Australian Housing MarketIan Graham, Chief Executive Officer

The competitive environment provides significant challenges and opportunities for the mortgage market

• Market share• New players• New products

• Home loan affordability• Debt service

commitment• Consumer advocacy

• Slow growth• Price weakness• Credit quality

Competitors

Housing

Borrowers

• Lower growth• Interest rate outlook• Employment

prospects

The Economy

BIS Shrapnel / PMIResidential

Property MarketOverview

Presented by:

Robert Mellor

Director, Building & Construction

BIS Shrapnel Pty Ltd

July 2006

Key Issues

•Has the downturn in residential property markets ended?

• Is there scope for further price growth in Perth and Darwin?

•Outlook for interest rates?

• Is affordability still constraining residential demand?

•What are the key demographic drivers of the residential market?

2001 2002 2003 2004 2005 2006f 2007f 2008f 2009fPrivate Consumption

3.7 2.9 3.6 5.5 4.3 3.0 3.8 3.0 2.6

Private Investment

-13.0 11.0 16.2 7.7 5.4 10.1 4.4 -0.5 -0.5

Public Consumption

2.1 2.8 3.4 3.6 3.6 3.8 4.5 3.8 2.5

Public Investment

-0.1 8.8 2.8 7.0 7.7 3.9 8.5 1.4 -6.6

GNE -0.2 4.3 6.1 6.3 4.2 4.4 4.3 1.9 1.4

Exports 7.6 -0.8 -0.8 1.4 2.6 3.0 8.5 6.6 6.3

Imports -0.9 1.4 13.1 12.7 12.0 7.9 9.3 2.2 -0.1

GDP 1.9 3.8 3.2 4.0 2.5 3.1 4.0 2.8 2.7Year Ended June Source: ABS Data, BIS Shrapnel

Australia - GDP Growth Forecasts (Chain Volume Measure - 2002/03)

2001 2002 2003 2004 2005 2006f 2007f 2008f 2009f

-22.7 20.1 15.0 4.0 -1.5 -2.7 -1.8 -0.4 6.9

-8.7 24.6 4.9 -2.0 -16.7 0.0 3.9 -1.4 13.5

Year Ended June Source: ABS Data, BIS Shrapnel

Australia - Private Investment Forecasts(Chain Volume Measure - 2002/03 prices)

-0.7

8.3

-3.6

-9.9

-5.0

-4.8 -2.2

Total Dwellings

Real Estate Transfer

Residential and Property - Subtotal

-19.7 21.1

New Plant and Equipment

6.5

11.7 28.1 8.2

-0.6

3.0 16.7 14.7 15.6

12.5 2.6

New Non-Dwelling Construction

-21.9 8.6 16.4 4.9

19.6 6.0

19.9 11.4 12.3New Business Investment - Subtotal

-3.4 17.3 6.1

New Private Investment - Subtotal

-10.6 11.8 15.7 8.4

5.5

-0.6

-0.6

0.0

-2.9

-0.4

5.3 10.0 4.0

Interest Rates

93 95 97 99 01 03 05 07 09 -1

1

3

5

7

9

11

0

2

4

6

8

10

Percent

Housing Variable Rate

Commercial Bank Bills (90 Days)

C.P.I.

Forecast

3.1 3.03.22.52.5

6.4

5.55.7

6.26.0

8.1

7.37.1

7.88.1

Source: RBA, ABS data, BIS ShrapnelQuarter Ended June

2.0

6.0

7.6

Sydney

Melbourne

Home Loan AffordabilityProportion of Monthly Earnings as Repayment

83 85 87 89 91 93 95 97 99 01 03 05 07 09 25

30

35

40

50

60

70

80

52

5755

59

43 4443

Year Ended June Source: BIS Shrapnel, ABS data

65

44

42

50

43

Home Loan AffordabilityProportion of Monthly Earnings as Repayment

83 85 87 89 91 93 95 97 99 01 03 05 07 09

20

25

30

35

40

45

50

Perth

Brisbane

39

34

Year Ended June Source: BIS Shrapnel, ABS data

39

41 4241

31

414142

38

41

Adelaide

33

36 35 35

32

34

New Dwellings Established Dwellings

2001/02 2002/03 2003/04 2004/05Jul-05 to Mar-06

2001/02 2002/03 2003/04 2004/05Jul-05 to Mar-06

New South Wales 30 -20 5 -11 7 12 -8 -6 -10 11

Victoria 33 -19 6 0 8 8 -4 -6 6 9

Queensland 57 -16 9 -11 9 26 3 0 -6 11

South Australia 37 -10 5 -5 3 2 -1 4 6 4

Western Australia 31 -11 23 7 14 6 0 1 13 16

Tasmania 32 5 9 13 -1 5 -1 -8 -11 9

Northern Territory 3 9 28 46 20 7 -10 21 38 27

Australian Capital Territory

12 10 -9 -14 9 0 9 -18 -19 15

Australia 36 -16 9 -4 9 12 -3 -3 -1 11

Source:ABS Data

Loan Approvals for Owner-Occupied Dwellings (% Change)

Avg 1996/97 to 1999/2000 2001/02 2002/03 2003/04 2004/05

12 months to Mar 06 % Var

New South Wales 30,145 43,869 28,791 24,785 27,337 33,085 26

Victoria 29,314 34,307 23,984 21,303 28,178 33,018 33

Queensland 18,705 33,259 24,389 20,193 19,894 24,588 28

South Australia 6,427 9,285 6,822 6,150 6,419 7,410 21

Western Australia 15,617 17,704 12,775 12,393 16,060 17,382 17

Tasmania 1,660 2,899 2,273 1,611 1,635 2,066 41

Australian Capital Territory 2,118 1,676 1,509 1,001 1,140 1,839 33

Northern Territory 1,114 886 763 964 1,481 1,400 33

Australia 105,100 143,885 101,306 88,400 102,144 120,788 27

Source: ABS Data

Number of Loans to First Home Buyers

Value of Investment Loans for the Purchase of Property for Rent/Resale

($million) % Var ($million) % Var ($million) % Var ($million) % Var ($million) % Var

New South Wales 20,707 47 27,252 32 33,018 21 25,497 -23 17,691 -7

Victoria 9,846 63 11,660 18 13,788 18 12,346 -10 8,770 -5

Queensland 6,792 84 10,211 50 13,624 33 11,439 -16 8,560 0

South Australia 1,597 63 2,627 64 3,394 29 3,428 1 2,378 -6

Western Australia 3,105 56 4,284 38 5,242 22 5,824 11 6,011 47

Tasmania 217 62 361 67 547 52 522 -5 381 -1

Northern Territory 165 24 204 23 298 46 299 1 267 22

Australian Capital Territory

708 47 966 36 1,005 4 827 -18 578 -5

Australia 43,163 57 57,653 34 71,010 23 60,274 -15 44,696 18

Source: ABS Data

2001/02 Jul-05 to Mar-062004/052002/03 2003/04

AustraliaProportion of housing finance by type

(excluding refinancing)

91 92 93 94 95 96 97 98 99 00 01 02 03 04 05

4

8

12

16

24

28

32

36

44

48

52

56

64

68

72

76

0

20

40

60

80Percentage

Upgrader

Investor

First Home Buyer

Year Ended June Source: ABS data

Net Overseas Migration(Thousands)

YearEnded AustraliaJune1991 86.4 1992 68.6 1993 30.0 1994 46.5 1995 80.1

1996 104.1 1997 87.1 1998 79.2 1999 96.5 2000 107.3

2001 135.7 2002 110.6 2003 116.5 2004 100.0 2005 110.1

Forecast

2006 120.0 2007 130.0 2008 135.0 2009 110.0

Source: ABS

Net Overseas Migration

88 90 92 94 96 98 00 02 04 06 08

2.5

5

7.5

25

50

75

1

10

New South Wales

Victoria

Thousands

South Australia

Western Australia

Queensland

Forecast

Year Ended June Source: BIS Shrapnel, ABS data

Net Interstate Migration

82 84 86 88 90 92 94 96 98 00 02 04 06 08

-30

-10

10

30

50

-40

-20

0

20

40

New South Wales

Victoria

Thousands

Western Australia

Queensland

Forecast

Year Ended June Source: BIS Shrapnel, ABS data

Tasmania

South Australia

Net Population Increase

88 90 92 94 96 98 00 02 04 06 08 -10

10

30

50

70

90

0

20

40

60

80

100

New South Wales

Queensland

Victoria

Thousands

South Australia

Western Australia

Forecast

Tasmania

Year Ended June Source: BIS Shrapnel, ABS data

DwellingCommencements

(Thousands)1996/97- 2000/01

2001/02- 2005/06

2006/07- 20010/11

2005/06

NSW 45.6 42.6 47.4 30.7VIC 33.7 37.7 38.6 38.4QLD 31.0 44.1 43.0 37.8SA 7.5 7.7 8.5 10.3WA 17.5 19.0 21.3 25.5TAS 1.8 2.9 2.2 2.5NT 1.3 1.1 1.7 1.4ACT 2.1 1.8 2.3 1.7AUST 139.6 157.1 165.1 148.1

Source: BIS Shrapnel, ABS Data

DemandUnderlying

Annual Average(Thousands)

UnderlyingDemand ('000)

2006/07-2010/11Annual Average

DwellingStock Deficiency

as at June(Thousands

(Thousands) 2003 2004 2005e 2006f 2007f 2008f 2009f

New South Wales 47.4 12.2 7.4 5.3 14.8 30.3 46.4 57.7

Victoria 38.6 -1.7 -8.4 -14.0 -17.8 -15.1 -12.0 -11.1

Queensland 43.0 26.8 35.7 37.0 40.7 46.2 49.8 47.0

South Australia 8.5 -2.7 -5.0 -6.9 -9.7 -10.8 -10.9 -10.6

Western Australia 21.3 -1.2 -1.0 -1.2 -2.1 -4.3 -5.4 -6.6

Tasmania 2.2 -0.5 0.8 0.9 0.7 0.7 0.6 0.3

Northern Territory 1.7 -2.9 -2.9 -2.5 -2.0 -1.7 -1.5 -1.4

A.C.T. 2.3 -0.2 -1.2 -1.6 -2.2 -1.5 -0.9 -0.4

Australia 165.1 29.8 25.4 16.9 22.4 43.9 66.0 74.8f: Forecast Source: BIS Shrapnel & ABS data

Residential Vacancy Rates - Quarterly(Percentage)

Sydney Melbourne Brisbane Adelaide Perth Hobart Canberra Darwin

2001 Mar 2.9 3.3 2.2 3.8 3.3 1.5 1.5 9.6

Jun 3.3 3.9 n/a 3.6 4.2 2.0 3.0 9.0

Sep 4.1 4.9 n/a 3.8 4.6 2.1 2.3 11.8

Dec 3.8 4.8 n/a 2.1 4.6 1.8 1.9 12.6

2002 Mar 4.0 3.4 2.0 3.6 4.2 1.6 3.1 8.8

Jun 4.3 3.8 n/a n/a 4.5 2.3 n/a 5.0

Sep 4.4 4.6 2.6 n/a 4.4 2.6 2.7 5.9

Dec 4.5 4.1 3.4 n/a 4.2 1.9 n/a 6.8

2003 Mar 3.9 3.7 1.6 1.7 3.9 2.2 1.9 6.1

Jun 4.4 3.9 2.3 2.8 4.5 2.8 3.5 7.1

Sep 3.7 3.7 3.0 1.5 4.5 2.4 3.5 4.5

Dec 3.7 3.9 2.4 1.3 3.8 1.9 4.5 7.2

2004 Mar 3.2 3.5 2.9 1.4 3.0 1.6 3.6 6.9

Jun 3.6 3.6 2.3 1.9 3.3 2.2 4.3 5.5

Sep 2.8 3.7 2.7 1.9 2.8 2.2 4.6 3.8

Dec 2.4 3.8 2.6 2.3 2.7 2.0 5.2 4.1

2005 Mar 2.2 2.4 1.7 1.8 2.6 2.0 2.3 1.7

Jun 2.5 2.6 2.3 1.8 2.5 2.5 2.2 1.9

Sep 2.8 2.2 2.0 1.8 1.6 2.3 1.8 1.8

Dec 2.6 2.1 2.1 1.7 1.6 2.2 2.8 4.4

2006 Mar 2.0 1.8 1.5 1.7 1.4 2.2 1.8 3.3Source: R.E.I.A.

Real House Price Sydney ($'000)

House PriceSydney ($'000)

Commencements ('000) NSW

(Y/E Quarter)

Forecast

New South WalesResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08

30

50

70

150

200

300

500

700

100

-1-14-15

-9

-2- 4

+6

-2 -3

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

+8

+16

+2

VictoriaResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08 20

30

40

50

60

80

150

200

300

400

100

Y/E June

Forecast

-10

-1-9

-6

-1

+3 +2+3+2

Real House Price Melbourne ($'000)

House PriceMelbourne ($'000)

Commencements ('000) VIC

(Y/E Quarter)

Source: ABS data, BIS Shrapnel & R.E.I.A. data

+4+7

+4

QueenslandResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08 20

25

30

40

50

60

70

80

150

200

250

300

400

100

Forecast

Commencements ('000) Qld

(Y/E Quarter)

House PriceBrisbane ($'000)

Real House PriceBrisbane ($'000)

+11

+0

-4-12

+2+31

+6+3+6

Y/E June Source: ABS data, BIS Shrapnel & R.E.I.A. data

+7

+27

+3

South AustraliaResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08 5

7

15

30

50

70

150

300

10

100

Forecast

Real House Price Adelaide ($'000)

House PriceAdelaide ($'000)

Commencements ('000)South Australia

(Year Ended Quarter)

-3-9

-6

+5

+10+14 +1 +2+1

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

-10-2

+1

Western AustraliaResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08

15

30

50

70

150

300

100

Real House PricePerth ($'000)

House PricePerth ($'000)

Commencements ('000)Western Australia

(Year Ended Quarter)

+11-4

+12+2

+2

+21

+16

+3+22

Forecast

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

-8 -5

-2

TasmaniaResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08

15

25

35

50

70

150

250

350

10

100

Real House PriceHobart ($'000)

House PriceHobart ($'000)

+0

+37

-13 -4

+2+3+40 +1+4

Forecast

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

Commencements('00) Tasmania(Y/E Quarter)

+0

+6

+1

Northern TerritoryResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08 6

15

20

30

60

150

200

300

10

100

Real House PriceDarwin ($'000)

House Price Darwin($'000)

Commencements ('00)Northern Territory

(Year Ended Quarter)

+10

+24

+19+3

+0

Forecast

+28+6

-3

+19

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

+0

-6

-4

Australian Capital TerritoryResidential Building and Property Cycle

88 90 92 94 96 98 00 02 04 06 08

15

25

40

75

150

250

400

10

100

Real House PriceCanberra ($'000)

House PriceCanberra

($'000)

Commencements ('00) ACT(Y/E Quarter)

-8

+7

-41

-15

+2

-5

+16 +1

+1

Forecast

Source: ABS data, BIS Shrapnel & R.E.I.A. dataY/E June

+10+24

+2

Summary• Affordability remains the key constraint on stronger

demand until 2008.

• Likely rise in interest rates could lead to further weakening in demand over 2006/07, particularly in Sydney.

• However, modest rise in demand from first home buyers and upgraders expected in Brisbane and Melbourne.

• Continued weakness in investor demand until 2008.

Summary continued……• Perth market likely to peak in the next six months or

risk a market correction.

• Major rental crisis is developing in Sydney, Melbourne and Brisbane, which will drive strong growth in rents.

• Residential markets in Sydney and South-East Queensland are heading into significant undersupply (or pent up demand).

BIS Shrapnel / PMIResidential

Property MarketOverview

Presented by:

Robert Mellor

Director, Building & Construction

BIS Shrapnel Pty Ltd

July 2006