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Undercurrent of confidence in Melbourne new housing and apartment markets

Property Observer

Property Observer
By Larry Schlesinger
30th May 2013

An undercurrent of activity suggesting improved confidence appears to be emerging in the Melbourne new housing market.

A number of Melbourne apartment developers are reporting strong sales in the first quarter of the year on the back of continued investor demand while a modest recovery appears underway for Melbourne’s struggling house and land market.

Researchers Oliver Hume report there is now a Melbourne apartment development pipeline of 35,700 units.

It finds that 27 new projects have launched in the first three months of the year.

According to Oliver Hume, there are 290 active projects across Melbourne with 22,850 units under construction, the Australian Financial Review recently reported.

Despite the seeming glut of projects, developers appear confident that investors will be buoyed to buy off the plan spurred on by low interest rates and improving confidence about the housing market.

The most recent Westpac-Melbourne Institute index report showed that sentiment about the housing market defied the overall drop in consumer confidence with the ‘time to buy a dwelling’ sub-index lifting 11.2% in May to be up 20.7% over the past 12 months.

In March property development group Little Projects reported that it had sold all 388 apartments in its ILK South Yarra development just as the building topped out at 24 storeys.

Lend Lease reported last month that it had sold 75% of the first stage of its redevelopment of the former channel nine studios in Richmond.

Lend Lease’s Ben Coughlan says there has been an even split between investors and owner occupiers in the development.

In February, Mirvac  reported that it has sold just over half of the 205 apartments in its Array residential tower in Melbourne’s Docklands following six months of marketing them off the plan.

Salvo Property Group managed around 200 off the plan sales in its Platinum 52-level apartment building to existing clients and overseas buyers, set for construction in Melbourne’s Southbank, ahead of its official launch.

Asked about headlines suggesting an oversupply of Melbourne apartments, chief executive Mario Salvo noted “we are almost halfway in our sales and we haven’t had a retail launch.”

“Why should I feel there is oversupply?

“I don’t see the gloom.”

In Melbourne’s struggling land market, the March quarter National Land Survey Program (NLSP) produced by Charter Keck Cramer and Research Four, shows signs of a fledgling recovery, albeit from a very low base.

“Melbourne new land market looks like it will see an increase in the volume of lot sales for the March 2013 quarter, said Research Four.

“Performance is patchy but at an aggregate level is slowly increasing.”

The recovery in Melbourne comes on the back of national land prices have bottomed out.

Melbourne median lot price are now $199,000 compared to a peak of $222,000 in June 2011.

Lot sales continued to decline in the major Melbourne centres but at a much slower pace in the last six months following a dire September quarter which found that 30% of Melbourne greenfield land had been returned by building companies to developers.

Charter Keck Cramer director Robert Papaleo told a Urban Development Institute of Australia (UDIA) breakfast last week that the performance of Melbourne’s greenfield market in the March quarter of 2013 “has improved slightly from its cyclically-low through late 2012”.

While the Melbourne market remains “far weaker than its peak in 2009-10” he says the Melbourne greenfield market is “now showing tentative signs of moving into an early-recovery phase through the second half of 2013”.

“The extent of recovery however will remain modest in the near term, Papaleo says.

“Consumers of new land in Melbourne’s growth corridors, which includes first-home buyers as well as upgraders, are still demonstrating subdued confidence because of weaker economic conditions across Victoria and associated job uncertainty.

Papaleo pointed out that Melbourne had up until two years ago led the nation in terms of the production of greenfield lots and new housing.

“Results from the National Land Survey Program showed that Melbourne achieved a share of more than 40% of all greenfield lot sales across the major capital cities in 2009-10 but the latest March 2013 quarter survey highlighted that Melbourne’s share had fallen to 15%.”

“Significantly, despite its longstanding position of dominance, Melbourne’s most recent sales performance now ranks as fourth highest behind Perth, Sydney and South-East Queensland.”

“Signs of impending recovery include the reduction of lot prices to meet customer expectations as well as further recent reductions to already-low interest rates and the re-alignment of the first home buyers grant by the Victorian Government to the construction of new homes.

“These factors should lead to moderately higher sales activity through the second half of 2013,” he says.

According to Papaleo, the greatest impediment to recovery remains “confidence in the Victorian economy and employment uncertainty over the near term”.

In response to the downturn, the National Land Survey Program found that the development industry response has resulted in lower lot, fewer and smaller new stage releases and innovations to housing design to maintain affordability.

A number of large master planned projects are expected to be launched through 2013 and 2014 following a long planning lag.

These types of projects should lift over sales activity but could “cannibalise opportunities for smaller developments”.

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