Recovery in Melbourne Land Market Under Way: Report

Melbourne’s land market has continued to benefit from the city's 6 per cent house price swing since hitting the floor in May, with government incentives and price cuts attracting buyers back to the market.

According Melbourne residential advisory agency RPM, sales across Melbourne’s and Geelong’s land market increased 48 per cent to 2,657 for the September quarter from the previous quarter.

RPM said that while the data showed that renewed confidence and increasing housing values in the established Melbourne market was encouraging “move up” buyers to sell their current home and upgrade to a new house and land package.

“This buyer cohort is supporting still prevalent first home buyers who comprise 68 per cent of owner-occupier purchases, providing a more balanced land market,” RPM head of communities Luke Kelly said.

Melbourne’s median lot price rose marginally to $315,500, with continued incentives in the order of five to 10 per cent, equating to sub-$300,000 pricing, attracting still price-sensitive buyers.

“If buyer confidence continues to strengthen, incentives and rebates continue to materialise into net median pricing under $300,000 and the median lot size remains under 400 square metres, we will likely get back to a stable and sustainable market by mid-2020.”

Despite increased competition and reduced affordability, sales within Melbourne's western growth corridor ticked up to 1,019 lots in the September quarter, up from 729 the previous quarter, accounting for 38 per cent of total lot sales—the lowest share in four years.

The city's south-east growth corridor, leading the recovery in demand, recorded 718 lot sales in the September quarter, resulting in a 27 per cent share in total gross sales.

The increase in activity is a far cry from August when it was found that one in four new home buyers were found to be defaulting on housing lot purchases due mainly to financing and valuation shortfalls.

The report highlighted that a short term oversupply in certain suburbs of Melbourne would occur in the next six to 12 months, with currently supply to be likely absorbed relatively quickly by Melbourne’s continued strong population growth.

“There is growing concern of an undersupply of new dwellings over the next few years to meet demand driven by ongoing population growth,” he said.

“In the meantime, in the high density apartment sector, slow pre-sales continue to impact developers’ ability to source finance while build quality concerns are dampening buyer confidence, at least in the short term.”

The report found that “other dwelling” approvals declined 19 per cent from the previous quarter to 4,038 approvals—the lowest volume of approvals since December quarter 2011.

Specifically, townhouse approvals were down 11 per cent from the previous quarter to 2,175, while apartment approvals fell 27 per cent to 1,863.

However, demand for townhouses held up better than apartments through the downturn over the last 18 months.