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Case Analysis & ReportProperty Wealth Advisory (PWA)INF30004 - Business Intelligence & Data VisualizationThi Yen Nhi Tran [email protected] Milne 101608201 @student.swin.eduCong Chi Tran [email protected] SummaryThis report is aimed at analyzing the current s...

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Case Analysis & Report Property Wealth Advisory (PWA) INF30004 - Business Intelligence & Data Visualization

Thi Yen Nhi Tran

[email protected]

Jarrod Milne

[email protected]

Cong Chi Tran

[email protected]

Executive Summary This report is aimed at analyzing the current state of the Metropolitan Melbourne Real Estate Market (REM), from a selection of data gathered between Q1 2018 and Q4 2020. The current REM in Metropolitan Melbourne is relatively stable, growing at a small percentage every year. Growth is forecasted to be less pronounced than what the news is reporting, but more consistent over periods of time and at a low risk of collapsing. Currently the Northern and Southern Metropolitan areas are experiencing high returns, as are townhouses. Looking into buying land approximately 15-20km from the CBD is also an option, as it is expected that people will continue moving out of the CBD as Melbourne grows, and large blocks of land can be subdivided into units to meet demand, as well as multiplying profit in a way that has remained stable. Investing directly into the CBD is less than viable unless there is an external variable supplying enough funds to make large-scale development worthwhile, due to the high cost and the current exodus of people from the CBD.

Table of Contents Executive Summary..................................................................................................................... 2 Introduction.................................................................................................................................. 4 Overview of Melbourne Property Market...................................................................................... 5 Data processing........................................................................................................................... 6 Analysis of Property Market......................................................................................................... 7 1. The trends on the Real Estate Market (REM).......................................................................7 1.1 Sales performance was better in springtime and worse in summertime.........................7 1.2 Median price of houses dropped significantly while that of townhouses escalated.........8 1.3 Land size of properties in different regions of Melbourne tended to climb as distance increased.............................................................................................................................. 9 2. Growth areas and/or opportunities in the Melbourne REM.................................................10 2.1 Top 10 Suburbs with Highest Number of Properties Sold.............................................10 2.2 Growth Areas over the last 3 years...............................................................................10 3. If the REM bubble going to burst vs further growth is anticipated.......................................12 4. Price performance on different types of properties.............................................................14 5. If it is worth considering investing in properties in, closer, or further away from Melbourne CBD....................................................................................................................................... 21 6. Any useful predictions and/or forecasting on price, growth, etc..........................................22 Recommendations..................................................................................................................... 23 Conclusion................................................................................................................................. 24 Reference List........................................................................................................................... 25 Appendix.................................................................................................................................... 26

Introduction Property Wealth Advisory (PWA) is an Australian property consulting firm that provides investment-oriented services and property market research to clients looking to diversify their investment portfolios. The customers the company wants to target are individuals who are looking to own the right homes with the potential to be profitable. The service that the company provides to their customers has been rated as efficient and premium. Currently, PWA has main operations in 3 Australian states: Queensland, Victoria, and New South Wales while the company's main office is based in Hawthorn, Victoria. As for the real estate market, the continuous movement of this market has been extremely large in recent years. Although the real estate sector has experienced a difficult and challenging year in 2020, the recent 2021 property auction results show the return of an extremely active market. The PWA CEO just had a series of meetings with investors who have accumulated money during the pandemic and are looking forward to investing that money in the real estate market efficiently and profitably. This report will analyze a dataset on the Melbourne property market for the period 2018-2020 to provide effective insights on issues such as trends in the property market, growth areas in Melbourne, market prediction if REM bubble will burst. In addition, price performance across different asset classes, advice on investing in areas near or far from the center of Melbourne and price/growth forecasts will also be provided.

Overview of Melbourne Property Market Currently, there are approximately 2885 properties available for renting purposes and roughly 904 properties for sale with the median price for a unit at $481,500 (realestate.com.au, 2021). Additionally, the compound growth rate has seen a rather low rate with -4.2% for houses and -0.2% for units, according to five years of sales. Despite the low rate of growth, Melbourne’s median home price has increased and reached a record by 0.2%. Meanwhile, house values have also increased by 4.4% in April 2021 (The Urban Developer, 2021). The city has also outperformed other cities such as Sydney and Queensland to become one of the most profitable capitals for sellers with the rate of profitmaking sales at 94.3% which has risen compared to the previous year. (The Urban Developer,2021). The rental price of property in Melbourne has also seen a sharp decrease for rental price of units with -12.8% compared to 2020 while rental price of houses has increased to -6.7%. (The Urban Developer, 2021). Along with the decrease in rental prices, Melbourne also has the highest vacancy rate of 4.4% which is the highest in the country. This can be explained by the fact that the loss of international students has significantly affected the property rental market in Melbourne.

Data processing The data processing methodology used was confined due to the urgent nature of this request. First, any entries that had the same suburb, address, and sale date were found. This indicates pieces of data that were probably scraped multiple times. Differing information from sources was merged when necessary (with additional research done at one point to ensure the correct real estate agent was involved), and duplicates then deleted. Next was looking through the list of real estate agents and cleaning that up slightly – altering “X/X” results when both were the same to just “X” and fixing noticeable spelling errors or inconsistencies in recording between different data. Other outliers such as date of house built were fixed at this point. Finally, any record that had no data for each of; # of bedrooms, # of bathrooms, garage capacity, land size and building area, was removed.

Analysis of Property Market 1. The trends on the Real Estate Market (REM) 1.1 Sales performance was better in springtime and worse in summertime. Melbourne's monthly home sales trends for 2018 and 2019 are shown in the pie charts below (2020 will not be covered here as 2020 data is not sufficient for all months). Regarding sales performance in 2018, the percentage of home sales in September and November accounted for the highest share with 14.96% and 18.36% respectively while this rate in January and February was extremely small, just under 0.5%. This detail shows that home sales have had a big difference between months/seasons in the same year. Sales performance in 2019 also shows a similar view. Specifically, the percentage of home sales in the months of the first quarter of 2019 and December 2019 fluctuated in the very low range, only 4%-5%, of the total sales for the whole year. Meanwhile, the spring months including September, October, and November have all generated the largest number of sales compared to the remaining months, over 15% for each month. In both years, it is observed that the real estate market in Melbourne is extremely active in the springtime (September-November) with the total sales rate of these 3 months up to 40%-45%. of the whole year. In contrast, the sale of real estate in Melbourne tends to cool down rapidly in the summer months (December-February).

1.2 Median price of houses dropped significantly while that of townhouses escalated. Over the past 3 years, the median price of different types of properties in Melbourne has experienced significant fluctuations. The distinct trends of all 3 properties can be clearly seen in the line chart below. For the "h" property class which includes house, cottage, villa, semi and terrace, this is the category with the most fluctuating median price. It experienced a continuous rally from $1,000,000 to over $1,200,000 between Q1 2018 - Q1 2019 but fell sharply below its pre-raised value throughout 2019. In contrast, the median price of the "t"- townhouse has increased rapidly during the period. It started out at $720,000 in early 2018, then increased by 30% to a peak value of $935,000 in Q1 2019 and finally stopped near $900,000 in early 2020. It is worth noting that though the median price of type "h" was much larger than type "t" (about $300,000) at the beginning of 2018 and the two values reached parity (about $900,000) two years later (at the beginning of 2018). 2020). This proves that the value of houses is on a downward trend in Melbourne while townhouses are on the rise. In addition, it is noticed that the value of the units was always lower than the other two types and did not change significantly when it is mostly in the price range of $500,000-$600,000.

1.3 Land size of properties in different regions of Melbourne tended to climb as distance increased. The scatter histogram below depicts how the average land size value changes as the average distance varies across different parts of Melbourne. It is shown that as the average distance increases, the average land size value in that area also increases. This means that properties in inner-city areas and close to the Melbourne CBD will be small in land size as these are densely populated development areas. In contrast, areas farther from the CBD such as Northern Victoria or Eastern Victoria will have more properties with larger land areas. This argument is illustrated by the data in the chart below that the Metropolitan areas where the average distance is only 10-15km have an average land area value of only about 600 meters. On the other hand, suburban areas such as Eastern Victoria and Northern Victoria, which are on average 35km from the CBD, have an average land area of 2,400 meters and 4000 meters respectively (more than seven times the average land area in the Southern Metropolitan).

2. Growth areas and/or opportunities in the Melbourne REM 2.1 Top 10 Suburbs with Highest Number of Properties Sold. The top 10 suburbs with the total number of properties sold during the last 3 years are shown in the bar chart below. Specifically, Reservoir leads the race with a total of 566 properties sold while the area that stands in second place is Richmond with 418 properties sold in this area. The rest of the top 10 areas such as Bentleigh East, Glen Iris, Preston, Bunswick, Brighton, Kew, Coburg and Northcote all show strong property market activity when the total number of properties is in the areas. These are all around 350-400. Another notable point is that the suburbs in the top 10 above are both in the Northern Metropolitan and Southern Metropolitan areas, which shows that these are probably the two areas with the strongest real estate activity in Melbourne.

2.2 Growth Areas over the last 3 years The table below shows the median property market price for the period 2019-2020 by region and council area. The color of the data plots also reflects the growth rate of median house prices over the previous year. It is noticed that the area showing the most remarkable growth in property prices is the Southern Metropolitan. Most of the council areas in this area have experienced strong growth in median property prices over the past two years. Specifically, the median property price of Melbourne City Council in the Southern Metropolitan area has grown by 82.9% which is the highest growth rate among the rest of the market. In addition, Port Phillip City Council and Stonnington City

Council also ranked second in terms of growth when their rates both fell between 50% and 57%.

3. If the REM bubble going to burst vs further growth is anticipated The Real Estate Market “bubble”, as it is called, is a phenomenon where house prices quickly rise in an unsustainable manner, due to many compounding factors, before plummeting in price once the bubble “pops”, usually from some outside influence. In many examples, this is a stock market crash also bringing down the price of overinflated land, and as such the entire financial system collapses with it (Minoru 2019). Currently, examples of what looks like bubbles can be found in South Korea, especially in Seoul, where house prices climbed over 55% in three years, and on average people spend nearly 40% of their household income on repaying a mortgage (Kyung-Min 2020). Unfortunately, it is impossible to say whether what is happening in Seoul is a bubble, as the rise in house prices may just tamper off over the next few years, instead of dropping significantly. In that case, the dramatic rise goes without a dramatic fall, and the price remains stable at the new high.

The median house price in Melbourne is about $940,000, for Q1 2020. For Q1 2018, the median house price was $890,000, which means an average increase of $25,000 a year. This can be seen in the above figure, in the blue line. In percentage terms, the median house price has raised just under 6% in 2 years. The dashed grey line above is the trend line, which indicates a slight increase in median house price, year on year. Surrounding the trend line is a confidence interval of 95%. The worst possible case, given 95% chance, is that the median house price remains relatively stable long-term, and only decreasing slightly – excluding seasonal variation. The low but consistent profit indicates partly that the market is not in danger of crashing – the rise in prices is not at a high percentage, and the economy itself is mostly in recovery.

Naturally, it is also possible to create a forecast. The dark blue line remains the same between both graphs, but the light blue line indicates a forecast price, with seasonal adjustment, and a 90% confidence interval surrounding it. The prediction is that in 2021 Q1, the median price of houses should be just 990,000 – just under 1 million. Due to seasonal variations, it also predicts that the price of houses should go down over the next two quarters, meaning it would be financially wise to wait for the seasonal downturn, and buy at that point for a relatively cheaper price. Overall, the REM bubble looks unlikely to collapse. Growth is low, but consistent over long-term periods, and does not seem heavily volatile.

4. Price performance on different types of properties In this part of the report, the median price will be utilized to evaluate the values of properties and suburbs as median price is a better indicator in this situation apart from average price since it is not affected by outliers and is suitable for identifying overpriced or underpriced properties.

The map generated above shows that Melbourne central area as well as the Eastern region have a higher median price compared to the other areas. The median price for properties have also seen an increase from 900,000$ in 2018 to 940,000$ in 2020 as shown below.

In terms of median price, house properties’ median price is in the lead with 1,028,000$ compared to 860,000$ for townhouses and 561,000 for units.

As can be seen above, Kooyong is the most expensive suburb in the top 10 most expensive suburbs with median price of property up to 2,900,000$. These suburbs have also seen sharp increases in their median price for properties except Albert Park, Kooyong and Canterbury where there has been a decrease in median prices.

The best-selling properties in these areas are houses with 3-4 bedrooms with the median price varies from 780,000$ to 2,350,000$.

Meanwhile, Kurunjang, Melton and Melton South are the suburbs with the lowest median price of properties as shown below.

Similar to the top 10 expensive suburbs, these 3 suburbs have also seen an increase in their median prices compared to previous years with almost all properties sold being house type with 3 bedrooms.

Compared to the median house price in Melbourne, the median house price of these areas are relatively low due to their position being too far from Melbourne CBD.

In terms of highest sales, 3-bedroom houses lead the race with over 10,075 properties which is the highest of all types of properties with median price at 941,000$ which is relatively low compared to the overall median price of house type.

With over 1,100 properties sold, 3-bedroom townhouses are among the bestselling properties compared to others with median price starting at 899,500$ which is higher than the overall median price of this type of property.

For unit property type, the bestselling property is the 2-bedroom unit with median price at 582,750$ which is slightly higher compared to the overall median price of this type of property.

5. If it is worth considering investing in properties in, closer, or further away from Melbourne CBD

It can be seen that over the period, the average distance from a suburb to CBD, when purchasing a property has increased significantly from 9.4 kilometers in 2018 to 13.965 kilometers in 2020. This means that homebuyers are having the tendency to buy properties that are far away from Melbourne CBD. This can be explained by the fact that Melbourne CBD is highly populated while the land size and house size is limited. These factors combined with the central and unique position of the CBD have pushed the price of properties in this area to become extremely high compared to other properties that lay further outside the CBD. Therefore, homebuyers, especially first homebuyers, will try to avoid the CBD and move to other areas to have a better priced property. Thus, investing into Melbourne CBD properties may not be an ideal investment due to high price but low demands. Additionally, houses are predicted to continue to be the main source of properties in Melbourne accounting for major sales of properties in Melbourne.

6. Any useful predictions and/or forecasting on price, growth, etc. Distance from the CBD has an interesting relationship with both price, and land size. Shown above are 2 lines on a visualization, the top blue line representing a moving average of median house prices, and the bottom orange line representing a moving average of median land size. Both have removed a single piece of land that was oversized, which skewed the dataset entirely and can be considered an outlier. The moving average in both is reliant on the last 3 distance values, meaning the line is smoothed o...