A solid economy expected to support a short term price
correction, market stabilisation and more sustainable
RPM’s Residential Market Review for the September quarter 2018 has been released. The downturn in Melbourne and Geelong’s vacant land market accelerated during the September quarter amid weakening buyer sentiment and tighter credit conditions, RPM Real Estate Group’s latest quarterly report reveals.
Data from RPM’s Q3 Residential Market Review shows supply has begun to outstrip demand, with total lot sales falling 15.3 per cent to 3,588 lots and the median lot price declining 1.4 per cent to $320,500 – the first price fall in three years.
“Developers are reducing their pricing margins and introducing a number of value add incentives to help stimulate sales in the current market,” said RPM Real Estate Group head of Communities Luke Kelly. “They’re also continuing to increase the amount of more affordable medium density stock on smaller lots to satisfy price sensitive buyers.
“The credit squeeze is being particularly felt among first home buyers – whose borrowing capacity has been reduced by approximately 20 per cent – evidenced by lower enquiry levels.
“Despite moderating prices, many first home buyers with an average household income of $85,000 have had their borrowing power reduced by more than $55,000 to $372,000 (excluding deposit), meaning a purchase price of around $410,000. This is a deficit of about $100,000 for a house and land package on a 400 sqm block,” he said.
“Purchasers also appear to be adopting a wait and see approach to assess whether prices will moderate further,” he said.
Across Melbourne’s growth corridors the average time for lot sales to absorb total lot supply increased to 4.7 months in the South East, 3.8 months in the North and 2.9 months in the Western growth corridor.
Nonetheless, the greenfield market remains resilient, Mr Kelly said.
“Annual median lot price growth was still 11 per cent in the September quarter compared to a 4.5 per cent fall in the median house price in inner Melbourne,” he said.
The underlying factors affecting the property market including jobs growth, high immigration levels and a solid economy should support a short term price correction, market stabilisation and more sustainable sales volumes, according to Mr Kelly.
Head of RPM’s Transactions & Advisory team, Christian Ranieri, said despite softening retail demand, development site activity remains strong, with developers still eager to acquire large-scale, strategic landholdings on which to capitalise on for the next upswing.
”A wave of private capital is providing alternative development funding given bank lending restrictions, which is resulting in different deal structures being negotiated,” he said.
Tighter credit conditions for both developers and purchasers, investor disincentives and negative buyer sentiment underscored the continuing downward trend in the apartment and townhouse mid-ring market.
Notwithstanding, the non-detached housing market has shown resilience, with total other dwelling approvals reflecting an overall gain of 28 per cent compared to the previous 12 months. Townhouse approvals increased by 5 per cent while apartments jumped 46 per cent, albeit coming off an extremely low base.
First home buyers and downsizers continue to underpin demand, with boutique developments in the mid ring performing well.
A copy of the report covering the greenfield market, development sites, apartments and townhouses and international investors is available through the link above.