New land sales stumble as life gets in the way

Life just seems to be getting in the way when it comes to buyers looking to build.

The confidence in building new homes is a little off, with caution now overriding the expectation of building a new home.

Many buyers are now trying to manage life as the cost of living bites home, leading to a more conservative approach to building from scratch, which can be a long drawn out process fraught with danger.

Whether it’s the long timelines caused by red tape getting to title, supply chain and labour shortages, to the financial stability of the builder, and interest rate concern, buyers are taking stock.

Alternatives like buying an existing home in the established market that is ready to go, and on par or cheaper than building from scratch, are taking the shine of land sales.

Red23, specialist sales and marketing partners for land developments across Victoria, report that the volume of land sales for the first quarter of the year was 8 per cent lower relative to Q1 last year.

Interest rates in Q1 2023 were at 3.1 per cent in January, with consecutive increases to 3.6 per cent in March.

Their new data shows that with interest rates this quarter remaining unchanged at 4.35 per cent, Casey, Melton, and Wyndham performed the strongest and have the highest market share in sales.

Red23 managing director Terry Portelli said this was due to their higher market share of active land projects.

“Overall, the lower trading volumes can be attributed to many factors, including more people on holiday during January, an earlier Easter (in March), and slightly higher interest rates affecting borrowing power.”

Sales in Greater Geelong decreased by 7 per cent YoY whilst Armstrong Creek catchment area decreased by 40 per cent YoY. On average, 62 per cent of sales in Geelong are from the Armstrong Creek area.

Sales peaked in Greater Geelong in 2021, with a total of 2532 sales whilst 2022 had 1032 sales, down 59 per cent. In 2024 to date, there are about 88 sales in Greater Geelong, of which 32 per cent are from Armstrong Creek.

This lower figure was due to an increase in market share in Lara and Leopold, which are more affordable.

Median land prices are still increasing slightly despite rebates and incentives stabilising.

Red23 indicate we will not see a reduction in rebates yet, with a current average of $25,000 off titled lots to settle before June 30, in addition, non-titled lots have an average rebate of $15,000.

Mr Portelli said the biggest competitor was the established market, particularly in Melbourne.

According to CoreLogic, the median price of all dwellings in Melbourne is $778,882, which is only slightly higher than the national median dwelling value of $772,730.

Annually, Melbourne median house prices have increased by 3.2 per cent, much lower than other major cities such as Sydney (9.6 per cent), Adelaide (13.3 per cent), Brisbane (15.9 per cent), and Perth (19.8 per cent), aiding in affordability within Melbourne and causing prices to increase now in the lower to median quartile.

With prices rising strongly, along with strong migration figures, particularly in Perth, and a falling supply of new homes, Red23 predict that prices in the established market are anticipated to push upwards.

Rate hikes, cost of living pressures, and worsening housing affordability are all factors that have contributed to softer housing conditions since mid-last year.

However, an undersupply of housing relative to demand continues to keep upward pressure on home values despite these headwinds.

CoreLogic’s head of research for the Asia Pacific, Tim Lawless, said sales within quarter 1, 2024, had been subdued in comparison to last year, with a slower start to the year in January.

“However, momentum picked up in March as titled lots started to shift due to some pressures from upcoming build price increases in May.”

Cardinia and Casey both have a $/sqm rate of more than $1,100, while Greater Geelong, Melton, Wyndham, and Whittlesea have a $/sqm between $1,000 and $1,100.

Hume has a $/sqm of more than $980/sqm while Mitchell remains the most affordable at ~$730/sqm.