New land sales in Victoria fell for the sixth consecutive quarter to their lowest level in four years, as buyers continue to sit on the sideline amidst rising interest rates, cost of living pressures and building industry caution, a new report by RPM Research, Data & Insights shows.

RPM’s latest Greenfield Market Report revealed lot sales across the Melbourne and Geelong growth areas dipped 9% to just 1,879 in the first quarter of 2023, down from a high of 7,855 in Q3 2021 and consistent with the previous pre-pandemic cyclical low in Q2 2019 when 1,865 lots sold.

While headline prices held firm, declining just 0.3% to $380,900, buyers were able to take advantage of an increase in rebates and incentives on offer, saving an average 5%, equating to about $25,000.

Land availability reached its highest level in two years, with 4,400 lots on the market, following a 7% increase in new land released that introduced 1,984 lots during the quarter.

Average days on market increased to 98 days, from 78 the previous quarter, but remained within the healthy 90 to 100 day range, and well below the recent Q2 2020 peak, when lots sat for 174 days.

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  Land sales in Melbourne and Geelong’s growth areas fell for the sixth consecutive quarter to their lowest level in four years, a new report from RPM Research, Data & Insights shows.
• Just 1,879 lots sold in the first quarter of 2023, a 9% decline on the previous quarter, and consistent with the previous pre-pandemic cyclical low in Q2 2019, when 1,865 lots sold.
• Prices held steady, dropping just 0.3% to $380,900, however, buyers were able to save an average 5% through developer incentives and rebates.
• Land availability reached its highest level in two years, with 4,400 lots on the market.
• Weak market sentiment follows 11 interest rate rises in 12 months, which has dented borrowing capacity, cost of living pressures and construction industry uncertainty, leading buyers to delay their purchasing decision.

RPM Managing Director Project Marketing, Luke Kelly, said, in a positive sign, those walking into new land estates had already done their research and were prepared to act, with 43% making their buying decision on their first visit, an increase from 39% last quarter.

“Buyers who understand their borrowing capacity and are in a position to purchase are seeing the opportunity in the market, with more choice available and a genuine willingness from developers to negotiate, particularly on titled lots,” he said.

“Those with a longer-term view are also deciding to get in now at today’s prices to secure land that may not settle for 12-months or so, meaning they won’t start paying their mortgage until what is a potentially different interest rate environment.

“We’re already seeing a number of bank and non-bank lenders lowering their fixed home loan rates, indicating the rising interest rate cycle could be nearing an end, with the Commonwealth Bank of Australia even anticipating a rate drop toward the end of the year.”

Mr Kelly said, however, on the whole consumer confidence remained low, following 11 interest rate rises in 12 months, the rising cost of living and continued caution around the building industry.

“The reality for many is that their purchasing power has been significantly reduced by interest rate rises and cost of living pressures, so they’re assessing their options in terms of adjusting their buying expectations or delaying their purchasing decision,” he said.

“While we saw signs of improvement in sentiment following the Reserve Bank of Australia (RBA)’s decision to hold rates in April, the May rise is likely to again dent this.

“We believe it will take several continuous months of interest rate holds to see any meaningful turn-around in confidence, so we’re anticipating signs of improvement toward the end of the year.

“Building costs are beginning to stabilise, meaning price certainty for new home purchasers is improving, which is also likely to have a positive effect.

“In the meantime, we’re seeing a flight to established housing, where buyers feel more confidence, and a tendency for purchasers to make buying decisions based on necessity rather than desire.”

Mr Kelly said the limited sales activity in the new land market would result in significant pent-up demand, with 18,000 lot sales required per year to service population growth in Melbourne and Geelong’s growth regions.

“On average, 1,500 lot sales are required per month to keep pace with population growth, and we’re seeing a third of that at about 600 lots sold per month. That’s 900 people per month who are going to buy at some point, who are currently watching and waiting,” he said.

“This will be intensified by the subdued apartment building activity and the fact migration has returned and people are arriving in droves, keeping vacancy rates extremely low and pushing up rents.”

RPM National Director and Head of Transactions and Advisory, Ed Wright, said the value of development parcels had also held steady, with growing interest in commercial sites in particular.

“Transactions remain subdued, but values are holding firm,” he said.

“We are also seeing an increase in the number of commercial sites brought to market, which are prime for ancillary services to support the burgeoning populations in growth areas, offering new opportunities for savvy developers.” 

A copy of the report covering the lead market indicators, development sites, and vacant land market is available here.

CORRIDOR MARKET ACTIVITY IN Q1 2023:

• The Western Growth Corridor continued to dominate the four growth areas, capturing a 42% share of sales. However, it was not sheltered from broader market conditions, with sales falling 7% to 797 lot sales in the quarter. Couples with children dominated, representing 59% of purchasers, with 71% of all buyers owner-occupiers and 69% of those first home buyers. The median price remained static at $385,000.
• The Northern Growth Area accounted for 30% of total sales across the regions, its highest share in seven years. Sales declined just 3%, driven by increased supply with a 28% lift in new releases seeing 562 lots introduced. The area’s relative affordability, with its median price of $365,000, which sits 5% and 14% below the Western and South-East Corridors, saw it entice the highest proportion of first home buyers, making up 76% of owner-occupier sales. 
• Sales in the South East Corridor fell 24%, with 345 lots sold, representing just 18% of total growth area sales. Both new releases and sales halved in Cardinia, while the decline in sales was more moderate in Casey, where new supply increased 27%. Median lot prices lifted 5.4% to $425,000, driven by an increase in the median lot size, which rose 8.4% to 388sqm. The South East Corridor attracted the highest share of owner occupiers, making up 81% of sales.
• The Geelong Growth Corridor was the only region to see lot sales increase, lifting 7% to 173 lots, as demand and supply recovered following last quarter’s long-term low. New lot releases jumped 45%, with 145 lots introduced. Median lot prices rose 1% to $389,000, while the median lot size remained static at 400sqm. The region had the lowest proportion of owner-occupier sales at 57%, indicating the solid investor appetite for the region.