Development Sites

Transaction activity in the development site market has slowed due to a range of factors including higher interest rates and softer conditions in the residential land market.

Development site buyer demand has slowed for both metropolitan Melbourne and regional Victorian markets. However, demand for regional Victorian sites has decreased to a greater extent, driven by the view that migration to the regions from Melbourne has slowed.

Development site headline values have remained relatively stable. However, deal structuring continues to evolve with extended settlement periods being generally sought by purchasers.

Marketing campaigns are taking longer, reflecting less urgency amongst buyers due to less competition for development sites. Buyers are also seeking more time for research and due diligence.

Funding conditions remain challenging with lenders taking more time to assess and scrutinise deals. The cost of capital has also increased due to much higher interest rates and the prospect of further rate increases.

Peter Vassallo Managing Director | Development Sites p.vassallo@oliverhume.com.au

Banks continue to assess deals considering their overall exposure to the market including by asset class and by geography.

Non-banks continue to see increased popularity.

While higher inflation and construction costs continue to impact cost escalations, the rate of cost increase appears to be slowing.

Planning, engineering and other delays in progressing sites through the development process remain a major issue. The coordination of servicing authorities continues to be a key problem in particular.

Despite these challenges, the medium to long term outlook remains robust for the greenfield development site market in Victoria.

The outlook is underpinned by a range of factors including strong forecast population growth, a sizeable infrastructure pipeline (which will improve connectivity across the state and provide a range of other benefits) and the ongoing improvement in planning processes which will encourage the development of new housing projects.