Making sense of the new land market during Covid 19 lockdowns
During this year’s Covid-19 lock downs, the new land market has continued to remain extremely strong throughout Melbourne and Greater Geelong.
Red23 has witnessed a combination of factors which have created a perfect storm of high demand, low supply and affordability pressures for new land across ‘Greenfield’ areas in Victoria.
We have seen household savings reach almost 20% during Lockdown 1 in 2020 and is still sitting at a strong 10%, as people have become accustomed to purchasing online. There is a higher level of job security and overall consumer confidence. The Unemployment Rate is down to 4.5%, from 6% in July/August 2020.
With low cash rates, it has made buying property appealing despite price growth. But affordability has become an issue for young buyers, particularly first home buyers. Those with equity in their homes and are looking to upgrade or invest have benefitted the most.
The current urgency to purchase property is a combination of the increasing median house price hype and low stock availability in the established market. This has pushed many new buyers into the new land market.
We believe the Australian Prudential Regulation Authority’s (APRA) move to tighten lending standards, will have little effect on investors and upgraders. It will hurt first home buyers the most, as their time to save a deposit will increase. Federal and State Government financial stimulus incentives for First Home Buyers will remain vital for this market as the year comes to a close.
New projects are hitting the market, but at the same time, the same number of projects are selling out. There are still approximately 200 active land projects in metropolitan Melbourne and Greater Geelong.
Areas such as Greater Geelong are selling out the quickest, with re-zoning of new areas needing to be fast tracked.
With demand remaining strong, we are seeing land which is being purchased today, not due to title for 24 months across most greenfield corridors. But Melton and Wyndham municipalities who supply nearly 50% of available stock in Victoria, have a good supply of land for the short term.
In accordance to the ABS, August 2021 in seasonally adjusted terms, the value of new loan commitments:
- For total housing fell 4.3%, the largest fall since May 2020
- For owner-occupier housing fell 6.6%, the largest fall since May 2020
- For investor housing rose 1.5%
This indicates investor activity is still strong as they are trying to benefit from price upswing. The question is, are they true investors who will build and lease or are they looking to sell land at a profit? Time will tell, but we are suspecting there are large numbers of speculative investors. Some land estates are now putting investors on the backfoot to support owner occupiers. They are doing this by limiting the number of investor sales per land release.
Red23 believe that land sales will remain strong as we approach the end of the year. With talk of interest rate rises to temper the hot market, we may see a cooling of sales by early to mid-next year.
22 November, 2021