Normalisation on the horizon for Victoria’s greenfield land market

RPM’s latest first quarter Greenfield Market Report for 2022 suggests the first signs of cooling for the Victorian greenfield land market to a normalised pre-COVID level.

In total, there was a 29 per cent year-on-year decrease in vacant lot sales from 6,793 in the first quarter of 2021, to 5,285 in 2022.

Although this demonstrates a reduction in consumer demand, it is still at a level above historical lot sales levels, which have averaged around 1,500 per month.

With new lot releases diminishing by 16 per cent in the first quarter compared to the same time last year, sales also remain at a level that is taking up limited supply, indicating the sustained long-term attractiveness of the sector.

With just 573 lot sales, the largest quarterly decline across all growth corridors was the Geelong Growth Corridor where sales activity is now 45 per cent below its peak in Q2 2021 and represents just 11 per cent of all vacant land activity.

Supply constraints are hampering lot sales, clearly demonstrated through the short on-market timeframe, now just 30 days.

Active estate numbers are also at long-term lows, with just 24 estates remaining trading.

Speaking to the latest data, RPM managing director project marketing, Luke Kelly, said Melbourne and its regions are coming off a sustained period of strong performance and resilience, so it’s to be expected that we’re starting to see more traditional headwinds emerging and signs of the market cooling.

“It’s especially important to consider factors such as rising interest rates and inflation, continued global supply chain challenges, local labour shortages and an upcoming Federal election, which are all set to play out on buyer sentiment,” Mr Kelly said.

“Despite this, it’s promising to see that sales remain above historical average levels and record low median lot sizes are driving innovative new home design on smaller blocks, leading to a surge in townhouse builds across Melbourne’s major growth corridors.

“An important indicator for the greenfield market is also the sustained median price growth of Melbourne’s established housing market, if this continues, this places the greenfield sector in good stead to demonstrate further resilience thanks to its persistent affordability advantage.”

Mr Kelly said that combined with expectations for overseas migration to return to pre-pandemic levels over the next couple of years, there could be the perfect storm brewing when it comes to consumer and investor sentiment.

Following extraordinary sales in 2021, limited supply in the englobo land market saw sales in the sector taper off in the first quarter of 2022.

Transactions in large-scale industrial and logistics spaces ran hottest during the quarter, with price per hectare escalating to record highs and eclipsing residential englobo transactions.

RPM managing director transaction and advisory, Christian Ranieri, said shifting societal needs are driving the growing trend towards industrial land investment and this trend shows no signs of easing as more Australians settle into post-pandemic flexible working arrangements and an increased reliance on e-commerce.

“It’s important to recognise that the overall lower level of englobo sales in Q1 can in part be attributed to a collective slower start to the year than usual, following the first restriction-free Christmas period since the pandemic began which saw many employees taking extra time off across the industry,” Mr Ranieri said.

“Additionally, with impending interest rate rises and other economic expectations, there is no doubt a level of conservatism from both vendors and buyers at this time, but demand for englobo space continues to remain elevated.”