January 2023 Celsius Land Update
The land market remains tough with increasing development costs and supply shortages continuing to persist in the 2nd half of 2022. The industry’s larger contractors are continuing to report cost increases including the increased price of diesel and in raw material items such as imported fill, limestone blocks, concrete pipes and sewer liners; which are also in high demand for government infrastructure work.
Increased interest rates and higher living costs have also impacted land developers recently, with customer cancellation / fallover rates increasing in the December 2022 quarter. This is primarily because buyers, who may have bought 6-9 months earlier, no longer qualify for a loan due to higher interest costs and serviceability requirements. This increase in fallovers and subsequent reduction in net sales is expected to take some pressure off the civil construction industry from mid 2023.
Private dwelling building approvals in Western Australia, as recorded by the Australian Bureau of Statistics, reduced from 21,272 dwellings in 2021 to approximately 13,500 dwellings in 2022; which is more in line with the average number of building approvals between 2015 and 2020 (14,227 per year). The number of building approvals is expected to continue to moderate in the first half of 2023 which should reduce pressure on some aspects of home building prices as homes approved in 2021 come to completion. Affordable housing construction is an important component to land price growth as it affects the price of a house and land package.
More broadly the fundamentals of the Western Australian real estate market remain strong. The vacancy rate of 0.5% reported in December 2022 (SQM Research) is expected to continue to underpin the Western Australian market and attract investors from the eastern states. Ultimately more housing is needed urgently to supply the current housing shortage and forecast population growth in the coming years.
Regards,
Brenton