Troubling resales 39% of Melbourne and Geelong’s land market stock: RPM Real Estate

More than a third of total stock on Melbourne and Geelong’s land market are resale lots, potentially troubling, some of which were bought by speculators now attempting to quickly on-sell, according to RPM Real Estate Group’s Q4 Residential Market Review. 

Their report found the secondary land market in Melbourne’s growth corridors is now hitting a peak, with 2,415 lots – or 39% - of total stock on the market comprising resale lots.

RPM’s head of Communities, Luke Kelly said just over half of these resale lots – 53% – have since settled, which suggests the majority of resales are genuine investors or even owner occupiers who are now unable to obtain finance to complete construction on their settled lot due to tighter lending criteria or a change in circumstances.

"It’s possible we’ll see some price reductions on resale lots as settlement approaches.

"However, realistically, people are reducing their profit margin to still make a profit but avoid losing their deposit – a $30,000 profit is better than a $10,000 loss."

Through data gathered from realestate.com RPM surmised, that of the total resale lots, 42% were located in the Western growth corridor, 34% in the Northern corridor, 18% in the South Eastern corridor and 6% in Geelong and the Surf Coast.

Kelly said while the conventional view is that resale stock undercuts retail lots, there is more to the story.

'The data (actually) reveals retail stock is cheaper than resale stock, given developers are producing smaller lots throughout their estates at more affordable price points," said Kelly.

The report found the downturn in the land market sharpened during the December quarter, with sales declining 42% from the previous quarter and 58% from the same quarter a year earlier.

However, the median lot price steadied, increasing 1.1% to $325,000 from the September quarter and 7.5% from December 2017. 

Kelly said while the overall residential market will take time to recover throughout 2019, some sub-markets, such as vacant land, will likely recover more quickly as first home buyers come back in larger numbers and access to credit improves.

“We should start to see higher levels of activity towards the second half of the year after the Federal election once there is more certainty around proposed changes to negative gearing and capital gains tax and the market adjusts to changed lending parameters,” he added. 

RPM found:

• The key driver underscoring the slowdown in the apartment and townhouse market continues to be regulatory-driven credit restrictions for both investors and owner occupiers, which, together with falling prices, has adversely impacted purchaser financing to complete off-the-plan acquisitions.
• After showing robust activity in the face of significant headwinds, total other dwellings have finally succumbed to current market conditions. Other dwelling approvals (apartments and townhouses) over December quarter 2018 were down 7.6% to record 5,831 approvals from the previous quarter – the lowest level since June quarter 2017.
• More stark was the comparison to the same period a year ago which reveals a 55% fall in approvals.
• Despite townhouse approvals picking up 5.6% over the December quarter from the previous quarter, approvals in apartments fell 19.3%.
• Compared to the same quarter a year earlier, townhouse approvals fell 15.8% and apartments plunged 71.2%.