The Melbourne New Land Market Update Q1 2018

By May 8, 2018 No Comments

“Don’t use the supply card to justify price increases”

The headline take out for the Melbourne market is for the industry not to use the current issues around getting sold product through to being titled as a reason to keep pushing prices. The customer has a price limit and that price limit is set by the wider housing markets price points.

On top of this, the market may be coming into a period where the banks will be revising their lending criteria. A revised lending criterion is likely to drag prices down. The impact from a structural change to how banks lend will show up in 2019, post the wash up of the royal commission into Banking.

Either way, the situation facing Melbourne is that current land product is overvalued; title dates for sold product are 18-24 months away, meaning that the settlement of currently overvalued stock will occur when a revamped lending criteria is put into place by the banks.

It should be noted that underlying demand remains strong based on population growth and jobs growth. The industry should be selling between 1700 and 1900 lots per month.

For the market to settle, Developers will need to reduce their exposure to long settlement time lines via controlling the volume of lots released. This in itself will cause a supply issue which will put upward pressure on price. Despite this temptation, Developers will need to keep a lid on land prices. Price movement needs to be made with respect to the wider housing market not the immediate supply profile.

If the Developers can manage the upward pressure on land prices while reducing settlement time lines, then it will mitigate any extreme adjustments, if demand weakens in 2019 and or the lending criteria changes.

This is a big ask as it requires the industry as a collective to manage the issues being generated by federal government [they are the ones who are inviting more people into the nation with no clear and targeted planning response], the local governments [these are the ones who need to effectively process sold supply so it can be used in a timely fashion by people] and the industries own business objectives and constraints.