Melbourne’s land market bottoming out as first-home buyers return: report curated and collated by Matthew George

Originally published by ELLEN LUTTON, NEWS EDITOR, AUG 26, 2019

Melbourne’s land market is showing signs of bottoming out as first-home buyers return to the market to take advantage of government incentives and fierce price cuts, a new report has revealed.

Data from RPM Real Estate Group’s residential market review showed that while total lot sales fell by 8.6 percent over the June quarter, month-on-month sales increased from April to June.

The median lot price declined 5.2 percent to $310,000 from the last quarter and will likely fall another 5 percent, which is considered “fair value”.

RPM’s head of communities Luke Kelly said the decline in the median land price, the June interest rate cut and news regarding APRA’s removal of the 7.25 percent mortgage rate test had all culminated in the return of first-home buyers to Melbourne’s land market.

Furthermore, fierce competition between developers for buyers had made it easier to get into the market than ever before, he said.

“Competition among developers through reduced prices and continued incentives and rebates generated higher sales activity in the sub-$300,000 markets,” he said.

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Mr Kelly said first-home buyers had been the most affected by the tighter lending environment over the past few years.

“While the data showed a positive change in the number of first-home buyers in the lower quartile of budgets, we expect this to improve further – and as early as the September quarter – as the full effect of two interest rate cuts and APRA changes kick in,” he said.

“For instance, the bottom 25 per cent of buyers on a household income of around $72,000 was able to borrow $333,333 prior to the changes.

“This capacity, along with a 10 per cent deposit, allowed a purchase price of $370,000 – giving very little scope for buyers.

“However, this same household can now borrow about 15 per cent more or a further $57,400 for purchase, totalling $427,800 – opening up far more opportunities than were previously available.”

For the first time in more than a year, the median lot size contracted from 400 square metres to 392 square metres, the result of new and existing estates re-cutting stages and incorporating more townhouse product.

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Mr Kelly said stabilising prices in the established market should give confidence among second-home buyers who were looking to sell their current properties and upgrade to a larger house-and-land package, which would then, in turn, drive sales volumes higher.

“We expect a gradual rather than a sharp rebound towards the back half of 2019 and into 2020,” he said.

“The increase in unsold stock over 2018-19 will take time to absorb, especially larger size lots that are attractive to second and third home buyers.

“In addition, combined with new masterplans featuring smaller lot sizes of around 375 square metres, the median land price needs to reduce below $300,000, which is considered fair value and in line with first-home buyer budgets.”

The western growth corridor accounted for 41 per cent of total land sales across all the growth corridors, however gross lot sales fell by 68 per cent over the past four quarters when compared to the 2017-18 financial year.

While the share of total lot sales in the northern growth corridor increased from 23 per cent to 27 per cent, the 477 gross lot sales for the region represented a 58 per cent fall from the same quarter last year.

The south-east growth corridor recorded half the sales volume compared to the same quarter a year ago.

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