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Price of land for new homes rises in Australia despite a fall in demand

The price of land for new residential building has continued to rise in Australia despite a fall in demand for new build homes, according to the latest research.

The March 2019 edition of the HIA-CoreLogic Residential Land Report provides updated activity in 47 markets across Australia, including the six state capital cities and shows that land lot prices increased by 0.8% in the third quarter of 2018 to $279,949. Over the same period the number of residential land lots sold fell by 16.2%.

‘After five years of exceptionally strong sales activity, a credit squeeze and a loss of market confidence led to a rapid fall in new home sales and approvals. This slowdown is evident in land sales and unfortunately the fall in demand has not yet resulted in a fall in price,’ said Tim Reardon, HIA chief economist.

‘The impact of the fall in demand for new homes and the rise in land prices places additional pressures on the new home market and could further impede activity in the home building market,’ he added.

According to Tim Lawless, CoreLogic’s research director, the reduction in settled land sales is most evident across the Sydney and Melbourne markets where broader housing market conditions have been weakening since the middle of 2017.

‘Despite the substantial drop in activity, land prices are falling at a much slower rate than housing prices in Sydney, while Melbourne land prices on a rate per square metre basis are substantially higher than a year ago compared with a 9.1% drop in dwelling values over the past year. The resilience of land prices relative to the wider market likely reflects the scarcity value of well-located vacant land in these cities,’ he pointed out.

Meanwhile, the latest data from the Australian Bureau of Statistics show that building approvals increased in January, but the cooling trend continues ‘Building approvals rose in January offsetting some of the significant drop experienced in December 2018 as he impact of the credit squeeze continued to affect the housing market,’ said Reardon.

A breakdown of the figures show that building approvals rose by 2.5% in January, but were up 3.8% for apartments and up 1.9% for houses, but they are 28.4% lower than in the same period the previous year. “

‘Market confidence fell away in 2018 as dwelling prices corrected, adversely impacting all segments of the market. Investors and owner-occupiers are delaying purchase decisions and foreign investment has also fallen dramatically for numerous reasons,’ Reardon explained.

‘An additional and unanticipated factor that emerged in 2018 was the credit squeeze created as banks reduced the amount of money they are prepared to lend each customer. The impact of the credit squeeze is expected to moderate over the first half of 2019, as the market adjusts to these new limits.,’ he pointed out.

‘Despite the small increase this month, the pipeline of building work is now being reduced as the number of approvals slowed through the course of 2018,’ he added.

The biggest increase in approvals was 28.8% in Western Australia, followed by a rise of 15.4% in Tasmania and a rise of 12% in New South Wales. All other states recorded declines with South Australia down by 1.5%, Queensland down 3.5% and Victoria down 7.9%. Trend data in the Northern Territory was down 8% and in ACT down 19.8%.