The downturn in Melbourne’s land market sharpened
in December quarter 2018 due to restrictive credit conditions
RPM’s Residential Market Review for the December quarter 2018 has been released.
Over the December quarter, regulatory and credit-induced headwinds, combined with the traditionally slower holiday period, underpinned a steepening market downturn.
In the vacant land market, a 42% decline in sales was recorded compared to the previous quarter (and 58% from the same quarter a year ago). The reduction in lot sales will enable developers to catch up with lot construction.
Unlike housing values in the established market, the median lot price held steady, increasing 1.1% to $325,000 from the previous quarter. During a downturn, an efficient market knows how to adapt. Developers are responding by slightly reducing their pricing margins, introducing value add incentives and providing greater choice regarding lot size and product to meet credit-constrained buyer budgets.
In the apartment and townhouse market, the key driver underscoring the slowdown continues to be regulatory-driven credit restrictions for both investors and owner occupiers, which, together with falling prices, has adversely impacted purchaser financing to complete off-the-plan acquisitions.
After showing robust activity in the face of significant headwinds, total other dwellings have finally succumbed to current market conditions. Other dwelling approvals (apartments and townhouses) over December quarter 2018 were down 7.6 per cent to record 5,831 approvals from the previous quarter – the lowest level since June quarter 2017.
While townhouse approvals picked up 5.6 per cent over the December quarter from the previous quarter, approvals in apartments fell 19.3 per cent
While the overall residential market will take time to recover throughout 2019, some sub-markets, such as vacant land, will likely recover more quickly as first home buyers adjust to the new lending parameters.
We should start to see higher levels of activity towards the second half of the year following the Federal election once there is more certainty around proposed changes to negative gearing and capital gains tax.
The ‘silver lining’ is that for the first time in some years more first home buyers can get a foot on the property ladder given moderating land prices and recently approved PSPs that will boost supply in the north and south east growth corridors.
A copy of the report covering the greenfield market, development sites, apartments and townhouses and international investors is available through the link above.