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Transcript of Reiq Business Luncheon Slide Presentation
REIQ Business luncheon March 2011 Bill Evans.
0 10 20 30
availabilty of stock
staffing
market volatility*
consumer confidence
interest rates
finance/funding
%
Dec-10
Source: NAB,
Westpac Economics
* including volatility in
financial, economic and
market conditions
Industry opinions: critical challenges
2
Current Forecasts-March 2011
Latest Sept-11 Dec-11 June-12
RBA Cash 4.75 5.00 5.00 5.25
3yr swap 5.27 5.40 5.60 5.80
10yr 5.44 5.60 5.50 5.80
US 10 yr 3.34 3.20 3.20 3.80
AUD/USD 1.03 1.05 0.99 0.93
USD/JPY 81 83 79 85
USD/EUR 1.42 1.43 1.45 1.35
3
To date, HH debt reduction has been limited
0
3
6
9
12
15
0
3
6
9
12
15
1990 1994 1998 2002 2006 2010
$trn
Other*
Households
Nonfarm nonfinancial firms
Government
Rest of World
Sources: Federal Reserve, Westpac Economics
March „08
$trn
*nonfinancial noncorporate and farm
4
House prices have declined for 5 months
100
120
140
160
180
200
220
240
100
120
140
160
180
200
220
240
Jan 00 Jan 02 Jan 04 Jan 06 Jan 08 Jan 10
Index Index
20-city index
10-city index
Source: Factset
S&P Case-Shiller index
Prices have fallen 4.3% in five months
to Dec ‟10 and are 31% from peak.
5
Contributions to real GDP growth
3.2 3.7 4.1 3.0 3.0 2.8 2.8 2.9 3.2 3.4
1.1 1.4
1.5
1.2 1.1 1.1 0.9 1.0 1.1 1.2
4.4
5.6 6.1
4.6
8.7
5.6 4.6
3.3 4.0
5.0
2.6
2.0
2.5
0.8
-3.7
0.8
0.8
1.0
0.8
-5
0
5
10
15
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
ppt cont.
Net exports Gross investment Public consumption Private consumption
Sources: CEIC, Westpac.
Contribution to full year growth.
6
A pending overhang of property
50
100
150
200
250
50
100
150
200
250
Aug-06 Aug-07 Aug-08 Aug-09 Aug-10
index index
Completions
Sales
Starts
Sources: CEIC, Westpac. Aug-2006 = 100.
Underlying data in sqm.
7
0
5
10
15
20
0
5
10
15
20
25
30
35
40
Mar-01 Mar-03 Mar-05 Mar-07 Mar-09 Mar-11
%pa %yr
Loan growth (lhs)
RRR (rhs)
Sources: Westpac Economics, CEIC
“Sound”,
Easing bias
“Sound”,
tightening bias
“Sound”,
tightening bias
“Appropriately
Loose”
“Prudent” “Appropriately
Tight”
“Tight”
“Tight”
China’s monetary & credit policy stance
8
Australian commodity forecasts
40
140
240
340
440
540
640
40
140
240
340
440
540
640
Dec-83 Nov-87 Nov-91 Nov-95 Nov-99 Nov-03 Nov-07 Nov-11
index index
metals, rurals & oil bulks
Sources: Westpac Economics, Bloomberg, ABS
9
AUD susceptible to event risk
0.80
0.85
0.90
0.95
1.00
1.05
0.80
0.85
0.90
0.95
1.00
1.05
Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10
USD USD
Source: Bloomberg
Ireland
crisis
Greece
crisis
10
CPI: selected discretionary items*
-3
-2
-1
0
1
2
3
4
-3
-2
-1
0
1
2
3
4
Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
%yr 6m % ann'sd
6mth% annualised
%yr
Sources: ABS, Westpac Economics
* Ice cream/other dairy; cakes/biscuits; snacks/confectionery; meals out/take away;
clothing & footwear; house purchase; house repairs/maintenance; furniture/furnishings;
h/hld appliances, utensils, tools; hairdressing/personal care services; motor vehicles;
MV parts/accessories; AV & computing; sports & rec. equipt; toys/games/hobbies;
other rec. activities; domestic holidays
11
CPI inflation: underlying still moderating
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
-1
0
1
2
3
4
5
6
7
8
9
Sep-94 Sep-98 Sep-02 Sep-06 Sep-10
%qtr %yr
avg RBA core CPI* %qtr (rhs)
headline CPI %yr (lhs)
avg RBA core CPI* %yr (lhs)
Sources: ABS, RBA, Westpac Economics
* average of s.a. trimmed mean
& weighted median CPI ex GST
effect in 2000/01
12
Mortgage rate expectations by state
70
75
80
85
90
95
100
70
75
80
85
90
95
100
Aus NSW VIC QLD SA WA
net% net%
Feb-10
Jun-10
Aug-10
Feb-11
% reporting expected
rise minus % reporting
expected fall
13
Pace of employment growth to slow in 2011H1
-50
0
50
100
150
200
250
300
-1
0
1
2
3
4
Jun-03 Jun-05 Jun-07 Jun-09 Jun-11
`000 %yr
6mth change (rhs)
% yr (lhs)
Sources: ABS, Westpac Economics
14
-9
-6
-3
0
3
-9
-6
-3
0
3
Sep-85 Sep-90 Sep-95 Sep-00 Sep-05 Sep-10
% GDP % GDP
Trade balance Income position
Current account
Sources: ABS, Westpac Economics
f/c to
end-2012
Rolling annual
Current account balance
15
Net public debt: G7 chalk, Australian cheese
0
10
20
30
40
50
60
70
80
90
100
0
10
20
30
40
50
60
70
80
90
100
US UK Germany France Canada Australia
1990 2000
2009 2015
%GDP
Sources: Westpac, IMF, Australian Treasury.
%GDP
16
The Australian dollar: actual versus fitted
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
0.40
0.50
0.60
0.70
0.80
0.90
1.00
1.10
Jan-91 Jan-95 Jan-99 Jan-03 Jan-07 Jan-11
USD USD
Fair value band
AUD/USD actual
AUD/USD forecast
Sources: RBA, Westpac Economics
17
-1.4
4.3
2.1
3.2 2.8 2.7
-1.3
1.5
2.2 2.7
2.9 2.9 3.1 3.4
-2
-1
0
1
2
3
4
5
Qld NSW Aus SA Vic WA Tas
% ann
Dec-09 yr Dec-10 yr
Sources: ABS, Westpac Economics
Domestic demand growth, by state
Qld: lagging – for now
18
Output effects from the Floods and Cyclones
Activity loss
March quarter: Coal: $2.2bn
Farm: $2.5bn
Tourism: $300m
Other: $500m
June/September: $1.5bn (coal/tourism)
Rebuilding
Government: Commonwealth: $5.6bn
States: $1bn
Private: Housing: $2.5bn
19
Dwelling completions – Qld’s capacity to rebuild
0
10
20
30
40
50
60
0
10
20
30
40
50
60
1987 1991 1995 1999 2003 2007 2011
„000 '000
Sources: ABS, Westpac
decade avg
f/c
+5.5k
flood
rebuild
20
-2
0
2
4
6
8
10
-2
0
2
4
6
8
10
1991/92 1995/96 1999/00 2003/04 2007/08 2011/12
% ann % ann
GSP GSP, ex floods State demand
Sources: ABS, Qld Gov't, Westpac Economics
Qld Gov‟t
fcasts
2010/11: 1.25% (3.0%); 2011/12: 5.0% (4.25%)
Qld: 5% growth in 2011/12
21
CAPEX plans by industry
-20
0
20
40
60
80
-20
0
20
40
60
80
2007 2008 2009 2010 2011f 2012f
% chg, yr avg % chg, yr avg
mining
manufacturing
services
total
History in real terms,
Expectations in nominal
Sources: ABS, Westpac Economics
financial years 5th est. 1st est.
22
Mining investment boom ... Coming to Qld Business investment : share of GSP
0
5
10
15
20
25
30
35
Dec-89 Dec-97 Dec-05
NSW Vic Tas
% of GSP
Sources: ABS, Westpac Economics
0
5
10
15
20
25
30
35
Dec-89 Dec-97 Dec-05
SA Qld WA
% of GSP
23
Firms: hiring ... under investing
-20
-15
-10
-5
0
5
10
15
20
25
30
-4
-2
0
2
4
6
Dec-80 Dec-85 Dec-90 Dec-95 Dec-00 Dec-05 Dec-10
% ann % ann
Jobs (lhs)
Equipment * (rhs)
Sources: ABS; Westpac Economics * smoothed
Consumer recession
in NSW & Vic Asian crisis
AUD “collapse” Deleveraging
24
Household savings ratio-cyclical high
-5
0
5
10
15
20
25
-5
0
5
10
15
20
25
Sep-59 Sep-69 Sep-79 Sep-89 Sep-99 Sep-09
% income % income
Sources: ABS, Factset, Westpac Economics
post 2006 avg doubled
equates to ~$122bn
25
Funding costs / deposit rates bid up
-250
-200
-150
-100
-50
0
50
100
150
200
250
-250
-200
-150
-100
-50
0
50
100
150
200
250
Oct-90 Oct-95 Oct-00 Oct-05 Oct-10
bps bps
spread: 1yr term deposit vs 90 day bank bills
Sources: RBA, Westpac Economics
26
Essential: rising costs an added drag
-15
-10
-5
0
5
10
15
20
25
Mar-97 Mar-07 Mar-02 Mar-97 Mar-07
-15
-10
-5
0
5
10
15
20
25 % %
nominal spend
real
prices
*ann avg %ch
figures in brackets
show %total spend
water (1%)
Sources: ABS, Westpac
electricity (2%) fuel (5%)
27
Australia’s emissions profile
0
50
100
150
200
250
300
0
50
100
150
200
250
300
Stationary energy
Transport Fugitive emissions
Waste & industrial
processess
Agriculture
Source: Department of Climate Change
National Greenhouse Gas Inventory 2006; Mt CO2-e
28
Consumer sentiment and job security
80
100
120
140
160
180
200 70
80
90
100
110
120
130
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
index index
consumer sentiment index (lhs)
unemployment expectations (rhs) Sources: Westpac-Melbourne Institute
29
Consumer sentiment: family finances
70
80
90
100
110
120
130
70
80
90
100
110
120
130
Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
index index
consumer sentiment index
consumer sentiment - family finances Sources: Westpac-Melbourne Institute
30
Household financial ratios
0
20
40
60
80
100
120
140
160
180
Mar-77 Mar-87 Mar-97 Mar-07 Mar-77 Mar-87 Mar-97 Mar-07
0
5
10
15
20
25
30
35 % %
total housing own-occ housing
*all figures are to 2010Q3
debt to assets (rhs) debt to income (lhs)
Sources: RBA, Westpac
31
House price growth: all dwellings
-20
-10
0
10
20
30
40
50
60
70
-20
-10
0
10
20
30
40
50
60
70
Oct-03 Oct-05 Oct-07 Oct-09 Oct-03 Oct-05 Oct-07 Oct-09
% %
Bris Melb Adel Syd Perth
Sources: RP Data-Rismark,
Residex, Westpac
*six-monthly growth
rates, annualised
32
House price growth stalls
-15
-5
5
15
25
35
45
-15
-5
5
15
25
35
45
Mar-90 Mar-94 Mar-98 Mar-02 Mar-06 Mar-10
% ann % ann
Brisbane
capital cities avg.
Sources: ABS; Westpac Economics
*six-monthly growth rates, annualised
33
Price-income ratios: various measures
0
1
2
3
4
5
6
7
8
9
10
0
1
2
3
4
5
6
7
8
9
10
Sydney Melbourne Brisbane Adelaide Perth
times times
house price to state median income house price to capital city median income all dwelling price to capital city median income unit price to capital city median income
Source: APM, RP Data-Residex, ABS, Westpac
June 2008
units
%total
stock:
38% 28% 21% 24%
22%
34
Housing affordability vs long run trend
20
25
30
35
40
45
50
55
60
65
70
20
25
30
35
40
45
50
55
60
65
70
Dec-00 Dec-02 Dec-04 Dec-06 Dec-08 Dec-10
% %
Sydney
Melbourne
Brisbane
Perth
Sources: REIA, ABS, RBA, Westpac
deteriorate
improve
35
40
60
80
100
120
140
160
180
40
60
80
100
120
140
160
180
Mar-08 Mar-09 Mar-10 Mar-11 Mar-08 Mar-09 Mar-10 Mar-11
index index
NSW Vic Qld WA
Source: Melbourne Institute, Westpac Economics
*smoothed
‘Time to buy a dwelling’ by state
36
Population vs dwelling stock
0
50
100
150
200
250
300
350
400
450
500
0
50
100
150
200
250
300
350
400
450
500
1950s 1960s 1970s 1980s 1990s 2000s last 3 years
thousands thousands
population
dwelling completions
dwelling stock*
Source: ABS, Westpac
annual average change
* net of demolitions – implied by Census
data to 2006; Westpac estimates thereafter
37
Population vs dwelling stock: Qld
0
20
40
60
80
100
120
140
0
20
40
60
80
100
120
140
1950s 1960s 1970s 1980s 1990s 2000s last 3 years
thousands thousands
population
dwelling completions
dwelling stock*
Source: ABS, Westpac
annual average change
* net of demolitions – implied by Census data
to 2006; Westpac estimates thereafter
38
0.5
1.0
1.5
2.0
2.5
3.0
3.5
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Jun-82 Jun-90 Jun-98 Jun-06
% ann % ann
Qld (lhs) Aust (rhs)
Sources: ABS, Westpac Economics
Population growth: sharp slowdown
39
Population growth in perspective
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
1926 1936 1946 1956 1966 1976 1986 1996 2006
ann% ann%
population
contribution from net migration
contribution from natural increase
Sources: ABS, Westpac Economics
40
Migrant inflows vs student visas
0
100
200
300
400
500
600
0
100
200
300
400
500
600
2003 2004 2005 2006 2007 2008 2009 2010
thousands thousands
student visas granted migrant arrivals
Source: ABS, Dept of Immigration and
Citizenship, Westpac Economics
*financial years
50k
drop
67k
drop
41
Australian bank funding sources
10
20
30
40
50
10
20
30
40
50
Jun-02 Jun-04 Jun-06 Jun-08 Jun-10
% %
Domestic deposits
Short term debt
Long term debt
Sources: RBA, APRA, ABS, Westpac.
42
Major Banks’ Bond Issuance
-40
-20
0
20
40
60
-40
-20
0
20
40
60
Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12
$bn $bn
Onshore* Offshore* Maturities Net issuance
Source: RBA
AUD equivalent
* Latest quarter issuance to date
43
Westpac business lending by sector
31.4
7.6
6.2
7.2
9 6.1 4.6
27.9
Property
Agriculture
Accom, Restaurant
Manufacturing
Retail
Wholesale trade
Transport
Other
Sources: Westpac.
44
Total dwelling approvals – Victoria rules!
40
60
80
100
120
140
160
180
200
40
60
80
100
120
140
160
180
200
Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10
index index
Vic (36%) WA (13%)
Qld (17%) NSW (19%)
Sources: ABS, Westpac
smoothed, Sep 2005 = 100
figures in brackets show %total
45
Unit approvals- Victoria overheated?
0
50
100
150
200
250
300
350
400
450
500
0
50
100
150
200
250
300
350
400
450
500
Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11
index index
Vic (36%) WA (5%)
Qld (13%) NSW (20%)
Sources: ABS, Westpac
smoothed, Jan 2006 = 100
figures in brackets show %total
46
QLD mortgage arrears well above national
0.0
0.5
1.0
1.5
2.0
2.5
0.0
0.5
1.0
1.5
2.0
2.5
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10
% %
Average REDS
SPIN
Source: Westpac Economics
47
Foreign bank claims on Australia
0
100
200
300
400
500
0
25
50
75
100
125
Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10
$USbn
Japanese (lhs)
European (rhs)
Sources: BIS, Westpac.
$USbn
48
Mortgage assets: structural shifts
50
100
150
200
250
300
350
400
Mar-02 Mar-04 Mar-06 Mar-08 Mar-10
Banks
Securitisation vehicles
index
Sources: APRA, ABS, Westpac.
49
Lending finance- steady recovery
0
10
20
30
40
50
60
70
80
90
0
5
10
15
20
Jan-85 Jan-90 Jan-95 Jan-00 Jan-05 Jan-10
$bn $bn
construction only (lhs)
investor housing - individuals (rhs)
Sources: ABS, Westpac Economics
*smoothed, annualised
50
Non res showing no recovery
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Apr-87 Apr-91 Apr-95 Apr-99 Apr-03 Apr-07 Apr-11
AUDbn/mth AUDbn/mth
units (surpassed prev peak, now 11% lower)
non res (still 41% below pre-crisis peak)*
Sources: ABS, Westpac Economics
Private dwelling approvals,
trend, nominal
* excluding education
51
Brisbane office market – also a constraint ... as supply continues
-50
0
50
100
150
200
250
1990 1994 1998 2002 2006 2010
-4
0
4
8
12
16
20 %
Net absorption Net supply
Vacancy rate
Sources: PCA, Westpac Property
‟000 sqr meters Westpac Property
forecasts to 2012
Vacancy rate
11.3% 2009
13.0% 2011
52
Disclaimer Key points
• The two key challenges for the industry are interest rates and credit availability – both are of equal concern to industry participants.
• The interest rate outlook will be affected by the global growth outlook; the sustainability of the mining boom and prospects for the cautious consumer.
• US growth prospects are less than robust; China is tightening policy and Europe‟s problems are structural.
• Australian consumers are cautious and look to stay that way with house prices under pressure and housing affordability stretched.
• Any easing in consumer caution is likely to lead to higher rates since the mining boom will continue unabated.
• The mining boom is set to strengthen further maintaining pressure on rates through 2012 – QLD will benefit from this.
• The Australian dollar will be resilient to increasing global risk although it should weaken somewhat in 2012.
53
Disclaimer Key points
• The key to Australia‟s world class house prices has been the increasing imbalance between new supply and population growth although there is clear oversupply in places like the Gold Coast.
• Population growth has slowed sharply particularly in QLD taking some pressure off underlying demand.
• New funding pressures have eased for the major banks as they take advantage of the rising savings rate to fund books through retail deposits – although maturities remain a challenge.
• Foreign banks and securitisers have lost considerable ground to the majors who now dominate new lending QLD‟s reliance on regional banks has been a weakness for the state.
• There is clear evidence that approvals and lending for developments is slowly improving although Victoria is dominating activity.
54
Disclaimer Key points
• There is a clear diversity in terms of approvals across the states with Victoria showing signs of being overheated while QLD is lagging. • Property dominates banks‟ loan books although approvals for non residential have not recovered since the GFC while apartments are showing upward momentum.
• While there is some improvement in residential prospects for non residential particularly in Brisbane/Gold Coast are not sound.
• The stability and improvement in the housing industry is likely to need to await rate cuts which should begin in 2013 following another “round” of rate hikes in 2012.
55
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