By Herron Todd White
The majority of new vacant land releases in Sydney are located on its fringes in the south-west and north-west priority growth areas. This will extend into the Western Sydney priority growth area in conjunction with the development of the Western Sydney Aerotropolis. These are regions that have been identified by the state government as priority areas for housing development.
The north-west precinct covers suburbs such as Marsden Park, Box Hill, Riverstone, Schofields and North Kellyville and is set to provide around 33,000 homes by 2026 (source: Planning NSW).
In Box Hill, land is selling for around $1,050 to $1,400 per square metre depending on land size. For around $350,000 you can buy 250 square metres of land or for around $550,000 you can buy 490 square metres of land.
In recent months, we have seen a softening of land values with resales occurring at or below original purchase prices. We find that resales of vacant land within new estates are generally motivated vendors wanting to sell quickly and in many cases for a loss. An example of this is a 305 square metre parcel selling for $380,000 in January 2019 after being purchased in 2016 for $399,000 and another 375 square metre parcel selling recently for $402,000 after transacting for $422,000 in December 2015.
The south-west growth area covers 18 smaller precincts and plans to deliver around 200,000 new homes over the next ten years (source: Sydney Water). Residential suburbs within this area include Oran Park, Gregory Hills, Gledswood Hills, Leppington and Austral. To the north of this precinct will be Badgerys Creek Airport and surrounding Aerotropolis and further north will be the Western Sydney Employment Area.
In the south-west, land in Leppington is generally selling at between $950 and $1,400 per square metre depending on land size and there are a number of examples of resales occurring for less than the original purchase price. In Leppington, a 375 square metre parcel sold for $382,000 in January 2019 after transacting for $385,000 in September 2016. In addition, a 451 square metre parcel also sold for $425,000 in January 2019 after transacting for $455,000 in May 2017.
Overall, dwelling construction has seen an uplift in rates over the past few years on the back of demand for new dwellings, but in recent times the market has weakened with builders offering more features, offers and discounts to win business in a competitive market. We are also seeing competitive initial building rates but it appears a lot of the profit is being made with variations and additional inclusions driving up the end contract price. We have also seen rebates, cash incentives and other offers for individual land sales from developers, in building contracts from builders and also in the sale of house and land packages.
A large portion of our work is valuing property as if complete based on approved plans, detailed inclusions and a signed building contract. In completing these valuations, we support our assessment with recently transacted resales of new dwellings within the local area. We have seen a trend over the past six months of recently built dwellings having the new car syndrome, with the value of the house and land being worth less than the purchase of the land and the cost to construct, similar to driving a new car out of the dealership and it being worth less than the purchase price. This is being driven by the sale prices achieved of recently constructed dwellings offered to the market. When valuers are putting together their assessment, it’s just not simply a land + build = value situation as in many cases the recent sales evidence simply cannot support it.
Recently built dwellings on the market have to compete with not only the surrounding dwellings for sale but the available vacant land as well, as new home buyers have the option to buy existing stock or build their own new dwelling.
In the Sutherland Shire, new land releases in recent years have been limited to Greenhills Beach on the Kurnell Peninsular and on its western fringes in the suburbs of Barden Ridge and Menai. In Greenhills Beach, the most recent estate was Shearwater Landing just to the north of Cronulla which consisted of 160 lots. The majority of these blocks sold in 2015 and 2016 for between $1.2 million and $1.7 million depending on position within the estate, while a row which fronted a beach front reserve achieved between $2.5 million and $3 million (Source: CoreLogic). Land areas generally range from 600 to 800 square metres.
The estate has seen a variety of quality builds from $500,000 project homes through to $2 million plus architect designed houses with a high standard of finishes. Generally, land prices have increased and then declined since these blocks sold with prices typically now in line with 2016 purchase prices. We are therefore currently seeing the value of most newly finished properties being in line with the cost of the land and build. The exception to this is at the top end build costs where the market is untested. The highest completed property sale in the suburb was 11 Peregrine Drive for $2.96 million in December 2018.
In Barden Ridge, a new estate known as The Ridgeway is due for completion in late 2019. The development will comprise 123 lots ranging in area between 550 and 900 square metres, with prices currently listed from $759,000 (Source: Dahua Group).
The inner west area, along with most areas in the inner and middle rings of Sydney, rarely sees new land releases come up. Therefore, there is a reliance on the knock down of older homes to create opportunity for new builds.
Strathfield has seen post-war and inter-war dwellings attracting a lot of interest from buyers looking to demolish and rebuild. We’ve noticed a drop of about ten per cent in the past twelve months in these land values, however they are currently quite volatile. Examples which illustrate this decrease in value are the sales at 66 Arthur Street, Strathfield in December 2017 for $2.175 million and the sale next door of 68 Arthur Street, Strathfield for $1.765 million in December 2018 (Source: CoreLogic).
66 Arthur Street, on 765 square metres of land, has had the dwelling demolished with works for a single dwelling currently under construction. 68 Arthur Street, on 740 square metres of land, was sold to a buyer preparing to demolish and construct a new single dwelling. Construction costs are ranging between $3,000 and $3,500 per square metre of living area plus ancillary improvements and generally include a relatively high level of finishes. The land plus build equation has generally equated to value however it is dependent on how long ago the buyer purchased the land due to the drop off in these values since mid-2017
The availability of land on the Northern Beaches is generally limited to older houses being knocked down in established areas. There are a small number of subdivisions occurring in Warriewood, where the remaining rural parcels are in the process of being subdivided into 20 to 40 lot Torrens or Community Title estates. The majority of the created parcels range between 250 and 500 square metres in land size and sell for roughly $2,500 to $3,000 per square metre.
Alternatively, like other established areas, purchasing an older house in an established suburb is popular. A recent example is 15 Quinlan Parade, Manly Vale, on 742 square metres of land, which sold for $1.3 million in February 2019. This property type has not been immune to the weakening residential market and has seen a decline in value levels across the board.
There is a diverse range of building options and designs in the Northern Beaches. Hamptons style housing is very on-trend and we are seeing a greater emphasis on the quality of finishes. Project builders such as Icon Homes have a strong Northern Beaches customer base and provide a quality and cost-effective option.
There are also a large number of private builders constructing custom designed homes. Costs can vary dramatically depending on quality, design and size, but most fall within the $1,500 to $3,000 per square metre range.
Generally speaking, land value and construction costs correlate to market value. There are obviously exceptions to this rule, and anything outside of the norm or greatly exceeding the median may struggle to achieve a value at cost. However, building a good quality product in an established area will generally result in a favourable outcome. A recent example is 18 Laurie Road, Manly Vale which sold for $2.41