The rate of price growth in Melbourne’s land market has slowed, with the median lot price rising 7 per cent to $323,000, RPM’s Q1 Residential Market Review reveals. Sales volumes also fell 15 per cent, which is attributed to supply constraints in active new housing estates rather than a drop in demand.
RPM Real Estate Group head of Communities Luke Kelly said: “The volume of land sales means lots cannot be constructed fast enough to keep up with sales rates. As a result, developers are adopting restrained lot release programs to allay settlement risk given title timeframes are stretching beyond 15 months for most estates.”
Mr Kelly said supply is improving but will likely be outpaced by demand.
“The greenfield market will receive a supply boost via fast-tracked PSPs expected to potentially deliver more than 110,000* lots by the end of the year.
“However, we expect affordability constraints will become more prominent which will result in more modest land price growth of around five to six per cent through the remainder of 2018,” he said.
With prices souring by 188 per cent over the last decade, compared to 92 per cent growth for established houses and 61 per cent for apartments, investors are also flocking to the greenfields, comprising about 20 per cent of total purchasers, according to RPM Research.
“Strong capital growth through land value appreciation in outer Melbourne is a strong driver for an increasing number of investors,” Mr Kelly said. “With vacancy rates below two per cent and indicative house yield in the outer ring around 6.2 per cent, house and land investments have become a very viable option.”
Foreign investment slows
The report shows government charges on foreign investors has impacted demand among Asian investors, which accounted for on average 17 per cent of new dwellings in any given quarterly period over the last three years. Since the policy change mid last year, the share of new dwellings bought by foreign investors has fallen to 14 per cent.
Apartment market shows resilience
In the medium density market, a shift to developing housing product geared to owner occupiers, particularly in middle ring infill sites, is underpinning market resilience following previous supply peaks.
From a peak in calendar 2015, the decline in apartment approvals has moderated, while townhouse approvals have trended upwards. On a rolling 12-month basis to March 2018, townhouses have climbed 19.6% while apartments have remained steady, increasing by 3.6%.
Persistent commentary about an oversupply of Melbourne’s apartment market – particularly in the CBD and inner ring – have not been realised. Demand has essentially matched supply, reflected in total approval numbers holding up well over the 12 months to the March quarter. In November last year, a record high of 4,869 units were approved in high rise dwellings – highlighting the optimism of many developers.
Not only has an oversupply en masse failed to materialise (albeit some suburbs appear to have excess supply based on price discounts), it is reasonable to suggest there is a potential undersupply. This is underscored by vacancy rates sitting at 1.8% in the inner ring and 3% in the mid ring.
The much talked about downturn in the apartment market will by no means be at the magnitude that is widely anticipated. The current robust level of activity off the back of high population gains, strong economic fundamentals and capital growth prospects underscores a level of confidence from both developers and buyers.
These supportive variables of activity are anticipated to continue over the near term, eroding any significant reduction in approvals, albeit below previous peaks. Any shortfall will likely be offset by increasing activity in townhouses – particularly in the ‘missing middle’.
*Victorian Planning Authority