Q2 Residential Market Review:
Land market has bottomed, first home buyers return

Recent APRA and interest rate announcements has boosted buyer sentiment and generated positive sales momentum for Melbourne’s land market, with the pace of decline in quarterly sales volumes slowing during the June quarter.

RPM Real Estate Group’s Residential Market Review reveals total lot sales across Melbourne’s and Geelong’s land market fell 8.6 per cent to 1,796 lots compared to the previous quarter. Notably, there was a slight uptick in monthly sales volumes from April to June, indicating the land market has bottomed.

The median lot price declined 5.2 per cent to $310,000 from the last quarter.

RPM’s head of Communities Luke Kelly said there’s been a return of first home buyers given the decline in the median land price and increased level of buyer enquiries on the back of the June interest rate cut and news regarding APRA’s removal of the 7.25 per cent mortgage rate test.

“Competition among developers through reduced prices and continued incentives and rebates generated higher sales activity in the sub-$300,000 market,” he said.

Mr Kelly said first home buyers were most affected in the tighter lending environment over the last few years.

“While the data showed a positive change in the number of first home buyers in the lower quartile of budgets, we expect this to improve further – as early as the September quarter – as the full effect of two interest rate cuts and APRA changes kicks in.

For the first time in more than a year the median lot size contracted to 392sqm from 400sqm, resulting from new and existing estates re-cutting stages and incorporating more townhouse product.

Mr Kelly noted that stabilising prices in the established market should give confidence among second home buyers to sell their current property and upgrade to a larger house and land package, which should further drive sales volumes.

“We expect a gradual rather than a sharp rebound towards the back half of 2019 and into 2020,” he said. “The increase in unsold stock over 2018/19 will take time to absorb, especially larger size lots that are attractive to second and third home buyers.

“In addition, combined with new masterplans featuring smaller lot sizes of around 375 sqm, the median land price needs to reduce below $300,000 which is considered fair value and in line with first home buyer budgets,” he said.

In the apartments and townhouse market, increased stamp duty and taxes and lending curbs on investors continued to impact demand both locally and overseas. Other dwelling approvals declined 17 per cent from the March quarter and 32 per cent from the June quarter last year.

However, with townhouse approvals just 1.5 per cent below the previous quarter, medium density approvals may be approaching the bottom of the cycle.

Apartment approvals were down 27 per cent from the March quarter. The sector has been working through a considerable level of supply, which is applying further downward pressure on prices in an already weakened market.

A copy of the report covering the greenfield market, development sites, apartments and townhouses and international investors is available via the link above.