Red23 Research Bulletin | Mar.’19
- After the largest monthly fall in the median land price in over 3 years, the land price movement has largely stalled in Feb. ’19 at $337,000 (down 2.6% YoY)
- That said, the net median land price continues to fall as rebates continue to emerge (median rebate ~$15,000).
- Notably, all but two of the municipalities experienced a fall in the median land price: Hume, in Melbourne’s north remains the most expensive municipality for the 5thconsecutive month.
- Very few green shoots with the median project sales rate continuing to fall, now just above 3 sales per month per project.
- Cancellations are certainly a topic for discussion, with stock levels expected to rise in the coming quarters placing further downward pressure on price.
The grind is on.
The Melbourne growth area land boom which peaked in late 2017 / early 2018 is well and truly over – and very few would have predicted the sudden rate of decline.
And despite tempering in February, gross land prices have now fallen by around $18,000 since April last year (around $60 per day).
Annualised sales volumes will dip below 10,000 this year – that’s around 800 per month, down from the early 20,000 in 2017.
Peter Drucker, one of the world’s greatest business and economic forecasters, once said that the future is unknown and will remain so. But he went on to say that, by using intelligent analysis, one can often greatly reduce the uncertainties about the future.
Red23 has considered recent population growth, population forecasts, household structure, affordability, confidence, PSP supply, retail supply, cancellations, cash rate, employment growth, the established market and so on in an attempt to forecast price growth of the coming years.
This is represented in Chart 1.
There are a number of significant headwinds despite strong underlying fundamentals including population growth, employment growth (more than 100,000 jobs over the last 12 months alone in Victoria) and relative affordability.
Since November 2014 when the Victorian Labor Government was first elected, Victoria has created a total of 450,000 jobs – more than 70 per cent of them full-time: more job growth than anywhere in the nation during the same period.
That said, despite figures showing unemployment steady on the back of strong jobs growth, Westpac chief economist Bill Evans said there were already too many signs of the overall economy slipping on the back of tumbling house prices.
Retail supply / stock overhang will rise over the coming quarters. Keep a close eye on forecast title dates and subsequent cancellation rates.
Gross land prices are currently down around five and half per cent. Although not shown in Chart 1, net prices are down around nine and a half percent.
Red23 forecasts suggest that the median land price will continue to fall during 2019, finally settling at around 16 per cent from its peak.
I am happy to be wrong.
Melbourne Growth Area | Land Price Forecast (Gross)
Source: Red23 Research
Very few green shoots with the median project sales rate continuing to fall, now just above 3 sales per month per project across all markets. The strongest performing market being Hume, with a median per project sales rate of around six.
Twelve months ago, the median project sales rate was just shy of 12 per project per month across all growth area markets.
A quick look at project sales market share by municipality in the following table show that the western municipalities of Melton and Wyndham comprise over 40 per cent of all sales.
Of note; Cardinia, Casey, Hume, Whittlesea and Pt. Mitchell all increased their market share.
Wyndham’s market share fell from around 30 per cent to just over 22 per cent. Also, in the west, Melton’s market share fell from 21.9 per cent to 17.5 per cent.
Combined, Melton and Wyndham’s market share fell from 52.4 per cent of all sales to around 40 per cent.
Surprisingly, market share rose in Pt. Mitchell.
2019 vs. 2018 FY Market Share | Sales
Source: Red23 Research
As mentioned, last month we saw Melbourne’s growth regions median land price have its greatest month-on-month fall in over 3 years, however this month showcased different results.
The median land price fell by only $1,000, bringing the new price to $337,000.
In 2018 the median land price stalled for several months, fluctuating marginally from month-to-month between $345,000 – $350,000.
For the fifth consecutive month Hume remains on top of the median price ladder, although it showed declines on both month-on-month and year-and-year platforms.
Casey and Wyndham at $355,00 and $339,000 respectively round out the three most expensive markets.
Mitchell remains the most affordable market, albeit at a median of $283,000 – the only municipality with a median below $300,000.
The most affordable growth area lot in February was around $125,000 for 147 square metres (7 metre frontage) at Merrifield (MAB Corporation) in Hume.
The smallest available lot was 142 square metres (6.8 metre frontage) also at Merrifield. It was priced at around $151,000 (or $1,050 per square metre).
Out of curiosity, the most generous lot was a 907 square metre offering at Atherstone in Melton (priced at $402,000).
Over 600 new lots were released in Feb.’19 at a median price of $324,000 (gross). If lots continue to be released at this high rate and at these lower prices, we will see the median land price respond accordingly.
The median lot size remains unchanged at 400 square metres.
Of interest always, the median land price in Greater Geelong – Armstrong sits at $277,000 (dollar per square metre of around $665.). The median project sale rate now rests in single digits, down from mid-teens in 2018 – not at the metropolitan Melbourne levels yet!
While the median house price continues to climb to $526,000 (up from $455,000 YoY).
Median Prices and Lot Sizes, Feb. ’19
Source: Red23 Research
Red23 is a specialist marketing, sales and research partner for residential development businesses. Our passion and expertise are for new and establishing projects in the areas of land, medium density and mixed used property developments in Victoria, New South Wales and Queensland.
We believe in challenging the status quo of residential project marketing.
No matter how big or small a residential project is, Red23 shares the same passion with developers in creating communities, places and homes where people want to live, grow and invest in.
Red23 becomes an extension to our client’s development team and assist with tailored and nimble marketing and sales strategies and services based on timely and customised research.
If you require any assistance with regard to the residential market, please do not hesitate to contact Andrew Perkins on (03) 9540 0477.
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