Enquiries show that prospective buyers are still facing significant barriers to entering the new home market. Borrowing capacity remains down by approximately 30% due to the rapid 400 basis point cash rate increase between May 2022 and June 2022. Elevated new home construction costs, initially driven by supply pressures for materials, then labour, have caused a contraction in sales activity following Q2’s pause in decline.
In total, Melbourne and Geelong’s growth areas recorded 2,023 gross lot sales this quarter, a 6% quarterly decrease and a more significant 25% drop from the same time last year. Fragile confidence, coupled with an increasing supply of re-sale vacant lots in the secondary market that is likely absorbing some new home demand, is further contributing to the decline in lot sales activity among estates.
The slower sales rates have extended the average time lots spend on the market to five months. When combined with the rise in returned stock, the total number of unsold lots continues to increase. This is severely hindering the ability to introduce new supply to the market, with only 1,538 lot releases across the growth areas this in Q3. Additionally, upcoming estates are delaying their entry into the market, with only two new estates this quarter.
The greenfield market’s intense competition with the re-sale market and its focus on working through existing stock have led to more rebates and discounts. These incentives typically range from 5% to 10% of the headline price, resulting in Melbourne’s median lot price (without discounts) reaching a new record of $389,000 in Q3, a growth of just under 1% from the last quarter. The price per square metre increased further after the median lot size diminished by 1.3% to 354sqm.
This article references findings from our Q3 2023 Greenfield Market Report.