By Herron Todd White
Entering the final quarter of the year, Victoria is surrounded by much negative news. At the beginning of September, Treasurer Josh Frydenberg confirmed that Australia was officially in its worst recession since World War II, following ABS figures showing that the economy contracted seven per cent in the June quarter. Premier Daniel Andrews announced that Melbourne’s lockdown restrictions are not going to end soon unless there are no new cases recorded in the state for 14 days. \
Amid the economic uncertainty and lockdown environment, Melbourne dwelling values recorded a 1.2 per cent fall in August (CoreLogic monthly home value index). Although the current housing market conditions can at best be described as uncertain, we are seeing that the transaction volumes for vacant land and housing and land packages have lifted in recent months. According to the REA Insights New Homes Snapshot, vacant land sales volumes and enquiry for house and land development have increased dramatically since July (realestate.com.au). Thanks to the government’s $25,000 HomeBuilder grant, the new-houses sector is relatively resilient amid the COVID-19 crisis.
According to the current market report, the metropolitan Melbourne median lot price is $318,000 as at the June quarter 2020, reflecting an increase of 2.6 per cent compared to last quarter (June Quarter Market Insights by Oliver Hume Property Funds). This month we are looking at the performance of vacant land and house and land markets in different regions of Melbourne.
In the fallout from COVID lockdown, the apartment market in Melbourne CBD has been hit hard. Due to the closure of borders and travel restrictions, vacancy rates in the CBD’s apartment market remain high. Since the sales rates of off-the-plan apartments have stayed low, some developers are finding it difficult to meet the requirement of lenders, hence the delay in commencement of some projects.
The lockdown environment not only changes our living habits, but also shifts the way we work. It is anticipated that the trend of work-from-home will continue after the pandemic. The adoption of this new working arrangement may shift housing demand outward. Along with government incentives, home buyers are more interested in the land and house packages in new estates.
According to the June Quarter Residential Market Review by RPM Real Estate Group, there are about 49 active estates in the south-east growth corridor. The report also reveals that the median lot price has increased by 1.2 per cent compared to the same period last year and reaches $340,000. Although the vacant lot prices across the south-east are generally more expensive than other growth corridors, the trading days of vacant lots in the south-east corridors are less than other corridors. It reflects that sales transactions are relatively active in the area.
The top three of the most popular house and land developments are located in the City of Casey. The high demand for vacant lots in the area lifted gross sales by 6.9 per cent in the June quarter 2020 and resulted in quarterly price growth of 1.2 per cent, escalating the median lot price to $340,000. It is generally believed that the high demand for vacant land in the growth corridor is underpinned by the current government stimulus and also the mass shift towards working from home during the COVID lockdown. Purchasers have renewed interest in low-density living with private outdoor space and a larger dwelling which can accommodate a study or home office. Moreover, sustainability standards require all new homes to achieve a 6.5-star energy rating which effectively cuts down on residents’ energy bills.
Amid the extension of Stage 4 restrictions, we expect that market activity will ease in the short term as purchasers are unable to visit sites due to the restrictions on travel distance together with restrictions placed on agents.
Once restrictions are lifted gradually, we expect that purchasers, particularly first-home buyers, will become more active in the market due to the low cost of borrowing and government stimulus. However, the new-home sector may face challenges when the HomeBuilder Scheme ends in 2021. As we know, plenty of enquiries for new homes are driven by the current HomeBuilder stimulus, so demand for new housing may be impacted in the future, especially without the extension of the HomeBuilder Scheme or any additional stimulus.
Inner and Outer East
Vacant land and house and land packages tend to come rarely in Melbourne’s eastern suburbs, however the demand for vacant land is substantially high considering the established and built up nature of the inner east. Nerida Conisbee, Chief Economist of Realestate.com.au, highlights that the government housing grants were supporting demand for greater Melbourne’s affordable pockets, with a strong interest in house and land packages. Tom Travaskis, Head of Development at Lendlease, explains that buyers are looking for quality properties with open space, good access to education and community facilities and that have been designed as a part of a masterplan.
Some examples of estates in the east include Parc on Plymouth in Ringwood, Kingley Estate in Lilydale, and Kardinia Crescent and Aspen Court in Warranwood, the latter of which are experiencing vast numbers of pre-sale before lots hit the market, highlighting the demand for vacant land in the area. The Victorian state government lists land being prepared for future sale, subject to potential rezoning and remediation after assessment for market readiness and conditions. In Melbourne’s inner and outer eastern suburbs, a total of 59.6445 hectares has been declared surplus to requirements. A breakdown is shown in Table 1. Whilst the outcome for this land is unknown, there is potential for more vacant land in the eastern corridor to be zoned for residential purposes and estates in an effort to satisfy the demand for vacant land sales.
The ban on physical inspections until the end of October will have detrimental effects on the year’s spring residential market. According to the REIV, weekly auction volumes dropped 97 per cent from this time last year. In the mediumterm future, agents report a large amount of stock ready to be cleared in the hope of Stage 4 restrictions in Melbourne easing. If this is the case, it may lead to a flooded seller’s market, with the potential for properties to be priced to clear. Slight imperfections or taste differences may lead to a buyer being able to simply look around the corner in order to find their perfect property.
Inner North and Outer North
Vacant land continues to sell consistently well in the outer northern metropolitan suburbs of Melbourne, even during the current Stage 4 lockdown. With buyers unable to go to estates and view land prior to sale, many estates have invested in interactive master plans which include detailed photography allowing customers to buy the site unseen. Developers from many estates in suburbs such as Mickleham, Craigeburn, Donnybrook and Diggers
Rest are reporting that they have never been this busy. This sector of the property market has benefited greatly from the HomeBuilder and first home (FHOG) buyer’s government grants and low interest rates. Many of the large estates are actively advertising house and land packages highlighting the government grants available.
Valuers in the north are finding that house and land packages from $450,000 to $650,000 are stacking up, however valuations on some larger more expensive builds can come in under cost. Builders such as Metricon, Simonds, Porter Davis and the likes are as busy as they have ever been trying to meet orders and comply with the deadlines for the government grants.
The strong sales results in established estates and built up suburbs have surprised many who were predicting a fall in values and transactions. The lack of stock, record low interest rates and stimulus measures and grants are the leading factor for the relative strength in the market. Evidence of the strength of the outer north market can be seen from the top unit sale according to the REIV for the week ending 12 September – 29/60-70 Cradle Mountain Drive, Craigieburn.
Three bedrooms, two bathrooms, two car parking spaces, sold on 12 August for $410,000 (Source: )
However, transaction numbers will fall as many of the houses listed prior to or just after the Victorian Stage 4 lockdown have now sold and the restrictions have prevented agents listing, marketing and hosting open houses for new properties. This has been evident by the number of auctions and private sales continually trending down week by week and seeing no auctions on the weekend of 12 and 13 September.
With the current proposed roadmap restricting physical inspections until 26 October, many agents are concerned they have missed a large portion of the spring selling period and that a large number of vendors may be unwilling to list in the small window coming into the Christmas period and will hold off selling until 2021.
The outer northern suburbs should continue to perform well as vacant land and the home and land packages from many developers continue to be an attractive and affordable entry point for many into the housing market.
Land in the western suburbs of Melbourne has always been in high demand. Given that the municipalities of Wyndham Vale and Melton have some of the largest development areas in the country, the current economic climate has had a very interesting impact on the vacant land and construction market in these areas.
Across the board all areas of the west have seen sales volumes and prices stabilise as we have progressed through the pandemic. The median land price in Tarneit was $308,000 in June 2020, slightly up from numbers in January 2020. Wyndham Vale’s median land price as at June 2020 was $285,000 and Melton’s median land price was $282,200. We can see that in these areas, land sales have been far superior to land sales in well-established areas of the west such as Williamstown due to their large supply of vacant land and overall affordability.
The biggest driving force for the market’s stabilisation is the lack of consumer confidence caused by the pandemic. Land prices have dropped considerably in all areas of the west in the past two years with the main concern being that consumers are not in a position financially to purchase land and build houses. In areas such as Tarneit, Truganina and Melton, there is plenty of land supply as various estates are releasing new land stages at the same time. Unfortunately, due to the condition of the economy, people have been unable to secure finance to purchase property. The government incentive of the new home builder grant has also been a driving force and a helping hand for some people to secure parcels of land, however this has also been neutralised as many people’s work situations have been affected by the pandemic.
The demand for volume of construction has been consistent across all areas of the western suburbs. There has however been a significant dip in contract prices for new builds with multiple volume builders offering prices in the low $200,000s for a four-bedroom, two-bathroom, two-garage build. As the pandemic first hit and before the Home Builder’s grant was introduced, volume builders were offering these low contract prices as well as various promotions in order to secure work. The Home Builder’s grant boosted volumes of construction through volume builders and large promotions that were on offer at the start of the year have since been taken off the table suggesting a stable amount of construction in the pipeline for the foreseeable future.
The driving forces and why consumers choose to purchase property in the western suburbs is because it is affordable compared to metropolitan Melbourne and it is within close proximity to the CBD. There is a consistent and ample amount of land supply and larger land sizes available, which is a huge selling point for the Wyndham Vale and Melton region. The pandemic may force people’s needs to change in the future in terms of properties and dwellings. Larger parcels of land and home offices may be more attractive rather than apartments in closer proximity to the CBD. In the medium term, the house and land market in all areas of the west will stabilise and in the long term we expect prices and volumes to excel and get back to where the market was post COVID-19.
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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.