Melbourne land sales heading for toughest year since 2006 as rebates rise: Oliver Hume
Sales of residential land on Melbourne’s fringes are set to retreat to levels last seen in 2006 as land prices continue to fall.
Following reports showing that around 30% of all released Melbourne land is being returned by building companies, there seems to be little respite for Melbourne residential developers in 2013, with a higher number of projects competing for business from seemingly reluctant buyers adding to the challenges they face.
According to the latest quarterly report from Oliver Hume, there has been a 29% increase in the number of residential projects being marketed on Melbourne fringes since 2006 with the real estate group forecasting 160 active projects in 2013.
Oliver Hume anticipates that land sales are likely to fall to around 65 per project a year.
“Put simply, since 2006, there has been a 29% increase in the number of projects and a 5% decline in the number of land settlements.
“For the majority of projects, double-digit sales rates may be a long way away,” says report author Andrew Perkins.
Land prices have now fallen for by a cumulative 16% over eight consecutive quarters with an average residential lot price of $190,000.
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Melbourne land prices peaked at an average residential lot price of $225,750 in December 2010.
At the same time, developers continue to offer highly contentious rebates to customers with the median rebate rising slightly during the quarter to $15,000.
Median rebates ranged from $10,000 in Cardinia and Whittlesea to $16,500 in Casey.
When discounting for rebates, Wyndham is the only municipality with a median land price above $200,000.
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The biggest decline from peak prices has occurred in Whittlesea, where the average lot price has fallen 18.6% since peaking in December 2010, falling from $229,850 to just $187,250 – a decline of $42,700. Whittlesea is about 40 kilometres north east of Melbourne.
Land prices have declined 16.9% in Melton, 35 kilometres to the west of the Melbourne CBD. Prices peaked later in Melton than in other fringe suburbs. They reached their highest point in September 2011 of $189,500 and have since declined to just $157,500 – a decline of $32,000.
Casey in Melbourne’s outer south east recorded the third steepest fall in in values with the median land price falling 14.5% from their peak in December 2010 from $232,550 to $198,000 – a decline of nearly $34,000.
Double-digit declines from peaks were also recorded in Hume (values down 13.1%) in Melbourne’s outer north west and in Melbourne’s newest land market Mitchell: Wallan- Beveridge, where values are down 13.8% to just $153,000 – the cheapest place to buy land on the outskirts of Melbourne.
Wyndham and Cardinia recorded the only single digit falls: 9.3% and 9.9% respectively.
For the fourth consecutive quarter, the retail supply has waxed and waned between 3,600 and 3,700 lots, which at current project sales rates, represents 6.6 months supply.
Only three of the seven municipalities recorded an increase in supply over the December quarter: Mitchell (Wallan-Beveridge), Casey and Hume.
Mitchell (Wallan-Beveridge) has the most supply with 9.9 months supply; followed by Whittlesea with 9.5 months. Wyndham and Hume are the smallest with 4.9 and 5 months supply respectively.
"Although many analysts suggest that Melbourne house prices will rise in the year ahead, few would suggest that we are in for a period where growth-area land prices may start to climb.
"There are nevertheless several indicators suggesting the down-side risk is no longer greater than the upside potential," says Oliver Hume.*
Exacerbating the challenges facing fringe land developers, a recent report by Essential Economics warned that Melbourne’s growth areas needed $10 billion spent on new education, transport and health services in the next 15 years - this from a Victorian government trying to rein in spending.
In addition, Essential Economics found there were more limited job opportunities in the 10 councils that form Melbourne's outer urban ring including Wyndham, Melton, Hume, Whittlesea, Yarra Ranges, Casey and Cardinia.
*Update to article: An earlier version of the article included an incorrect statement: " Oliver Hume reports that developers are holding back on releasing large amounts of land to the market as take—up remains poor." This statement was incorrect and has been removed.
