Land sales in Melbourne and Geelong’s growth corridors fell for a sixth consecutive quarter to their lowest level in four years, as weak market sentiment caused by wary first home buyers experiencing rising interest rates and other cost-of-living pressures continue to bite.
For many potential buyers, purchasing power has been significantly reduced, so they are adjusting their expectations, or delaying purchasing decisions.
Just 1879 lots sold in the first quarter of 2023, down 9 per cent on the previous quarter and a whopping 76 per cent from the market peak of 7855 in third quarter of 2021, according to RPM Group’s latest greenfield market report.
The slide came as land availability reached its highest level in two years, with 4400 lots on the market, after a 7 per cent jump in new land released during the period.
However, there are indications the sales slump may be bottoming, with the previous pre-pandemic cyclical low in second quarter of 2019 hitting 1865 lots sold.
Despite the slump, overall lot prices held firm, dipping just 0.3 per cent to $380,900, despite the increase in supply. Many buyers took advantage of an increase in the number of rebates and incentives offered by developers, saving an average 5 per cent, or $25,000, on their land price.
The worst-performing region was the South East Corridor – an area which has a particularly high number of owner-occupier buyers struggling with higher rates, affordability and a rising cost of living. Sales in the region fell 24 per cent to just 345 lots.
However, median lot prices remain buoyant – up 5.4 per cent to $425,000 – driven by an increase in lot sizes, which grew more than 8 per cent to 388 square metres.
The Geelong Growth Corridor was the only region to see sales increase, lifting 7 per cent to 173 lots, as demand recovered from the previous quarter’s long-term low. New land releases in the area jumped 45 per cent, while median lot prices rose 1 per cent to $389,000.
The region has the lowest proportion of owner-occupier sales, at 57 per cent, indicating a solid investor appetite remains for the area.
RPM managing director project marketing Luke Kelly said first home buyers who understand their borrowing capacity and are in a position to purchase are still seeing opportunity to buy land.
He said with more choice available and a willingness from developers to negotiate on price, 43 per cent of people were committing to a buying decision – particularly on titled lots – on their first visit to a land estate.
“Those with a longer-term view are 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 potentially a lower interest-rate environment,” Kelly said.
“We’re already seeing a number of banks and non-bank lenders lowering their [longer term] fixed home loan rates, indicating the rising rate cycle could be nearing an end.”
However, he said for many potential buyers, their purchasing power has been significantly reduced by rate rises and inflation, so they are adjusting their buying expectations, or delaying purchasing decision.
“We believe it will take several months of interest rates on hold to see any meaningful turnaround in confidence, so we’re anticipating signs of market improvement towar the end of the year,” Kelly said.