Michelle Bullock - Governor of the Reserve Bank of Australia
Total lot sales are anticipated to contract further over the next two quarters, influenced by the seasonal impact of the holiday period. New home demand is expected to also remain fragile throughout 2023 and into 2024, in response to ongoing volatility in the Victorian property market and the broader economy eroding confidence and sentiment.
Consequently, 2023’s monthly momentum swings in growth areas’ sales activity are projected to continue as overall affordability remains constrained. Borrowing capacity is unlikely to improve as the RBA maintains a tightening bias on interest rates. Recent developments on the inflation front are strengthening the case for further cash rate rises, as strong population growth and a robust job market apply upward pressure to costs for goods and services. Concerns over economic shocks and global conflicts affecting overseas supply chains are also contributing to inflation worries.
Relative affordability in the new home market is unfavourable compared to other property segments, all vying for a limited pool of potential buyers. Although Melbourne’s median house price decreased over Q3, to now sit 17% below its previous peak. This is in contrast to the record Melbourne median lot price of $389,000, resulting in a land-to-house price ratio of 42%, exceeding the long-term ratio of 35%.
Pictured: Matilda, Donnybrook
Analysis of the secondary land market reveals that a 350sqm lot is priced 5%-10% lower than the same product on an estate pricelist. The growing arability of vacant lots for resale underscores the ongoing need for rebates and discounts to bridge the price gap and prevent new home demand from leaking into the secondary market.
Despite facing significant challenges and barriers, the allure of a new greenfield home persists, partly stemming from the shift in purchaser demand in the post-pandemic period. Affordability remains the primary drawcard for the greenfield market, with well-priced vacant lots experiencing solid sales rates among key buyer demographics in 2023.
This article references findings from our Q3 2023 Greenfield Market Report.