WHILST THE FUNDAMENTALS FOR A CONTINUED UPLIFT IN PROPERTY ACTIVITY ARE STRONG, PROPERTY MARKET MOMENTUM WILL BE MAINTAINED AND EXACERBATED BY EMOTIONAL FACTORS
Strong economic growth, record population growth, a tight rental market, decreasing mortgage costs, falling property listings; the list could go on. Even though the land development industry is largely not optimistic, these fundamentals are already having a dramatic effect on demand for vacant land.
In Perth and Peel, for example, twice as many new vacant lots were sold in the three months to September 30, 2012 compared to 12 months ago; stock levels have fallen to their lowest level in nearly three years; and lot construction intentions are at their highest level since late 2010.
While the recovery in the residential development sector has largely been attributable to these aforementioned fundamentals, property market momentum will be maintained and exacerbated by emotional factors.
By emotion, I particularly mean expected emotions. For example, if Roger, a potential buyer, were deciding whether to purchase a property, he might imagine the disappointment he would feel if the property lost value, the elation he would feel if it gained value, or the regret he might feel if he did not purchase the vacant lot and it rose in value.
With fundamentals seemingly strengthening or remaining strong, and demand for land increasing, many potential buyers will begin to worry that they will miss out, and others will be rubbing their hands at the prospect of significant capital growth.
This time, however, don’t expect a boom a la 2003-06.
The upside risk will be moderated by more risk averse lenders and regulators, and consumers’ preference to reduce their already high levels of debt. Exuberance will also be constrained by contractionary fiscal conditions and the prospect of resource investment easing over the next few years.
Products in the affordable sub-$250k range will be particular attractive over the next six months. Once the outlook of capital growth improves, demand for lots targeted at the upgrader market will intensify.
Whether you like it or not, emotion will again be a driving factor behind increasing demand for vacant land in WA.