Quarterly rents have increased across all capital cities, bar Sydney and Darwin.

At a glance:

  • CoreLogic has released its first Quarterly Rental Review for 2019, showing rents have risen by 1 per cent during the first three months of this year.
  • Sydney is the most expensive capital city to rent with a median weekly rent of $582 per week, while Perth is the cheapest at $385.
  • Quarterly rents have increased across all capital cities, bar Darwin and Sydney.

The first CoreLogic Quarterly Rental Review for 2019, which tracks median rents and rental yields across Australia, shows that national weekly rents have risen by 1 per cent during the first three months of the year.

“This seasonally strong first quarter has delivered the highest increase in weekly rents since the corresponding first quarter a year ago”, says Cameron Kusher, Research Analyst for CoreLogic. “Our regional housing markets are performing marginally better than the capital cities, many of which have been experiencing weaker rental market conditions in recent years due to excess housing supply and growing investor activity.”

“Quarterly rents have increased across all capital cities, bar Sydney and Darwin. Hobart is experiencing notable growth, with rents increasing by 3.6 per cent over the past quarter. However, with a median rent of $582 per week, Sydney remains Australia’s most expensive city for tenants by far.”

The Quarterly Rental Review also highlights a national increase in yields over the past three and 12 months. Gross rental yields for the first quarter are 4.10 per cent compared to 3.95 per cent in the previous quarter and 3.77 per cent a year ago. Darwin has the highest rental yield across the country with an annual median of 6 per cent.

Key findings – rents and yields

  • Nationally, rents increased by +1 per cent over the March quarter and by 0.4 per cent over the past 12 months. Combined capital city rents were 0.9 per cent higher than the December 2018 quarter but -0.1 per cent lower than the previous March quarter. This is the lowest annual change since CoreLogic started tracking rents in 2005. Regional rents were slightly stronger, with a 1.1 per cent increase over the quarter and a 1.8 per cent increase over the past year.
  • In the first quarter, rents climbed in all capital cities except for Darwin (-0.3 per cent). Hobart was by far the strongest performer, with a 3.6 per cent increase in rent over the past quarter, followed by Perth (+1.8 per cent) and Canberra (+1.5 per cent). Hobart also experienced the highest increase in rent over the past 12 months (+5.4 per cent) while at the other end of the scale the media rent in Darwin fell by -5.7 per cent.
  • Nationally, the median rent is $436 per week. The median rent across the capital cities is $465 per week, and $378 per week across the regionals.
  • Gross rental yields have increased from 3.8 per cent to 4.1 per cent nationally. Across the combined capitals, the average rental yield is 3.8 per cent (up from 3.5 per cent). Regional yields are far higher at 5.1 per cent, up from 4.9 per cent 12 months ago.

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Key findings – capital cities

  • Sydney remains Australia’s most expensive capital city market, with a median weekly rent of $582, despite a decline of -3.1 per cent over the past 12 months. While rents in Sydney remained the same as the previous month, they increased by 0.5 per cent over the past quarter. Sydney also has the lowest rental yields out of all capital cities, at 3.5 per cent over the past quarter.
  • Canberra reports a median rental cost of $550 per week, an increase of 1.5 per cent over the past quarter and 3.6 per cent over the past 12 months. Canberra is one of only two capital cities (alongside Darwin) to experience a drop in weekly rent over the past month (-0.1 per cent).
  • In Melbourne, rents are $454 a week – an increase of 1 per cent over the quarter and 2.1 per cent over the past 12 months. Melbourne also reported the greatest increase in rental yields out of all capital cities, with current rental yields being 3.6 per cent, compared to 3.1 per cent a year ago. Despite the rise in yields, Melbourne has the second lowest weekly rental yield out of all capital cities (after Sydney).
  • Brisbane rents are starting to climb again, with Brisbane now having a median weekly rent of $436.This is an increase of 0.8 per cent over the past quarter, and 1.4 per cent over the past 12 months.
  • Perth is the most affordable capital city to rent in with a median weekly rent of $385. However, it is showing signs of growth, achieving the second highest quarterly rate (after Hobart) with an increase of 1.8 per cent over the past 3 months. Over the past year, Perth rents have increased by 2.1 per cent.
  • Adelaide closely follows Perth to become the second most affordable capital city to rent a property in, with a median weekly rent of $386. Like Brisbane, it experienced a 0.8 per cent rise in rents over the March quarter. Over the past 12 months, rents in Adelaide have risen by 1.2 per cent. Gross rental yields have remained static over the year at 4.4 per cent.
  • Hobart reported the strongest growth in rents, up 3.6 per cent over the past quarter to $453 per week. Over the past year, rents have increased by 5.4 per cent. Hobart also reports the strongest growth over the past month, with a 1.6 per cent increase in weekly rent. Hobart also reported the second highest rental yield (after Darwin) of 5.1 per cent, which remained the same as 12 months ago.
  • Darwin has experienced the most significant decline in rent to achieve a median weekly rent of $458. This is down -0.3 per cent over the quarter and -5.7 per cent over the past year. In addition, Darwin also reports a drop of 0.2 per cent over the past month. However, at 6 per cent, Darwin has the highest gross rental yield out of all the capital cities (up 0.1 per cent on the past 12 months).

CoreLogic Research Analyst Cameron Kusher said the first quarter of 2019 had delivered the highest increase in weekly rents since the corresponding first quarter a year ago

“Our regional housing markets are performing marginally better than the capital cities, many of which have been experiencing weaker rental market conditions in recent years due to excess housing supply and growing investor activity,” he said.

“Quarterly rents have increased across all capital cities, bar Sydney and Darwin.

“However, with a median rent of $582 per week, Sydney remains Australia’s most expensive city for tenants by far.”

The Quarterly Rental Review also highlights a national increase in yields over the past three and 12 months.

Gross rental yields for the first quarter are 4.10 per cent compared to 3.95 per cent in the previous quarter and 3.77 per cent a year ago. Darwin has the highest rental yield across the country with an annual median of 6 per cent.

According to the ABS, total household assets were recorded at a value of $12.6 trillion at the end of 2018. Total household assets have fallen in value over both the September and December 2018 quarters taking household wealth -1.6% lower relative to June 2018. While the value of household assets have fallen by -1.6% over the past two quarters, liabilities have increased by 1.5% over the same period to reach $2.4 trillion. As a result of falling assets and rising liabilities, household net worth was recorded at $10.2 trillion, the lowest it has been since September 2017.

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Based on this data from the ABS, the Reserve Bank (RBA) calculates a number of household finance ratios.

The first metric detailed from the RBA are the ratios of household and housing debt to disposable income. As at December 2018, household debt was 189.6% of disposable income, a record high and up from 188.7% the previous quarter. Housing debt was also a record high 140.2% of disposable income and had risen from 139.5% the previous quarter.

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While debt levels are quite high, the ratios of asset value to disposable income are much higher. While that may be the case, it is important to understand that if asset values fall, the value of the debt typically doesn’t reduce at the same speed, which can lead to asset value erosion. As at December 2018, household assets were 927.9% of disposable incomes. This ratio has declined as property values have fallen, down from a peak of 962.1% in December 2017. Similarly the ratio of housing assets to disposable income is currently 495.3%, down from its peak of 529.7% in December 2017. The 495.3% figure is the lowest it has been since September 2016.

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As a result of a reduction in the ratio of assets to disposable income, the ratio of debt to assets is climbing. Total household debt is now 20.4% of household assets, the highest it has been since March 2016. Total housing debt is 28.3% of total housing assets, the highest it has been since September 2014. Again, this reflects the fact that asset values are falling as debt increases.

Despite generational low official interest rates, the measures of interest payments to disposable income have risen over recent quarters. This is likely reflective of lenders lifting interest rates independently of any adjustment to the cash rate by the RBA. Household interest payments represented 9.1% of household disposable income in December 2018, their highest share since September 2013. Housing interest payments accounted for 7.6% of household disposable income in December 2018, their highest share since March 2013. Despite the cash rate tracking at generational lows, households are paying a proportionally higher share of interest than they have in many years.

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With housing values falling and expected to keep falling, the ratio of assets to disposable incomes is likely to fall over the coming quarters. Although most households will likely remain in a position whereby the value of their assets is significantly higher than their debt, no doubt an increasing number of recent property purchasers will have higher levels of debt than the value of their asset. This is probably an area of most concern for the RBA. If this leads to reduced consumer expenditure an in-turn slower economic growth it may be a trigger for either lower official interest rates or changes to mortgage lending policies (or both). Furthermore, with household debt at record highs and households dedicating more of their income to servicing their debt at a time when interest rates are so low if household debt levels haven’t declined by the time interest rates rise it could create more challenges for households.

This data will be very important to focus on over the coming quarters.

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Australian Home Values April 2019

Home values stabilised a little last week, falling marginally in three capital cities and holding steady in two, according to the latest CoreLogic data.

Combined, the daily home value index fell by 0.1 of a percentage point in the week ending 31 March.

Value fell by 0.1 of a percentage point in Sydney and Brisbane, and 0.2 of a percentage point in Melbourne, and remained even in Adelaide and Perth, CoreLogic’s Property Market Indicator data showed.

The monthly index was down by 0.6 of a percentage point for the week. It fell by 8.6 per cent for the year. Sydney, Melbourne and Perth were the main drivers at 10.9 per cent, 9.8 per cent and 7.7 per cent.

Listings dropped across some capital cities for the week, and lifted in others. In Darwin, they were up by 13.6 per cent, and in Canberra, they rose by 21.1 per cent. Sydney fell by 10 per cent and Melbourne was down by 4.6 per cent.

Houses remained more popular than units, and the average time for houses on market continued to remain high in most capital cities. Hobart faired best at 35 days, closely followed by Melbourne at 39 days, and only Perth remained in the 90 days-plus zone at 90 days exactly.

For units, Hobart was at 29 days, with Melbourne not far behind at 36 days. Perth remained slow at 110 days.

Vendor discounting was between 5.3 per cent and 7.6 per cent for houses across most capital cities, and between 6.2 per cent and 7.7 per cent for units.

Canberra was the low-end exception for both houses and units, at 3.3 per cent for both.

Darwin was the high-end exception for houses at 15.6 per cent, while Perth was the high-end exception for units at 8.6 per cent.

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Businesses in states where daylight savings is observed, and those trading within them, are being reminded that it will soon come to an end. Daylight savings time will

Businesses in states where daylight savings is observed, and those trading within them, are being reminded that it will soon come to an end.

Daylight savings time will end this Sunday, 7 April — sticking with its usual pattern of reverting back by one hour in the early hours of the first Sunday of April.

As noted by the federal government’s official time zone website, at 3am local time this Sunday, clocks will revert back by one hour to 2am in NSW, Victoria, the ACT, South Australia and Tasmania, giving residents a so-called “extra hour of sleep”.

The change means that Australia will revert back to three time zones, rather than its current five, given that Queensland and the Northern Territory (as well as WA) do not observe daylight savings time.

Depending on the state and the date of Easter in a particular year, the end of daylight savings can coincide with the school holidays, as it will this year for residents of Victoria, given that its school term finishes on Friday, 5 April.

In the ACT and the other states where daylight savings is observed, the change falls outside of the school holidays. The federal Department of Education and Training notes that school holidays in NSW, the ACT, South Australia and Tasmania do not start until the end of next week (Friday, 12 April).

It was a bit of an odd start in daylight savings this summer, given that the first Sunday of October did not fall in the Labor Day long weekend observed in NSW, SA and the ACT.

 

 

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#brisbane The banks pulled back, the government’s gotten involved, developers have realised what’s going on

The property downturn may finally spell the end of the “dog box”.

As local and overseas investors flee en masse, property developers are struggling to get funding from banks, with a growing number of apartment buildings being delayed or abandoned altogether.

Non-bank lenders are increasingly stepping in to fill the gap — and the focus is turning away from the 20-storey high-rises and tiny one-bedroom apartments favoured by investors to larger units in smaller-scale developments targeted at owner-occupiers.

“There is a tailwind in terms of the demographics, especially the baby boomers who have more capital, as they make that transition to apartments for lifestyle reasons,” said David Chin, founder of investment advisory firm Basis Point.

“The larger two- and three-bedroom apartments still have a market. In Europe and (places like) Paris, it is quite common for apartments to be very large, three bedrooms, almost like homes. It sets the higher density living in three- four-, five-storey buildings, not high rises. It works and I think that will be more common in Australia.”

Mr Chin hosted a Deloitte seminar this week titled “Preparing for Pain and Gain in Western Sydney”, which discussed the coming “fast and furious times” amid the property downturn, slowing Chinese capital flows and US-China tensions.

Speaking on a panel discussing the role of non-bank lenders — both Australian “old money” and new “Chinese money” — Dorado Property co-founder Peter Packer highlighted the role of the sector in cushioning the falls in Brisbane.

“We were reading headlines about how that was going to crash and burn,” he said.

A number of major banks had funded construction projects without being covered by sales, which “meant you had expiring bank debt at completion of projects”.

“But us and a number of private lenders jumped into that market and refinanced that debt, usually with 18- to 24-month terms, putting requirements on the developers to slowly sell down their stock,” Mr Packer said.

“What it meant was that market never had the crash that (people) were talking about. That’s where non-bank lenders can help.”

Dorado Property is currently funding a number of projects in Perth and Brisbane. Mr Packer said successful developers were turning to “smaller projects, more boutique, higher-density areas, good locations”.

“They’ve generally moved away from investor focus (which meant) internal bedrooms, small floor plans,” he said.

“You’re getting more light, bright, airy apartments, they’re getting larger. Well designed, good apartments that owner-occupiers want to live in, but smaller-scale projects where you don’t have to go out and get a huge number of presales. That’s typically what needs to happen in a down market.”

REA Group chief economist Nerida Conisbee said the flood of investors and offshore buyers had “led to a lot of projects starting that would have otherwise not been able to start”.

“In many cases, particularly in Melbourne, developers selling to Asia were able to get projects up and running from that buyer group which from there have been sold more broadly into the market,” she said.

Concerns about apartment quality, amenity and overdevelopment have led to a number of states implementing minimum size requirements in the past few years to clamp down on so-called “dog boxes”.

Ms Conisbee said the changing environment meant developers were now having to set their sights on the three owner-occupier groups — first homebuyers, downsizers and upsizers.

“Downsizers are a key market, what they’re looking for is often quite bespoke apartments. They want greater choice in the layout, bigger apartments, they’re a bit more fussy about the type of fit-out,” she said.

First homebuyers, while more price driven, are also more discerning. “The better developers at the moment are looking at more communal areas, more places to hang out,” she said.

“They’re trying to create places that people want to live in as opposed to small apartments that don’t offer the best sense of community.”

David Mao, executive director with real estate investment firm White & Partners, told the Deloitte conference he still saw plenty of opportunities in the falling market.

“We see value everywhere — western Sydney, the north, the south,” he said. “We’re maintaining our discipline as long as we find the right asset at the right price.”

White & Partners sees the market as “not so much a down market but more of a moderating market”. “The run-up particularly in the last five years has been quite tremendous because of the low interest rate environment,” Mr Mao said.

“You saw asset prices reach historical highs. What we’re seeing currently is not so much that it’s down but it’s moderating such that the long-term average is reached.”

Paul Zahara, executive director of Austar Fund Management, was optimistic about the outlook for the market.

“I think we’re in a fortunate position where if you look at previous downturns there’s been grave imbalances between the supply and demand situation,” he said.

“We’ve got generally a balance between supply and demand at the moment. Even though we’ve got affordability issues, the supply and demand situation isn’t bent out of shape. That’s a dramatic contrast to previous downturns, 1991, 1974.”

A property cycle can come off a peak in one of two ways. “It’s like a balloon, you can either pop the balloon or you can let the air out,” Mr Zahara said.

“This time we’ve done a pretty good job of letting the air out of the balloon, we haven’t seen the major pop. For me 1991 was a major, major crisis. We’ve done a very good job this time of managing that decrease in the property market.

“The banks pulled back, the government’s gotten involved, developers have realised what’s going on.

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“Only when the tide goes out do you discover who’s been swimming naked.”

YOVAN 4 FLYERfb_img_1527324724436338058286.jpgvia “Only when the tide goes out do you discover who’s been swimming naked.”

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What you should know about the risks of the property market

Australian house prices continue to rise amid warnings of higher interest rates and a property downturn. What should property investors consider in 2017?

Talking property in Australia is a little like talking sport. Everyone supports their own side.

In the Sydney market, if you are a homeowner, there’s nothing you enjoy more than reading about booming house prices. If you are a first homebuyer in the same market, you are hoping for a crash that makes property more affordable.

Away from Australia’s East Coast, homeowners and investors in Adelaide and Perth get frustrated watching stellar Sydney and Melbourne prices, and want some of the gain for themselves.

Why property prices could plunge

There is no shortage of opinions and predictions on which way the market will move in 2017.

Some are dire warnings about imminent collapse and a burst bubble, based around the perfect storm: mass defaults by apartment buyers, rising interest rates which force fire sales from people who have overleveraged on low rates, a faltering economy and a glut of new dwellings on the market.

At Deloitte Access Economics, partner Chris Richardson predicts Melbourne and Brisbane apartment market prices will drop by as much as 15 per cent by 2019.

Some market bears are less concerned. Economic forecaster BIS Shrapnel sees house prices falling nationally over the next three years, driven down by weaker investor demand and too many homes, while the Reserve Bank of Australia (RBA) has warned that oversupply could put the market under pressure.

Property prices may continue to rise

Not everyone sees prices falling. At property analyst Louis Christopher’s SQM Research, the 2017 forecast is for gains of as much as 18 per cent in Sydney and 17 per cent in Melbourne if the RBA cuts official interest rates by another 0.25 per cent to 1.25 per cent by mid-2017.

At the National Australia Bank (NAB) there is a different view, which sits somewhere in between. NAB chief economist Alan Oster sees the long boom in Melbourne and Sydney coming to an end, and a 2017 revival of prices in Adelaide and in Brisbane, where there is more demand than supply.

The NAB, he says, forecasts that national house prices will increase by 1 per cent across the board in 2017 as the market holds its ground.

Oster does, however, see a two-speed market: established homes and apartments. Melbourne and Brisbane are both overbuilt with apartments and Perth also has a surfeit of supply.

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When the Reserve Bank of Australia (RBA) last changed interest rates Malcolm Turnbull was still prime minister, Donald Trump had yet to seize the White House, the UK had just voted for Brexit and house prices were booming.

Economists are divided on whether interest rates in Australia are headed up or down, but they do see demand for labour rising. Here’s the interest rate forecast for 2019.

When the Reserve Bank of Australia (RBA) last changed interest rates Malcolm Turnbull was still prime minister, Donald Trump had yet to seize the White House, the UK had just voted for Brexit and house prices were booming.

During all the subsequent turbulence locally and abroad, the RBA cash rate has been a rare constant. In two and a half years it has not budged from a record-low 1.5 per cent.

However, markets and economists increasingly believe this period of policy stability is coming to an end, though views diverge sharply on whether the next move will be down or up.

The Reserve Bank recently indicated that it has shifted from a bias towards increasing interest rates to a more neutral stance. Governor Philip Lowe said in a recent speech that “over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced.”

Unemployment falling

Some, such as CommSec senior economist Ryan Felsman and ANZ’s co-head of Australian economics, Cherelle Murphy, think the time is coming when the RBA will be able to raise interest rates.

Despite weakening house prices, the employment rate was steady at 5.1 per cent in January, supported by strong participation in the labour force, according to the Australian Bureau of Statistics. The trend ratio of employment to population rose to a 10-year high of 62.4 per cent.

Felsman says the central bank will look past the continued slide in house prices and unexpectedly soft growth in the September quarter to developments in employment.

“The labour market is the key indicator going forward as far as interest rates are concerned,” he says.

Demand for workers has been building – about 284,000 jobs were created in 2018 and the unemployment rate has dipped to 5 per cent – and Felsman expects this pressure to gradually force wages higher and enable households to increase their spending.

Eventually, he expects wages growth to reach 3.5 per cent, which would be consistent with an inflation rate of about 2.5 per cent – the mid-point of the Reserve Bank’s 2 to 3 per cent target band – “which the RBA has previously identified as a level they would like to get to before they lift interest rates”.

Interest rates to rise in November?

Felsman thinks this point will most likely be reached in November, convincing the central bank to lift the cash rate to 1.75 per cent.

Murphy shares Felsman’s upbeat outlook for the economy but foresees a more gradual improvement.

She does not expect the RBA to lift the cash rate until August next year, followed by another increase in November 2020 to take the cash rate to 2 per cent.

Murphy says national income is holding up. Businesses are being buoyed by good profits, encouraging them to invest and hire, and feeding more company taxes into government coffers.

Just as important, tighter credit conditions are working to cool the once-rampant property market without triggering widespread mortgage defaults.

While homeowners may see a peak-to-trough fall of 20 per cent in house values before the market stabilises, Murphy says the fact that mortgage rates are stable means few are being forced to sell.

“This helps explain why consumer confidence has not fallen in a hole, and instead has stayed at pretty high levels,” she says, along with the strong jobs growth.

Given the importance of private consumption for economic activity (accounting for almost 60 per cent of GDP), this is an important plus for growth.

Further interest rate cuts

AMP Capital Markets chief economist Shane Oliver and Market Economics principal Stephen Koukoulas are much gloomier about the economic outlook and believe tepid growth, elevated global risks and inflation that is stubbornly below target will leave the Reserve Bank board with no choice but to cut official interest rates in 2019. Oliver tips the rate to drop to 1 per cent by the end of this year; Koukoulas reckons it will hit a record low 0.75 per cent.

Both forecasts are more aggressive than financial market estimates which, which nonetheless have fully priced in a rate cut to 1.25 per cent by the end of the year.

Concerns about growth, falling house prices, stagnant wages and soft household spending have been underlined by the release of figuresshowing underlying inflation has been below the RBA’s 2 to 3 per cent target range for most of the past four years.

China’s slowing economy

Internationally, China – Australia’s largest export market – has slowed. In the 12 months to the December quarter it expanded by 6.4 per cent, its weakest pace in almost three decades as consumers eased the pedal on major purchases such as cars. The unresolved US-China trade war has deepened concerns about Chinese growth.

Against this, the Chinese Government has pledged to support the economy and is expected to unveil tax cuts and relax bank cash reserve requirements.

Nonetheless, the International Monetary Fund (IMF) expects the US economy to soften in the next two years as the effects of the Trump tax cuts fade, recent Federal Reserve rate hikes bear down on activity and the trade war with China rumbles on.

These developments are buffeting other economies. In Europe, the IMF expects Germany to be hit particularly hard. The euro zone’s largest economy is heavily reliant on exports to the US and China, and the Fund has sharply downgraded its growth prospects, forecasting it will expand by just 1.7 per cent this year.

Slowing European growth

Add to this mix the Brexit fiasco, and the IMF thinks the euro area as whole will struggle to grow by just 1.9 per cent in 2019 – and that is assuming Britain and the EU reach agreement on an orderly exit.

While these issues have been on the Reserve Bank board’s radar for some time, Oliver says the way they have evolved in the last few weeks will have it worried.

“I think they would be feeling more nervous about things than they were in December when they last met,” he says. “We have seen another round of volatility in markets, and a lot of the issues around that haven’t been resolved. Locally, the housing downturn has worsened, [and there are] more concerns about tight credit conditions.”

Despite this, Oliver does not expect the central bank to be in a rush to cut the cash rate and will instead want to see spending measures in the April Federal Budget and the promises made by both the major parties in the lead-up to the federal election before moving.

Amidst such uncertainty, the RBA and its counterparts around the world appear poised to act meeting to meeting, examining data in forensic detail for the faintest hints of how key aspects of the economy are faring.

As Felsman says, “Every policy meeting is now live.”

Posted in LJ Gilland Real Estate Pty Ltd