RPM Q4 2022 - Greenfield Market Report

Q4 2022

GREENFIELD MARKET REPORT

RPM Group is Victoria’s most successful residential development sales, marketing and advisory agency. We specialise in sales within master-planned communities, medium and high-density developments, greenfield and infill development sites, and international investment sales.

We advise our clients on all aspects of the sales process from site due diligence, acquisition, planning and risk mitigation through to product mix, pricing, launch, sales and settlement. Our research-backed strategies deliver higher revenues and sales rates, and better returns for our clients.

03 From Our CEO

Investors are re-entering the market as the property price slide decelerates, hinting at a cyclical floor and an imminent upturn, despite affordability concerns persisting.

06 Lead Indicators

A snapshot of the numbers behind current real estate market trends, including the highest cash rate since September 2012 and significantly low unemployment rates.

08 Development Sites

With the benefit of historic data, we can see the development land market is well positioned to sustain prices and recover quickly as the residential sector rebounds.

10 Vacant Land Market

Purchaser sentiment continues to deteriorate, which is materialising in low sales volumes and reducing prices, but gradually increasing investor activity is providing some positive signs for a market recovery.

26 Regional Markets

While yields in regional areas remain significantly higher than Melbourne, sustaining a level of investor appetite, interest rate rises have had a material impact on overall demand, with sales across Ballarat and Bendigo dipping substantially.

32 Secondary Land Market

The resale sector is growing rapidly in the wake of affordability concerns and heightened construction costs. But while lots returned to market have soared in recent months, the numbers are still below 2019 and 2020 figures.

36 Greenfield Townhomes

Townhomes are sustaining their popularity as approvals remain firm, and pricing, while softening through 2022, highlighted the appeal of diverse product offering as house and unit prices dropped significantly.

From Our CEO

• Prudent mindset leads to constrained activity

• Has the market reached the trough of its cycle?

• Full extent of rate rises yet to be felt

• Affordability remains top of mind

The slide in prices across the Australian established market continued to ease over the December 2022 quarter, encouraging investors to re-enter the market. This was most felt in the two largest cities: Sydney and Melbourne.

The uncertainty in the established market has been mirrored in the greenfield market with activity easing to 14,567 sales on a rolling 12-month basis, and a modest 2,054 sales for the quarter.

The RBA recently commented that inflation may have peaked and affordability has started to constrain spending in some sectors. Customers in general are tightening their belts in the wake of unprecedented cost of living pressures, therefore taking their time and completing a more rigorous due diligence process before embarking on a significant financial commitment.

Business and consumer sentiment are in-step with each other, as shareholders are likely to demand a better return on investments through 2023 and 2024. Those expectations will weigh heavily on the mindsets of business leaders who may, in fact, consider tightening costs in 2023. This combination provides for an interesting cocktail of events.

On a brighter note, migration has accelerated in key markets, as banks pursue market share with incentives of $3,000 to $5,000 for those prepared to switch lenders, and an air of cautious optimism has started to wash across the industry for some customer segments. This is evidenced by the number of investors re-entering key markets, given the reduction in average house prices, together with exorbitant rental commitments and extraordinarily low vacancy rates.

While the market is finding its feet, improvements in the availability of labour, raw materials and supply chain issues in general are starting to correct themselves, albeit at a slower pace than anticipated.

The most contentious issue for those interested in entering the market continues to be affordability. Pent-up demand over the past 12 months has remained strong and the sector now has the stock to fulfil demand. We don’t anticipate a significant shift in demand until the full effect of interest rates has been absorbed by households; which won’t be until the second half of 2023.

To deal with affordability constraints, consumers are open to smaller lot sizes, providing they can maintain their aspirational lifestyles through appropriate square footage in new homes. Investors are taking calculated risks, given they have a more sophisticated outlook than first home buyers, and this is driving new enquiry. It is their expectation that prices will have risen by the time interest rates start to fall, which is anticipated in early 2024.

Cost of living pressures will continue to rise for the foreseeable future, and this is a significant topic for the Government. As a consequence, we expect to see cost of living pressures addressed in the May 2023 budget.

Gary Dunne Chief Executive Officer gary@rpmgrp.com.au

Comprehensive Market Research and Intelligence

RPM’s Research, Data & Insights division provides in-depth analysis on current local and overseas economic and property market conditions. The team consists of economists, property experts and GIS analysts who provide real-time market intelligence, analysis and strategic advice.

The team’s knowledge and expertise is an invaluable resource for RPM’s developer clients, providing the platform for intelligent, informed, and strategic decision-making in the evaluation of residential development and investment opportunities.

Our research is comprehensive, monitoring over 400 projects across the east coast of Australia. And, our reporting can be tailored to provide you the specific intel you need to drive the success of your project.

FOR FURTHER INSIGHTS OR BESPOKE ANALYSIS CONTACT

Michael Staedler

Group Manager - Research, Data & Insights

m.staedler@rpmgrp.com.au

Andrew Raponi

Research Manager

a.raponi@rpmgrp.com.au

Jonathan Mayes Research Manager

j.mayes@rpmgrp.com.au

Or sign up for each of our quarterly reports by visiting www.rpmgrp.com.au

Lead Indicators

Cash Rate (Feb-23)

3.35%

Highest rate since September 2012

Quarterly GDP (Sep-22)

0.60%

Still growing but at a more modest rate

Quarterly Inflation (Dec-22)

1.90%

The annual increase of 7.8% is the highest since 1990 with large increases in domestic and international holiday travel and accommodation

Unemployment Rate (Dec-22)

3.50%

At near historical low

Annual Population Change VIC (Jun-22)

20,413

All states recorded positive growth over the year

Exchange Rate AUD/USD (Dec-22)

0.67

Increased by 4 cents through the quarter and remaining well above pandemic lows

VIC Wage Growth Index (Sep-22)

1.40%

Keeping in line with the national average on both the quarter and year

Melbourne Median House Price (Dec-22)

$975k

Price slide is slowing - down 1.6% quarterly and 13.4% annually, with expectations to fall 10-15%

VIC Average Weekly Earnings (May-22)

$1,750

Ranking mid field with other states

VIC State Final Demand (Sep-22) 0.04%

Slowest growth over a quarter since Sep '21. Q4 data will be telling

VIC Unemployment (Dec-22) 3.48%

Edged lower in December to remain under 4% for the fifth straight month.

VIC Employment Participation (Dec-22)

66.60%

Sitting in line with the national average

Source: ABS, RBA, REIV. All data updated as of 4/8/2022

Development Sites

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 its 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 the residential property market, with developers utilising the variance in settlement terms to their advantage (see chart on right).

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.

DEVELOPMENT LAND SALES TRENDS MAJOR RESIDENTIAL SITE SALES >5HA

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.

Contact us about development site opportunities

Ed Wright

National Director

-

Head of Transactions & Advisory edwright@rpmgrp.com.au

Source: RPM Transactions & Advisory Division

Vacant Land Market

According to the Reserve Bank of Australia (RBA), inflation has peaked (as per their Opening Statement to the Senate Select Committee on the Cost of Living on February 1). For everyday Australians, this may provide a piece of solid ground on which to make future financial, and potential property purchase, decisions.

In Q4 2022, purchaser sentiment across the new home market continued to deteriorate, but with RBA’s position indicating finite upcoming rate rises, buyers may begin to undertake forward planning with a greater level of confidence. However, the current reality includes diminished borrowing capacity, higher cost of living, and surging construction costs.

The 18.3% annual rise in Melbourne’s CPI Index for new dwelling purchase for owner occupiers highlights the impact of these soaring construction costs - a burden specific to the new home market.

The combination of headwinds is creating significant barriers for entry to the new home market, with the ensuing shrinking pool of active purchasers resulting in sales declines in Melbourne and Geelong growth areas of 24% quarterly and 70% annually.

There were 2,054 gross lot sales in Q4 2022, but only 1,861 lot releases. These figures are slightly above the previous cyclical low in Q2 2019, and what’s interesting when we look at historical troughs, is how quickly Melbourne’s market recovers. Investor activity has lifted to above 30% of sales, indicating confidence in the market rallying imminently, given the projected interest rate peak and increasing migration.

Although, despite sales outpacing supply in Q4 2022, the average time spent on market ballooned to 79 days. RPM buyer surveys also indicated a growing proportion of buyers wanting more than one visit to an estate before purchasing - an unsurprising reversion from the fast-paced purchase decisions made during the pandemic.

Buyers are increasingly demanding smaller conventional lots to counter rising construction costs without sacrificing their desired home design. Melbourne’s median lot size has steadily diminished from 392 square metres in Q2 2021 to 350 square metres in Q3 2022. While Q4 2022 saw a slight rise of the median lot size to 358sqm, pushing up prices to $382,000, there is still a clear trend toward a smaller traditional block, with nontraditional housing options, like townhomes, allowing owners to bridge the gap between affordability and livability.

Purchaser sentiment across the new home market continued to deteriorate through Q4 2022, but with RBA’s position indicating finite upcoming rate rises, buyers may begin to undertake forward planning with a greater level of confidence.

Rod Anderson Managing Director - Communities rod@rpmgrp.com.au

Source: RPM Research, Data & Insights

Source: RPM Research, Data & Insights

Buyer Surveys

RPM surveys every buyer on our clients’ estates in the greenfield market. The following illustrates demographic and purchase intent amongst all purchasers over Q4 2022.

Western Corridor

Gross sales in the Western Growth Corridor dropped 24% in Q4 2022; the first time they’ve dipped below 1,000 quarterly sales since Q2 2019. Nevertheless, the area’s proportionate dominance among the four growth areas continues, with a 42% share of all sales.

Active estate numbers continue dropping, down 14% from the peak a little over a year ago to now total 82. This is contributing to diminishing new lot supply, and in conjunction with lower lot absorption rates, releases declined a further 31% from Q3.

Interestingly, the median lot size in Wyndham increased by 8% which can likely be attributed to a greater proportion of sales activity occurring in the more affordable western development fronts. Comparatively, lot sizes remained static in Melton, but its median lot price growth was still stronger than Wyndham.

BUYER SURVEY OVERVIEW

Three quarters of all buyers in the Western Growth Corridor were owner occupiers, with almost half of these first home buyers, and over half of households were made up of couples with children. With 76% of buyers intending to build a double storey home, the area had the highest share among all growth areas. This led to higher projected construction spend and average home size.

The Western Growth Corridor includes growth areas of Melton, Wyndham and Bacchus Marsh.

853 Gross Lot Sales 74% Owner Occupiers

829 New Lot Releases 49% First Home Buyer

351 sqm Median

37% of Buyers Aged 25-34 $385,000 Median Lot Price 18% Household Income $80-100k

Northern Corridor

With a 26% drop in quarterly sales, the Northern Growth Corridor’s share of total sales decreased to 28%. Reduced lot sales were consistent across the Whittlesea, Sunbury and Mitchell growth areas, with only Hume recording a marginal rise.

Active estate numbers remain relatively high, but this is having no impact on releases, with stock essentially halving in Q4. Larger lot size sales in Sunbury and Mitchell increased the overall median lot size by 6.3%, underpinning a 2.5% lift in price. Nevertheless, the Northern Growth Corridor remains a relatively affordable area.

BUYER SURVEY OVERVIEW

First home buyers represented 55% of owner occupiers in the Northern Growth Corridor, the highest proportion across all growth areas. Interestingly, these first home buyers tended to be older, demonstrated through the relatively low share of 25 to 34 year olds, and with over half of households composed of a couple with children.

The Northern Growth Corridor includes growth areas of Hume, Whittlesea, Sunbury & Macedon, and Mitchell.

583 Gross Lot Sales 82% Owner Occupiers

439 New Lot Releases 55% First Home Buyer 372 sqm Median Lot Size 32% of Buyers Aged 25-34

$363,000 Median Lot Price 18% Household Income $80-100k

South East Corridor

With average time spent on market doubling to 109 days in Q4, the impact of diminishing borrowing capacity on purchasers is apparent in the South East Growth Corridor, given the area’s higher median price tag. Costs do seem to be coming down in response to affordability concerns, though, with average prices falling an additional 2.8% in Q4 after a 6.3% drop in Q3, while the median lot size remained static.

While demand contracted by 16%, the South East Growth Corridor’s proportion of gross lot sales across the growth areas improved to 22%.

BUYER SURVEY OVERVIEW

Owner occupiers were highest represented in the South East Growth Corridor, with 83% of all sales, and half of those first home buyers. A relatively large portion (35%) were planning to build their second family home, and 43% plan to spend between $300,000 and $350,000 on build.

The South East Growth Corridor includes growth areas of Casey and Cardinia.

456 Gross Lot Sales 83% Owner Occupiers 399 New Lot Releases 35% First Home Buyer 358 sqm Median Lot Size 36% of Buyers Aged 25-34

$403,250 Median Lot Price 9% Household Income $60-80k

Geelong Corridor

The Geelong Growth Corridor hit long-term lows in lot sales and new supply in Q4 2022. Weak sentiment continues to plague this new home market, with even the increase in active estates unable to reverse the sales activity lethargy.

With lot sales collapsing by 79% annually, the region represents just 8% of total sales across the growth areas, and new supply has more than halved this period.

Belying the weakness in new home demand, pricing still managed to increase, with the median lot value rising 1.6% to a new peak of $385,000, aided in part by median lot sizes growing another 3.8%.

BUYER SURVEY OVERVIEW

With the slide in sales volume across the Geelong Growth Corridor, just 60% of buyers were owner occupiers, the lowest proportion across all growth areas. This sector contained just 35% of first home buyers, again the lowest proportion. Despite this, the demographic was slightly younger, as the proportion of buyers aged from 25 to 34 years old (50%) was highest.

The Geelong Growth Corridor includes growth areas of Armstrong Creek, Bellarine and Lara.

162 Gross Lot Sales 60% Owner Occupiers

194 New Lot Releases 50% First Home Buyer 400 sqm Median Lot Size 50% of Buyers Aged 25-34 $385,000 Median Lot Price 8% Household Income $160-180k

Regional Market

INTEREST RATE RISES DAMPEN REGIONAL MARKET

While property prices remain 8% higher than last year, interest rates are undoubtedly starting to impact the regional markets. This is apparent in the much slower price rise in Q4 2022, lifting just 0.9% over the quarter, and more substantially, in significantly reduced sales volume and queries.

Stock is now starting to accumulate as a result of dropping demand levels, even though new lots to market eased this period.

The challenging landscape is somewhat countered by sustained strong interest in regional areas by both owner-occupiers and investors, with rental yields sitting at 3.6%, substantially higher than Melbourne’s 2.5% rate.

While property prices remain 8% higher than last year, interest rates are undoubtedly starting to impact the regional markets.

Ballarat Corridor

Ballarat sales volume slid in the final quarter of 2022 to 70% below a year earlier - the lowest quarterly result since Q1 2017. With developers focused on delivering stock sold through HomeBuilder, it’s not surprising new releases also hit the same lows with just 102 new lots to market.

Despite new releases falling at a similar rate to sales, demand is being outstripped by stock, with a high level of lots returned to market over the past three quarters. With interest rates on the rise and building costs continuing to climb, this elevated level is likely to continue in the short term.

Ballarat median lot prices peaked in June 2022 at $315,000, a 93% increase over a three year period. While prices remain 10% higher on an annual basis, numbers dropped by $500 in Q4 2022, with median lot size remaining unchanged since Q2 2022.

Interestingly, the price and size of unsold lots was $323,000 and 554 sqm - both larger than the traded stock median. While it is not unusual for the majority of unsold stock to be both larger and more expensive than the median of sold stock, the divergence has increased in recent months, highlighting the impact of higher interest rates on borrowing capacity.

OUTLOOK

With demand dropping, there is risk that new lot supply will continue to slow, and after the challenging supply shortages mere months ago across Ballarat, it is imperative stock is released consistently to ensure Ballarat’s appeal does not slide. This is supported by the Victorian Planning Authority’s focus on particularly the northern growth area, and the ongoing investment in local infrastructure.

Developers will look to increase attractiveness of Ballarat estates through buyer incentives and product diversification as affordability remains a hot topic in the coming months, and although townhome solutions may play a role, they are less likely to provide a silver bullet answer in regional areas where the appeal of space is core to the drawcard.

98 Gross Lot Sales Another significant fall following similar drops in the previous two quarterly periods

364 Lots Available Overall stock levels remain depressed

448sqm Median Lot Size No change from the last quarter

$314,500 Median Lot Price A $500 fall from last quarter, although remains elevated.

Bendigo Corridor

After stock levels hit record lows in Q4 2021, demand and prices continued to climb in the region in 2022, bucking the trend set across Melbourne and other regional areas where sales started their post-pandemic plunge. This upward climb ceased in Q4 2022 with gross lot sales dropping 17%.

While lot prices dropped 1% this period, they still reflect a 35% annual lift, indicating a response to the drop in lot sizes in Q4 rather than borrowing capacity limitations. In fact, price per square metre is now sitting at a record high of $590 per square metre.

Bendigo’s northern region has long been the driving force behind all sales activity, but with increased stock coming to market in both the west and the east through 2022, sales have gradually risen away from the north. This is an important shift as both areas offer more value for money with larger lifestyle lots and a lower price per square metre. Additionally, Ballarat’s east offers another important product variation by catering to second and third home buyers with premium lots and higher price points.

OUTLOOK

With at least one more interest rate rise on the cards for the first half of 2023, it is feasible that sales levels will slow commensurately as prospective buyers consider holding off on purchase decisions in anticipation of any market falls through the year.

Nevertheless, with notable land now available in three regions of Bendigo, a necessary diversity of stock is in place to attract a wider range of households.

58 Gross Lot Sales

A decrease of 17% from last quarter

171 Lots Available New lot supply currently outpacing lot demand

448 sqm Median Lot Size

Volatility in lot sizes likely to persist while sales volumes remain depressed

$264,500 Median Lot Price Down 1% over the quarter, but still up 35% annually

Secondary Land Market

RESALE LAND MARKET EXPANDS IN RESPONSE TO HOUSEHOLD BUDGET PRESSURES

As households scramble to save deposits or cover ballooning mortgage repayments, one beneficiary of the rising cost of living is the secondary land market. With low clearance rates in the established property market and decreasing sales levels in the vacant land sector, there is a growing lack of potential suitors for both established homes and new blocks.

It’s not surprising, then, that as at December 2022 the land market has grown significantly, with 1,292 lots returned to market across Melbourne and Geelong, compared to 762 in the first half of the year. While these figures are significantly higher than 2021, they are nowhere near as great as the stock numbers returned to market during 2019 and 2020indicating that a level of ‘normalisation’ is playing a role. But with interest rates continuing to climb and high construction costs now par for the course, more people will need to sell as the cost of building their new homes stretches beyond their reach.

Lots remain larger in the secondary market, meaning a lower price per square metre. But the reality is the secondary market is intrinsically linked with both the established and primary markets, and as developers set more competitive prices to try and take a larger share of a shrinking market, resale lot prices will need to follow trend.

Higher than 1500 June 2021 December 2021 June 2022 December 2022

SECONDARY 500

(DEC-22) 1000

6.2% $977

In 2019 and 2020 a large number of sellers in the secondary market were speculators attempting to make some quick cash in a rising market. This time around, though, the mushrooming resale market will likely be made up of owner occupiers unable to settle in a rising lending environment, and of those, first home buyers will be particularly impacted.

SIZE

RESALE

-4.9%

LOTS VS. TITLED RESALE LOTS - PRICE COMPARISON

To provide insight on the impact of inflationary pressures and the rising cost of living, RPM has undertaken this deep-dive investigation of Melbourne’s secondary land market. The commentary, insights and data contained in this section are drawn from a comprehensive analysis of market listings to track market depth, price and movement within the sector.

PRIMARY LAND MARKET VS. SECONDARY MARKET - PRICE AND SIZE COMPARISON

Townhomes through the trough: Product diversity to combat affordability

While many Australians felt the delivery of a 25 basis point cash rate rise in December was akin to a lump of coal in their Christmas stocking, the lift was required to help suppress inflation and support longer term economic sustainability. The cash rate now sits at 3.35% (as at February 2023) and is expected to rise again in the coming months, but with December’s inflation rising beyond market expectations (although still below RBA forecasts), the projected interest rate pathway still remains uncertain.

Increased interest rates and decreasing access to mortgage finance have impacted the detached home and unit markets across Metropolitan Melbourne, with median prices softening by 13% and 9% respectively since their peak in December 2021. This flowthrough effect on house prices and affordability will persist through 2023 as previous cash rate increases are reflected in upcoming mortgage rates.

A SLIDE IN PURCHASING POWER

As a result of mortgage rate increases, there has been a material fall in the purchasing power of prospective buyers. As at April 2022, a household with a $100,000 income had a purchasing power of around $730,000. Today, that same household can only afford approximately $540,000 for a home, with this to fall further through 2023. Given Melbourne’s median house price, while falling from well over a million dollars, remains high at $974,000, the opportunity for an affordable product offering remains strong across the market.

Given the relationship between property prices, purchaser income, cost of living and access to finance in driving the ability to purchase a home, first home buyers are especially challenged in the current market. One of the greatest hurdles for first home buyers is the capacity to save a necessary deposit, which becomes increasingly out of reach as cost of living increases, and not necessarily ‘easier’ in a market where prices are falling. Diversity of product offering at affordable price points can assist in overcoming some of these barriers to entering the market.

ENTER: THE TOWNHOME

The price premium between houses and units creates space for a distinct product to satisfy the balance of affordability and desirable housing characteristics. Townhomes help provide diversity in the Melbourne market, and we’re especially witnessing the necessity and market uptake of this product in the maturing greenfield markets.

Townhome approvals remained firm across Metropolitan Melbourne throughout 2022 despite declines in both homes and unit prices. While pricing softened through 2022 it remains comparatively high and above 2020 prices.

CASE STUDY - TOWNHOMES IN THE WYNDHAM LGA

Our RPM Research, Data and Insights team recently undertook a deep dive analysis of the townhome market within the Wyndham LGA for a trusted client. The analysis, incorporated into a deeper market assessment, highlighted some of the on-the-ground pricing dynamics between a sample of off-the-plan and settled townhomes.

Across Wyndham, new off the plan townhome prices sat around $500,000, with the more established Point Cook closer to $600,000. These figures are well below the median house prices for the area, demonstrating the comparative affordability of townhomes, and are a good example of the pricing relationship across the broader market.

Given purchasers are increasingly constrained, the lower price point reinforces the importance of diverse housing options to allow more buyers to enter the market. The opportunity for developers to incorporate diverse stock such as townhomes in their product mix is significant, especially in growth corridors, like Wyndham, that are renowned for being more affordable.

We had to readjust our expectations of how much land we were able to get. By going two storeys we were able to get what we wanted in a house at a price that was affordable.

Katelyn Benetti, RPM buyer on the townhome they’re building on their 178sqm lot in Clyde.

COUNT OF SALES & MEDIAN PRICE IN 2022

RPM Group boasts an experienced team of real estate market experts who support our clients to make evidence-based and informed decisions to guide meaningful commercial outcomes. To stay ahead of the market and best informed on how to position your assets, please reach out to RPM Research, Data and Insights to see how we can assist.

Truganina Point Cook Werribee South Hoppers Crossing Werribee Tarneit Manor Lakes Williams Landing Wyndham Vale Wyndham City

Outlook

Buyers are in a unique position in the current market. Although there is no doubt finance is becoming harder to secure, and affordability is the topic on everyone’s lips, each of Melbourne’s historic property downturns is countered by a strong recovery - meaning now could be an opportune time to buy.

But ultimately, home demand across the growth areas will continue to be challenged by affordability concerns in the short term. Although lot price growth slowed through 2022, the median still grew 10.4%, and when combined with rising residential construction costs, overall prices for new house and land packages have jumped notably.

This has coincided with a period of rapid rises to the cash rate - 300 basis points since May 2022 - and with corresponding interest rate rises, it has substantially impacted borrowing capacity.

Although the RBA’s recent declaration that the inflation ceiling has passed may start to provide a level of confidence in the coming months, the uncertainty itself of when interest rates will reach their peak, and subsequent mortgage serviceability concerns, will continue to cast doubt for at least the short term.

Consequently, lot sales activity in the new home market is anticipated to struggle for momentum in the first half of 2023. Developers have already responded by lowering deposit terms to minimise the upfront outlay for purchasers, and further incentives are likely.

Some of the pandemic-driven shift towards larger homes is likely to remain structurally, maintaining the desirability of growth areas, which can provide these homes at a relatively more affordable price. This will also apply to tenants, further enticing investor appetite for growth areas.

The strong rebound in Victoria’s population growth through 2022, underpinned by net overseas migration, has augmented the current build up in latent local demand. This will likely manifest in new home market sales as conditions for purchasing become more attractive from the second half of 2023. It will also be boosted by extremely low rental vacancies and rising rents, potentially driving residents to buy in growth areas as an alternative.

Looking past the short term, fundamentals for the new home market remain positive.

Manager

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Luke Kelly

Managing Director

Project Marketing

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Rod Anderson

Managing Director

Communities rod@rpmgrp.com.au

+61 417 595 859

Ed Wright

National Director

Transactions & Advisory

edwright@rpmgrp.com.au

+61 416 445 078

Peter Grant Managing Director Business Development peter@rpmgrp.com.au

+61 411 494 499

Michael Staedler

Group Manager

Research, Data & Insights

m.staedler@rpmgrp.com.au

+61 434 619 280

Jane Ormerod Head of Property Management

jane@rpmgrp.com.au

+61 488 210 951

Andrew Swinson Director

Wealth Management & International andrews@rpmgrp.com.au

+61 488 123 739

DISCLAIMER

Although all reasonable care has been taken in the preparation of this document, RPM Group takes no responsibility for the accuracy of the information contained herein. It is recommended that all the information be verified if it is to be used for commercial purposes.

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