Harmandeep Dhillon, the director of Raine & Horne Land Victoria, has predicted the a 20 per cent price bump over the next 12 months, warning that the Victorian government has no current plans in place to release new residential land.
“At the same time, record-low interest rates are fuelling demand for land from upgraders and first-time buyers,” he acknowledged.
Mr Dhillon said Melbourne’s northern corridor is being particularly hard hit by the scarcity issue – and it is having the effect of driving first home buyers out of the sector.
According to Raine & Horne, while first home buyers have various government support such as the $10,000 First Home Owner Grant (FHOG) and the First Home Loan Deposit Scheme that enables them to build a home with a 5 per cent deposit, land and building costs are pricing them towards established properties.
“The shortage means vacant land values are up 18-19 per cent, while this situation is amplified by a 25 per cent increase in the cost of some building materials such as timber,” highlighted the director.
While first-timers are still in the land market, Mr Dhillon has noted that now, “it’s more second-home buyers who are seeking to upgrade into brand new homes”.
“Last year, land cost around $830 per square metre to build, now it’s closer to $950-$970 per square metre, and it’s this rise, which is pricing out first-timers.”
But it’s not just second-home buyers who are looking to snap up land. The director is witnessing increasing attraction to land by investors who are seeking rental houses away from the city centre, with tenants preferring houses after spending so much time in lockdown.
Mr Dhillon said: “This rental demand is pushing up weekly rents across Melbourne’s metropolitan fringes, which means plenty of new housing stock is earning decent yields with many new properties positively geared in new suburbs in Melbourne’s growing western corridor.”
This is all occurring against the backdrop of far stronger consumer sentiment in 2021 as compared to the first lockdowns of 2020.
“When COVID hit last year, no one wanted to buy land and were a bit spooked. But this year, people realise that once borders and markets reopen, prices will start to skyrocket again, especially due to the supply constraints,” the director highlighted.
According to Raine & Horne, it’s a combination of issues that’s leading to the supply issues.
For example, councils aren’t keeping pace with the demand for services created by new housing developments, which is slowing the speed of new land releases, it suggests.
Mr Dhillon said there are also broader planning concerns with the Victorian government committed to protecting Melbourne’s green wedges between new developments.
However, many farmers on Melbourne’s outer fringes are keen to sell – despite government’s standstill.
The director called it an ironic situation, given “many farmers on Melbourne’s outer fringes are keen to sell their properties as they either wish to downsize or are being forced out by onerous land tax levies”.
“Council rates are another issue that is forcing many to consider selling their farmlands, but due to a lack of infrastructure, they are unable to sell.”