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Today’s buyers are facing multiple challenges
Victorian residential lot price growth remained strong during the second quarter despite sales falling to their lowest quarterly total for two years as the market continued to stabilise following record growth levels, our latest Greenfield Market Report reveals.
Our second quarter Greenfield Market Report for 2022 shows lot sales across the Melbourne and Geelong growth areas fell 14 per cent to 4,534 – down 41 per cent year-on-year – representing a return to the historical average of 4,500 sales per quarter.
The fall in sales volume failed to dent lot price growth, with the median sale price up 3.6 per cent to $379,000, translating to 9.6 per cent growth this year to date.
RPM Managing Director Project Marketing, Luke Kelly, said today’s buyer faced multiple challenges that weren’t present two years ago.
“Many buyers have been forced to re-assess their borrowing capacity and re-evaluate their buying decisions in light of interest rate rises, including the most recent 0.5 per cent increase in the cash rate to 1.85 per cent,” Mr Kelly said.
“At the same time, they’re facing increasing residential construction costs, rising living expenses fuelled by inflation and higher home loan repayments.
The new home market is adapting
“This is leading to a subdued market in the coming months, with a number of prospective buyers deciding to sit on the sidelines as a result of the uncertain climate, resulting in declining month-on-month sales activity.
“Thankfully the new home market is already adapting to these challenges with product offerings including more townhomes, small lot housing and smaller conventional lots to meet buyers’ needs.
“We have already seen this represented in sales activity for the second quarter, with new releases incorporating smaller lot sizes in their offering and accounting for more than two thirds of sales.
“This will help to buttress the fall in vacant lot sales heading into the second half of 2022.”
Mr Kelly said there is a case for cautious optimism given the expected return of migration, low rental vacancy rates, and demand from developers in the englobo sector.
“This is not a long-term slowdown as market fundamentals remain sound and developers are already showing innovation in their product offerings,” he said.
“We’re seeing developers invest in new premium greenfield sites for affordable lifestyle communities as they position themselves for the recovery.”
The englobo sector won’t see the same downturn as the residential land market
RPM Managing Director Transactions and Advisory, Christian Ranieri, said historically the englobo sector had been insulated from the problems impacting the broader market.
“Greenfield development sites, particularly around Melbourne, are scarce and developers need to buy sites even during downturns to ensure they have a pipeline,” Mr Ranieri said.
“These factors, including the continued strength of the industrial market, recently dubbed the tightest market in the world, mean the englobo sector won’t see the same downturn as the residential land market.”
Corridor market growth in Q2 2022
- The Western Growth Corridor enhanced its dominant position during the quarter, growing its percentage of total sales in growth corridors to 45 per cent, despite sales falling 9 per cent during the quarter to 2,049 gross lot sales. The median lot price increased 6.1 per cent to $381,000 while demand shifted strongly from Melton to Wyndham with the latter’s sales 3 per cent higher.
- Sales in the Northern Growth Corridor fell just 7 per cent, the lowest decline of all the growth corridors, to 1297 lot sales. At the same time, it was the only corridor where new supply increased – up 13 per cent – helping to support a lift in the corridor’s share of all gross sales to 29 per cent, which is a six-year high. Moderate median lot price growth of 2 per cent bumped up the median to $353,000, while the northern corridor also had the highest share of first-home buyers at 58 per cent.
- Gross sales fell in the South East Corridor below 1,000 lots for the first time in two years to 800 sales, which was a 24 per cent decline. The corridor’s share of total sales fell to 18 per cent, which was a four-year low, while new supply shrunk by four per cent. The South East had the lowest share of first-home buyers at 44 per cent, with affordability remaining an issue with the median lot price in Casey and Cardinia above $400,000.
- The Geelong Growth Corridor experienced the biggest fall in sales activity of all four growth corridors plunging 32 per cent for the quarter and 63 per cent year-on-year to just 388 gross lot sales – just 9 per cent of all vacant land activity. The median lot sale price fell 0.5 per cent to $380,000, indicating the price cycle has likely peaked. There were 23 active estates trading – down from 24 in the previous quarter – with weakened new supply felt in particular in Lara and Armstrong Creek.
This article references our Q2 2022 Greenfield Market Report. For the full report, click here.