Melbourne’s “frenetic” pace of land price growth and record volume of greenfield sales is all but over as the market cools. Australia is one of the top 10 countries for global house price growth, banking the strongest growth rate since 2003 last year, and Melbourne’s land prices grew 11.8 per cent in 2021. But it cannot be sustained.  Oliver Hume national head of research George Bougias says the residential market is close to or at its peak and the land market will follow suit as he bills 2022 a “year of consolidation”. “The frenetic pace of last year and its stimulus and lower interest rates is behind us now, we are cautiously optimistic about the year ahead,” Bougias said. “I think we are nearing or at the peak of the residential market. The pace of price growth has lost its steam and the land market may follow. “We are at the end of the cycle … we are returning to the normal market.” Sales volumes down 49pc Land sales volumes across Greater Melbourne and Geelong dropped 24 per cent in the December quarter , compared to the previous quarter. Volumes were down 49 per cent compared to the start of the year when sales were at the highest level, according to Red23 data.  “In 2021 there were over 21,000 new land sales in metropolitan Melbourne and approximately 5500 in Greater Geelong,” a Red23 report said. “With consumer confidence remaining positive, we are expecting this trend to continue in the early parts of 2022 despite the ongoing uncertainties which Covid-19 are presenting.” Median land price and size: December 2021 Region Lot size Dec '21 price YoY change (%) Casey 400 $419,000 14.97% Greater Geelong 449 $407,500 37.67% Cardinia 415 $374,000 7.78% Hume 400 $376,900 14.56% Whittlesea 350 $368,750 9.85% Wyndham 382 $366,000 16.93% Melton 391 $347,500 15.45% Mitchell 363 $320,000 17.86% Metro Melbourne 390 $358,000 11.18% ^Source: Red23 Research Bougias acknowledges there was a seasonal slowdown over Christmas but says quarterly sales were in line with previous years, while demand has rebounded across January and February. He says low interest rates and the HomeBuilder stimulus program spurred record land sales volumes in Victoria “that was faster than we expected”. Interest rates will impact property outlook But Bougias warns higher interest rates will impact the greenfield market materially, which has already seen a flow-through effect from the Australian Prudential Regulation Authority’s tightening of loan serviceability buffers last year.  “Melbourne has been especially strong for residential price growth, affordability constraints are starting to become an issue though,” he says.  “Every single growth area in Melbourne and Geelong is above $300,000 for a block of land now. This continuous growth obviously can’t continue.” And while consumer sentiment remains strong Westpac senior economist Bill Evans is warning that the fear of interest rate rises would weigh on the property market outlook.  ▲ It is no longer possible to buy a block of land in Greater Melbourne for under $300,000 as experts warn higher interest rates would impact the affordability of the residential land market. More than half of respondents in the January Westpac-Melbourne Institute consumer sentiment study expected interest rates to go up in the next 12 months.  “This interest rate profile is going to be very important for the economy over the next few years,” Evans says. “The Reserve Bank’s assurances that they’re not going to raise rates until late 2023 early 2024 are being treated a little sceptically. “And of course this concern about interest rates is feeding into how they’re feeling about the housing market. It would appear that the outlook for the economy and the outlook for interest rates is starting to weigh on confidence around the outlook on house prices.   “People are feeling a little more comfortable about affordability, I think that those affordability numbers will be assisted by any fall we see in house prices—but they will be offset by rising interest rates. I would expect that the time to buy wouldn’t be recovering significantly any time soon.” Bougias agreed the affordability factor was already starting to bite.  “We will probably see sales volumes will moderate over 2022.  “The affordability factor is huge and people have really been pushed … and higher interest rates when they flow through makes it doubly difficult. “Prices have still been going up but that rate of growth is slowing down … the market overall is slowing down and I think that will flow into the land market.” International migration and the two-tier market Bougias said the opening of borders and return of tourism and migration could help backfill demand into the medium term, and boost confidence in the pandemic recovery. But there are some positive moves in the land market. Bougias says investors are diving into the booming greenfield market, while south-east Queensland and Adelaide continued to chalk up strong results.  “When investors see strong price growth that entices them even more. Investors have really entered the market and the greenfield market over the last few months,” Bougias says.  “It’s a two-tier market. South-east Queensland and Adelaide are still seeing strong price growth, whereas in Melbourne we can see it dissipating. “We have gone through a roller-coaster ride, now it’s a case of consolidation.” You are currently experiencing The Urban Developer Plus (TUD+), our premium membership for property professionals. Click here to learn more.
