Land supply to increase as economy recovers, BIS Shrapnel predicts

More residential land will be released for development over the next five years, easing shortages in areas such as south-east Queensland and Sydney, forecaster BIS Shrapnel predicts in a new report.

The news comes as auction results have remained steady in the capital cities over the weekend, with one expert predicting clearance rates will remain that way until the end of the year – depending on where interest rates move tomorrow.

The new Outlook for Residential Land 2010 to 2015 report claims that higher population growth, more stable interest rates and strong economic growth will cause lot development to increase over the next five years.

Report author Angie Zigomanis says the First Home Owner’s Grant contributed to lot production, but since that stimulus has been taken away development has fallen.

However, he also says this is only a “slight pause” in development, and that higher incomes, more stable interest rates and higher consumer confidence will increase demand for land, especially in underdeveloped areas where shortages are affecting prices.

“We are expecting lot production to be at a higher level. We have a higher rate of population growth, and given the level of underbuilding over the last two or three years, there’s a catch-up that’s going to take place.”

“I think in places like Melbourne and Adelaide, lot production is quite good. But places like Sydney are coming off low bases, and Brisbane is a similar case.”

But while Zigomanis says higher production of lots should allow those supply/demand issues to ease, naturally bringing down price growth, he also says that prices won’t be heavily impacted as a result.

“Provided land production does increase, it will offset those shortages and help to take pressure off prices. But having said that, we’re expecting interest rates to reach peak in 2012 and that should keep prices higher.”

Sydney

BIS claims lot production in Sydney fell from a peak of 9,000 lots in 2000 to an average of 1,7000 during 2005-06 and 2008-09. However, Zigomanis says land production increased to 3,000 lots during 2009-10, with developers being assisted by reduced government levies.

BIS also predicts that demand for new lots will be underpinned by a shortages across the city, with lot production to rise to 7,200 by 2012-13 as outer Sydney takes up construction of new dwellings.

Perth

The firm claims lot production peaked at 12,300 2005-06 but has since fallen due to falling affordability, exaggerated by the impact of the financial crisis. But first home buyer incentives and increased confidence due to the mining boom will put land production back to 12,600 lots in 2012-13.

Brisbane

Recovery in Brisbane and south-east Queensland is expected to be dragged out over some time, with BIS saying the next round of investment in resources projects isn’t due until 2011-12. However, lot production is expected to rise from 8,500 to 12,300 by 2012-13 as growth recovers from the GFC.
Gold Coast

The Gold Coast recorded a peak of 3,500 lots in 2006-07 but the area has been badly hit by the financial crisis, with demand also falling due to strong house price growth in 2008. Developers are predicted to remain under pressure during 2011, but BIS says lot production will increase to 3,800 by 2012-13, the highest rate since 2004.

Sunshine Coast

The Coast’s lot production fell to 2,300 lots in 2007-08 due to lower demand and reduced interstate migration. But lot production will increase as tourism picks up, along with empty nesters being tipped to move for retirement. Lot production is expected to hit 3,100 in 2013-14.

Melbourne

Zigomanis says Melbourne is actually providing enough land, compared with other areas. Lot production in the outer suburbs peaked at 18,600 lots in 2008-09.

“The key difference has been Melbourne’s more affordable land prices, which are lower than the other eastern state capitals. This has made new housing more affordable, which has in turn encouraged greater demand for new dwellings instead of established stock,” Zigomanis says.

BIS actually predicts lot production won’t increase much, due to demand staying fulfilled through a high level of development. However, higher population growth will keep production at about 18,000 lots per year before 2012, when interest rates will slow demand slightly.

Adelaide

Similar to Melbourne, BIS says lot production in Adelaide has increased from 3,000 to 4,000 over 2008-10. Solid economic growth will keep lot production at that point until 2012 when interest rates rise.

Meanwhile, auction clearance rates held up well over the weekend, especially in Melbourne, where a heavy rain failed to keep buyers away. The Real Estate Institute of Victoria claimed 67% of houses sold out of the 354 on the market, with a total sales value of $161 million, with the lower volume due to the upcoming Melbourne Cup holiday.

“The inclement weather did not affect demand at this weekend’s auctions, with a clearance rate of 67% recorded. This is a good result in light of the fact that this weekend had a higher number of auctions than the comparable weekends in the past five years.”

Sydney recorded a 54.8% clearance rate, with 214 properties up for auction. Adelaide recorded a 47.1% rate out of 32 properties on the market, while Brisbane also recorded 19% with 21 auctions.

SQM Research founder Louis Christopher says these are the types of results we should be expecting for the rest of the year.

“It’s the same old, really. As we predicted Sydney has now moved into the mid-50s, and Melbourne is in the 60s as well. These are the results we should be expecting in the lead-up to Christmas, with higher listings to impact the market as well. They should peak towards the end of this month.”