Sydney land sales could rapidly decline if prices not reduced warns researcher

land developers in Sydney have been producing large numbers of new lots and charging more for land, but data from a specialist residential property researcher shows sales are now declining and could fall rapidly if pricing is not reduced.

Sales activity volumes in Sydney fell by 7% in the March quarter compared with the December quarter, Research4’s National Land Survey Program found. It was the first fall in activity levels since December 2012.

“We think the Sydney [land] market is going to moderate ... Where it goes from here will depend on how [developers] manage pricing,” Research4 director of strategic research Colin Keane told Property Observer.

“It’s either going to stabilise and fall away quietly, or drop quickly if they keep pushing prices up.”

On average across the Sydney market median lot pricing rose by 1.8% in the March quarter, Research4’s data shows.

In the city’s west and south west, median prices rose by 17% during the quarter.

Keane said the sizable jump in prices in those regions was mainly due to price rises at a development by Landcom and Greenfields Development Company at Oran Park, and at Stockland’s Willowdale.

Research4’s figures show median lot prices in Sydney’s North West rose by 7% in the March quarter, while median lot prices in the Lower Hunter fell by around 4%.

The median price for land across the Sydney region was $283,000 for a 516 square metre block, Keane said.

“We think the pricing is problematic in the Sydney market now,” he said. “I don’t think developers can push prices any further. The might have to take a hit and reduce their prices over the coming months.”

Land prices last fell in Sydney in September 2013, according to Research4’s data.

While prices have been rising, lot sizes have been falling so cost per square metre is at a record high, Keane said. In 2010, the median lot size was 600 square metres. In 2012 it was 550 square metres and now is it around 510 square metres.

Keane said land developers may not be aware that a problem was emerging, as the market was still good and customer cancellation rates were still very low.

“The market is still really good but I think now is a good time to start thinking about the next 12 months and the next 12 months is going to be tighter in terms of demand and [customers] are going to be looking at saving in pricing,” he said.

The Sydney land market has historically suffered from significant supply shortages, but Keane said since June 2013 the land market had been fully meeting underlying demand and exceeding demand in some locations.

“It used to be an issue five years ago but with the South West market coming online we have seen lots of land coming on the market,” he said.

Demand would also fall as net overseas migration into NSW and visa applications had moderated, while the number of loans issued to second home buyers was falling, Keane said.

Australian Bureau of Statistics housing finance figures for the month of March will be released on Tuesday May 13, but the February result showed the number of finance commitments for the purchase of new dwellings around Australia fell by 5% in seasonally adjusted terms compared with January.

On approvals for new dwellings, Housing Industry Association chief economist, Harley Dale said: “Building approvals for the month of March 2014 were consistent with healthy growth in new home building activity this year, although the approvals cycle itself may well have peaked.”