Melbourne Property Market – Land Prices Likely to Remain Flat for a While

Melbourne Growth Area Land Market: December 2019 Quarter

It’s been quite while since we last reported on the state of the market. Our last report was on the September 2018, where we suggested that the slowing volumes were pointing at a price correction. At the end of September 2018, the average lot price in Melbourne’s growth area land market was at $320,500 and the volume of sales were continuing to drop off from the previous quarter at just under 3600 lots, or 1200 lots per month.

Data from UDIA Victoria and key industry research partners has revealed that volumes continued to slow over the next 3 quarters, and many pre-sold lots failed to settle and were put back on the market. It took a little time but the industry did respond, and the average lot price did in fact correct to $310,000 by June 2019.

Since then volumes have steadily improved to nearly 3200 lots for the December 2019 quarter – a 17% increase on the previous quarter and 34% higher than the same quarter last year. This is likely partly due to some loosening in lending criteria and a reduction in interest rates by around 0.5% between June and October 2019, however the average lot price has remained relatively flat. It may stay like that for a little while longer while the re-sale stock clears.

Median lot sizes in Melbourne’s growth area property market have reduced slightly compared with 12 months ago at around 395m2, down from about 400m2 at same time last year.

The rate of price growth for land appears to still be following the established areas with some lag, evidenced by house and unit prices experiencing some correction about 6 months prior.

The positive news is that established area prices are again experiencing some growth, so we would hope that land does follow, however it might just take a little while longer while the stock overhang clears and the dust settles around the whole COVID-19 issue.

We still believe it will be a ‘buyers’ market for a little while.

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

Other Related Economic Activity

• National GDP increased by 1.8% for the 12 months to September 2019, slower than the 5 year average at 2.41%. However,
• Victoria has outperformed the rest of the country with State Final Demand (SFD) at 2.76% increase for the 12 months to September 2019, but still slower than the 4.14% 5 year average
• Interest rates remain unchanged during the December 2019 quarter, but we have seen a further .25% cut recently which have been passed on in full by the big four banks.
• The National Consumer Price Index (CPI) increased by 1.84% for the December 2019 quarter, although Melbourne’s CPI was slightly better at 2.01% – just within RBA’s 2-3% range.
• Australia’s unemployment sits at 5.1%, with Victoria a little better at 4.9%.
• Victoria’s population increased by almost 133,000 for the 12 months to June 2019, or 2.08% – the strongest of the Nation which sits at 1.53%
• Victoria recorded just under 16,000 dwelling approvals for the December 2019 quarter, up 2.5% from the same quarter last year, but the 12 month total of just over 57,000 is still 15.5% lower than the previous 12 months.
• September 2019 recorded about 14,000 commencements for Victoria, 13.8% down on the same quarter last year.
• The 12 months to September 2019 recorded just under 24,000 commencements, more than 31% less than the 12 months prior. This trend is likely to continue for a little while as a result of slowing lot sales.