Our latest research shows the entire property sector is undergoing a challenging pilgrimage through what can only be described as a post-pandemic hangover. And while we traverse a period widely impacted by heightened economic conditions, the development land market’s current position is not historically unfamiliar.
Given the impacts of increasing difficulty accessing finance, rising interest rates, and cost of living, plus the delays in construction exacerbated by the HomeBuilder land purchasing surge, it is not surprising the retail lot sales sector has taken a recent beating. What we’re seeing across the greenfield space, though, does not reflect the same dramatic drops and dire short-term outlook. In fact, as we saw during the previous cyclical low after the 2016/17 property market peak, development land holds it value, and the same is true in the current market.
Across the Melbourne and Geelong greenfield markets, price has augmented fairly steadily over the past ten years. This is true for both approved and non-approved land parcels, although the preference for one over the other shares a relationship with demand from residential property market, with developers utilising the variance in settlement terms to their advantage.
The most recent residential market peak was dominated by PSP-approved land transactions, and for good reason. With HomeBuilder and historically low interest rates motivating purchasers to secure lots at pace, developers simply had to keep up with demand. Current enquiries and transactions, by contrast are focused on more strategic, long-term purchase decisions as savvy developers anticipate the next cyclical ascent.
While the transaction volume has decelerated over the past few months, historic data shows that values sustain, and the enquiries and sales still taking place demonstrate investor appetite. With a focus on quality sites in the right location, not to mention with the right terms, there is significant unspent capital in the market which will go towards converting land currently undergoing due diligence – including over $200 million currently with RPM.
As it has demonstrated historically, the development land sector is not exposed to the same recovery challenges as the residential sector coming out of a trough, and in fact, rebounds very quickly. All current signs, including the number of campaign enquiries and the sheer volume of capital currently sitting in due diligence, point to an increasing appetite from developers wanting to be well placed to benefit from the imminent recovery in the vacant land market.
This article was originally published in our Q4 2022 Greenfield Market Report. For the full report, click here.