent increase for

Victoria.

• According to the Westpac-Melbourne

Institute Survey of Consumer Sentiment,

family financial conditions deteriorated

over the 12 month period ending April

2011 in four of the five measured states,

with the largest decline felt in New South

Wales (down 29.8 per cent) and Victoria

(down 27.7 per cent). Queensland

experienced a decline of 12.3 per cent,

while South Australia fell 17.2 per cent.

The only state to improve its family

financial condition was Western Australia,

by 35 per cent. Indications for the coming

12 months show a strong decrease in

Queensland (down 19.9 per cent) while

South Australia could rise by 8.2 per

cent.

Dwelling Market Cont. Mining states decrease in the Time to Buy a Dwelling Index

Time to Buy a Dwelling Index Graph (right):

• The Time to Buy a Dwelling Index indicates short-run changes in consumer sentiment regarding whether it is a good time to buy a dwelling.

• It is a component of the Melbourne Institute’s Consumer Sentiment Index which is undertaken monthly.

Time to Buy a Dwelling Index

40

60

80

100

120

140

160

180

Mar-

02

Mar-

03

Mar-

04

Mar-

05

Mar-

06

Mar-

07

Mar-

08

Mar-

09

Mar-

10

Mar-

11

Mar-

12

Mo

vin

g a

nn

ua

l a

ve

rag

e o

f T

ime

to

Bu

y a

Dw

ellin

g In

de

x

Moving Annual Average

NSW VIC QLD WA SA

Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012

16

• According to the ABS House Price Index,

all capital cities, except Darwin,

experienced a decline in value over the

12 month period ending March 2012.

On average, property values have fallen

by 4.5 per cent, with the largest declines

felt in Hobart (-6.7 per cent) Melbourne (-

6.6 per cent) and Sydney (-4.6 per cent).

Brisbane and Adelaide only experienced

a slight decrease of 3.7 and 3.6 per cent

respectively, with Perth decreasing by

1.7 per cent. Darwin experienced an

increase of 3.5 per cent, while Canberra

remained fairly stagnant over the year,

decreasing by 0.5 per cent.

• When observing changes in home values

over the quarter, green shoots appear in

Canberra, Brisbane, Darwin and Perth,

as marginal, but still positive growth was

recorded, while the rate of decline in the

other capital cities increased on the

December quarter.

• According to the RPData-Rismark Home

Value Index, Canberra was the best

performing capital city over a 12 month

period ending in April 2012, by only

experiencing a softening in the Index of

0.72 per cent to $577,820. This was

followed by Darwin, experiencing a

decrease in the Index by 1.10 per cent, to

$479,330. According to the Index, the

largest decline was felt in Hobart,

recording a 8.47 per cent fall in the Index

to $326,490.

Home Prices Home values fall in 2011

ABS House Price Index Graph (right):

• The chart to the above measures the annual change in house prices in the capital cities, together with the weighted average of the eight capital cities.

ABS House Price Index Change by Capital City

-4.6

-6.6

-3.7

-3.8

-1.7

-6.7

3.5

-0.5

-4.5

-1.8

-2.2

0.4

-0.9

1.1

-2.7

4.4

1.2

-1.1

-8 -6 -4 -2 0 2 4 6

Sydney

Melbourne

Brisbane

Adelaide

Perth

Hobart

Darwin

Canberra

Average of all capitals

Change in house price index (%)

Cap

ita

l C

ity

March 2012 Quarterly Change

March 2012 Annual Change

Prepared by PRDnationwide ResearchSource: ABS Cat 6416, last updated May 2012

17

• The Australian average vacancy rate

remained steady at 2.5 per cent over the

most recent December 2011 quarter.

Sydney remains the tightest rental market

with a 1.6 per cent vacancy rate,

followed by Canberra at 1.9 per cent.

• Three capital cities experienced a

marginal decrease in vacancy rates over

the quarter, with Perth leading the way at

a drop of 0.5 per cent, followed by

Melbourne (-0.4 per cent) and Canberra

(-0.2 per cent). The rate increased the

most in Adelaide, by 0.3 per cent and

now has the highest vacant rate at 3.4

per cent.

• Darwin maintains the highest median

rental price for a standard three bedroom

house at $523 per week, despite this

price decreasing by 4.0 per cent over the

quarter ending December 2011. Adelaide

remains the most affordable city to rent

in, with a median rental price of $320 per

week.

• Rental prices for a standard three

bedroom house in Melbourne, Brisbane

and Adelaide have remained steady over

the December 2011 quarter. Rental

prices in Sydney and Perth increased by

5.0 per cent, while Hobart experienced

an increase of 3.0 per cent. The

Australian capital city average increased

to $397 per week, equating to a 1.2 per

cent shift over the quarter.

• According to the Australian Property

Monitors Rental Price Series, the national

median weekly asking rent for houses

increased by 1.1 per cent over the

December 2011 quarter, with units

increasing by 1.4 per cent.

Rental Market Capital city vacancy rate stabilises

Quarterly Vacancy Rates Graph (right):

• An industry benchmark for vacancy rates is considered to be 3%. Vacancy rates lower than 3% indicate strong demand for rental accommodation, whilst rates higher than 3% reflect an oversupply of rental accommodation.

Quarterly Vacancy Rates

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

SydneyMelbourneBrisbaneAdelaidePerthHobartDarwinCanberraAus Average

Qu

art

erly V

aca

ncy R

ate

Capital City

Dec-10 Dec-11

Dec-11 Average 2.5%

Prepared by PRDnationwide. Source: REIALast Updated Apr- 2012

18

• The Property Council’s latest Office

Market Report shows Australia’s office

vacancy dropped from 9.0 per cent to

7.9 per cent during the six months to

January 2012.

• Perth CBD is now has the lowest level

amongst the major Australian CBDs with

a vacancy rate of 3.0 per cent, followed

by Melbourne CBD and Hobart CBD at

5.0 per cent.

• The Brisbane CBD experienced the

largest net absorption in the 12 months

to January 2012, at 92,140 sq. m,

followed by Perth CBD at 80,054 sq. m.

The vacancy rate by grade increased only

in Premium Grade (up 2.8 per cent to 5.1

per cent), with all other grades

experiencing a decrease (an average fall

of 1.1 per cent) in the vacancy rate.

Office Market Office vacancy rates continues to decline

National Office Vacancy Rate

7.9

10.3

0

5

10

15

20

25

Ja

n-9

0

Ju

l-9

0

Ja

n-9

1

Ju

l-9

1

Ja

n-9

2

Ju

l-9

2

Ja

n-9

3

Ju

l-9

3

Ja

n-9

4

Ju

l-9

4

Ja

n-9

5

Ju

l-9

5

Ja

n-9

6

Ju

l-9

6

Ja

n-9

7

Ju

l-9

7

Ja

n-9

8

Ju

l-9

8

Ja

n-9

9

Ju

l-9

9

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Ja

n-1

1

Ju

l-1

1

Ja

n-1

2

Va

ca

ncy R

ate

%

National Vacancy Rate Historical Average

Source: Property Council of Australia / PRDnationwide Research

19

• Over the quarter ending September

2011, the Australian rate of population

growth increased slightly by 0.33 per

cent to 1.29 per cent, equating to 75,421

new residents. Although the increase in

the growth rate is marginal, the outcome

is the first increase to the population rate

since September 2009 and equates to

288,300 new residents over the year.

• The growth rate in Western Australia

continues to increase, with an annual

increase of 2.63 per cent (up from 2.18

per cent), equating to 60,690 new

residents. Victoria registered the highest

number of new residents with 73,770

during the 12 month period ending

September 2011. This is just above

Queensland with 67,093 new residents

and New South Wales with 64,117.

• The Northern Territory has registered the

slowest population growth at 0.44 per

cent for the 12 month period ending

September 2011. This represents an

increase of only 1,006 new residents for

the state. Tasmania was not far behind,

recording only 0.48 per cent growth

(2,418 new residents) during the twelve

month period.

• The rate of the natural increase in the

Australian population has decreased, with

3,366 less net newborns over the

September 2011 quarter than the

previous year, equating to fall of 9.3 per

cent. The sharp rate of decline in the

number of immigrants entering Australia

over the past year has stopped, with

Australia realising two consecutive

quarters of an increase in the rate of net

international migrant growth. The most

recent quarter experienced a 5.2 per cent

increase from the previous year. Over the

September 2011 quarter, the slight

majority of the overseas migrants tended

to take up residence in New South Wales

(25 per cent), followed by Victoria (24 per

cent) and Western Australia (24 per cent).

Demographics Natural increase appears to have peaked

Population Growth Graph (right):

• Population change tracks the change in population across the states and territories of Australia. Population growth is seen as the key driver of demand for housing.

Population Growth 2006 v 2011

1.4

%

1.9

%

2.4

%

1.1

%

2.9

%

0.8

%

1.8

%

1.9

%

1.8

%

0.9

%

1.3

% 1.5

%

0.7

%

2.6

%

0.5

%

0.4

%

2.0

%

1.3

%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

NS

W

VIC

QL

D

SA

WA

TA

S

NT

AC

T

AU

ST

An

nu

al

pe

rce

nta

ge

ch

an

ge

State

Annual Percentage change over five years

Annual % change year ending Sep-11

Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3101, last updated Apr-2012

Australian average 1.3%

20

• The number of net migrants entering

Western Australia continued to increase

at an exponential rate of 66.6 per cent

over the 12 month period ending

September 2011. The state recorded a

net 2,002 new residents, which equates

to the second largest number of net

residents entering a state (behind

Queensland).

• Queensland net migration has increased

once again, with 2,665 new interstate

migrants during the September 2011

quarter. This high level of growth has not

been experienced since the December

2009 quarter.

• The rate of interstate migrant growth has

slowed in Victoria over the September

2011 quarter. Approximately 259 net

migrants decided to call Victoria home,

equating to the smallest amount since

September 2009.

• New South Wales still records the highest

outward migration of residents

nationwide and until recently, this rate

was in decline. However this rate has

increased again, with the September

2011 quarter registering an outward net

migration of 3,786 residents.

• South Australia continued to lose

residents, with 693 net residents

departing during the quarter, while the

ACT increased a net 45 interstate

migrants.

Demographics Cont. Western Australia proves to be popular

Net Interstate Migration Graph (right):

• Net interstate migration tracks the net population change in each state attributable to interstate migration.

• Net interstate migration figures fluctuate with the seasons, so a moving yearly average is shown to filter out these changes.

Net Interstate Migration

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

Sep

-85

Sep

-86

Sep

-87

Sep

-88

Sep

-89

Sep

-90

Sep

-91

Sep

-92

Sep

-93

Sep

-94

Sep

-95

Sep

-96

Sep

-97

Sep

-98

Sep

-99

Sep

-00

Sep

-01

Sep

-02

Sep

-03

Sep

-04

Sep

-05

Sep

-06

Sep

-07

Sep

-08

Sep

-09

Sep

-10

Sep

-11

An

nu

al A

vg.

of N

um

be

r o

f P

ers

on

s .

Quarter

NSW

VIC

QLD

WA

Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3401, last updated Apr- 2012

21

• After retail expenditure declined at the

end of 2011 (over the build-up to the

holiday season), the first two months of

2012 recorded stronger growth, albeit

only marginal. January recorded an

improved 0.3 per cent from December,

with February continuing to add a further

0.2 per cent.

• Over the 12 month period ending

February 2012, Australia’s annual

change in retail expenditure increased

2.03 per cent from the previous year, but

remained fairly flat during the month

itself.

• Western Australia continued to incur the

greatest increase in retail spending over

the 12 month period ending February

2012, with an 8.2 per cent surge,

followed by Victoria at 3.2 per cent. New

South Wales was the only state to

experience less spending for retail from

the previous year, at -0.4 per cent.

• The largest growth in expenditure

occurred in other retailing, registering an

annual growth of 6.6 per cent. This was

followed by other cafes, restaurants and

takeaway food which registered an

annual growth of 5.0 per cent.

• Department stores experienced a

softening of 2.8 per cent from the

previous year, while clothing and soft

good retailing also softened by 1.5 per

cent.

• Australian households spent on average

$5,100 each on Chinese-made product

last year (up 16 per cent). This was

mainly focused on telecommunications

equipment, clothing and computers.

Retail Trade Modest consumer spending set for 2012

Annual Change in Retail Expenditure Graph (right):

• Retail spending figures are estimated by the ABS based on the Retail Business Survey conducted monthly amongst 4,350 retail and selected service businesses.

• The annual change in retail spending indicates how active consumers are in the marketplace and the degree to which consumers are willing to spend.

• The seasonally adjusted figures are used to smooth out seasonal factors associated with this data.

Annual Change in Retail Expenditure

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Ma

r-02

Jun-0

2

Sep

-02

De

c-0

2

Mar-

03

Ju

n-0

3

Sep

-03

Dec-0

3

Ma

r-04

Ju

n-0

4

Sep-0

4

De

c-0

4

Ma

r-05

Jun-0

5

Sep

-05

De

c-0

5

Mar-

06

Ju

n-0

6

Sep

-06

Dec-0

6

Ma

r-07

Ju

n-0

7

Sep-0

7

De

c-0

7

Ma

r-08

Jun-0

8

Sep

-08

De

c-0

8

Mar-

09

Ju

n-0

9

Sep

-09

Dec-0

9

Ma

r-10

Ju

n-1

0

Sep-1

0

De

c-1

0

Ma

r-11

Jun-1

1

Sep

-11

De

c-1

1

Mar-

12

An

nu

al

pe

rce

nta

ge

ch

an

ge

MonthPrepared by PRDnationwide ResearchSource: ABS Cat No: 8501.0 Seasonally adjusted figures last updated May-2012

22

• The government has upheld its promise

to return the federal budget to surplus in

2013, through the largest budget

turnaround in over 50 years, despite a

larger than expected deficit forecast for

the current year. Originally it was thought

that the surplus would come from

'saving' its way out of deficit, but when

scrutinised it hasn’t, only managing to

find $4.7 billion in savings in this budget

while increasing $39.6 billion in tax

revenues. A large portion of the new

revenue derives from the carbon tax.

Overall, this appears to be a big taxing,

big spending budget, with an increase

spending by $201.2 million, culminating

from a total of 284 separate increases in

spending in the budget.

• One difference between Australia and the

US is demonstrated in the 2012-13

Australian budget. In the 2012

Presidential election campaign, Mitt

Romney desires to cut US taxes to 25

per cent while President Obama wants

them cut to 28 per cent. The Australian

government was planning a 1.0 per cent

reduction in company tax and was

expecting consequent growth dividends

to benefit all Australians and reduce

unemployment. The company tax cut

was to come out of the revenue that the

government speculates can be raised

from the mineral resources tax. The

corporate tax cut was rejected by the

opposition who plan to abandon the

resources tax. The government has

responded by not cutting corporate tax,

so the Australian company tax rate will

stay at 30 per cent. That will boost the

budget bottom line by $300 million in

2012-13, $1.2 billion in 2013-14, and

$1.55 billion in 2014-15. Total money

that the 1.0 per cent tax cut would have

returned to the corporate sector over

four years was $4.5 billion.

• So where will the revenue be generated

from? The Treasury is expecting higher

than normal tax receipts for starters. Tax

receipts usually grow by about 8 per cent

a year, a result of fiscal drag (taxpayers

moving into higher marginal brackets),

but this year’s increase is expected to be

11 per cent.

• The resources sector of the economy is

expected to grow at around 8.5 per cent

from fiscal 2012 to 2014. In comparison,

the non-resources part of the economy is

expected to grow at a below-trend

average annual rate of 2.0 per cent over

the next two years, with a high Australian

dollar and shifts in household spending

attitudes towards debt assisting the

disparity. However, iron ore and coal

companies aren’t expecting to pay any

Minerals Resource Rent Tax (MRRT), so

the $3.5 billion budgeted from that in

2012-13 could be a challenge, with the

remaining increase dependant on

economic growth of 3.25 per cent. The

Treasury expects carbon permit money to

provide $4.02 billion in the coming

financial year, followed by an estimated

$6.61 billion in 2013-14. Yet the two

major contributors to income (the carbon

tax and the claimed mineral resources tax

revenue) are both measures that the

opposition has guaranteed to drop.

• Where does the Treasury plan its

expenditure? In total, welfare payments,

including the school kids’ bonus and the

extra family welfare, will increase by $4.8

billion. In the schoolyard, parents who

have combined income below $112,000

with two children will be celebrating the

kids' bonuses of $820 for a secondary

student and $410 for primary school

students (a carbon tax dividend). In

income taxes, the tax-free threshold

jumps from $6,000 to $18,200, but the

next $18,800 is taxed at 19 per cent (up

from 15 per cent), and between $37,000

and $80,000 the tax take rises from 30 to

32.5 per cent.

Federal Budget An overview with an insight into how it affects property

23

• A significant change that is property

related will be the removal of the Tax

Breaks for Green Buildings program.

This scheme, worth $405 million over

four years, is deemed surplus and the

Department of Climate Change's

suggestion to firms who wished to use

the old scheme is to seek low-cost

financing of energy savings measures

from the Clean Energy Finance

Corporation (CEFC) instead. The CEFC

has $10 billion to directly invest in

renewable energy or energy efficiency

projects over the next four years.

Currently Australia has a legislated

requirement for 20 per cent of our energy

needs to be sourced from renewable

energy by 2020.

• The federal government has also

allocated $29.8 million to a

‘Manufacturing Technology Innovation

Centre’ in an effort to boost the troubled

industry, which has been hit by the high

Australian dollar and reductions in

personal and business spending

following the global financial crisis. An

additional $25 million will be spent in the

six years from 2013 on assistance for

automotive manufacturers, including $20

million on grants covering up to 50 per

cent of costs on activities intended to

expand companies’ customer bases or

product range.

• On the whole, the budget has received

criticism from leading property groups in

response to the industry being largely

ignored. The Housing Industry

Association has described a lack of

initiative to boost the housing supply, the

Green Building Council was against the

scrapping of tax breaks for building

retrofits and Australian Industry Group is

negative about the focus on short term

consumption at the expense of long term

growth. The broken promises regarding

the retrofits and also company tax rate

reductions has provoked poor sentiment

from the construction industry.

• A shift into surplus will help ease pressure

on monetary policy and give the Reserve

Bank more flexibility to alter interest rates

than would otherwise have been the

case. In addition, it’s a significantly

positive message that Australia portrays

to the international scene as an

investment destination after the

government’s fiscal discipline relative to

international peers.

• The announced measures allowing

companies which make losses in a given

financial year to carry back these losses

against any profits made in previous

years (and thus claim back some of the

taxes paid on profits in those years) are

particularly useful in the building industry

given the cyclical nature of the industry,

and will be especially important in helping

construction firms to survive through lean

years.

Federal Budget Cont.

24

“We set industry benchmarks when partnering with our clients to answer key questions and solve complex issues in the residential development arena.”

PRDnationwide’s research division provides

reliable, unbiased, and authoritative property

research and consultancy to clients in metro and

regional locations across Australia. Our extensive

research capability and specialised approach

ensures our clients can make the most informed

and financially sound decisions about residential

and commercial properties.

Our Knowledge

Access to accurate and objective research is

the foundation of all good property decisions.

As the first and only truly knowledge based

property services company, PRDnationwide

shares experience and knowledge to deliver

innovative and effective solutions to our clients.

We have a unique approach that integrates

people, experience, systems and technology

to create meaningful business connections We

focus on understanding new issues impacting the

property industry; such as the environment and

sustainability, the economy, demographic and

psychographic shifts, commercial and residential

design; and forecast future implications around

such issues based on historical data and fact.

Our People

Our research team is made up of highly qualified

researchers who focus solely on property analysis.

Skilled in deriving macro and micro quantitative

information from multiple credible sources, we

partner with clients to provide strategic advice

and direction regarding property and market

performance. We have the added advantage of

sourcing valuable and factual qualitative market

research in order to ensure our solutions are the

most well considered and financially viable.

Our experts are highly sought after consultants for

both corporate and government bodies and their

advice has helped steer the direction of a number

of property developments and secured successful

outcomes for our clients.

About PRDnationwide Research

Our Services

PRDnationwide provides a full range of property

research services across all sectors and markets

within Australia. We have the ability and systems to

monitor market movements, demographic changes

and property trends. We use our knowledge of

market sizes, price structure and buyer profiles to

identify opportunities for clients and provide market

knowledge that is unbiased, thorough and reliable.

Our services include:

• Advisory and consultancy

• Market Analysis including profiling and trends

• Primary qualitative and quantitative research

• Demographic and target market analysis

• Geographic information mapping

• Project Analysis including product and pricing

recommendations

• Rental and investment return analysis

• Competitive project activity analysis

• Economic indicators

• Social research, including focus groups

Join PRDnationwide

PRDnationwide welcomes passionate individuals who are interested in business ownership.

When you join our family of more than 110 offices you profit from proven marketing tools, leading-edge technology, specialised training and powerful brand recognition. If you are interested in knowing more about owning and operating a PRDnationwide business either now or in the future, please contact:

Elias Sleiman 0438 184 127 eliassleiman@prd.com.au

PRDnationwide

32-36 Doggett Street Newstead QLD 4006 GPO Box 2750 Brisbane QLD 4001

P 07 3229 3344 F 07 3221 7744 E brisbane@prd.com.au

www.prdnationwide.com.au

Researcher

Aaron Maskrey Director | Research 07 3370 1702 aaronmaskrey@prd.com.au

Prepared by PRDnationwide Research. For further details, contact Aaron Maskrey on 07 3370 1702 www.prdnationwide.com.au

PRDnationwide is a Colliers

International company.

Property Watch® Reports

Over 130 snapshots of various areas around

Australia, as well as specific reports on property

topics of interest such as resale growth, infra-

structure planning, luxury properties, and supply

and demand.

Highlight Reports

Major annual reports examining the macro and

micro economic information of larger catchment

areas within select city, rural, and coastal regions.

Quarterly Economic and Property Report

Produced quarterly to examine economic and

property trends nationally.

Niche Reports

Covering topical subjects such as mixed use and

transit oriented developments, marina berths,

waterfront property and luxury property markets.

Our Research Reports

Suburb Reports

Detailed demographic and sales information for

statistical local areas (suburbs) in Queensland,

New South Wales, Victoria, and Australian

Capital Territory.

Residential Unit Reports

Quarterly reports based on primary research into

the sale of new units within major metro and coastal

cities identifying trends and opportunities.

Research Consultancy Service

We set industry benchmarks when partnering with

our clients to answer key questions and solve com-

plex issues in the residential development arena.

Our specialised consultancy service adds value to

our clients’ business by identifying the best means

for gaining a competitive advantage. We have

extensive experience in providing advice on virtually

every type of residential property and the issues

and considerations that surround them.

We simplify your decision-making process

by providing comprehensive information and

recommendations including (but not limited to):

PRDnationwide does not give any warranty in relation to the accuracy of the information contained in this report. If you intend to rely upon the information contained herein, you must take note that the information, figures and projections have been provided by various sources and have not been varified by us. We have no belief one way or the other in relation to the accuracy of such information, and projections.

PRDnationwide will not be liable for any loss or damage resulting from any statement, figure calculation or any other information that you rely upon that is contained in the material. COPYRIGHT - PRDnationwide 2012.