Boost to residential land market

Article Category: Property & Housing

By Broker News,, 30 October 2010

A revival in new lot production across major centres in Australia from 2011 to 2012 is being predicted by BIS Shrapnel’s new report, Outlook for Residential Land, 2010 to 2015.

The report highlights the “hangover” from the expiry of the First Home Owner’s Boost, higher interest rates in 2009 and 2010 and the widespread impact of the GFC.

 However, it indicates new house and land activity should improve in 2011-2012 courtesy of an undersupply in most markets, more stable interest rates and stronger economic conditions, according to BIS Shrapnel.

 The First Home Owners Boost had a large impact on new lot production during 2009/2010, says Angie Zigomanis, BIS Shrapnel senior project manager and report series author. He notes first home buyer demand in now down on 2009 levels, and overall demand for new houses moderated through 2010.

“The combination of the expiry of the First Home Owner’s Grant Boost Scheme at the end of 2009 and the 1.5 percentage point increase in the cash rate between October 2009 and May 2010 has reduced turnover of dwellings and consequently demand for new houses,” says Zigomanis.

“However, the impact is expected to be only temporary as the market works through the ‘pull forward’ effect created by the scheme. We expect first-home buyer demand will return to normal levels throughout 2011.”

Lot production in Melbourne and Adelaide markets reached long-term highs in 2009 and 2010, notes the report, however, it was much slower in South East Queensland markets of Brisbane, the Gold Coast and the Sunshine Coast due to a weak state economy and tight lending conditions for developers.

BIS Shrapnel also predicts an extended upturn in demand for new housing.

“Pent up demand and rising employment and income growth from recovering economic conditions should help confidence return after the recent interest rate rises,” says Zigomanis. “This will stimulate activity in housing markets and consequently land markets. Nevertheless, the upturn will vary nationally, depending on overall affordability in each market, and the level of pent up demand.”

It was noted that rising interest rates would impact all markets and a forecast peak of 9.1 per cent n 2012-2013 will have a negative impact on residential demand and the economy.

Average Annual Lot Production by Region: