AS WE HEAD INTO SPRING AND HOPEFULLY THE RAIN STARTS TO EASE OFF, IT IS TIME TO HAVE A CLOSE LOOK AT WHAT IS GOING ON IN THE LAND MARKET
Whilst Perth developer land sales down 6 per cent in June quarter they remain 44 percent above ten-year average. This has driven down the level of stock on the market in Perth by 24.7 percent over the three months to June 30 and 45 per cent over the past 12 months.
This has flowed through to construction where there are 30 percent more homes currently being built in WA than there were a year ago. First home buyers also remain strong in the WA market, 15 percent more than this time last year.
The current challenge for developers is keeping the supply up to the market. The number of lots developers had on the market as of June 30 was down 25 per cent over the quarter and 45 per cent compared to 12 months earlier. Approximately two-thirds of the 78 active developments in Perth had less than ten lots on the market.
At this stage, stock levels are not expected to fall to 2005/06 lows. There is still more than twice as much land available compared to the peak of the boom last decade and developers in Perth are expected to increase the number of lots brought to the market in the second half of this year.
Five new greenfield projects bringing land to the market over the next six months will help, but any noticeable easing of supply pressures in Perth is more likely to be driven by reduced demand rather than any significant lift in supply. Developers are already bringing lots to the market at a considerable pace, with nearly all lots selling months out from titles (some up to nine months from titles).
Although mortgage rates are low and declining, if land prices lift substantially, first home buyer demand will recede. Continued upward momentum would then rely on sales to second and third home buyers and, to a less extent, investors growing faster than the first home buyers recede. To date, this seems an unlikely scenario so price growth will probably be moderate in the land market in 2013/2014 rather than explode upwards as it did during the last boom.
Perth remains one of the standout property markets in Australia but don’t expect massive price growth. A steady pace is always best.