Melbourne real estate: Land sales fall as buyers play a waiting game

• Savvy buyers were on the rise, with 43% making their buying decision on their first visit to a new estate, up from 39%
• Land sales continued to slide, but Geelong was an exception
• The Western Growth Corridor retained the lion's share of property sales across the four growth areas

Melbourne growth area land sales have dropped to four year lows.

According to RPM Research, Data and Insights, this follows the sixth consecutive quarter of falls, with just 1,879 lots sold in the first quarter of 2023, amounting to a 9% decline on the previous quarter.

The sole exception to the land sale falls was Geelong Growth Corridor, seeing a 7% lift in sales to 173 lots for Q1 2023.

The state of the market

While 1,879 lots for the quarter seems meagre, that is still higher than the pre-pandemic cyclical low of 1,865 lots sold in Q2 2019; the pandemic high saw 7,855 lots sold in Q3 2021.

The needle moved on land availability, highest in two years, with 4,400 lots coming to market, following a 7% increase in new land released that introduced 1,984 lots during the quarter.

Headline prices also held firm, slipping just 0.3% to $380,900.

A healthy days on market figure was recorded, with the average at 98 days, up from 78 days in the previous quarter but still within the 90 to 100 day healthy range.

The pall of a weaker market sentiment remained draped over the land sales, with interest rate hikes, reduced borrowing capacities, and an uncertain building environment among the contributors to the market malaise.

“The reality for many is that their purchasing power has been significantly reduced by interest rate rises and cost of living pressures, so they’re assessing their options in terms of adjusting their buying expectations or delaying their purchasing decision,” said RPM Managing Director Project Marketing, Luke Kelly.

“While we saw signs of improvement in sentiment following the Reserve Bank of Australia (RBA)’s decision to hold rates in April, the May rise is likely to again dent this.

“We believe it will take several continuous months of interest rate holds to see any meaningful turn-around in confidence, so we’re anticipating signs of improvement toward the end of the year.

“Building costs are beginning to stabilise, meaning price certainty for new home purchasers is improving, which is also likely to have a positive effect.

“In the meantime, we’re seeing a flight to established housing, where buyers feel more confidence, and a tendency for purchasers to make buying decisions based on necessity rather than desire.”

Savvy buyers strike

The report noted where buyers took advantage of rebates and incentives on offer, an average saving of 5% or circa $25,000 could be had.

Kelly, said, in a positive sign, those walking into new land estates had already done their research and were prepared to act, with 43% making their buying decision on their first visit, an increase from 39% last quarter.

“Buyers who understand their borrowing capacity and are in a position to purchase are seeing the opportunity in the market, with more choice available and a genuine willingness from developers to negotiate, particularly on titled lots,” he said.

“Those with a longer-term view are also deciding to get in now at today’s prices to secure land that may not settle for 12-months or so, meaning they won’t start paying their mortgage until what is a potentially different interest rate environment.

“We’re already seeing a number of bank and non-bank lenders lowering their fixed home loan rates, indicating the rising interest rate cycle could be nearing an end, with the Commonwealth Bank of Australia even anticipating a rate drop toward the end of the year.”

Growth Corridor performance results

The Western Growth Corridor retained the lion’s share of property sales across the four growth areas, capturing 42% of sales. While it may be the strongest performer, sales still fell, down 7% to 797 lot sales for the quarter.

Couples with children dominated, representing 59% of purchasers, with 71% of all buyers owner-occupiers and 69% of those first home buyers. The median price remained static at $385,000.

The Northern Growth Area accounted for 30% of total sales, the highest share in seven years, even though it experienced a 3% decline in sales.

The South East Corridor only comprised 18% of growth area sales. Both new releases and sales halved in Cardinia, while the decline in sales was more moderate in Casey, where new supply increased 27%.

The Geelong Growth Corridor was the only region to see an increase in lot sales, up 7%. This is most likely in response to a 45% increase in new lot releases.

First quarter of 2023 results for property in NSW Growth areas

Source: RPM.