Michael Grochowski – Land sales up and prices remain firm

Recent data shows that the volume of vacant land transactions has risen for two successive quarters, despite the fact that overall volumes are still sluggish. But this needs to be offset against the reality that land values have not fallen and will not fall in the future.  Large areas of prime residential land in growth corridors of our major and regional cities are continually being acquired by developers.  By controlling land ownership, these developers are in a very strong position of set and maintain price controls over land in residential housing estates

In a recent article published in the Australian Financial Review (12 July 2012), Ben Hurley explains what is happening

The volume of residential land sales has increased nationally but remains at near-historic lows, according to an industry report. In the three months to March, land sales increased by 6.8 per cent, according to the Residential Land Report, a joint effort between the Housing Industry Association and property information provider RP Data.

“It’s encouraging that the improvement was broadly-based across the states,” HIA senior economist Andrew Harvey said.”  With the exception of Adelaide, all the capital cities saw increases in the number of residential lots sold.

“However, the overall level of sales remains low in an historical context and we will need to see more quarters of growth to infer anything other than the possibility that sales volumes are merely bouncing along the bottom of a deep trough.”

RP Data research director Tim Lawless said the volume of vacant land transactions had risen for two successive quarters but remained at a low level.

Sales over the March quarter were half the volume of the three months to September 2009.

“Considering mortgage rates have moved about 55 basis points lower since March it is possible we may see a continuation in this trend of improving buyer activity but we have a long way to go before land sales get back to what might be described as normal levels,” Mr Lawless said.

“One of the barriers that may be stifling demand for vacant land is the fact that land prices haven’t seen any sort of correction like what was recorded across the established housing market.”

Land prices rose around 1 per cent over the year nationally and 3.5 per cent across the capital cities, he said.

The weighted median residential land value in Australia increased 1.5 per cent over the March quarter to $195,466, and the capital city median value by 2.6 per cent to $222,458.

Michael Grochowski

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