Rising interest rates are keeping the lid on demand for house and land packages and land values across Queensland could fall as much as 10% in 2007, according leading property analyst Michael Matusik.
In his latest Snapshot, Matusik’s research showed new house sales across QLD fell by 22% during September, 2006.
In contrast, private housing approvals are on the rise, pointing to a potential over supply of new stock on the market.
Latest research shows that approved supply has increased from 19 months during the 2003 property peak to 35 months as of late last year.
Matusik said figures from the QLD Government showing an almost doubling in approved supply levels indicate that there is an adequate supply of subdividable urban and across Queensland for the next three years.
“We anticipate a 5-10% fall in end land values during 2007 across most of Queensland’s urban markets. This fall could be even greater if interest rates rise further early next year.
“The last time we saw a similar divergence between land and supply was in the early 1990s,” he added.
He added that the August rate rise was only just beginning to reverberate into the house and land sector, with the 22% reduction in sales volume providing evidence of the effect of the rise on the market
Matusik said house and land developers are facing a market ‘crunch’ as demand slows despite the high prices developers are paying for raw land.
“Larger developers were paying high prices for raw land, including a recent transaction in which a developer paid between 30 and 40% above market value.
“Paying this sort of money is fine assuming land values grow but recent history suggests that with a somewhat loose supply, end values are likely to remain subdued at best over the next couple of years,”
Matusik said during the 12 months to September 2006, land values across urban Queensland rose by just 4% to average just $189,000 across the state.
He added that there was also anecdotal evidence of land developers offering incentives to move their stock.
“These have taken several forms from the increase of allotment sizes. So while the end prices have risen, the per square metre rate has remained stable, or in many of the more expensive markets it has actually dropped.
“Major players are also offering financial solutions to buyers, capping rates during building periods, excluding progress payments and even offering interest only deals. With new home buyers, and particularly first timers, extremely sensitive to a lift on end values, sales are drying up,”
Matusik said some developers had recently been required to engage more builders, with this market taking 15% of the land sold last year, compared with 7% the year before.
By Nelson Yap
