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DEVELOPERS can look forward to another strong year in residential land sales, although they need to balance new supply, allotment sizes, infrastructure costs and increasing levies to maintain their margins, according to the latest Australian Property Institute (API) Herron Todd White Residential Land Subdivisions Update.
Herron Todd White director, residential development division and API spokesperson Paul Wheate said despite a continuing trend for smaller allotment sizes, Melbourne retain its affordability compared with other capital cities.
Wheate said land prices would remain high in Sydney through 2016, whilst allotments in Melbourne’s key growth corridors around transport routes and key infrastructure will retain their relative affordability.
“Allotments in Melbourne’s growth corridors are available at around $200,000-$220,000 whereas similar allotments in Sydney will cost around $400,000-$450,000, suggesting that Melbourne remains a great proposition to acquire affordable land for either first homeowners, upgraders or investors,” he added.
Wheate said the difficulty developers currently have is to ensure they can produce the allotments and deliver the final product within the time-lines stipulated by ‘sunset’ clauses in the pre-sale contracts.
“Coming off 2015, many developers experienced a significant increase in the absorption rate for allotments, however some are also now seeking to increase prices in order to slow the rate of sale and maintain better control over their future allotment delivery obligations given demand is currently so strong,” he said.
Wheate commented that this scenario, where there is readily available allotment supply, sufficient resources to construct the roads, provide the services and deliver the allotments, there is a slowing in the rate of growth in prices and developers are able to maintain development returns, will provide a compelling “win-win” situation in the market.
Developers’ margins are also coming under increased pressure, bringing several key issues into focus, primarily being development costs, which Wheate said are becoming a larger hurdle for developers nationwide.
“The difficulty with that is you’re talking about smaller allotments being developed remotely from key amenities along normal growth corridors – developers are being required to do this in order to meet the ongoing contributions they need to make to Councils and to state governments through different infrastructure charges. There is biodiversity levies and development contribution levies that have to be paid so allotments tend to be getting smaller to deliver a more affordable block.
“In Melbourne the cost involved in delivering a typical allotment is around $100,000, whereas in 2007 this was around $35,000 per block. Development levies and charges are now contributing up to $65,000 per lot to the cost of producing an allotment and new home.
“In Sydney, developers face costs which can range from a total of $60,000 per allotment to $120,000 per allotment, likewise Perth, whilst Brisbane and Gold Coast developers face costs of around $100,000 per allotment,” he added.
Meanwhile Wheate said the trend nationally is for smaller allotment sizes, allowing developers to achieve increased allotment yields, offer more product diversity and maintain development margins, would carry through 2016.
“Residential lot sizes are an average of 448 sqm across the growth corridors of metropolitan Melbourne. There’s been an ongoing growth in the number of 300 sqm to 400 sqm allotments, predominantly driven by affordability issues – that is, developers trying to deliver a product that is around a price point of $200,000 per allotment which then allows a house to be erected for circa $150,000, achieving a ‘house and land’ cost in that $350,000 sweet spot.
“Likewise in Sydney, allotment sizes are decreasing across the market, which now has a general acceptance that blocks will be less than 500 sqm in area,”
Brisbane allotments have also reduced in size, driven primarily by Councils allowing denser levels of development, whilst the Gold Coast has seen average lot sizes reduce from around 600 sqm to 400-450 sqm.
Similarly, allotment sizes in Perth have decreased over the past 10 years, which has assisted in easing local affordability issues, and now the market accepts that smaller allotment sizes have become the “new normal”.
A large pipeline of demand spurred by strong net overseas migration and natural population growth, particularly in Victoria, will continue to drive growth in sales after more than 12,000 allotment sales were transacted in the state in 2015 – the market’s best ever annual sales performance.
“There’s usually a lag of some 12-18 months after an increase in population prior to an increase in demand for allotments, and that’s what we’re currently seeing after an influx of people, particularly via net overseas migration, over the last couple of years,” Wheate said. “We’ll continue to see that steady demand for land through 2016.”
Australian Property Journal
