Red23 Research Bulletin | Aug.’19

It is now widely acknowledged that the residential market is on the rebound. Sentiment is heading north with first and foremost clearance rates creeping into the low 80% range coming to the end of August! Developers and stakeholders of the like are seeing sales rates trending north albeit prices stabilising.

Although clearance rates are making headlines, it should be noted that new listings are currently -29.3% lower than a year ago. Of recent weeks, there has been a slight increase in new stock for sale signalling an improvement in vendor sentiment.

While across most capital cities the volume of newly advertised stock for sale is very low, throughout September we are likely to see an increase in advertised stock levels as the spring season approaches. Total stock for sale has also been lower however, it is not at historical low levels like new stock is, it is at similar levels as the same time in 2018.

This may be due to a combination of factors including properties taking longer to sell and low levels of new listings. The story is similar in the land growth areas.

Table 1: Capital City Auction Clearance Rate (Aug.’19)
Graph 2: New Properties Listed For Sale (Melbourne)

Overall, the fundamentals of the residential development industry remain sound, with Victoria experiencing continued population and employment growth which is reflected in high employment, subsequently supporting long term underlying demand for housing. Demand for housing is estimated to be 3,685 dwellings per month in metropolitan Melbourne.

The number of dwellings approved in Australia fell by 1.3 per cent in June. Furthermore, Dwelling approvals for new homes in growth areas have fallen in all areas except Melton, Gr. Geelong and Wyndham. Residential construction will remain supported in the near term however falling approvals mean construction work will soon decline, putting downward pressure on job security in the construction sector as well as a decline on consumer spending on white goods and furnishings.

Table 2: Dwelling approvals for new homes in grow areas (Jun.’19 vs May.’19)

What is the short term outlook?

It has been widely reported that settlements are down (and company profits down nearly 50% for the 2018/2019 financial year), however banks, developers and all stakeholders believe the market has reached the bottom and the 2020 financial year will be stronger.

The stronger performance across the unit sector may be attributable to ongoing affordability challenges in

Melbourne, although prices have fallen across most capital cities (with some uplift in July/August). Affordability is still an issue, driving demand towards the medium to high density sector. Development sites are continuing to be extremely difficult to acquire by local developers, thus they are maximising current land holdings by building townhouses which increases the $ per sqm rate and attracts more affordable housing.

Sales rates are increasing however prices will stay put for a little while longer.

Now, to the growth area specifics …

The Melbourne growth area median land price has remained stable at $333,000 from last month and -0.60% over a 60 day period. Land size has also remained the same.

No changes in positions this month, however, municipalities such as Casey, Cardinia, Whittlesea, Wyndham and Melton have all witnessed an increase in median prices. Hume and Mitchell only fell by ~$5,000. This is positive news albeit more stock is now on the market then ever.

Over a 12 month period, the median land price has fallen by an average of $15,000 (Net) and there is more than 3 times the amount of land availably in comparison to 12 months ago.

There is also 158 land projects within the growth areas alone, above the long term average of 137 projects whilst the end of 2017 had the lowest number of projects of just 122. Melton is leading the way with over 40 land estates followed by Wyndham and Casey. Whilst all other municipalities have under 20 projects. 

Good news for Gr. Geelong who seems to be the biggest winner of all.  The Armstrong Creek land market peaked in Q1.’18, along with Greater Melbourne before slowing down in Q2.’18 and Q3.’18. Sales have remained steady in 2019, less than a third of the number of sales made 12 months ago which is in line with other municipalities.

Table 3 - Median Prices and Lot Sizes | Jul. ’19