Sydney demand to continue as South East Queensland gains momentum: BIS Shrapnel’s national forecast

Sydney demand to continue as South East Queensland gains momentum: BIS Shrapnel’s national forecast
Jennifer DukeDecember 7, 2020

BIS Shrapnel’s Outlook for Residential Land, 2014 to 2019 report has forecast that Sydney’s upturn will continue but the big performers appear to be Queensland’s Brisbane, Gold Coast and Sunshine Coast. Perth is, however, expecting a downturn over the period.

Sydney’s sales rate in the outer suburbs is notable for being close to its early-2000s level, explains BIS Shrapnel’s senior manager and report author Angie Zigomanis. Despite the increase in sales there has been an extended downturn in Sydney’s land market resulting in a continued shortfall in new housing.

The markets in Brisbane, Gold Coast and the Sunshine Coast can be looked at more as a recovery after extended weakness, with new house and land packages looking affordable relative to established houses with minimal upwards movement for land prices.

Melbourne and Adelaide are forecast to see growth, at a moderate pace, over 2015 – even in the low interest rate environment – with healthy levels of new house building seen in both.

“Demand for land in both the Melbourne and Adelaide markets is showing some increase, underpinned by low interest rates,” said Zigomanis.

“In Melbourne, lot production bottomed out in 2013/14 after the land market was oversupplied due to new subdivisions coming online following the market peaking in 2009/10. As a result, the stock of completed lots had to be progressively sold down before the next round of development could occur,” he said, noting that any excess has now been absorbed by an uptick in land demand, rising prices and low interest rates with sell outs in estates and off the plan sales common.

“Adelaide experienced mild growth in lot production in 2013/14, with low interest rates and limited price growth improving affordability and encouraging greater demand for land. However, the upside is more limited, with slower population growth expected, resulting in milder growth in demand for new dwellings in general. The market is also being impacted by the removal of the Housing Construction Grant at the end of 2013,” he said.

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Sydney – In an upturn

Falls in lot prices (median lot price of $290,000 in 2013/2014) and rises in outer Sydney house prices have improved the attractiveness of new houses compared to established.

“The peak in land prices in 2004/05 meant that a significant premium had to be paid to buy a new house compared to the cost of an established home,” said Zigomanis.

“With established houses being much more affordable, demand for new houses collapsed in the following years and lot production fell to a low of 1,400 lots in 2009/10, with significant pent up demand also developing.”

Key driver: Low interest rates and improved affordability for new houses.

Lot sales have increased, with around 5,500 lots per annum estimated to have been completed for 2012/2013 and 2013/2014.

8,100 lots per annum forecast to be complete over five year to 2018/2019

Forecast peak of 9,000 lots in 2016/2017.

Brisbane – Entered early stages of recovery

Early recovery phase entered in 2013/2014, as lot production rises from 4,700 lots in 2012/2013 to 6,000 lots, though it remains below 8,900 lots per annum produced in the 10 years to 2011/2012.

“The improvement in lot production in 2013/14 was underpinned by the emergence of pent up demand for new houses after the sustained period of low new dwelling activity following the GFC,” said Zigomanis.

“Cuts to interest rates have improved the affordability equation for Brisbane home buyers, while weak land prices over the last five years have also made new housing more attractive.”

Key driver: Net interstate migration expected to pick up with strong price growth in southern states to encourage some to look to Queensland. Deficiency of dwellings to remain.

Lot production forecast to continue to rise and peak at 9,000 lots per annum by 2015/2016. Lot sizes have failed to maintain affordability, but are larger on average than other capitals.

Gold Coast/Sunshine Coast – Strengthening expected

A collapse in demand was seen after the GFC, with just 600 lots produced in each in 2012/2013, the lowest in 20 years.

“This lack of new dwelling supply has resulted in an underlying deficiency of dwellings emerging in both markets in 2013/14 – particularly for new houses – and we are seeing a recovery emerge,” said Zigomanis.

“Low interest rates have boosted affordability, which in turn has allowed for this pent up demand to be released. Land production in 2013/14 increased to an estimated 1,475 lots on the Gold Coast and 950 lots on the Sunshine Coast.”

Key driver: Local economic conditions becoming positive, major non-residential projects commencing, tourism sector increasing, interstate migration improving.

Lot production forecast to continue to strengthen, to peak at 2,100 on the Gold Coast and 1,800 on the Sunshine Coast by 2016/2017. 

Melbourne – Working through oversupply

Number of new estates increased strongly from 2008/2009 to 2012/2013, with just under 19,000 lots per annum completed in Outer Melbourne from 2008/2009 to 2011/2012. A downturn in demand was seen in 2010/2011.

“The excess of completed lots coincided with a 39% decline in new house building approvals in Outer Melbourne between 2009/10 and 2012/13, which in turn exacerbated the oversupply of land,” he said.

“As a result, new lot completions more than halved to 9,100 lots in 2013/14; the lowest level since 1997/98.”

Key driver: Low interest rates, population growth.

With stronger demand seen in 2013/2014, new developers have taken to selling future stages off the plan, with a solid increase in lot completions expected for next year, with a pea of 16,000 lots expected by 2015/2016.

Adelaide – Pick up after strong declne

An uptick was seen in lot production for outer Adelaide in 2013/2014 after a 42% decline from a 2008/2009 peak of 5,200 lots to 3,000 in 2012/2013.

Low interest rates and resulting improving affordability and declines in median land price have pushed up demand and lot production to 3,400 lots in 2013/2014.

Key driver: Low interest rates, $8,500 Housing Construction Grant.

Demand for Outer Adelaide is expected to remain stable. An average of 3,200 lots per annum is expected until 2018/2019. 

Perth – Moving into a downturn

Perth’s outer suburbs’ market, including Mandurah, rebounded strongly after the GFC downturn, with record migration and population growth, along with the mining boom, to drive lot production from 6,800 lots in 2011/2012 to 13,200 lots (a record) in 2013/2014.      

“A key to this rebound in activity has also been the improved housing and land affordability that emerged after prices stagnated over 2007-2012,” he said.

“With average land sizes, and therefore prices, also falling in Perth, improved land affordability relative to established houses also increased the demand for new houses and land.”

Key driver (causing downturn): Resource sector easing, resulting drops in migration inflows, population growth slowing, lowering purchaser confidence.

Record levels will be sustained over 2014/2015, according to BIS Shrapnel, but lot production will drop to a low of 8,800 lots by 2017/2018.

Jennifer Duke

Jennifer Duke was a property writer at Property Observer

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