RP Data – Rismark Property Value Index Release

Wednesday April 30, 2008

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Market continues to soften
Figures released today in the RP Data/Rismark International end of month Property Value Indices Report now indicate that while the Australian property market has softened, it remains steady with national values increasing by 1.46 per cent over the three months to March ’08, an annualised return of around 6 per cent.
Despite the interest rates and inflation fears, this is quite a good result and demonstrates the good risk/return characteristics of diversification in an Australian residential property portfolio.

RP Data’s National Research Director Tim Lawless commented that when compared to the share market, this return is very positive. As an example, during the March quarter the ASX200 and All Ordinaries dropped 15.5 per cent and 15.8 per cent respectively.

Based on the RP Data – Rismark findings in its Property Value Indices Report today, the only capital cities to record a fall in property values were Perth and Canberra where dwelling values declined by 1.0 per cent and 0.6 per cent respectively over the quarter. Mr Lawless said despite the fall, Perth units hold the most expensive median value of any capital city at $464,000.

Around the State
Adelaide has the most affordable housing with a median value of $419,156, and is still the number one performing g p gcity in the country. The city recorded the strongest gains in the market with values increasing by 23.4 per cent over the year to March ’08. Adelaide appears to have largely shrugged off the recent rate rises with consistent growth across all its regions.

Brisbane recorded growth of around 20 per cent with most regions delivering returns of 15-20 per cent over the year to March ’08. Inner city Brisbane stands out as the best performing region with growth of 35 per cent over the year. The city’s outer regions are starting to show the first signs of weakening with Beaudesert, Caboolture and Logan all recording fairly flat markets during the March quarter. Redland property values fell slightly during the most recent quarter.

Melbourne growth rates are still healthy on an annual basis, however quarterly growth figures show a considerable slowing. The separation between the affluent inner suburban markets of Melbourne and the outer mortgage belt areas is becoming more apparent. While the inner and middle ring suburbs averaged around 3 to 6 per cent capital growth over the March quarter, the outer regions such as Melton-Wyndham, Frankston and South Eastern Melbourne were flat. Hume City is the first Melbourne region to experience sustained falls, averaging 5 per cent over the quarter for houses and units.

Darwin continued to record a solid performance. Annual growth in dwelling values has remained above 10 per cent since late 2005. Demand for housing remains very high due to the strong population growth and economic conditions. At the same time, housing supply is very short. Rental rates in Darwin are providing the highest rental yields for both houses and units of any capital city. Houses are returning 5.5 per cent gross and units are returning 6.2 per cent gross.

Canberra values fell over the last quarter with houses down on average by 1.0 per cent and units down 2-3 per cent. Yields remain high in the national capital, second only to Darwin. Houses are averaging a gross rental yield of 5.1 per cent and units are averaging 5.8 per cent. Sydney values increased by around 1.0 per cent for houses and units over the first quarter of 2008 which, according to RP Data’s Tim Lawless, is not a bad result considering the impact that affordability pressures have already had on the market. Many of the city’s prestige areas are starting to show weakness with markets in the Inner City, Eastern Suburbs, Lower North Shore and Northern Beaches all recording flat to slightly negative capital growth.

Impact of interest rates
Looking at the impact of interest rates on the property market, Rismark International’s Dr Matthew Hardman said that with interest rates now at a twelve-year high of 9.35 per cent, the likelihood of another rate rise is reduced.

Dr Hardman said that another rise in interest rates will certainly cool the market further, causing more price falls in the mortgage belts of Sydney, Melbourne and Perth. If a rate rise occurs, it is likely that house values in these areas will fall by as much as 5 per cent.

"On the other hand, a constant interest rate environment would likely put a floor under many areas which have seen significant value falls. If rates remain stable over the next twelve months, we would expect national dwelling values to remain in positive growth territory."

"It is likely that capital growth will decelerate in the high growth markets of Adelaide, Brisbane and Melbourne largely because the recent growth rates are clearly unsustainable."

"This doesn't mean we should expect price falls, in a stable interest rate environment we can still expect rises of 10 to 15 per cent in the inner and middle ring suburbs over the next twelve months," Dr Hardman said.

Two-tiered market ahead
The combined RP Data-Rismark Value Indices Report revealed that it is likely we will now begin to see further evidence of a two-tiered market, particularly in areas outside of Sydney, Melbourne, Perth and Brisbane, where the outer areas of these cities are showing the effects of interest rate rises and affordability constraints.

This phenomenon was first observed in Sydney in early 2007 where simultaneously property values in affluent suburbs recorded strong increases, while in lower income areas on the city’s outer ring, values stagnated and fell. RP Data’s Tim Lawless said this trend occurs when prospective buyers in the mortgage belts found their ability to service a home loan was significantly reduced.

Mr Lawless said when this phenomenon was first observed in Sydney by RP Data & Rismark International, they predicted that it would soon be observed in Melbourne and Perth, with Brisbane following some time later.

Two-tiered markets have been evident in Melbourne and Perth for around six months now, with prices in Southern Perth and Outer North West Melbourne now falling.

"There is now evidence of a two-tiered market emerging in Brisbane, with many outer southern areas growing more slowly than the inner middle ring suburbs. Further interest rate rises will exacerbate this problem as affordability barriers affect more segments of the market," he said.

NOTE:

*RP Data and Rismark recommends that caution be used when interpreting property indices results as these results can
vary depending on the methodology used and sample size.

In all RP Data and Rismark published indices, methodology is clearly indicated. More information on the RP Data‐Rismark indices can be found here: http://www.rpdata.net.au/indices/

For media enquiries contact:

Mitch Koper, National Communications Manager, RP Data Limited – 0417 771 778 or mitch.koper@rpdata.com