This article is from the Australian Property Journal archive
THERE are early signs that the housing market is turning around, according to residential property developer AVJennings CEO Peter Summers.
Speaking at the company’s annual general meeting, Summers said most state governments have recently introduced significant incentives to stimulate the housing market and importantly, they are targeted at the affordable segment of the market.
“Changes in government in New South Wales and Queensland have led to some improvement in confidence that restrictive planning laws and procedures will be overhauled. Some progress is already evident in NSW. Such improvements are critical to tackling affordability. Flat pricing over recent times has also improved affordability, particularly in NSW and QLD.
“In our business we have noticed an increase in visitor flow in many projects. It is early days, but perhaps this is the start of a change in the wind.
“Perhaps we are seeing some green shoots begin to emerge. For our part, we plan to be ready when that occurs,” he continued.
Looking ahead Summers said AVJennings is focussed on rolling out new products. The company has approximately 12,000 lots in the pipeline and will start work on key projects namely Cobbitty (466 lots) in south west of NSW; the Mill Apartments at Eastwood Sydney (255 lots); Eyre at Penfield in South Australia (1,750 lots); and Hobsonville project (602 lots) in Auckland in New Zealand.
Meanwhile BIS Shrapnel’s Outlook for Residential Land, 2012 to 2017 report series, is predicting that demand for residential land will increase in Sydney, Perth and south-east QLD, on the back of low interest rates and dwelling deficiency. However lot production in Melbourne and Adelaide will remain weak.
BIS Shrapnel senior manager and report author Angie Zigomanis said the recent protracted weakness in the Sydney, Perth and Brisbane markets – and to a lesser extent the Gold Coast and Sunshine Coast markets – has created the conditions for an upturn.
“Low new dwelling construction has resulted in a rising underlying dwelling deficiency, while affordability has improved considerably due to the combination of the weakness in house and land prices and lower interest rates.
“In contrast, despite the lower interest rate environment, demand for land in 2013 is expected to remain subdued in Melbourne and Adelaide. These two markets experienced the strongest residential rebound after the Global Financial Crisis (GFC), and the consequent combination of high levels of land production and solid land price growth has meant that there is little pressure on the demand for new houses and land.
“The declines in lot production in the Melbourne and Adelaide markets reflect activity falling from unsustainable record levels, while the weakness in the other cities were the result of excess supply, weak underlying demand, and constrained affordability after land prices had peaked in earlier years,” he added. “These issues are now starting to wash through, with the recent declines in interest rates expected to be the trigger for a pickup in demand into 2013,”
Zigomanis said in the medium term, the timing of the next interest rate cycle will influence the level of growth and length of the market upturn in the residential subdivision markets.
“The forecast recovery in residential building nationally is expected to take over as the main driver of the Australian economy as resource investment begins to wane, and the continued economic growth will be conducive to residential demand, with lot production rising to a peak in 2014/15.
“However, current land price levels mean that some new home purchases will remain out of the house/land market, opting for smaller, and more affordable, attached dwellings instead,”
“As a result, lot production is forecast to end up well below its previous peak in Sydney and south-east Queensland and on par with the previous peak in Perth. By this time the Reserve Bank is expected to become increasingly concerned about inflation and begin to adopt a tightening stance.
“The consequent rises in the cash rate are forecast to take the standard variable rate to 8.1% by 2015. This will have a negative impact not only on residential demand, but the economy as well, with residential activity forecast to enter a downturn over 2015/16,” Zigomanis said.
In Sydney, land affordability is not expected to improve to the levels of the start of the 2000s, when lot production peaked at 9,000 lots per annum. Production is forecast to peak at 7,000 lots by 2014/15, with the shift to less expensive medium and high-density dwellings, and infill and knockdown development in established areas being maintained.
Lot production in Perth (including Mandurah) is consequently forecast to rise and peak at 13,600 lots in 2014/15 – around the same level as the 2005/06 peak – as population growth in Perth finds its way into the new dwelling market.
In Brisbane modest growth lot production is anticipated in 2012/13 before accelerating in 2013/14. However, forecast rises in interest rates over 2014/15 will begin to curtail the upturn before it can gain too much momentum, with lot production in outer Brisbane forecast to rise to a peak of 6,100 lots in 2013/14; still below the peak in lot production in 2007/08.
On the Gold Coast, a pick up in lot production is gaining momentum as the state economy continues to improve, rising to a forecast peak of 2,800 lots in 2014/15. While this is more than double current levels, it is well below the peak of 2006/07. The recent price declines on the Gold Coast have seen affordability improve, but it remains an issue and a forecast peak in interest rates in 2015 will cut off any upturn before it can fully play out.
The upturn in lot production in the Sunshine Coast market is expected to be slow, rising modestly in 2012/13, before stronger growth in the subsequent two years. Lot production is forecast to peak at 2,100 lots in 2014/15, similar to the levels in 2007/08 – although still well below previous peaks.
Residential land production in Melbourne peaked at a record of almost 19,000 lots in 2009/10, underpinned by rapid population growth, an underlying dwelling deficiency, increased first home buyer incentives and low interest rates.
As a result, lot production has been easing since 2009/10, falling to an estimated 14,900 lots in 2011/12.
BIS Shrapnel forecasts production will continue to weaken over the next few years, bottoming out at 10,500 lots by 2015/16. Land prices will also remain under pressure given their deterioration relative to house prices, with incentives expected to continue to be a feature of land sales prices.
Property Review
