There will be no swift recovery in the outer-Melbourne residential new housing market, with a confluence of factors contributing to the unprecedented high rate of lots being returned to residential developers, according to Charter Keck Cramer.
The most recent update of the National Land Survey – a project undertaken by consultants Charter Keck Cramer (CKC) in conjunction with Research4, which tracks the performance of capital city residential land markets – found that 30% of Melbourne greenfield land had been returned by building companies to developers in the September quarter.
This compared with an already high average cancellation rate of 23% over the past 12 months and a cancellation rate of only 4% during the property boom from June 2009 to December 2010.
CKC director Robert Papaleo tells Property Observer there may have been a degree of artificiality in the September quarter cancellation rate, but there is likely to be a “long, slow recovery” for the Melbourne land market, with the current downturn exaggerated by the swift nature of the upswing over the 2009-10 period as prices rose by an “unsustainable” 15% to 20% ever quarter.
Papaleo says the jump in cancellations recorded in the September quarter to one in three may be partly due to the fact that listed developers – the main players in the Melbourne land market – have used incentives and other selling strategies to lift their contracts on hand and present healthier-looking numbers in their financial results.
Most developers reported annual financial results to the end of June.
Papaleo says some developers relaxed their selling terms to secure sales, including requiring in some cases that buyers pay only a $500 holding deposit, rather than the traditional 10% deposit.
“These are the lots that are being returned – they are also the smallest lots and the lowest price products,” says Papaleo.
He says such selling practices have been common in the south east Queensland and Brisbane market for at least two years, but are now being used to some degree in Melbourne.