Residential land market to pick up in 2013 as property recovers, BIS Shrapnel report predicts

Demand for residential land has begun to pick up in Sydney, Perth and areas of Queensland, with other positive indicators for the year ahead, according to the latest results of a new BIS Shrapnel survey.

The results also come alongside another pleasing week of auction clearance rates – both factors are yet more evidence the residential property market is getting back on its feet.

According to the BIS Shrapnel Outlook for Residential Land, 2012 to 2017 report, several parts of the country are set to experience a rebound – although Melbourne and Adelaide won’t be speeding ahead with the rest of the country.

The weaker market conditions in Sydney, Perth, Brisbane, along with the Gold and Sunshine Coasts, have created the perfect opportunity for upturns.

For instance, in outer Sydney, there were just 2,809 lots produced annually, on average, between 2007 and 2012. The 2012-2017 forecast is for 5,870 lots.

Brisbane lots are expected to increase from 5,372 to 5,560, in Gold Coast from 1,494 to 2,280 and in the Sunshine Coast from 1,652 to 1,820. In outer Perth, annual production is expected to increase from 7,633 to 11,280.

But in Melbourne, production is actually expected to decrease – from 16,917 to 12,340. Adelaide production is also expected to fall from 2,962 to 2,320. The decrease isn’t so much a sign of receding conditions, but a step back following a sharp recovery after the global financial crisis.

BIS Shrapnel senior manager and report author Angie Zigomanis says early signs of better conditions, such as lending activity, have begun to emerge in 2012.

“The rise in loans for new dwellings, although modest so far, suggests that a recovery in demand for new houses and land is beginning to emerge in these states,” says Zigomanis.

“Moreover, the rising first home buyer demand, which itself does not necessarily translate directly to new house demand, will allow upgraders to more easily sell their existing dwelling and purchase a new house.”

The recent production in Melbourne and Adelaide, Zigomanis says, was “unsustainable”.

“Conversely, the factors that drove the downturns in the other cities now exist in Melbourne and Adelaide and it will be their turn for demand for land to experience a period of weakness.”

With the likelihood that interest rates will continue to decline in 2013, a stronger demand for construction will come in 2013-14, BIS Shrapnel says.

“The forecast recovery in residential building nationally is expected to take over as the main driver of the Australian economy as resource investment begins to wane, and the continued economic growth will be conducive to residential demand, with lot production rising to a peak in 2014/15.”

The good news comes alongside continued positive results from the auctions market.

Melbourne recorded a clearance rate of 61% compared to 51% for the same time last year – REIV chief executive Enzo Raimondo said in a statement the continued good results are “helping to build confidence and should provide the foundations of further improvements in the new year”.

In Sydney, the city recorded a clearance rate of 59%, compared to 58% last week and 53% last year.

The construction industry has continued to record several building company collapses as conditions remain soft.