By Herron Todd White
October 2020

To build or not to build, that is the question. With the incentives introduced by the government to combat the negative effects of COVID-19 on the economy and construction industry, it would be crazy to think that this wouldn’t have an effect on the number of properties being built. The degree of this effect? Well that is yet to be seen.

While the full effect of COVID-19 on the property market will take months to become clear, current evidence is showing that the predicted drop has just not occurred – at least within the Newcastle area. Local builders are confirming that their work pipelines are remaining strong after a dip at the beginning of the pandemic. This has largely been attributed to the government’s $25,000 construction grant which if combined with the first home owners grant, gives a new homeowner a cool $35,000 towards their deposit, which shows a nice five per cent on a $700,000 home not bad for a day’s work.

We have seen an increase in the price of vacant land within larger land developments with developers looking to capitalise on the grants, however these higher land prices are not always stacking up from a valuation perspective due to the limited availability of resale lots (a lender requirement in our valuations) and the large choice of developments offered to buyers. For example, within one estate in Cameron Park, lots are being listed by the developer at anywhere between $20,000 and $60,000 above the current market value. At the same time, an estate in Medowie has increased their newest stage by approximately ten per cent, with lots selling well within current market parameters. The overall conclusion reached for vacant land sales is that increases are being supported by the market and are being heavily driven by the government incentives.

Now while we have seen an increase in asking prices for land, build costs have not increased in the same way. A number of the larger builders have been running promotions offering one off discounts, some as large as $45,000 off the contract price. While this discount needs to be taken with a very large grain of salt, along with the building grants, it has resulted in an increase in interest for new homes coming in under the $750,000 limit. This is a benefit for most buyers as providing they haven’t paid too much for the land, house and land valuations are stacking up to the cost in the majority of cases.

Overall we have seen an increase in house and land sales driven by the construction grants. The future of the values in these estates? Well only time will tell but there is a definite risk that once these grants finish and should the tables shift with an oversupply situation arising, a drop in values may be seen.

Liz McAllister
Property Valuer

Speak with a Newcastle Mortgage Broker today.

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