Melbourne Property Market – High Land Demand Dodges Pandemic Roadblock

Melbourne Growth Area Land Market: December 2020 Quarter

Once again time has gotten away and it’s been quite while since we last reported on the state of the market. Our last report was on the December 2019 quarter, where sales volumes were steadily improving to nearly 3200 lots for the quarter but the average lot price remained relatively flat during the prior six months at around $310,000 for average size of 395m2.

We did expect to hit a roadblock during 2020 due to the COVID-19 pandemic, but the latest data from UDIA Victoria and key industry research partners has revealed that sales volumes have continued to climb over the last 12 months, jumping significantly in the December 2020 quarter to over 6500 lots, or 2160 lots per month. This represents more than 40% increase on the previous quarter and more than 100% higher than the same quarter last year.

This increase in volumes is likely a result of a further reduction in interest rates to record lows, and the government’s handling of the pandemic in this market by a combination of the $25,000 building grant offering, and trying to keep the construction going during lockdown, with sales activity accelerating even further once we came out of lockdown.

The average lot price has remained relatively flat at around $305,000 and the average lot size has also remained similar at 392m2. Normally we would expect prices to start increase as sales volumes are increasing, but we aren’t quite in a normal market, and suspect that sellers remain cautious on the fragility and uncertainty that still exists with this pandemic. We do anticipate however that prices will start to increase as time goes on.

The rate of price growth for established areas has started to increase so land prices probably aren’t too far from following suit. The question in our mind is that at some point the reduction in migration over the last 12 months may have some impact at some point. Time will tell.

Below is the most recent graph from RPM’s research division which provides a snapshot of the land sales volume changes over the last couple of years.

Other Related Economic Activity

• National GDP decreased by 1.68% for the 12 months to September 2020, slower than the 5 year average at 2.41%. However, GDP increased by 3.3% from the previous quarter.
• Victoria’s State Final Demand (SFD) is 4.17% down for the 12 months to September 2020, significantly lower than the 3.86% 5 year average.
• Interest rates remain unchanged during the December 2020 quarter, but we have seen a 0.65% cut over the last 12 months.
• The National Consumer Price Index (CPI) increased by 0.86% for the December 2020 quarter, so some way to go before its within RBA’s 2-3% range.
• Australia’s unemployment peaked at around 7.5% in July 2020, but has since improved to 6.5%.
• Victoria’s population increased by just over 98,000 for the 12 months to June 2020, or 1.49% – a little better than the National total which sits at 1.27%
• Victoria recorded just over 15,000 dwelling approvals for the December 2020 quarter, down 7.3% from the same quarter last year, but the 12 month total of just over 62,500 is still 8.3% higher than the previous 12 months.
• September 2020 recorded nearly 16,000 commencements for Victoria, 13.3% up on the same quarter last year. The 12 months to September 2020 recorded just over 60,000 commencements, similar to the 12 months prior.