Victorian Greenfield Market Report - Q1 2024

VIC

Q1 2024

VICTORIA GREENFIELD MARKET REPORT

From our CEO

• The property market remains volatile; however, Q1 2024 has proven to be resilient due to interest rate stability.

• The potential for rate cuts has stalled despite household financial challenges; further monetary and fiscal stimulus is required.

• The greenfield sector remains the best placed to solve the short-term housing crisis.

• State and Federal budgets are pivotal in addressing affordability and cost-of-living pressures.

The Victorian property market recorded 8,738 sales1 on a rolling 12-month basis, and 2,214 sales1 for the quarter, marking the first lift in sales against the previous corresponding period since Q4 2021.

This lift can be attributed to a sustained pause in interest rates and newly introduced incentives over the past six months, creating a cautiously optimistic market. There is speculation that rates have peaked and will remain on hold for an extended period, with potential rate cuts later in 2024 or 2025.

In March 2024, new home loans for housing increased by 3.9%, a notable turnaround from the 4.1% decline in December 2023. However, despite this renewed enthusiasm, consumer sentiment across all housing sectors in Victoria remains historically low. Tough times are expected to persist until there is a tangible change in the cash rate. While rate and tax relief may offer some support, it is unlikely to significantly enhance borrowing power for new home buyers in the short term.

Affordability issues are expected to persist in the medium term unless there is sustained downward pressure on monetary policy. Inflation remains stubbornly high, particularly in services inflation driven by sectors such as health, education, insurance, and rents. However, there are signs of moderation in product inflation, which includes household goods, clothing, recreation, and travel.

The property market currently sees one-third (outright homeowners and retirees) spending and earning good returns, while the remaining two-thirds (comprising of renters and mortgage owners) are feeling financial strain.

Speculation of a rate rise in 2024 could exacerbate the situation, potentially setting the economy back and causing further financial strain for homeowners.

RPM’s outlook indicates that the market remains highly volatile, influenced by both local and international events. Victoria continues to offer good value, attracting individuals for lifestyle and work

prospects, supported by recent population growth. However, markets outside Victoria, particularly in South Australia and Queensland, are benefitting from Victoria’s lack of clear policy and funding mechanisms to drive growth.

Looking ahead, interest rates are expected to remain steady in the second half of the year, with the possibility of a rate cut towards the end of 2024 and further relief in 2025. Tax cuts are not expected to significantly impact inflation, as additional funds are likely to be directed towards savings or cost-ofliving expenses. Global supply chain constraints are adding to inflationary pressures and reducing the potential for significant rate relief.

Despite facing these challenges, the property market has remained relatively stable over the past year, with minimal price erosion and incentives observed across many greenfield projects. However, the housing crisis continues to deepen, with demand outstripping supply and no immediate solutions in

1 This includes Melbourne, Geelong, Ballarat, Bendigo, Macedon, and Drouin/Warragul.

Gary Dunne

Chief Executive Officer gary@rpmgrp.com.au

sight. Immigration levels are expected to normalise in 2025, contracting the economy and influencing rates, while mortgage affordability remains a key issue for homeowners.

Government intervention is crucial to address current needs, particularly in the greenfield market. However, the details behind new government policies are currently insufficient to make a meaningful impact in the short term. The greenfield market will play a vital role in addressing supply and demand dynamics until broader market investment returns to normal.

For more information, please visit: www.rpmgrp.com.au

For a detailed market analysis or a special report, email the team at: contactus@rpmgrp.com.au

What’s Inside

Robust population growth coupled with persistently high inflation and falling unemployment rates are creating increased uncertainty in the market.

A summary of the May Victorian State budget and relevant property industry items.

Developers have recognised the importance of Land Lease Communities (LLC), as shown by the rising number of recent LLC transactions.

Townhome approvals in March quarter 2024 are driven significantly by progress in Wyndham and Casey LGAs, despite the latter recording a relatively weak quarter.

The regional established housing market is in a state of flux with limited supply and waning demand.

While the market remains highly volatile in the short term, the fundamental remains strong with the need for more housing.

A data-driven, holistic approach to property

At RPM, we always start with in-depth research and data-driven insights. When we are guided by data, analysis and key findings, we maximise success.

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 as well as analytical and strategic advice.

Our knowledge and expertise are an invaluable resource for RPM’s developer clients, empowering them to make intelligent, informed, and strategic decisions when evaluating residential developments and investment opportunities.

Our data and analysis help clients maximise their marketing efforts and achieve sales targets on their estates. Each month we collect extensive data on more than 600 land estates across the east coast of Australia, providing our clients a comprehensive understanding of the market dynamics. This also underpins the core strategic decision-making of our own business.

This rich data helps our team and clients to better understand:

Volume of lots sold

Dollar per sqm rates

Stock release levels

Volume of stock returned to market

Distribution of lots of a particular size

Distribution of price points

Activity levels by market, product, & developer

Stock level fluctuations

Michael Staedler General Manager Research, Data & Insights

Lead Indicators

Increasing uncertainty regarding if the rate has peaked or not. Next quarterly CPI results will be key. Cash Rate 4.35%

May 2024 Moved above 4% for the first time since the start of 2024 - still below the desired RBA rate of 4.5%.

Four quarters of falling growth with the lowest level Q3-2016, outside of periods impacted by lockdowns. Quarterly GDP 0.20%

December Quarter 2023

Unemployment Rate 4.10% April 2024

Kept in line with the national average over the quarter but lags over the year. VIC Wage Growth Index 0.60%

March 2024

First quarterly gain since peak at Q4 ‘ 21. Still reflects a 17.5% fall from peak. Melb. Median House Price $928,500

March 2024

Continuing to surge since the reopening of international borders in early ‘22. AUS Population Change 145,244

September 2023

Downward trend continues, with the 12 month CPI falling to 3.6% from 5.1%. AUS Quarterly Inflation 3.60%

March 2024

Edged down over the quarter from a recent high $0.68. Exchahnge Rate AUD/USD $0.65

March 2024

Vic Avg. Weekly Earninggs $1,917 November 2023

Smallest annual increase and contains a weekly incomer at the lower end of all the states and territories.

Next to no growth and four quarters in a row of decreasing growth. VIC State Final Demand 0.01%

December 2023

Pick up to a national high, and the highest level since February 2022 VIC Unemployment 4.20% April 2024

Remained steady from last quarter, and is relatively high from an historical perspective. VIC Employment Participation 67.23% April 2024

Development Sites

The Rise of Land Lease Communities

The current housing and affordability conversations often centre on first home buyers, but the needs of downsizers and older Australians are equally important.

The Land Lease Community (LLC) market serves more than 130,000 senior downsizers across the country. LLCs enable residents to own their homes while leasing the land; allowing them to comfortably downsize to a low maintenance lifestyle while remaining close to family and friends.

LLCs support downsizing for the older generation while releasing larger housing stock for first home buyers and growing families. This, in turn, enhances overall housing supply and affordability. Developers have recognised this trend, as shown by a rising number of recent LLC transactions. Two particularly significant recent sales by RPM’s Transactions & Advisory (T&A) team took place in Colac and Charlemont – both evidence of the increasing traction and long-term development potential of LLCs.

In Colac, the sale of an 8-hectare parcel of land at 1-59 Rifle Butts Road demonstrates the viability of LLC and retirement sites in regional Victoria. The transaction attracted interest from both Victorian and interstate buyers, highlighting the broad appeal of these projects. ID_Land also contributed to this growing pool of interest, purchasing 439 Boundary Road Charlemont for its Next Living brand.

RPM’s T&A division transacted both sites off-market, and the team is working with developers across Melbourne and regional Victoria to identify more sites for this niche land use. The division leverages detailed land research and data-driven insights to guide developers in making informed decisions –boosting their confidence in the evolving market.

Historically, the LLC market has been controlled by a few groups, but there is now an influx of demand from new entrants and interstate groups. These newcomers see the potential in Victoria’s rapidly growing greenfield sector.

T&A’s solid reputation within this niche market stems from its close work with developers; offering transparency and guidance throughout the process and utilising its proprietary mapping data to identify prime opportunities for future LLC projects. With several off-market processes in progress and more campaigns in the pipeline, this work highlights the potential for LLCs to address housing needs while shaping the future of Victoria’s greenfield sector.

For more information on upcoming superlot sales, contact Tim Hyland or Zaynoun Melhem: tim@rpmgrp.com.au zaynoun@rpmgrp.com.au

Tim Hyland National Strategy Manager Transactions & Advisory

Vacant Land Market

Vacant Land Market Overview

Market recovery emerges across Melbourne’s growth areas, although sentiment continues to struggle for momentum in Geelong.

Total gross lot sales saw a 7% annual increase in Q1 2024, marking the first quarter to record annual growth since Q4 2021. Overall, 2,037 lots were sold across Melbourne and Geelong’s growth areas, reflecting a 15% increase in sales activity from the last quarter. This suggests an improvement in new home market sentiment compared to early last year.

A stable interest rate environment over Q1, along with expectations of future interest rate decreases, gave prospective buyers more confidence in their purchasing capacity. The ongoing availability of buyer incentives such as rebates and discounts, ranging from 5% to 10% of the headline lot prices, further fuelled new home demand.

The recovery was concentrated on Melbourne’s growth areas, specifically in the South East and Northern corridors. Overall, gross lot sales in Melbourne increased by 19% from the previous quarter and 13% annually while sales activity in Geelong declined by 28% from the previous quarter and 46% annually.

Median lot prices for 350sqm were higher in both the Armstrong Creek and Lara regions than in Melton South and Wyndham West, limiting sales activity in Geelong. Meanwhile, new lot supply increased by 6% from the last quarter to 1,539 releases in Q1, although this figure remains 22% lower than Q1 2023.

There was a sizeable volume of stock available across active estates, with over 5,000 lots on the market this quarter, along with growing lot supply in the secondary market. This increased overall lot supply by around one-third; reducing the need for additional new supply.

The median size of lots sold in Melbourne remained steady at 350sqm, with 67% of buyers being families and children. This preference supports the need for larger lot sizes as further reductions in lot size will impact the desired home size for these purchasers. Record construction costs placed some downward pressure on lot prices, resulting in Melbourne’s median lot value declining by 0.7% over Q1 to $384,350.

Increased by 7% after falling in Q4 2023. Lots Sold

2024 Up from 134 days the quarter prior. Trading Days of Lots Sold

Rod Anderson National Managing Director Communities

Gross Lot Sales Breakdown

Melbourne and Geelong 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 Q1 2024. For a detailed analysis of any corridor, LGA, or suburb in Victoria, please contact our Research, Data & Insights team.

m.staedler@rpmgrp.com.au

>701sqm

676-700sqm

651-675sqm

626-650sqm

601-625sqm

576-600sqm

551-575sqm

526-550sqm

501-525sqm

476-500sqm

451-475sqm 426-450sqm 401-425sqm

376-400sqm

351-375sqm

326-350sqm

301-325sqm

276-300sqm

Lot Size

>$950k

$900-950k

$850-900k

$800-850k

$750-800k

$700-750k

$650-700k

$600-650k

$550-600k

$500-550k

$450-500k

$400-450k <$400k

What Does a 350sqm Lot Cost?

Western Corridor

Western Corridor - Buyer Activity

Sales activity in the Western Growth corridor increased by 4% this quarter, with 755 lots sold. This uptick was largely due to a significant rise in sales in Wyndham, where lots sold increased by 53% to account for 431 sales.

Despite this growth, the Western corridor’s share of total sales dropped to 37% as the Northern and South East corridors experienced larger shifts. Additionally, the average time lots spent on the market in the Western corridor increased by 43% to 184 days – the longest in Melbourne.

Source: RPM Research, Data &

Wyndham Melton Moorabool

Trading Days

Insights

Western Corridor - Vacant Land Stock

The market’s rebound in sales rates during Q1 led to a modest increase in new lot supply, which rose by 8% to 632 new releases. Much of this growth occurred in Wyndham, where new supply climbed by 41%.

Melton remained the top contributor in terms of overall lot releases, though it saw minimal quarter-on-quarter changes. Additionally, stock returns in the Western growth corridor trended upward, rising by 15% to 300 lots during the quarter.

Source: RPM Research, Data &

Western Corridor - Lot Price and Size

The Western growth corridor saw a 1.4% increase in its median lot prices, rising to $370,000. This trend aligns with the Northern corridor, establishing both as the more affordable areas.

The median lot size remained consistent at 350sqm, leading to a slight rise in the per square metre rate. These trends highlight the continued affordability appeal of the Western and Northern growth corridors for greenfield buyers.

Northern Corridor

Northern Corridor - Buyer Activity

The Northern growth corridor rebounded in Q1, capturing 33% of gross lot sales and selling 666 lots. This reflects a 25% increase in sales activity. All four sub growth areas in the corridor experienced increases in lot sales.

Notably, the Northern corridor had the shortest average time on the market for lots sold, recorded at 143 days – although this was higher than the previous quarter. This trend aligns with the overall rise in time on the market seen across all growth corridors in Q1.

Source: RPM Research, Data & Insights

Whittlesea Sunbury

Northern Corridor - Vacant Land Stock

Number of Lots

New supply decreased by 11% to 454 lots. This decline was driven by Sunbury, where new lot releases fell to a new low of just 53; down 42% from the previous quarter.

Lot release activity remained steady in Hume and Whittlesea, but lots returning to the market saw a significant 33% increase, reaching 161 lots. This is the second-highest quarterly amount since Q2 2021, indicating shifting market dynamics.

Source: RPM Research, Data &

Northern Corridor - Lot Price and Size

The Northern growth corridor’s median lot price fell by 2.3% to $370,000, making it as affordable as the Western corridor. This decline was observed in the subregions of Hume, Whittlesea, and Sunbury, while Mitchell was the only subregion to see growth during the quarter.

The overall median lot size remained stable at 350sqm, although there continues to be a notable variation in lot sizes between Hume and Whittlesea compared to Sunbury and Mitchell.

South East Corridor

South East Corridor - Buyer Activity

Gross lot sales increased by 37% in Q1, reaching 518 lot sales and accounting for 25% of total sales activity. Both Cardinia and Casey experienced notable rises in lot sales, with Cardinia showing a larger proportional shift and Casey seeing a larger absolute increase.

However, lots spent longer on the market during this period, with the average time increasing to 170 days – the longest duration ever recorded.

Source: RPM Research, Data &

South East Corridor - Vacant Land Stock

Number of Lots

New supply rose alongside increased sales activity, growing by 22% to 364 lots. The City of Casey contributed significantly to this increase, with new lot supply rising by 18% to 287 lots.

Cardinia followed the trend with a 40% growth over the quarter, totaling 77 lots. Additionally, stock returning to the market reached 166 lots, marking a 26% increase from the last quarter and a substantial 118% rise from last year. market reached 166 lots, marking a 26% increase from the last quarter and a substantial 118% rise from last year.

Source: RPM Research,

South East Corridor - Lot Price and Size

The South East corridor saw its median lot price rise by 2.9% to $450,000 in Q1, marking a 6% increase from the same quarter last year. This is the highest annual growth rate among the corridors.

The area remains the least affordable new home market. However, the increase in median lot size by 7% to 392sqm contributed to the rise in median lot price. Consequently, the price per square metre rate fell as lot sizes outpaced the price increases.

Geelong Corridor

Geelong Corridor - Buyer Activity

Sales activity in the Geelong growth corridor reached a long-term low in Q1, with just 98 gross lot sales recorded. This is a 28% drop from the last quarter and 46% lower than Q1 2023.

This sustained weak demand for new homes has extended the average time between lot releases and sales to 211 days, the longest among all growth corridors and a 14% increase from the previous quarter. This indicates ongoing challenges in Geelong’s new home market.

Geelong Corridor - Vacant Land Stock

Number of Lots

The Geelong growth corridor saw an upswing in new supply, rising to 89 lots; a 51% increase from last quarter. Despite this gain, the supply remains significantly below the long-term average.

Geelong stood out as the only growth corridor where stock returns exceeded lot releases. Over the quarter, stock returns in Geelong increased by 23%, reaching 97 lots.

Source: RPM Research, Data &

Geelong Corridor - Lot Price and Size

Despite the new home demand falling to a long-term low in Q1, the median lot price in the Geelong growth corridor increased by 3% to $406,000. This rise is due to the median lot size growing by 9% over the quarter to 437sqm.

As a result, the price per square metre rate has continued to decrease, offering prospective buyers greater value for their money.

Source:

Regional Land

Regional Land - Market Overview

Regional affordability is beginning to erode as lot prices continue to grow.

The pull forward of sales into Q4 2023 saw sales ease in Q1 2024. Nevertheless, overall market activity remained relatively strong despite being down from the previous quarter.

While the regions continue to offer some affordability advantage compared to metropolitan greenfield markets, this advantage is beginning to erode in some areas as lot prices continue to rise. The combination of a high lending environment and elevated construction costs (due to labour shortage) has made house and land packages increasingly difficult to obtain in the region.

This elevated regional land market has been accompanied by a strong established market, driven by limited supply. However, the established regional median house price saw a 1.5% decline over the quarter and a marginal 0.4% decline the same quarter last year. In contrast, the established market saw a more significant 7.5% decline over the past 12 months.

Outlook

Demand for regional change is expected to remain elevated compared to pre-pandemic levels driven by affordability and lifestyle preferences. The level of demand will hinge on the availability of appropriate lots in each region, with price and size being key considerations. Many local buyers have been priced out of the established market, increasing demand for smaller, more budget-conscious options such as townhomes. While lifestyle lots will continue to be in demand, offering a variety of lot sizes and types will expand the buyer pool.

Major improvements in activity are not expected in the short-term, due to the ongoing lending environment. However, opportunities remain for active buyers who now hold more negotiating power to secure a positive deal.

Ballarat Corridor

Ballarat Corridor - Buyer Activity

After a promising uptick in sales activity in Q4 2023, the Ballarat market slowed down as it entered the new year, with only 59 sales recorded.

Although this is a significant 44-sale decrease (-43%) from the last quarter, it marks a 37% increase from the same time last year. The decline in sales suggests that incentives and rebates heavily promoted in Q4 had a notable impact on buyer interest. While there appears to be some pent-up demand in the market, it seems relatively shallow at this stage, as buyers were pulled forward slightly into Q4 – affecting Q1 2024 activity. This underscores the importance of price points in driving buyer interest.

Ballarat Corridor - Vacant Land Stock

Lots remaining at End of Quarter

Developer activity has also remained subdued, particularly in terms of new stage releases. In Q1 2024, only a modest 50 lots were released; a considerable decrease from the average of 330 lots released during the HomeBuilder period.

While new releases have been limited, cancellations have averaged 63 lots per quuarter over the last 12 months and are likely to hover about this mark as the protracted high interest market persists.

Source: RPM Research, Data &

Stock Overhang

Ballarat Corridor - Lot Price and Size

Median lot price of $307,000 was a slight 1% decline over the quarter. Alongside this, there was also a larger decrease in the median lot size; falling by 7% (-31sqm) to a median of 417sqm. Consequently, the price per square metre increased by 6% (+$44), reaching $736. This is the second highest square metre rate over the last five years –sitting just below $748 recorded in Q3‘23.

It’s important to note that the remaining stock at the end of Q1 had a higher lot price with $312,750, which is $5,750 more than the stock sold over the quarter. Likewise with size of 504sqm compared to the 417sqm of lots sold.

Stock remaining at the end of Q1 2024 rose 10% (+46 lots) to 508 compared to the last quarter, which is also at its highest since Q3 2018 at 550 lots.

Bendigo Corridor

Bendigo Corridor - Buyer Activity

Following a slightly unexpected uptick in activity in Q4 2023, the new year began at a slower pace with just 32 sales recorded in Q1 2024.

This marks a 26% decrease (-11 lots) from the previous quarter and a 35% drop (-17 lots) compared to the same time last year. Notably, it is the second lowest sales quarter since Q3 2021, with only Q2 2023 being lower. The decline in activity underscores the market fragility and the significant impact that incentives and rebates have on buyer sentiment

Bendigo Corridor - Vacant Land Stock

Lots Remaining at End of Quarter

On a positive note, the number of new lots released to the market increased to 32 lots for the quarter; a 17-lot rise compared to the last quarter. Additionally, cancellations decreased by 38% (-6 lots), with 22 lots returned. This reduction is encouraging, as it suggests that while elevated, there are no significant household pressures resulting in forced sales.

Overall, the total stock on the market reached 279 lots, the highest level observed since Q3 2020. This level has increased quarter-on-quarter over the past four quarters.

Source: RPM Research, Data &

Overhang

Bendigo Corridor - Lot Price and Size

There was a significant 8% decrease (-$23,500) in price to $275,500; mirroring the Q2 2023 result. Notably this is the first decline following continuous price growth over the past five quarters suggesting that the previously discreet incentives and rebates offered in Q4 2023 have now been factored into the retail price lists.

The median size decreased by 7% (-44.5sqm) to 596sqm. Despite this decline, it still marks an increase from the same period last year, when the median lot size was a modest 512sqm. The resulting price per square saw a marginal 1% decrease (-$4.50) from last quarter. This marks a more pronounced 11% drop (-$58.8) when compared to the same time last year.

Drouin and Warragul

Drouin and Warragul - Buyer Activity

For the second consecutive quarter, sales activity in Drouin and Warragul picked up; recording a quarterly high of 32 lot sales in Q1 2024.

This marks a 19% increase (+5 lots) from the previous quarter and an impressive 78% increase (+14 lots) compared to the same quarter last year.

Drouin and Warragul Vacant Land Stock

Lots Remaining at End of Quarter

Although the number of new releases in Q1 2024 fell below the peak seen in Q4 2023 (attributed to the launch of a new estate), a total of 27 new releases entered the Drouin and Warragul market during the quarter. Despite this, the market only saw a modest level of cancellations (5 lots), resulting in 287 lots on the market – marking the fourth consecutive quarterly increase and the highest level since Q4 2020.

Source: RPM Research, Data &

Stock Overhang

Drouin and Warragul Lot Price and Size

Despite increasing household cost pressures, the median land price held steady over Q1 2024 at $345,550, marking the highest on record since Q4 2023. This reflects a robust 7% increase (+$22,050) from the same quarter last year. While the median lot price remained unchanged, the lot size saw a marginal 4% increase (+24sqm) to a median of 577sqm.

From a developer standpoint, the price per square metre rate decreased by 4% (-$25) to $599 per square metre over Q1 2024. However, compared to Q1 2023, the price per square metre rate rose by a marginal 2% (+$14).

Macedon and Mitchell Shire

Macedon and Mitchell Shire - Buyer Activity

Following Q4 2023’s robust performance, the Macedon Ranges and Mitchell Shire region saw further improvements in Q1 2024, with 51 recorded sales. This represents a significant 70% increase (+21 lots) from the previous quarter and a notable 115% surge (+31 lots) compared to the same period last year.

Positively, the region seems to have transitioned from the construction phase to selling, as evidenced by an increase in active sales.

Macedon and Mitchell Shire Vacant Land Stock

Lots Remaining at End of Quarter

There has been strong growth in new releases with 66 lots entering the market in Q1 2024. This combination of new lots and some lingering discounted lots from 2023 likely contributed to the above-average sales rate seen this quarter. Unlike other regions in the state, elevated levels of cancellations were not observed here.

While new stock is entering the market, the slightly higher-than-expected sales in recent quarters have led to a reduction in stock on the market, which has fallen for the third consecutive quarter to 238 lots.

Source: RPM Research, Data &

Macedon and Mitchell Shire Lot Price and Size

From a pricing perspective, the region recorded a median price of $380,000 in Q1 2024 – marking a modest 5% gain (+$17,500) from the previous quarter and a notable 11% increase (+$37,600) compared to the same quarter last year. This median price is also the highest recorded since Q2 2022.

The median lot size decreased slightly by 5% (-32sqm) to 648sqm, aligning with figures from the same period last year. From a developer standpoint, the price per square metre rate saw a 10% increase (+$53) from the last quarter, reaching $586.

2024/2025 Budget Overview

Windfall Gains Tax

Land Transfer Duty (Stamp Duty)

Windfall Gains Tax (WGT) took effect on 1 July 2022 and is expected to generate $109 million in FY24/25, it is forecast to generate $112 million in FY25/26, and $118 million in FY26/27.

Stamp duty raised approximately $8.27 billion in FY23/24 and is expected to raise $8.52 billion in FY24/25, comprising 22% of total taxation revenue for that year.

Housing statement: Building and planning reforms

$20 million was allocated in the 23/24 State Budget to increase recourse for statutory and strategic planning. No additional funding was provided this financial year.

Aboriginal Cultural Heritage Management

The State Budget provides $69.3 million in funding for 2024-25 for Traditional Owner engagement and Cultural Heritage Management.

Land Tax

Land tax is expected to generate $6.52 billion in revenue for FY24/25, an increase of 7% over the previous financial year.

Growth area infrastructure contributions (GAIC)

The Budget shows GAIC revenue at $336 million for Fy24/25.

GAIC funds will reduce over the forward estimates, with the Budget estimating $250 million to FY27/28.

Funding for the Victorian Planning Authority (VPA)

The Budget provides $7.0 million over the forward estimates ($3.5 million in 2024-25 and $3.5 million in 2025-26) for the State’s strategic planning authority, to continue to deliver new masterplanned communities in growth areas and the regions. This funding is provided for the Unlocking new Communities and Affordable Housing workstream, on top of the VPA’s standard operating budget.

Property Taxes, Fees, and Charges

Government taxes, fees and charges comprise almost half of the cost of a new home in Victoria.

The property sector is already under immense pressure, with construction cost escalation, labour shortages, market volatility, high inflation and record interest rate hikes already leading to the high-profile collapse of a number of major industry participants.

Without a reduction in total property taxation, the cost of delivering new housing is only going to increase.

Greenfield Townhomes

Pictured: Burban Urban, Premier Release at Eliston East Quarter 49 Victorian Greenfield Market Report - Q1 2024

Greenfield Townhomes

Townhomes and smaller lots offer the dream of homeownership without the price tag of a detached house.

The typical new house mortgage in Greater Melbourne requires a monthly repayment of $5,750, while house and land packages incur a slightly lower $4,700 per month. Meanwhile, the average monthly repayment for a townhome or apartment mortgage is significantly lower at $3,350 – providing an achievable dwelling option amid challenging economic conditions for prospective buyers.

Recent monthly CPI data shows persistent inflation, particularly in essential goods, which is dampening earlier optimism for interest rate cuts. As a result, most experts agree that interest rates will likely remain unchanged throughout the year, while some even predict further increases. This sustained highrate environment has led to decreased access to mortgage financing for prospective buyers and higher repayment costs for existing homeowners.

Additionally, the ongoing immigration-driven demand and severe shortage of housing supply are continuing to push property values up. Consequently, this narrows the window for new and prospective buyers to enter the market, even though the lending rates have mostly remained steady. Mortgage repayment costs are also climbing, particularly for detached house purchases.

Labour shortages in Victoria are contributing to the rise in housing construction costs, adding further challenges for prospective buyers.

Amid this landscape, we have recorded a positive trend towards medium-density townhomes which offer an achievable middle ground between affordability and desirable housing features. These townhomes provide much-needed diversity in housing options, not only in established infill locations but also in key growth areas.

Luke Kelly

National Managing Director Project Marketing

Monthly Payment

Greenfield Townhomes (continued)

Minimum Repayments Per Month Based on Median Housing Costs

Unit H&L Package Source: RPM Research, Data & Insights $5,747 $3,331 $4,696 $0 $1,000 $2,000 $3,000 $4,000 $5,000 $6,000 $7,000

Greenfield Townhomes (continued)

As of Q1 2024, Melbourne’s seven combined growth LGAs saw the approval of 619 townhomes , with the largest numbers recorded in Wyndham and Casey areas. Although this figure is slightly below the average of 653 townhome approvals each quarter over the medium term, the approval rates varied across different local government areas, with some outperforming others.

One notable aspect of these approvals is the cost difference between townhomes and detached homes. The average approved townhome was valued at $343,600, while the average approved detached home was valued at $380,200. This modest price gap, despite townhomes offering similar functionality to detached homes, makes townhomes more affordable for a broader range of purchasers.

The affordability advantage offered by townhomes is key to their role in addressing the current supply shortage. Townhomes provide a cost-effective housing option, and their lower price point (compared to detached homes) makes them accessible to a wider range of buyers.

Despite recent challenges in construction labour costs, which have narrowed the price gap, townhomes remain the most efficient and appropriate means of increasing dwelling supply in these areas.

ABS Dwelling Approvals

Source: ABS Dwelling Approvals, collated and analysed by RPM Research, Data & Insights

Townhome Approval Progress - Melbourne Growth LGAs

Average Cost per Dwelling (Growth Areas)

Promising townhome approval rates in Melbourne’s growth areas

1 Consisting of Cardinia, Casey, Hume, Melton, Mitchell, Whittlesea, and Wyndham.

LGA

Cardinia

Source:

Victorian Greenfield Market Outlook

While the market remains highly volatile in the short term, the fundamental remains strong with the need for more housing.

Interest rate volatility returned in April 2024 after a period of stability due to Q1’s 0.96% quarterly CPI (Consumer Price Index) growth that exceeded expectations. This dampened the near-term inflation outlook, with the RBA (Reserve Bank of Australia) forecasting CPI growth will remain sticky at an annual rate of 3.8% over the year.

Persistent growth in cost-of-living expenses will continue to erode household finances, making it harder to save for property deposits. This is compounded by the approximate one-third reduction in borrowing capacity over the past two years. Additionally, higher inflation could offset some of the benefits of the upcoming stage 3 tax cuts set to come into effect in July 2024, diminishing the projected benefit to low- and middle-income households’ borrowing capacity by around 5%.

While there is a risk of further cash rate rises, it is important to note that the RBA kept the cash rate on hold at 4.35% at its May meeting and maintained its neutral stance towards the cash rate through 2024, not ruling out a movement either way. This is a change from the tightening bias position it held for much of the previous two years, indicating the current cash rate of 4.35% will remain for a longer period – pushing back potential interest rate cuts.

Nevertheless, the possibility of rate rises may unsettle purchaser confidence in the short term; potentially halting the recovery in sales activity observed in Melbourne’s growth areas this quarter.

Looking ahead, demand fundamentals for the new home market remain strong. Record net overseas migration in FY22/23 and FY23/24, along with robust population growth, low unemployment figures, and wage growth have contributed to a growing pool of pent-up purchasers eager to purchase a property. This is expected to happen from late 2024 or early 2025, as all major banks forecast an easing monetary policy cycle starting in November.

The value proposition of new homes in Melbourne’s greenfield areas remains challenging, although trends from Q1 are promising. The land-to-house price ratio in Melbourne improved to 41%, still above the equilibrium ratio of 35%. Stronger property price growth in other metropolitan centres such as South East Queensland and Perth have narrowed their affordability advantage over Melbourne, which could reduce net outflows to these areas in the future.

Michael Staedler General Manager Research, Data & Insights

The new home market will remain vital to the State Government’s plan to construct 80,000 new dwellings annually over the next decade, with more readily available supply to immediately satisfy current demand. This will be supported by the 2024/25 Budget’s additional $700 million allocation to the Victorian Homebuyer Fund, with property caps of $950,000 in Metropolitan Melbourne and $700,000 in Regional Victoria. These measures accommodate most new house and land packages currently being marketed.

Our Team

Research, Data & Insights

Michael Staedler

General Manager

Research, Data & Insights m.steadler@rpmgrp.com.au

Andrew Raponi

Research Manager a.raponi@rpmgrp.com.au

Laurence Rao

Senior Research Analyst - VIC laurence@rpmgrp.com.au

Simon Brinkman

Senior Research Analyst - QLD simon@rpmgrp.com.au

Executive, Sales and Marketing Leadership

Gary Dunne

Chief Executive Officer

gary@rpmgrp.com.au

Luke Kelly

National Managing Director

Project Marketing luke@rpmgrp.com.au

Rod Anderson

National Managing Director Communities rod@rpmgrp.com.au

Peter Grant

National Managing Director Business Development peter@rpmgrp.com.au

Tim Hyland

National Strategy Manager Transactions & Advisory tim@rpmgrp.com.au

Imogene Schaefer

General Manager

Marketing imogene@rpmgrp.com.au

Michael Vilar

General Manager

Medium Density michaelv@rpmgrp.com.au

Greg Rankin General Manager Communities gregr@rpmgrp.com.au

Johnathon Driessen General Manager Communities johnathon@rpmgrp.com.au

Unlocking Australia’s Property Landscape

For detailed insights or custom reporting, contact the team at: contactus@rpmgrp.com.au

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