Jul 31, 2020 | ,

Updated Views on Land Market – Post Stimulus

It really has been a crazy time in the WA land market.  If you thought there was panic buying for toilet paper, you should have seen people scrambling to buy land in June!  Thankfully the market has settled down in July with a more manageable work-load.  There’s no doubt this rush will provide significant stimulus for the WA economy over the next 18 months as these homes are being built.

 

So what will this stimulus and additional sales from June to December 2020 mean for the land market in 2021 and beyond?  To answer that question we need to consider what has occurred over the last five years.

 

Following a low in 2016 and 2017, WA’s population growth has been slowly increasing from 2018 with net population growth increasing to 33,200 people (1.3% of WA population) for the 12 month period to 31 December 2019 (Source: ABS).  Due to ongoing health concerns and subsequent travel bans, interstate and overseas net immigration in Western Australia stalled from March 2020 onwards and Perth’s population growth is likely to return to the low levels of 2016 and 2017 levels of approximately 18,000 people per annum, essentially being natural increase (births less deaths).

 

Due to the lower supply of dwellings to the market and higher population growth in recent years, the rental vacancy rate has reduced from 10,400 homes in July 2017 to 3,300 homes in July 2020.  This low vacancy rate underpinned the land market, which performed relatively well from March to May 2020.  In June 2020 the Federal and State Governments introduced building grants in the order of $45,000, which are available to most house and land purchasers.  This significantly stimulated the industry with sales increasing four-fold in June 2020, although it is expected there will be a higher percentage of finance declines due to valuation issues and purchasers rushing in without considering their financial circumstances.

 

The increased stimulus has already resulted in price increases by builders and land developers with most incentives previously available having been removed.  Following the spike in sales in June 2020, sales reduced to a more manageable level in July 2020 as titled land supply tightens, builder capacity tightens and prices / costs have increased.  Based on this we are of the view that this building and land sales boom will be short lived and, given the current low rental vacancy level of only 3,300 homes (SQM Research, July 2020), these new homes will not oversupply the market in 2021.

 

There are many unknowns that will impact the property market in 2021 such as how long border restrictions stay in place, the potential for future lockdowns and the extension of government stimulus however thankfully, Western Australia’s property market is in a sound position to weather these unknowns.  Based on this Celsius is continuing to look for land development opportunities where sites are well priced, with a point of difference in the local market.

 

Regards,

Brenton