RESIDENTIAL MARKET REVIEW - RPM Real Estate Group · The data contained within this report was prepared by RPM’s research team consisting of economists, property experts and GIS

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RPM REAL ESTATE GROUP IS VICTORIA’S MOST SUCCESSFUL RESIDENTIAL DEVELOPMENT

SALES, MARKETING AND ADVISORY AGENCY. WE SPECIALISE IN SALES WITHIN MASTER-

PLANNED COMMUNITIES, MEDIUM AND HIGH-DENSITY DEVELOPMENTS, GREENFIELD AND INFILL

DEVELOPMENT SITES AND INTERNATIONAL INVESTMENT SALES. WE ADVISE OUR CLIENTS ON

ALL ASPECTS OF THE SALES PROCESS FROM SITE DUE DILIGENCE, ACQUISITION, PLANNING AND

RISK MITIGATION THROUGH TO PRODUCT MIX, PRICING, LAUNCH, SALES AND SETTLEMENT. OUR

RESEARCH-BACKED STRATEGIES DELIVER HIGHER REVENUES AND SALES RATES, AND BETTER

RETURNS FOR OUR CLIENTS.

3

INSIDE

FROM OUR CEO

DEVELOPMENT SITES

COMMUNITIES

12FEATURE STORY:

GOVERNMENT MEASURES TO KICKSTART BUILD-TO-RENT SECTOR IN VICTORIA

42FEATURE STORY:

THE EMERGENCE OF MEDIUM DENSITY IN THE GREENFIELDS

52FEATURE STORY: REIMAGINING THE AUSTRALIAN DREAM

LEAD INDICATORS APARTMENTS /

TOWNHOUSES

INTERNATIONAL

RESIDENTIAL INVESTMENT

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3Q 3 R E S I D E N T I A L M A R K E T R E V I E W | S E P T E M B E R Q UA R T E R 2 018

FROM OUR CEO

KEVIN BROWNCHIEF EXECUTIVE OFFICERRPM REAL ESTATE GROUP

Welcome to RPM Real Estate Group’s Q3 Residential

Market Review. Once again we’re pleased to provide

our data-driven insights on the performance, drivers

and impacts of Melbourne and Geelong’s new

housing property market.

The market downturn accelerated throughout the

September quarter, underscored by deteriorating

buyer sentiment, investor disincentives and

tighter credit conditions for both developers and

homebuyers.

Notwithstanding, developers continue to seek high

quality, strategic landholdings in preparation for

the next upswing, with second tier funding channels

becoming more prominent.

In Melbourne’s greenfields, supply has begun to

outstrip demand, evidenced by a 15% fall in total

lot sales over the quarter. For the first time in three

years, the median lot price also declined, albeit

marginally by 1.4% to $320,500.

In the apartment and townhouse market, despite a

12% fall in approvals for the quarter and sluggish

price growth, a strong pipeline of projects in the

planning or approval stages is being underpinned by

population growth, particularly overseas migration,

as Melbourne continues to densify.

Melbourne has many sub-markets, and it’s

important to highlight the resilience of the vacant

land market compared to the established inner and

middle housing market, which is the subject of much

commentary in terms of falling house values.

4 R P M R E A L E S TAT E G R O U P

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The data contained within this report was prepared

by RPM’s research team consisting of economists,

property experts and GIS analysts.

Research underpins the core strategic decision

making capability at RPM, providing in-depth

analysis on current economic and housing

conditions, sales rates and pricing, future

supply and demand assessments, and buyer

demographics. This rich intelligence enables clients

to make informed decisions that underscore the

success of their developments. RPM’s research

is also highly valued in assisting clients to secure

capital funding and enhance their ongoing

marketing and ROI strategies.

MICHAEL STAEDLER

RESEARCH MANAGER

[email protected]

+61 434 619 280

IMPORTANTLY, UNDERLYING DEMAND IN THE GREENFIELDS REMAINS ROBUST. EQUALLY, ECONOMIC CONDITIONS IN AUSTRALIA AND PARTICULARLY VICTORIA ARE STRONG. POPULATION GROWTH, A 10-YEAR LOW UNEMPLOYMENT RATE, LOW INTEREST RATES AND RECORD PUBLIC INFRASTRUCTURE SPENDING PROGRAMS SHOULD SUPPORT AN ORDERLY CORRECTION AND MORE SUSTAINABLE SALES VOLUMES.


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ECONOMIC ACTIVITY VIC POPULATIONGROSS DOMESTIC PRODUCT (GDP)

CONSUMER PRICE INDEX (CPI)

STATE FINAL DEMAND (SFD) - VIC

RETAIL TURNOVER - VIC

2.95%

1.89%

4.97%

5.77%

2.55%

1.83%

3.55%

4.95%

12 month change to June qtr 2018

Sep-18

12 month change to June qtr 2018

Sep-18

5 year average

Same month year earlier

5 year average


Source: ABS

Source: ABS

Source: RBA

BORROWING RATESCASH RATE VARIABLE RATE

1.5%Sep-18

Jun-18

Sep-17

Sep-18

Jun-18

Sep-17

Sep-18

Jun-18

Sep-17

Sep-18

Jun-18

Sep-17

DISCOUNTED RATE

4.55% 4.10%

4.50% 4.15%

4.45% 4.10%

3 YEAR FIXED RATE

1.5%

1.5%

5.30%

5.20%

5.20%AUS 24,899,077 VIC 6,429,979 TOTAL POPULATION

NATURAL INCREASE

10,683 10,692 38,593Mar-18 Same qtr.

year earlier12 months to Mar-18

0.1%% change - same qtr. last year

1.7%% change - 12 months earlier

OVERSEAS MIGRATION

83,70331,79530,968 Mar-18 Same qtr.


% change - same qtr. last year

% change - 12 months earlier

2.6%

6.9%

NET INTERSTATE MIGRATION

15,0995,2343,947 Mar-18 Same qtr.



% change - 12 months earlier

24.6%

22.9%

change from Mar-17 to Mar-18


380,722 137,395

2.18%1.55%

NATIONAL TOTAL CHANGE VIC TOTAL CHANGE

VIC share 36%

■ Negative change ■ Positive change


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VIC EMPLOYMENTEMPLOYMENT GROWTH (JOBS CREATED)

CONSUMER SENTIMENT

BUSINESS SENTIMENT

Sep-18

Sep-18

Sep-17

Sep-17

100.5

12.9

97.9

13.4

Source: Westpac-Melb institute

Source: RBA/NAB

The Westpac-Melbourne Institute Consumer Sentiment Index is the most widely quoted barometer of consumer sentiment in Australia. A score of greater than 100 means that optimists outnumber pessimists, with readings of below 100 indicating that pessimistic consumers are in the majority.

NAB’s Business Survey has been tracking Australian business confidence levels for more than two decades. Businesses are approached quarterly, with two smaller monthly surveys conducted in the intervening months to capture changes on a more regular basis. The panel now exceeds 2,700 businesses.

Vic contribution to AUSJobs (‘000s) % Change

4.5% 5.6% 5.9%

UNEMPLOYMENT RATE

Sep-18 Jun-18 Same time last yearSource: ABS

Source: ABS

May-18 Nov-17 May-17

$1,607 $1,581 $1,563WAGES

FULL TIME

47.0494.11

2.1%

4.3%

105%

33%

Jun-18 to Sep-18

Last 12 months

49.2083.35

1.5%

2.6%

110%

29.1%

Jun-18 to Sep-18

Last 12 months

TOTAL

PART TIME

2.16-10.76

0.2%

1.0% 4%

5%Jun-18 to Sep-18

Last 12 months

1.6% 2.8%


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MELBOURNE PROPERTY

VIC FINANCE

MEDIAN HOUSE PRICE AUCTIONS HELD CLEARANCE

3,398

3,558

4,119

Sep-18

Jun-18


MEDIAN UNIT PRICE

$604,000

$587,500

Sep-18

Same qtr. year earlier

MEDIAN LAND PRICE

$320,500

$288,000

Sep-18


Source: ABS

Source: REIV

SHARE OF FHB LOANS

18.7% 17.9%

Sep-18Same qtr.

year earlier

$834,000

$834,000 $602,500 $325,000

$812,000

Sep-18

Previous qtr. Previous qtr. Previous qtr.


0.0% 0.2%

VALUE OF LOANS - OWNER OCCUPIERS VALUE OF LOANS - INVESTORS

$18.78B $8.48B $9.89B$18.66BSep-18 Sep-18Same qtr. year earlier Same qtr. year earlier

1% 14%

NO. OF FHBS FINANCED AVERAGE LOAN SIZE (FHBS)

8,601 $363,533 $329,9338,783Sep-18 Sep-18Same qtr. year earlier Same qtr. year earlier

2% 10%

NO. OF NON-FHBS FINANCED AVERAGE LOAN SIZE (NON-FHBS)

37,352 $418,367 $390,13340,419Sep-18 Sep-18Same qtr. year earlier Same qtr. year earlier

8% 7%

FINANCE FOR NEW DWELLINGS FINANCE FOR ESTABLISHED DWELLINGS

7,739 38,214 40,6718,531Sep-18 Sep-18Same qtr. year earlier Same qtr. year earlier

9% 6%

2.7% 2.8%

1.4% 61%

58%

73%11.3%


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MELBOURNE PROPERTY

VIC BUILDING

VACANCY RATE - MELB MEDIAN METRO HOUSE RENT MEDIAN METRO OTHER DWELLING RENTAVERAGE DAYS ON MARKET - METRO MELB

DETACHED HOUSE APPROVALS

HOUSE COMMENCEMENTS

HOUSE COMPLETIONS

TOTAL DWELLING APPROVALS

TOTAL COMMENCEMENTS

TOTAL COMPLETIONS

2.0% 2.1%Sep-18 Sep-18Sep-17 Sep-17

Source: ABS

Source: REIV

Sep-18

Jun-18

Jun-18

Last 12 months

Last 12 months

Last 12 months




Sep-189,901

Jun-189,881

Jun-1810,359

16,141

18,643

18,703

16,951

15,518

16,817

74,771

75,674

65,599

Same qtr. year earlier1.3%10,027



OTHER DWELLING APPROVALS

OTHER COMMENCEMENTS

OTHER COMPLETIONS

Sep-186,240

Jun-188,762

Jun-188,344




Last 12 months27.5%35,317



4.8%

20.1%

11.2%

17.1%

18.4%

0.7%




$460 $420

$430 $415Sep-18 Sep-18

Sep-17 Sep-17

7.0% 1.2%36 33

Q 3 R E S I D E N T I A L M A R K E T R E V I E W | S E P T E M B E R Q UA R T E R 2 018 9

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AS THE MARKET CORRECTION FOR NEW HOUSING

CONTINUES, DEVELOPERS ARE TAKING A MORE

CONSERVATIVE - BUT STILL CONFIDENT – APPROACH TO

BUILDING THEIR PROJECT PIPELINES FOR THE FUTURE.

While demand for retail land lots has contracted,

developers are still eager to acquire high quality sites

including large scale, well located, strategic landholdings

on which to capitalise in a few years’ time.

Despite continued strong economic fundamentals

including population and employment growth, a key

driver underpinning softening retail demand is tighter

bank lending criteria including new credit reporting rules

and restricting high loan-to-income lending. ANZ recently

reported that tighter credit conditions has reduced

the maximum amount banks would lend to an average

household by around 20% in the last three years. Hence,

affordability is still a prominent factor among homebuyers.

R P M R E A L E S TAT E G R O U P

DEVELOPMENTSITES

10

As the market adjusts to the new parameters and the

buyer pool contracts, developers are sharpening their

retail strategies and being very selective about the

type of product they’re putting to market. Many land

developers are increasingly incorporating smaller

medium density stock into their master plans while

apartment and townhouse developers are delivering

more affordable product to a growing owner occupier

buyer cohort.

There is strong demand for quality leased assets (e.g.

commercial assets) particularly those with long term

upside potential.

In a restrictive bank lending environment, a wave of

private capital is providing alternative development

funding, which is more nimble, flexible and can move

more quickly.

These second tier channels including family offices,

investment houses and funds, which have been set up

specifically to meet this new demand, means developers

are negotiating different deal structures and remodeling

deposit and settlement criteria to secure funding.

Despite media reports, there is also still a significant

amount of offshore capital flowing into development

site activity. Many large-scale developers committed

to long term investment strategies in Melbourne remain

confident in Victoria’s property outlook.

Notwithstanding, given current market conditions, these

developers are shifting capital from apartments into

land, from high rise residential to managed investments,

and ‘recycling’ capital as each project is realised.

Speculative property investors who have over

capitalised will likely result in more caveat sales.

By and large developers remain confident in

Melbourne’s long term property outlook. As the market

correction continues, we will likely see some small

shifts in supply and demand but should equalise in the

short to medium term.

Vendors who are unwilling to adapt to the change in

values might result in a small or short term restriction of

supply of new sites.

The VPA recently released its work program of priority

projects for the coming year that guides Victoria’s land

use planning. The VPA will maintain Victoria’s 15 year

supply of zoned land in Melbourne’s greenfields but

shift focus to urban renewal sites and regional planning.

Not forgetting the rampant price growth experienced

over the last few years, the market will reset and adjust

to a new norm of consistent price growth - albeit more

conservative – to achieve sustainable longevity.

OUTLOOK


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A VIABLE BUILD-TO-RENT MODEL COULD SOON

BECOME A REALITY IN VICTORIA FOLLOWING

A SUITE OF MEASURES ANNOUNCED BY THE

VICTORIAN GOVERNMENT TO SUPPORT THE

EMERGING SECTOR.

The government will clarify tax arrangements,

facilitate planning assessment, financially support

build-to-rent in community housing, and establish

an industry working group. It is also set to fast-track

permit applications for build-to-rent projects.

Tax changes are also planned, including amending

guidelines for the foreign investor stamp duty

surcharge and the vacancy tax rate so that build-to-

rent developments qualify for an exemption.

Other recent reforms to the Residential Tenancies

Act which aim to shift mindsets about renting as a

secure, long term lifestyle choice and an attractive

alternative to buying will also stimulate interest in

build-to-rent projects.

Build-to-rent is a response to evolving housing

needs where more people are either needing or

wanting to rent and are doing so for longer. Despite

moderating home values, housing affordability

is still a major issue in Australia, especially in the

two strongest markets, Sydney and Melbourne.

Currently, a quarter of Victorians rent their homes

and 20% have been renting for more than five years.

In the US, build-to-rent’s financial success is made

possible partly because of the financial system,

particularly its banking and debt systems. The

financial market is primarily driven by private capital.

The US build-to-rent market has delivered projects

aimed at tenants across all income levels given more

flexible private funding options and longer term

return hurdles.

In the UK, build-to-rent started to take off in 2013.

Taxation laws were adjusted to incentivise the

market. These tax changes are shaping the market

and preparing it for growth.

Comparatively, in Australia, current market

conditions mean that a large-scale build-to-rent

model will only work if it caters primarily to high-end

rentals. Our stringent and highly regulated banking

sector also does not have the evidence base to

support funding this type of asset. Moreover,

Australia hasn’t had the level of low rental

supply that has underpinned its success in

overseas markets.

Up until the recently announced changes, the

taxation landscape for build-to-rent assets was

unfavourable to institutional investors looking

to invest in this asset class, creating a lack of

patient, low-cost capital for developers. This meant

investing in build-to-rent assets would be taxed at

the company rate between 27.5% and 30% instead

of 15% under a Managed Investment Trust (MIT)

ownership structure.

FEATURE STORY:

GOVERNMENT MEASURES TO KICKSTART BUILD -TO-RENT SECTOR IN VICTORIA


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In July this year then-Treasurer Scott Morrison

announced reforms to the legislative framework that

govern how build-to-rent projects are treated by the

Federal Government from a MIT perspective.

This has enabled significant opportunity for

developers to develop out and retain these assets

which provide not only a recurring income but

longer term annualised return on capital with much

lower risk.

Not having to sell completed product eliminates

investment risk – particularly in a political

environment where sudden and unplanned

legislative decisions, such as removing offshore

investment in Australia and APRA’s lending changes,

have had significant negative impacts on the

development market.

Information for this article was sourced from original stories published in The Urban Developer on 14 August and 2 October 2018.

The first build-to-rent approval in Victoria is for a

60-level apartment block on City Road, Southbank,

which is being developed by Grocon. The developer

is actively looking for more opportunities across

Melbourne and Sydney.

CHRISTIAN RANIERIGENERAL MANAGER, TRANSACTIONS & [email protected]+61 416 445 078

OF VICTORIANS RENT THEIR HOMES

AND 20% HAVE BEEN RENTING

FOR MORE THAN FIVE YEARS.


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THE DOWNWARD TREND CHARACTERISING

MELBOURNE AND GEELONG’S LAND MARKET

THROUGHOUT THE FIRST HALF OF 2018

STEEPENED IN THE SEPTEMBER QUARTER 2018

AMID WEAKENING BUYER SENTIMENT.

Total lot sales declined 15.3% to 3,588 for the

quarter – the lowest recorded total in three and a

half years – and 41% down from the same period

12 months ago.

Median lot price growth has also eased, falling

1.4% to $320,500 – the first fall on the previous

quarter’s median price since June quarter 2015.

The downturn in activity has resulted in annual

median lot price growth slowing sharply from

29% in the March quarter to a still robust 11% in

the September quarter.

Melbourne’s growth corridors added 11 new estates

in the September quarter, lifting total active estate

numbers to 140. While this was 23 more than for

the same period last year, new lot supply has fallen

by 28%.

OVERVIEW

COMMUNITIES


Despite lot releases outpacing lot sales, the

majority of developers are willing to accept slower

sales rates to reduce valuation risk given the 18

month delay in title timeframes. They are also

maintaining their pricing margins but introducing a

number of value-add incentives.

Many developers are also incorporating an

increasing mix of townhouses into their estates,

providing a ‘safeguard’ in the current climate of

affordable product for first home buyers whose

borrowing capacity has reduced from tighter

lending criteria.

The key driver underpinning the market slowdown

is softening buyer sentiment and restrictive credit

conditions, which is impacting demand. Walk-

in buyer enquiries on new estates has fallen as

potential purchasers appear to be adopting a ‘wait

and see’ approach to assess whether prices will

moderate further.

It’s worth noting the vast majority of media reporting

which is contributing to negative buyer sentiment

relates to declining values across Melbourne’s

established housing market.

It is useful to distinguish Melbourne’s many sub-

markets, in particular the established inner and

middle housing market – which is the focus of much

attention – and the established and new housing

market in outer Melbourne.

To this end, in inner and middle Melbourne, the

median house price has fallen annually by 4.5%

and 2.3% respectively, while in outer Melbourne,

the median house price has increased 3.7% and

the land market 11.3%.

Relatively speaking, Melbourne’s vacant land market

and established outer housing market is showing

more resilience compared to the more expensive

established inner housing market.

It’s also pertinent to acknowledge Victoria’s still

strong economic conditions including population

growth, the lowest unemployment rate in 10 years,

low interest rates and record public infrastructure

spending programs.

At 400 sqm, the median lot size in the September

quarter 2018 remained unchanged from the

previous quarter, resulting in a decline in the per

sqm median lot price.

LUKE KELLYDIRECTOR, [email protected]+61 400 688 520


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OVERVIEW

MELBOURNE GROWTH CORRIDORS

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0SEP 15 DEC 15 MAR 16 JUN 16 SEP 16 DEC 16 MAR 17 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18

440

430

420

410

400

390

380

MED

IAN

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Median Lot Size Median Lot Price

MED

IAN

LO

T PR

ICE

�$�

Source: RPM

0% 10% 20% 30% 40% 50% 60% 70% 80%

% O

F TO

TAL

GRO

SS L

OT

SALE

S

Sep Qtr 2018 Sep Qtr 2017 Sep Qtr 2016

325K>

301K-

325K

275K-

300K

251K-

275K

<250K

47%28%

5%

15%14%

4%

14%17%

8%

12%14%14%

12%28%69%

SEP 15 DEC 15 MAR 16 JUN 16 SEP 16 DEC 16 MAR 17 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18

6,500

6,000

5,500

5,000

4,500

4,000

3,500

3,000

160

140

120

100

80

60

40

20

0

GRO

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SALE

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BER

OF

ESTA

TES

Active Estates New Estates Gross Lot Sales


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Casey 12%

Cardinia 3%

Hume 11%

Mitchell 3%

Whittlesea 8%

Melton 22%

Wyndham 21%

Moorabool 3%

Greater Geelong 17%

12 MONTHS TO SEPTEMBER

2018

THE KEY DRIVER UNDERPINNING THE MARKET SLOWDOWN IS SOFTENING BUYER SENTIMENT AND RESTRICTIVE CREDIT CONDITIONS, WHICH IS IMPACTING DEMAND.

PERCENTAGE CONTRIBUTION TO TOTAL GROSS LOT SALES


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MELBOURNE & GEELONG GROWTH CORRIDORS

MAR 16 JUN 16 SEP 16 DEC 16 MAR 17 JUN 17 SEP 17 DEC 17 MAR 18 JUN 18 SEP 18

6.0

5.0

4.0

3.0

2.0

1.0

0.0

QUA

RTER

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UPPL

Y �M

ON

THS�

South East Northern Western Geelong

WHAT HAPPENS AFTER THE PEAK? A SUPPLY-SIDE VIEW

Source: RPM

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Further underscoring weakening buyer sentiment,

during the six months to September 2018 there has

been an increase in the number of months it takes

for gross lot sales to absorb the total number of lots

on the market.

In the March quarter 2018, gross lot sales absorbed

around half of the total lots on the market on

average in each of the four growth corridors.

As a result, total lot supply was sufficient to

accommodate only 2 months’ worth of lot sales.

However, lots sales have since further declined,

while total lots on the market has steadily risen.

Consequently, the average time for lot sales to

absorb lot supply has increased to 4.7 months in

the South East growth corridor, 3.8 months in the

Northern growth corridor, 2.9 months in the Geelong

growth corridor, and 2.7 months in the Western

growth corridor.


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Source: RPM

BUYER DEMAND CONTINUES FOR MORE AFFORDABLE LOCATIONS OFFERING PLENTY OF STOCK SUCH AS MELTON, MOORABOOL AND THE BELLARINE PENINSULA

WESTERN NORTHERN SOUTH EAST GREATER GEELONG

Sept quarter ‘18 median lot price $308,000 $320,000 $355,000 $272,450

Change from Sept quarter ‘17 $35,000 $25,000 $10,000 $64,450

% Change from Sept quarter ‘17 12.8% 8.5% 2.9% 31.0%

Sept quarter ‘18 median lot size 400.0 400.0 400.0 448.0

Change from Sept quarter ‘17 -5.0 -20.0 -48.0 0.0

% Change from Sept quarter ‘17 -1.2% -4.8% -10.7% 0.0%

Sept quarter ‘18 gross lot sales 2,090 878 620 602

Change from Sept quarter ‘17 -1,298 -821 -371 -400

% Change from Sept quarter ‘17 -138.3% -148.3% -137.4% -139.9%

Sept quarter ‘18 sales contribution 49.9% 21.0% 14.8% 14.4%

Sept quarter ‘17 sales contribution 47.9% 24.0% 14.0% 14.2%

Sept quarter ‘18 active estates 64 39 37 26

Change from Sept quarter ‘17 6 6 11 -2

Sept quarter ‘18 lot releases 2,390 1,000 814 656

Change from Sept quarter ‘17 -936 -598 -71 -45

% Change from Sept quarter ‘17 -28.1% -37.4% -8.0% -6.4%

Sept quarter ‘18 no. of trading days 55 92 122 65

Change from Sept quarter ‘17 43 83 109 46

% Change from Sept quarter ‘17 358.3% 922.2% 838.5% 242.1%


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PORT PHILLIP BAY

WYNDHAM

MELTON

MOORABOOL

The Western growth corridor accounted for 50%

of total gross lot sales in September quarter 2018,

recording 2,090 lot sales. This proportion is more

than double the share of total lot sales in each of

the other growth corridors, underpinned by 64

active estates. Nevertheless, gross lot sales in the

September quarter was still 38% lower relative to

the same quarter in 2017.

Weaker new house demand is attributed to

heightened affordability concerns across the

Western growth corridor. This is illustrated by the

median lot price in the relatively affordable regions

of Melton and Moorabool contracting $5,000 and

$4,500 respectively in the September quarter from

the previous quarter.

Lot sales activity in the Western growth corridor

will continue to outperform other regions as higher

lot supply and a greater variety of lot size, price and

location offers a mix of new housing choices for first

home buyers and upgraders. Prospects for lot price

growth have deteriorated, with median lot prices

likely to remain steady.

WESTERN GROWTH CORRIDOR


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PORT PHILLIP BAY

WYNDHAM

MELTON

MOORABOOL

WYNDHAM

Wyndham experienced a 43% annual reduction

in quarterly lot sales, falling to 994 lots in the

September quarter - the first time since March

quarter 2015 in which the region failed to reach

1,000 lot sales. Lot sales contracted by 5% from the

previous quarter.

Lot supply remains healthy, with the number of

active estates rising by 3 to 31, leading to an

increase in new stock releases totaling 1,157 lots.

This suggests demand side factors, in particular

constrained affordability, are having a greater

impact on weakening lot sales given Wyndham is

the most expensive land market in the Western

growth corridor. Wyndham’s median lot price

edged higher by 1.5% from the previous quarter to

$330,000, while the median lot size was steady at

just above 400sqm.


2,500

2,000

1,500

1,000

500

0

40

35

30

25

20

15

10

5

0

GRO

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SALE

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NUM

BER

OF

ESTA

TES



406

405

404

403

402

401

400

399

398

397

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

IAN

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QM

�

MED

IAN

LO

T PR

ICE

�$�


PETER GRANTDIRECTOR, [email protected]+61 411 494 499

Source: RPM


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MELTON

Melton recorded 1,013 lot sales in the September

quarter, which was the highest among all growth

corridors. Notwithstanding, sales volumes were

down 9.3% from the previous quarter, and 31%

from a record 1,468 lot sales in the September

quarter 2017.

New lot releases declined 8% from the last quarter

and 28% to 1,120 lots compared to the same period

a year ago despite 12 more active estates on the

market. This indicates lot sales has been impeded

by diminishing new lot supply.

Melton’s median lot price contracted by 1.7% to

$295,000 in the September quarter from the June

quarter. With the median lot size remaining static at

400sqm, lot prices per sqm also marginally declined.

WESTERN GROWTH CORRIDOR


1,600

1,400

1,200

1,000

800

600

400

200

0

35

30

25

20

15

10

5

0

GRO

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SALE

S

NUM

BER

OF

ESTA

TES



480

460

440

420

400

380

360

340

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

IAN

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T SI

ZE �S

QM

�

MED

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LO

T PR

ICE

�$�

Median Lot Size Median Lot Price Source: RPM


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MOORABOOL

Moorabool contained 1 less active estate in the

September quarter 2018 compared to the same

period a year ago. With overall weaker sentiment

across the new housing market, both new lot

releases and gross lot sales declined by 49%

annually, falling to 113 lots and 83 lots respectively

in the September quarter.

The median lot price in Moorabool fell by 2% from

the previous quarter to $225,500, making it the

most affordable median lot price across all growth

corridors. This price correction can be explained

by the larger median lot size shrinking by 7%

to 448sqm. As a result, lot prices per sqm still

increased.


200

180

160

140

120

100

80

60

40

20

0

9

8

7

6

5

4

3

2

1

0

GRO

SS L

OT

SALE

S

NUM

BER

OF

ESTA

TES



530

510

490

470

450

430

410

390

370

350

250,000

200,000

150,000

100,000

50,000

0

MED

IAN

LO

T SI

ZE �S

QM

�

MED

IAN

LO

T PR

ICE

�$�


ROD ANDERSONDIRECTOR, [email protected]+61 417 595 859

Source: RPM


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NORTHERN GROWTH CORRIDOR

The Northern growth corridor recorded 878 gross

lot sales in September quarter 2018, which was a

substantial 48% below sales volumes achieved in the

corresponding quarter in 2017. Consequently, the

proportion of total lot sales across all growth corridors

eased from 24% to 21%.

While the number of active estates increased by 6 over

the 12 months to September 2018, fewer and smaller

lot releases has resulted in new lot supply contracting

by 37% annually,

As predicted, lot sales activity has shifted from Hume

to Whittlesea, with Whittlesea recording more lot

sales in the September quarter 2018 compared to

Hume - the first time this has occurred in more than

a year. Significantly, both new lot releases and gross

lot sales in Hume tumbled to four year lows during the

September quarter. Conversely, both new supply and

absorption of lots in Whittlesea were higher than just

six months earlier.

The correction in median lot prices has also been more

apparent within the Northern region compared to other

growth corridors, with median lot values declining 4%

in Hume and 3% in Whittlesea from their respective

peaks in the last 2 quarters.24 R P M R E A L E S TAT E G R O U P

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HUME

The weakening sales trend in Hume intensified in the

September quarter 2018, with the municipality’s 385

total lot sales 23% below lot sales in the previous

quarter. It was also the lowest quarterly total in over

four years, and a substantial 62% below the peak in

lot sales during September quarter 2017.

Exacerbating this decline has been the deterioration

in new supply, with 383 new lot releases in September

quarter 2018 equating to a 38% fall from the previous

quarter and 60% below the same quarter in 2017.

While receding supply applied upward pressures

on lot prices in previous quarters, this has now

eased, with affordability concerns more apparent,

augmented by Hume still being the second most

expensive land market in the region.

Consequently, in the September quarter Hume’s

median lot price declined by 4% to $336,000 from the

June quarter. However, over these two periods, the

median lot size diminished by 8% to 413sqm, resulting

in the median per sqm lot price still improving.


1,200

1,000

800

600

400

200

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25

20

15

10

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0

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460

450

440

430

420

410

400

390

380

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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T SI

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QM

�

MED

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�$�




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MITCHELL

The addition of 2 new estates in Mitchell in the

September quarter was significant given it is a

relatively smaller market and represented a one

third increase in total active estates. However, sales

activity declined by 42% from the previous quarter

down to 91 lots.

Mitchell’s median lot price increased by $12,500

(or 4.5%) to $290,000 in the current quarter. This

was the largest increase in both absolute and

percentage terms within Greater Melbourne’s

growth corridors, even though the median lot size

decreased slightly to 448sqm.

NORTHERN GROWTH CORRIDOR


250

200

150

100

50

0

7

6

5

4

3

2

1

0

GRO

SS L

OT

SALE

S

NUM

BER

OF

ESTA

TES



550

530

510

490

470

450

430

410

390

370

350

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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T SI

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QM

�

MED

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T PR

ICE

�$�



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WHITTLESEA

The turnaround in lot sales activity in Whittlesea in

the June quarter 2018 fell away in the September

quarter. Lot sales generally receive a boost when

new estates come to market, however Whittlesea

added only 1 new estate in the September quarter,

compared to 4 new estates in the previous quarter.

As a result, sales declined by 14% in the September

quarter to a total of 402 lots, reflecting a fall of 31%

from the same period a year earlier.

This was greater than the 10% contraction in

new supply from June quarter 2018, with 516 lots

released in September quarter 2018.

The median lot price declined 2% to $318,000 from

the previous quarter, but still reflected an 11%

increase from the September quarter last year.

The moderation in lot prices is attributed to new

lot supply outpacing lot absorption, and a 2% fall in

the median lot size to 392sqm. This is the smallest

median lot size amongst all growth corridors.


900

800

700

600

500

400

300

200

100

0

20

18

16

14

12

10

8

6

4

2

0

GRO

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S

NUM

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TES



430

420

410

400

390

380

370

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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MED

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�$�




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NEW LOT RELEASES IN CASEY DECREASED BY 26%, LEADING TO A 46% FALL IN LOT SALES


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28


CASEY

CARDINIAPORT PHILLIP BAY

Overall sales activity across the South East growth

corridor has weakened. The region recorded 620

lot sales in September quarter 2018 derived from

37 active estates, equating to only 15% of lot sales

across all growth corridors.

From the June to September quarter 2018, new

lot releases in Casey declined by 27%, leading to

a 39% fall in lot sales to 428 lots, which was the

lowest quarterly total since December quarter 2013.

However, restricted new lot supply applied upward

pressure on lot prices in Casey, which increased a

marginal 0.8% from an already expensive base.

Conversely, new lot releases in Cardinia doubled in

the September quarter from the previous quarter,

resulting in lot sales increasing to 192 - the highest

level in over a year. The median lot price decreased

slightly in response to higher supply.

SOUTH EAST GROWTH CORRIDOR


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1,200

1,000

800

600

400

200

0

30

25

20

15

10

5

0

GRO

SS L

OT

SALE

S

NUM

BER

OF

ESTA

TES



460

450

440

430

420

410

400

390

380

370

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

IAN

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T SI

ZE �S

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�

MED

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LO

T PR

ICE

�$�


CASEY

An increase of 8 active estates in Casey in September

2018 compared to the same period 12 months ago has

not translated to an increase in new lot releases and

lot sales.

Over this period, new releases have fallen by 26% to

539 lots, while gross sales experienced a larger decline

of 46% to 428 lots. With new supply outpacing lot

absorption, this suggests ongoing affordability concerns

is the primary reason for weakening sales volumes.

Indeed, Casey contains the most expensive median

lot price amongst all growth corridors, increasing

0.8% to $360,000 in the September quarter 2018. This

represents a new peak throughout Melbourne’s growth

corridors. This high median lot price is likely a result

of the composition of lot sales, with the proportion of

total lot sales in Casey improving in the more expensive

areas of Cranbourne, Botanic Ridge and Lyndhurst, at

the expense of activity in more affordable areas such as

Clyde and Clyde North.

The median lot size remained static at 400sqm.

SOUTH EAST GROWTH CORRIDOR


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CARDINIA

Cardinia was the only growth corridor to achieve a

quarterly increase in gross lot sales, which grew by

77 lots to a total of 192 in September quarter 2018.

This was attributed to the addition of 2 new estates,

Mt Pleasant and Pakenham Rise, which together

accounted for 60% of lot sales in Cardinia. New

releases also doubled to 275 lots in the September

quarter from the June quarter.

The increase in new lot supply, above that of

lot sales, resulted in Cardinia’s median lot price

decreasing by 3.5% to $330,000 in the September

quarter. A 6.1% reduction in the median lot size to

448sqm has also contributed to falling lot prices.


500

450

400

350

300

250

200

150

100

50

0

25

20

15

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0

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550

500

450

400

350

300

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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�

MED

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�$�




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GREATER GEELONG

PORT PHILLIP BAY

The Greater Geelong growth corridor contributed

14% of total lot sales in September quarter 2018,

equating to 602 lots. Despite less prominent

affordability concerns given lot prices are relatively

more affordable in this growth corridor, lot sales

contracted by 40% relative to the same quarter

in 2017.

The fall in new lot releases by a more moderate 6.4%

suggests the decline in sales was driven more so by

subdued demand.

Notably, sales activity in the second half of 2017 was

likely underpinned by the doubling of the Regional

First Home Owners Grant to $20,000 for new

dwellings. With a finite number of first home buyers,

the ‘pull forward’ effect of this demand has most

likely lost momentum.

Nevertheless, all five sub–markets within the

Greater Geelong growth corridor still experienced

growth in median lot prices from June to September

quarter 2018.

GREATER GEELONG GROWTH CORRIDOR


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ARMSTRONG CREEK

Sales of 259 lots in Armstrong Creek in September

quarter 2018 was the highest amongst all regions

within the Greater Geelong growth corridor.

Nevertheless, sales rates were considerably lower

than the previous quarter (down 19%) and the same

quarter in 2017 (down 40%).

Purchaser demand still supported quarterly price

growth of 5% and annual price growth of 36%, lifting

the median lot price in Armstrong Creek to $271,900

in the September quarter. The region also contains

the smallest median lot size of 400sqm, which

decreased by 5.9% from the previous quarter.

GREATER GEELONG

PORT PHILLIP BAY


600

500

400

300

200

100

0

12

10

8

6

4

2

0

GRO

SS L

OT

SALE

S

NUM

BER

OF

ESTA

TES



460

450

440

430

420

410

400

390

380

370

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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T SI

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�

MED

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T PR

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�$�



Source: RPM


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BELLARINE PENINSULA

Bellarine Peninsula contained 2 more active estates

in September quarter 2018 compared to the

previous quarter, although new lot releases almost

halved and gross sales declined by 34.8% to a total

of 180 lot sales.

An 11.5% increase in the median lot price from June

to September 2018 to $262,000 was the highest –

but still most affordable - within the Greater Geelong

growth corridor.

The median lot size edged higher to 453sqm.


450

400

350

300

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200

150

100

50

0

18

16

14

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8

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2

0

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550

530

510

490

470

450

430

410

390

370

350

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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MED

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GEELONG

Active estates in Geelong remained steady at 4,

however sales volumes contracted by 33 lots – or

33% - during the September quarter, falling to a total

of 67 lots. The absolute decline in new lot releases

was identical, which slowed to 84 lots.

Conversely, the median lot price increased by 9%

over the September quarter and 25% from the

previous corresponding period to $310,000. Much

of this growth is attributed to the increase in the

median lot size to 572sqm.



140

120

100

80

60

40

20

0

10

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8

7

6

5

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750

700

650

600

550

500

450

400

350

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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MED

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�$�



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LARA

The addition of Austin estate in Lara underpinned a

17% increase in new lot supply and 18% in lot sales

during the September quarter, lifting releases to 104

lots and sales to 85 lots.

Increased competition slowed median lot price

growth to 1.5% from the previous quarter, reaching

a median lot value of $264,000 in the September

quarter. The median lot size of 448sqm remained

unchanged.



120

100

80

60

40

20

0

5

4

3

2

1

0

GRO

SS L

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S

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TES



550

530

510

490

470

450

430

410

390

370

350

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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MED

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�$�



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TORQUAY

Sales activity remained negligible at just 11 lots

in Torquay during the September quarter 2018.

Subsequently, quarterly and annual changes to both

the median lot price and size need to be viewed

with some caution as values are based off a small

number of sales.

Torquay’s median lot price of $435,000 was the

most expensive, up 1.8% from the previous quarter

and 45.5% from the September quarter last year,

which is not surprising given the region’s attractive

lifestyle opportunities.



160

140

120

100

80

60

40

20

0

5

4

3

2

1

0

GRO

SS L

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SALE

S

NUM

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OF

ESTA

TES



600

500

400

300

200

100

0

500,000

450,000

400,000

350,000

300,000

250,000

200,000

150,000

100,000

50,000

0

MED

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�

MED

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�$�



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OUTLOOK Following the remarkable sales and price growth

over the last 3 years, the September quarter data

indicates Melbourne’s land market is coming

back to the historical long term sales average of

approximately 15,000 lots per annum.

Given the recent highs, the market is rebalancing

as supply begins to outstrip demand. The market

is ‘taking a breather’, enabling the industry to

catch up on lot construction and reduce title

timeframe delays.

While demand will likely continue to soften

over the coming 2 quarters, particularly given

the seasonal Christmas slowdown, we don’t

believe there will be huge price reductions.

Rather, developers will continue to rollout buyer

incentives and produce more townhouse stock

on smaller lots with lower price tags to meet still

strong first home buyer appetites.


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Source: RPM

WHAT DOES A 400 SQM LOT COST?3 months to September 2018

Aintree$315kWeir Views

$264k

Bacchus Marsh$208k Melton

South$255k Rockbank

$317k

Mambourin$293k

Manor Lakes$288k

Thornhill Park

$307k

Wyndham Vale

$318k

Tarneit$324k

Truganina$338k

Werribee$316k

Lara$259k

Armstrong Creek$275k

Point Cook$489k

Deanside$377k

Frasers Rise$348k

Craigieburn$384k Wollert

$330k

Cranbourne South$360k

Cranbourne East

$362k

Pakenham$305k

Botanic Ridge$365k

Clyde North$360k

Clyde $345k

Donnybrook$298kDiggers Rest

$298k

Wallan$240k

Strathtulloh$267k

Kalkallo$331k

Mickleham$337k

39

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CHANGING OWNER OCCUPIER BUYER DEMOGRAPHICS

Despite housing affordability levels continuing

to deteriorate due to tighter lending practices

and land prices moderating, first home buyers

accounted for close to two thirds (63%) of overall

buyers in the September quarter 2018 – up from a

share of 56% in the same quarter a year earlier.

The higher proportion of first home buyers is a

result of strong competition among new housing

estates to attract buyers, along with developers

offering more ‘suitable’ products in the form of

townhouses on smaller lots.

With more affordable entry prices available in the

land market compared to the established housing

market, couples without children is an emerging

buyer cohort. In addition, the land market is seen

as a solid long term investment option. As a result,

an increasing share of single first home buyers

have entered the market.

A GROWING NUMBER OF WEALTHIER HOUSEHOLDS ARE ALSO FINDING THEIR WAY INTO THE GREENFIELDS. OVER THE SEPTEMBER QUARTER 2018, 39% OF OWNER OCCUPIERS WHO PURCHASED A LAND LOT INDICATED A HOUSEHOLD INCOME ABOVE $100,000, AN INCREASE OF 5% FROM THE SAME PERIOD A YEAR EARLIER. IN ADDITION, 53% OF BUYERS INDICATED THEY WERE IN A MIDDLE HOUSEHOLD INCOME BRACKET ($60,000-$100,000), UP FROM A SHARE OF 47% IN SEPTEMBER 2017.

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Source: RPM

OWNER-OCCUPIER TYPE

HOUSEHOLD NUMBER OF PEOPLE

HOUSEHOLD INCOME

Other 5%

4th Home 1%

3rd Home 6%

2nd Home 32%

1st Home 56%

+

8%25%22%35%10%

September 2017

>$120K

$100K-$120K

$80K-$100K

$60K-$80K

$40K-$60K

<$40K

16%

18%

25%

22%

17%

2%

Other 4%

4th Home 2%

3rd Home 4%

2nd Home 27%

1st Home 63%

+

7%20%19%39%15%

September 2018

>$120K

$100K-$120K

$80K-$100K

$60K-$80K

$40K-$60K

<$40K

21%

18%

28%

25%

7%

1%


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DESPITE THE RATE OF PRICE GROWTH IN

MELBOURNE’S GREENFIELD MARKET CONTINUING

TO MODERATE OVER THE LAST SIX MONTHS, FOR

MANY FIRST HOME BUYERS, HOUSE AND LAND

PACKAGES REMAIN UNAFFORDABLE.

RPM buyer analysis reveals the average first home

buyer household income in Melbourne’s new estates

is $85,000, and, with tighter lending conditions,

many would-be purchasers are unable to buy a

detached home on a 400 square metre block for

approximately $550,000.

In most new estates in Melbourne’s growth

corridors, the emergence of medium density

product is changing the development landscape.

Increasingly developers are introducing innovative,

attractive townhomes into their product mix to

cater to price-sensitive buyers priced out of

detached housing options who still want a product

configuration comprising three bedrooms, two

bathrooms and a double garage, albeit on a

smaller block.

The evolution of medium density product in the

greenfields is a growing market trend that buyers

are embracing. In fact, 2016 Census data revealed

a 117% increase in semi-detached, terrace or

townhouse product in the growth corridors in the

last five years. RPM estimates there is up to 10%

of medium density housing throughout greenfield

estates in the growth corridors, which will continue

to rise.

FEATURE STORY:

THE EMERGENCE OF MEDIUM DENSITY IN THE GREENFIELDS

117% INCREASE IN SEMI-DETACHED, TERRACE OR TOWN-HOUSE PRODUCTS IN THE GROWTH CORRIDORS IN THE LAST FIVE YEARS

Increasingly developers are introducing innovative,

attractive townhomes into their product mix


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Medium density stock also enables developers to

utilise the land better and control the built form

solution to achieve a high quality product, which is

critical not just from a buyer perspective but also to

maintain the aesthetic integrity of the estate.

A well-designed, well-priced master plan with

product diversity allows developers to cater

to a broader mix of buyers, which is critical to

maintaining sales velocity.

Such is the confidence of developers in the growth

of this type of housing stock, estates are now

featuring townhouse display homes. For example,

RPM worked with Sienna Homes to build and open a

4 bedroom townhouse as a display at the Tulliallan

estate so buyers were able to experience the quality

and feel of the townhouse product.

The Tulliallan masterplan included 969 lots plus 81

townhouses in the sold out estate. Five medium

density sites included a mix of townhouse product

with 3 and 4 bedroom doubles and singles. Built

by Homebuyers Centre and Sienna Homes, the

townhouses maximised space and light offering

practical and versatile floorplans.

The Tulliallan townhouses have

earned Sienna Homes the

HIA Victorian Affordable Housing

Award 2018.

THERE’S A GROWING APPRECIATION AMONG BUYERS THAT TOWNHOUSES NO LONGER MEAN SMALL AND CHEAP, BUT HIGH QUALITY, WELL DESIGNED HOMES THAT TICK ALL THE LIFESTYLE BOXES

FEATURE STORY: THE EMERGENCE OF MEDIUM DENSITY IN THE GREENFIELDS

The Tulliallan masterplan included 969 lots plus 81 townhouses in the sold out estate.

Townhouses pictured by Sienna Homes at Tulliallan estate in Cranbourne North.


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TIGHTER CREDIT CONDITIONS – FOR BOTH

DEVELOPERS AND PURCHASERS - AND NEGATIVE

BUYER SENTIMENT CONTINUES TO IMPACT THE

TOWNHOUSE AND APARTMENT MARKET. THE

DOWNWARD TREND – PARTICULARLY IN THE

APARTMENT MARKET - IS ALSO DUE TO INVESTOR

DISINCENTIVES.

Over the past three years, banks have increased

scrutiny on customers’ living costs while requiring

larger deposits. Property investors have also faced

higher interest rates.

A recent ANZ presentation noted an average

household with an income of $110,000 could borrow

a maximum of $440,000 in the current lending

environment compared to $550,000 three years ago

– a 20% reduction in borrowing capacity.

While Victoria’s economic fundamentals remain

robust, stagnant price growth and declining sales

volumes underscore a slowing residential market.

OVERVIEW

APARTMENTS /TOWNHOUSES


For the September quarter 2018, total other dwelling

approvals (apartments and townhouses) were down

12% to 6,240 approvals from the previous quarter.

Approvals were also down 10% from the September

quarter 2017.

However, as quarterly approval numbers tend to

be lumpy, a more meaningful comparison on a

rolling 12 month basis shows the non-detached

housing market has shown resilience, with approvals

reflecting an overall gain of 28% to 35,317 dwellings

when compared to the previous 12 months to

September 2017.

Specifically, townhouses improved by 5% while

apartments increased by a significant 46% - albeit

coming off an extremely low base over the last

two years. This pickup signals that developers

are still buoyed by key market fundamentals

including strong population growth, a 10-year low

unemployment rate, low vacancy rates and robust

rental yields.

Overall, solid approval activity has translated into

strong commencement numbers, with an increase

of 32% over the 12 months to June quarter 2018.

However, completions have fallen by 9% over the

same 12-month period which reflects the high level

of activity over the past couple of years.

LUKE KELLYDIRECTOR, PROJECT [email protected]+61 400 688 520

12 mths 12 mths 12 mths 12 mths 12 mths to Sep-14 to Sep-15 to Sep-16 to Sep-17 to Sep-18

28,00026,00024,00022,00020,00018,00016,00014,00012,00010,000

8,0006,0004,0002,000

0

APA

RTM

ENT

APP

ROVA

LS

12 mths 12 mths 12 mths 12 mths 12 mths to Sep-14 to Sep-15 to Sep-16 to Sep-17 to Sep-18

14,00013,00012,00011,00010,000

9,0008,0007,0006,0005,0004,0003,0002,0001,000

0

TOW

NH

OU

SE A

PPRO

VALS

Source: ABS

20%17% 60%7% 46%5% 20%16% 26%15%


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KEY MEDIUM DENSITY BUILDING DATA

APPROVALS TOTAL TOWNHOUSES TOTAL APARTMENTS TOTAL

Sep qtr 2018 2,952 3,288 6,240 change from previous qtr -14.0% -10.4% -12.1%

change from previous yr -19.9% 1.5% -9.9%

12 months to Sep qtr 2018 13,046 22,271 35,317

% change 12 months earlier 4.9% 46.0% 27.5%

COMMENCEMENTS OTHER DWELLINGS COMPLETIONS OTHER DWELLINGS

Jun qtr 2018 8,762 Jun qtr 2018 8,344 change from previous qtr -31% change from previous qtr 74%

change from previous yr 49% change from previous yr 6%

12 months to Jun qtr 2018 37,287 12 months to Jun qtr 2018 29,107

% change 12 months earlier 32.32% % change 12 months earlier -9%

TOTAL APARTMENT & UNIT PRICES MEDIAN PRICE CHANGE FROM QTR CHANGE FROM PREV. YR

Sep qtr 2018 $604,000Jun qtr 2018 $602,500

Sep qtr 2017 $587,5000.2% 2.8%

Source: ABS, REIV

OVERIEW

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METRO MELBOURNE MEDIUM DENSITY PIPELINE ACTIVITY

Planning activity in medium density projects remains

strong as indicated in the number of projects

identified in the planning and approval stages.

In the apartment market, it indicates a view among

developers the strong level of buyer activity in

recent years will continue to absorb the additional

supply recently created and more so, the stock that

is in the pipeline.

With investors still in the shadows (both locally and

overseas), first home buyers and downsizers have

underpinned demand levels in the market.

The modest level of activity in the inner ring has

not dampened overall activity. In fact, boutique

developments (whether apartments or townhouses)

located in well-positioned mid ring suburbs have

been well received by buyers.

In addition, these smaller developments have until

recent months been more conducive to small-

scale developers. However, with further tightening

of finance, along with purchase acquisitions at

premiums, these developers have found it more

difficult to get projects off the ground.

Mid to large developers (who are financially secured)

are seeing the benefit of boutique projects where

the process of sales to development is a lot shorter

and they are not as financially exposed for an

extended period.

Taking a snapshot at the end of September 2018, the

townhouse pipeline reflects 1,806 projects or 81% of

the total pipeline in the planned or approval stage. If

all these projects come on line in their current plans,

the market will realise more than 11,600 dwellings.

This level of activity would augment a further 425

projects that are planned to yield 3,473 dwellings

that have already commenced.

TOWNHOUSE PIPELINE - SEP 2018

Stage Count of Developments

% of total Count of Townhouses

% of total

Planning 847 38% 4,887 32%

Approved 959 43% 6,758 45%

Commenced 425 19% 3,473 23%

Total 2,231 100% 15,118 100%

APARTMENT PIPELINE - SEP 2018

Stage Count of Developments

% of total Count of Apartments

% of total

Planning 291 20% 23,636 23%

Approved 801 56% 49,654 49%

Commenced 344 24% 28,901 28%

Total 1,436 100% 102,191 100%

Source: Cordell Connect, RPM


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The apartment pipeline follows a similar path, with

1,092 projects or 76% of the total pipeline in the

planned or approval stages. When combined, these

projects could yield 73,290 apartments.

These numbers are substantial, particularly given

muted apartment price growth in recent quarters

due to tighter banking lending and reduced investor

activity.

It is worth noting that while a project is in the

pipeline, particularly in the earlier stages, it could

always be shelved if developers believe buyer

appetite and overall profit margins don’t stack up.

Anecdotally this has already occurred. Overall, the

market continues to self-regulate.

Nevertheless, as the approval numbers show, the

development sector remains relatively positive over

the near term, particularly in Melbourne’s middle

ring as highlighted in the pie chart.

METRO MELBOURNE MEDIUM DENSITY PIPELINE ACTIVITY

Source: Cordell Connect, RPM

Inner Ring 4%

Outer Ring 27%

Middle Ring 69%

APARTMENT & TOWNHOUSE

DEVELOPMENT SPLIT BY LOCATION


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OUTLOOK

Our outlook remains largely unchanged from the

previous two quarters. The apartment market is

cooling as opposed to crashing. The key underlying

component for all dwelling types is population

growth – particularly overseas migration.

The apartment market is still working its way

through some excess stock in some suburbs and

through the inner ring, however it is incorrect to

say there is an overall market oversupply. Areas of

excess supply should be absorbed over the next 12

to 18 months. If credit was more freely available it

would be a lot shorter.

Tighter credit and prospective changes to negative

gearing and capital gains tax for property investors

under a federal Labor government has sparked

revisions on how much further the market

may fall.

The consensus among most commentators is the

apartment market will remain soft for a couple

of years in terms of price. While the market has

‘normalised’ after a five-year residential boom,

a low growth environment will persist until after

the federal election and lending criteria either

moderates, regulators step into stimulate demand

by reducing dutiable levels or developers adapt their

expectations.

Demand for townhouse product offering the

lifestyle and internal configurations of a traditional

house at a much more affordable price will remain

strong. This is reflected in several townhouse

developments in what would be considered non-

traditional townhouse suburbs including Altona

North where Development Victoria is selling 127

townhouses and Braybrook where Stockland is

selling a 422 townhouse development.

DEVELOPERS ACROSS THE BOARD ARE FACING MORE HURDLES TO ENSURE THEIR PROJECTS ARE SUCCESSFUL, SUCH AS SITE AVAILABILITY, SLOWING SALES RATES AND PRICE ADJUSTMENT AMID WEAKER BUYER SENTIMENT. NONETHELESS, THEY ARE INCREASINGLY INCORPORATING MEDIUM DENSITY PROJECTS INTO THEIR PORTFOLIOS AS DEMAND FOR AFFORDABLE, QUALITY HOMES REMAINS AS MELBOURNE CONTINUES TO DENSIFY.


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FEATURE STORY:

REIMAGINING THE AUSTRALIAN DREAM

AS MELBOURNE CONTINUES TO DENSIFY, THERE IS A GROWING FOCUS BY DEVELOPERS ON LARGER TOWNHOUSE PRODUCT TO CATER TO THE INCREASING OWNER OCCUPIER MARKET IN MIDDLE AND OUTER RING SUBURBS.

DESPITE A COOLING PROPERTY MARKET, HOUSE

PRICES STILL REMAIN OUT OF REACH FOR MANY,

PARTICULARLY FIRST HOME BUYERS SEARCHING

FOR THEIR DREAM HOME IN THEIR PREFERRED

LOCATION. HOWEVER, WELL-DESIGNED, HIGH

QUALITY TOWNHOUSES CONTINUE TO GROW IN

POPULARITY AS AN AFFORDABLE HOUSING OPTION

FOR A RANGE OF BUYERS.

Changing lifestyle and demographic trends is also

driving a shift towards townhouses. Downsizers

seeking a lower maintenance lifestyle, upgraders

seeking a home with a similar footprint to a house,

and first home buyers wanting to live in a good

location close to shops, transport and services are all

driving strong demand for this type of housing stock.

Townhouse approvals remained strong with a gain

of 5% over the 12 months to September 2018. As

Melbourne continues to densify, there is a growing

focus by developers on larger townhouse product

to cater to the increasing owner occupier market in

middle and outer ring suburbs.

Reflective of this trend, RPM recently launched

Ironwood, a development comprising 130 luxury

residences in Cranbourne North in Melbourne’s

South East by developer Lennium Group. Designed

by Finnis Architects and built by Sienna Homes,

Ironwood delivers townhomes with luxury finishes,

overlooking the Cranbourne Golf Course.

The architecturally designed residences comprise

three and four bedrooms, with single and double

storey options ranging between $575,000 and

$711,000 in the first stages. Key features include

timber floorboards, high ceilings, European stainless

steel appliances and stone bench tops.

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IRONWOOD IS LOCATED JUST 33 MINUTES FROM THE MELBOURNE CBD WITH EASY ACCESS TO SOUTH GIPPSLAND HIGHWAY AND MONASH M1 FREEWAY. MERINDA PARK RAILWAY STATION IS ALSO CLOSE BY, AND UPGRADES TO THE CRANBOURNE – PAKENHAM TRAIN LINE WILL INTRODUCE MELBOURNE’S FIRST HIGH-CAPACITY TRAINS BY 2019.

Head of Project Marketing at RPM, Luke Kelly,

said the luxury homes – aimed at owner occupiers

– provide an exclusive retreat and unparalleled

liveability right at the nexus of metropolitan

Melbourne, the Dandenong Ranges, and the

Mornington Peninsula.

“Ironwood offers luxury and lifestyle in one,” he said.

“It’s ideally located to existing amenity including

schools, cafes, restaurants and shopping centres as

well as parks and sports and recreation grounds.

“These residences offer affordability without

compromising on quality or space given the three

and four bedroom, two bathroom and double garage

configurations.”

Ironwood’s display suite is now open. RPM has

been appointed as the exclusive sales agent for

the project.

For enquiries contact Luke Kelly

on +61 400 688 520 or email

[email protected]

FEATURE STORY: REIMAGINING THE AUSTRALIAN DREAM

This and previous pages: Ironwood, a development comprising 130 spacious residences in Melbourne’s South East.

Offering luxury and lifestyle in one and meeting the needs of changing lifestyle and demographic trends.



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THE PROPORTION OF NEW DWELLINGS BOUGHT

BY FOREIGN PURCHASERS ESCALATED TO 21% IN

JUNE QUARTER 2017, WHICH WAS ATTRIBUTED TO

FOREIGN INVESTORS BRINGING FORWARD THEIR

PURCHASE TO AVOID THE REMOVAL OF OFF-THE–

PLAN CONCESSIONS FOR NEW DWELLINGS FROM

1 JULY OF THAT YEAR.

Once this policy change was implemented, the

share of new dwellings bought by a foreign person

declined immediately, ranging between 12% and

14% in each of the last five quarterly periods to

September quarter 2018.

Overall, in Victoria, the proportion of established

dwellings purchased by a foreign person is

consistently lower than that for new dwellings.

Foreign buyers have comprised less than 10% of

total established dwelling purchases since March

quarter 2017, which has fallen further to 6% in the

June and September quarters this year - the lowest

level since the start of 2012.

OVERVIEW

INTERNATIONAL


JINYIN ZHANGDIRECTOR, RPM [email protected]+61 451 898 886

THIS DOWNWARD TREND IS A DIRECT CONSEQUENCE OF TIGHTER RESTRICTIONS ON FOREIGN BUYERS IN AUSTRALIA AND POLICY CHANGES IN CHINA ON FOREIGN INVESTMENT OUTFLOWS.

24%

26%

22%

20%

18%

16%

14%

12%

10%

8%

6%

4%

2%

0%


■ New 25% 16% 11% 22% 15% 19% 14% 21% 14% 14% 12% 12% 13%

■ Established 15% 9% 7% 10% 9% 11% 7% 9% 8% 9% 8% 6% 6%

Source: NAB Quarterly Residential Property Survey

% O

F FO

REIG

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ASES

BY

DW

ELLI

NG

TYPE


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TIO

NA

L

The Australian economy performed strongly over

financial year 2017/18, with increases in Gross

Domestic Product (GDP) and private consumption

from a year earlier. GDP growth is projected to

stabilise around the national long term average of

3% in 2018/19.

Strong public infrastructure spending and improving

private non–dwelling investment is anticipated to

see the unemployment rate fall to below the long

term average (5.50%) in the current financial year.

The subsequent tighter labour market is expected

to induce higher wage growth, resulting in an

anticipated increase in the cash rate during 2019.

AUSTRALIAN ECONOMY

Economic indicators

(% change)

2017/18 e 2018/19 f

GDP 2.90 2.90

Employment 3.00 2.10

Unemployment Rate 5.50 5.00

Average Earnings 1.40 1.90

Inflation 2.10 1.90

RBA Cash Rate 1.50 1.75

$A/US cents 0.74 0.73

Source: NAB. The Forward View

AUSTRALIAN ECONOMIC OUTLOOK


INT

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L

THE NATIONAL HOUSING MARKET IS ANTICIPATED TO CONTINUE TO WEAKEN, WITH NEW PRIVATE DWELLING INVESTMENT CONTRACTING. HOWEVER, RECORD LOT SALES AND SOLID APARTMENT PRE–SALES IN 2017 WILL SUPPORT CONTINUED APARTMENT AND DETACHED HOUSING CONSTRUCTION.

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WITH CONTINUING ACUTE LOW VACANCY RATES,

THE RENTAL MARKET IN MELBOURNE AND

GEELONG REMAINS ON A LONG-TERM UPWARD

TREND. RENTS HAVE SHOWN POSITIVE GROWTH

OVER THE PAST TWO YEARS TO THE END OF

SEPTEMBER QUARTER 2018 IN BOTH DETACHED

HOUSES AND APARTMENTS.

The inner and middle rings of Melbourne recorded

the highest growth over the past two years, with

rates of between 3.8% and 8.0%. The exception

was four-bedroom houses in the middle ring, which

showed a modest gain of only 0.9% over this period.

The outer ring of Melbourne saw slightly lower

gains overall, though still remaining at or above

the inflation rate. Like the outer ring, Geelong has

recorded positive results across the board with

gains of between 1.5% and 3.4% over the past two

years.

OVERVIEW

RESIDENTIAL INVESTMENT


Units and apartments underperformed when

compared to the growth recorded for detached

houses. Both the inner and middle rings of Melbourne,

and across all bedroom numbers, have seen average

rental gains of between 1.6% and 5.2% per annum.

The exception was three-bedroom dwellings in the

inner ring, which recorded a per annum loss of 2.7%

over the past two years. This can be attributed to

this dwelling type constituting low levels of rentals,

and therefore can fluctuate excessively. This is

highlighted by a $58 rental increase taking place over

the past 12 months but still showing an overall loss.

In the outer ring, other dwellings performed strongly

with average annual gains of between 1.6% and 3.8%

over the past two years. More robust gains have

been recorded in Geelong, which has seen strong

demand for rentals along the foreshore from both

professional couples and students attending nearby

universities. Overall, average gains across the two

years to September 2018 ranged between 2.6%

and 4.9%.

MEDIAN RENTS

House

Bedrooms Sep-17 Jun-18 Sep-18 Change from previous year

2 Year Average Annual Gain

INNER 2 $525 $565 $550 $25 4.9%

3 $645 $675 $700 $55 8.0%

4 $800 $800 $838 $38 5.7%

MIDDLE 2 $376 $378 $390 $14 5.4%

3 $423 $423 $430 $7 3.8%

4 $550 $570 $560 $10 0.9%

OUTER 2 $340 $340 $350 $10 4.6%

3 $370 $380 $380 $10 2.7%

4 $420 $430 $420 $0 1.2%

GEELONG 2 $290 $310 $310 $20 3.4%

3 $350 $350 $350 $0 1.5%

4 $410 $420 $420 $10 2.5%

Units & Apartments

Bedrooms Sep-17 Jun-18 Sep-18 Change from previous year

2 Year Average Annual Gain

INNER 1 $370 $380 $380 $10 2.7%

2 $480 $500 $500 $20 3.2%

3 $618 $675 $675 $58 -2.7%

MIDDLE 1 $320 $330 $330 $10 1.6%

2 $400 $400 $400 $0 2.6%

3 $500 $510 $510 $10 5.2%

OUTER 1 $263 $240 $240 -$23 2.0%

2 $335 $333 $333 -$3 3.8%

3 $385 $400 $400 $15 1.6%

GEELONG 1 $210 $220 $220 $10 4.9%

2 $290 $300 $300 $10 2.6%

3 $380 $380 $380 $0 3.0%

Source: REIV


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VACANCY RATE

Melbourne Sep-17 Jun-18 Sep-18 2 Year Average Gain

Inner Total 1.9 1.8 2.0 2.0Inner (0-4km) 2.0 1.7 1.4 2.2Inner (4-10km) 1.9 1.8 2.2 2.0Middle (10-20km) 3.1 2.4 2.6 2.9Outer Total 1.7 1.6 1.6 1.8Outer (20+km exc. Mornington Peninsula) 1.6 1.5 1.5 1.7Outer (Mornington Peninsula) 2.4 3.3 2.8 2.3Melbourne Total 2.1 1.9 2.0 2.2

Geelong 1.9 1.8 2.1 2.1Source: REIV

OVERVIEW

From the June quarter to the September quarter 2018,

most regions recorded slightly higher vacancy rates over

the period. Despite improving, they all remain below the

acceptable level of 3%, reinforcing the consensus there

is no oversupply of stock in the market.

This being the case, rental growth has been sustained,

providing appealing yields for investors. For those

investing in the outer and regional areas, in general land

YIELDS

Houses Sep-17 Jun-18 Sep-18Inner 2.08% 2.30% 2.54%Middle 2.11% 2.13% 2.29%Outer 2.88% 2.83% 2.93%Metro 3.45% 2.49% 2.65%Regional 4.04% 3.72% 4.00%

Units Sep-17 Jun-18 Sep-18Inner 4.03% 4.15% 4.26%Middle 3.11% 3.11% 3.17%Outer 3.50% 2.56% 2.70%Metro 3.54% 3.71% 3.70%Regional 4.22% 4.26% 4.44%

Source: REIV, RPM

value appreciation tends to be the driving force in

the earlier stages. However, with vacancy rates at

acute levels, rental yields for detached houses for

outer and regional areas tops the list.

Due to significant capital gains seen in both

detached houses and other dwellings over the last

five years, rental yields have been below long term

levels. Rental growth has not kept up anywhere near

the level seen in capital gains. Nevertheless, with

prices moderating – particularly in other dwellings

– rental yields have picked up over the September

quarter 2018, and more so from this time last year.

Regional areas of Victoria continue to achieve the

highest yields due to lower purchase prices, coupled

with robust rental prices given regional areas are

traditionally tightly held.


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OUTLOOK MEGAN TAYLORMANAGER, PROPERTY [email protected]+61 428 575 149

While the number of first home buyers have

increased, tighter lending criteria has made it

increasingly difficult to enter the market and

therefore many remain renting. Coupled with

continuing high population growth, vacancy rates

have remained at acute levels.

With supply generally sitting well below demand

levels, rents have continued to increase. These

positives provide key incentives for investors to

enter the market, albeit in the face of increasing

lending headwinds.

Renters will be in a more favourable position come

the 1st July 2020 with new rental regulations

coming into play (see next section). The changes,

however, could discourage some investors when

these changes become enforceable, as property

investors may feel they have less control over their

investment.

IN ADDITION, WITH A LIKELY CHANGE OF GOVERNMENT AT THE FEDERAL LEVEL AND INDICATIONS THAT A LABOR GOVERNMENT WILL OVERHAUL NEGATIVE GEARING AND CAPITAL GAINS, SOME INVESTORS WILL ATTEMPT TO GET INTO THE MARKET SOONER RATHER THAN LATER. THIS COULD CAUSE A SHORT TERM SPIKE IN BOTH PRICES AND ACTIVITY AS SEEN WHEN CASH INCENTIVES WERE OFFERED TO FIRST HOME BUYERS IN THE LAND MARKET.


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LAND MARKET INVESTOR INSIGHTS

RPM surveys every buyer on our clients’ estates

in the greenfield market. The following illustrates

demographic and purchase intent changes amongst

this cohort based on surveys from the September

quarter 2018 compared to the same quarter in 2017.

Both local and overseas investors remain a

prominent part of the greenfield market, with one

third of all land sales being bought by an investor—

up from a quarter the same period a year earlier.

This highlights the attractiveness of the land market

to investors from both a capital growth and rental

yield perspective.

While the widely regarded view that high income

family households prefer to invest in detached

houses still holds, the above average yields

achieved in the land market over the past couple of

years has made the greenfields a more accessible

option for couples, and to a lesser extent singles.

These two cohorts have traditionally invested in

one and two bedroom apartments in the inner and

middle rings given the lower entry price. However,

positive gains in the land market coupled with well-

priced entry level house and land packages has

resulted in the share of couples increasing from 13%

in the September quarter last year to 29% for the

same period this year.

THE LARGER FAMILY UNIT STILL REMAINS THE MOST PROMINENT COHORT AT 63%, DESPITE FALLING FROM 79% THIS TIME LAST YEAR.

The increasing share of professional couples buying

in the land market underpin the fundamentals of the

sector. It not only reflects steady short to medium

term gains, but more importantly, stable long term

gains. This is important, as this generation is more

likely to invest personally or through a self-managed

super fund (SMSF) as opposed to redirecting

additional income or savings into their traditional

superannuation.

In recent years the country of origin of investors

has predominantly been Australia and India, which

combined comprised 76% of all investors in the

September quarter last year. This fell to 67% this

quarter, due to the decline in the share of Indian

buyers, down from 46% in the September quarter

2017 to 29% this quarter. A higher presence of

Chinese investors (10%) was also recorded.


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10

SEPTEMBER 2018

Group/Friends 0%

60+ 3%

Italy 3%

Croatia 3%

Single 8%

50-59 10%

Iraq 3%

Bangladesh 5%

Couple 29%

35-49 52%

Fiji 3%

China 10%

Family 63%

25-34 33%

Sri Lanka 3%

India 29%

18-24 2%

Nepal 3%

Australia 38 %

Investor Owner-Occupier

33% 67%

7%

33%

18%

29%

13%

+

Cambodia 1%

Philippines 4%

60+ 2%

Group/Friends 0%

Pakistan 2%

China 5%

50-59 10%

Single 7%

Malaysia 2%

Sri Lanka 6%

35-49 51%

Couple 13%

Iraq 2%

Australia 30%

25-34 33%

Nepal 2%

India 46%

18-24 4%

Family 79%

Investor Owner-Occupier

SEPTEMBER 2017

+ 7%

46%

23%

19%

4%

23% 77%


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A GROWING PROPORTION OF VICTORIANS ARE PRICED OUT OF HOME OWNERSHIP, MAKING THEM LIKELY TO RENT FOR LONGER PERIODS OF TIME.

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R P M R E A L E S TAT E G R O U P66

Victorians are renting more now than at any stage

in the state’s history, and for longer. In an attempt

to rebalance the market, the Victorian Government

has undertaken a comprehensive review of the

Residential Tenancies Amendment Bill 1997. The

review sought to ensure that the Act still meets

the needs of Victoria’s renters. In August this year,

the Victorian Parliament passed the Residential

Tenancies Amendment Bill 2018.

The reforms are largely based on the reality that

a growing proportion of Victorians are priced out

of home ownership, making them likely to rent for

longer periods of time. The Bill includes more than

130 reforms designed to improve protections for a

diverse population of renters, while ensuring those

who provide rental housing can still effectively

manage their properties.

A sample of these reforms are:

• Allowing animals to be kept in any

rented premises

• Allowing renters to make minor modifications

to a rental property without prior consent

• Bolstering security of tenure and ending ‘no

fault’ evictions by removing the ‘no specified

reason’ notice to vacate, and restricting the use

of ‘end of the fixed-term’ notices to vacate to the

end of an initial fixed term agreement

• Establishing a non-compliance register to

‘blacklist’ residential rental providers and agents

who fail to meet their obligations

• Providing for the early release of bonds

with the consent of both parties to the

tenancy agreement

• Restricting solicitation of rental bids by

residential rental providers and agents

• Providing for annual, instead of bi-annual,

rent increases

• Providing for faster reimbursement where

renters have paid for urgent repairs

• Increasing the number of properties to which the

statutory maximum cap of four weeks for bond

and rent in advance applies

• Enabling automatic bond repayments, which will

be available to a renter within 14 days where the

parties are not in dispute

• Requiring mandatory pre-contractual disclosure

of material facts, such as an intention to sell

the rental property, or the known presence of

asbestos

• Prohibiting misleading or deceptive conduct

inducing a person into renting a property.

The new regulations will not take effect until the

1st July 2020.

This information has been sourced from

https://engage.vic.gov.au/fairersaferhousing

A full list of reforms can be found on the Engage Vic website.

NEW RENTAL LAWS PASS


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OUR TEAM

LUKE [email protected]+61 400 688 520

ERIC DICKEXECUTIVE [email protected]+61 418 349 267

KEVIN BROWNCHIEF EXECUTIVE [email protected]+61 418 397 577

JINYIN ZHANGDIRECTOR, RPM [email protected]+61 451 898 886

CHRISTIAN RANIERIGENERAL MANAGER, TRANSACTIONS & [email protected]+61 416 445 078

MEGAN TAYLORMANAGER, PROPERTY [email protected]+61 428 575 149

DELENA BAJADA-GARDNERASSOCIATE DIRECTOR, [email protected]+61 487 888 556

MICHAEL STAEDLERRESEARCH [email protected]+61 434 619 280




DISCLAIMER

Although all reasonable care has been taken in the preparation of this document, RPM Real Estate Group Pty Ltd takes no responsibility for the accuracy of the information

contained herein. It is recommended that all the information be verified if it is to be used for commercial purposes.

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South Melbourne VIC 3205

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RESIDENTIAL MARKET REVIEW - RPM Real Estate Group · The data contained within this report was prepared by RPM’s research team consisting of economists, property experts and GIS

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