Improving buyer sentiment and increased borrowing power is stimulating the recovery in the Melbourne land market with total lot sales increasing by 17 per cent to 3,185 lots for the December quarter.
Melbourne residential advisory agency RPM identified an improvement across Melbourne's land markets in the December quarter amid record-low interest rates coupled with government assistance programs.
RPM’s residential market review reveals that Melbourne and Geelong’s new housing markets saw an eighth straight month of sales growth through to November, while December, typically a slower month, outperformed the monthly average.
“Rising values in the established market and moderating prices in the land market has reduced the land-price-to-house price ratio, meaning buyers are seeing more value in a block of land or a house and land package rather than an existing house.,” RPM head of communities Luke Kelly said.
“Buyers are seeing value in the land market given they can negotiate a well-priced larger lot, with developers keen to move returned titled stock and unsold lots.”
Despite the sales uptick, greater Melbourne’s median lot price declined 2.1 per cent to $308,900 from the previous quarter and 5 per cent from the same period a year ago.
Gross sales in Melbourne's western growth corridor climbed 14 per cent to in the December quarter, while the northern growth corridor and south east growth corridor recorded 16 per cent and 17 per cent increases respectively.
RPM found that the share of investors spiked by 37 per cent for December quarter 2019, up from 35 per cent from the previous quarter and substantially higher than December quarter 2018 which saw a 24 per cent increase.
Overseas demand for property in Melbourne also rebounded over the quarter with foreign buyers accounting for 12 per cent of new dwellings purchased and 6 per cent of established dwellings purchases.
In the development site market, the quarter marked a sharp turnaround resulting from pent up demand from developers and landowners who held back their properties for most of 2019.
Kelly said while tentative positive approval numbers provide cautious optimism, the mismatch between supply and demand is still a key challenge.
The demand and supply dynamic also continued to place upward pressure on prices, with RPM expecting building approvals and construction to start accelerating towards the second half of the year.
Building approvals continue to decline on an annual rolling basis. Over calendar year 2019, detached house approvals fell 12 per cent while other dwellings declined by 20 per cent.
“New project activity going through the pipeline is vital given once supply is absorbed there will need to be readily available stock to meet demand, otherwise a shortage will occur, putting pressure on vacancy rates, rents and prices overall,” Kelly said.
