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Raine & Horne Land Victoria says land shortage to drive up land prices in Melbourne

October 20, 2021

Melbourne, Victoria (7 September 2021) A combination of historic low-interest rates and shortage of stock could send prices for vacant residential land soaring by 20% over the next 12 months.

According to Raine & Horne Land Victoria, which specialises in selling development sites and blocks of land throughout Victoria, the state government has no plans to release any new residential land anytime soon.

"At the same time, record-low interest rates are fuelling demand for land from upgraders and first-time buyers," he said.

"The trouble is developers can't find enough land, particularly in Melbourne's northern corridor, to meet this demand.

"The shortage means vacant land values are up 18-19%, while this situation is amplified by a 25% increase in the cost of some building materials such as timber."

While first home buyers have various government support such as Home Owner Grant (FHOG) of $10,000 and the First Home Loan Deposit Scheme that enables them to build a home with a 5% deposit, land and building costs are pricing them towards established properties.

"First-timers are still in the land market. However, it's more second-home buyers who are seeking to upgrade into brand new homes," said Mr Dhillon (Director Raine & Horne Land Victoria)

"Last year, land cost around $830 per square metre to build, now it's closer to $950-$970 per square metre, and it's this rise, which is pricing out first-timers."

To illustrate the strength of the market, in Rockbank, an outer suburb 29 km west of Melbourne's CBD, Raine & Horne Land Victoria sold a 12-hectare property for $22 million.

In Melbourne’s southeast, Raine & Horne Land Victoria sold a 7.5-acre land parcel for $8.6 million.

Mr Dhillon said that the demand for rental houses away from the centre of Melbourne has also attracted investors to the land market.

"Thanks to Melbourne's extended COVID lockdowns, there are many, many vacant apartments across the city as tenants look for houses," he said.

"This rental demand is pushing up weekly rents across Melbourne's metropolitan fringes, which means plenty of new housing stock is earning decent yields with many new properties positively geared in new suburbs in Melbourne's growing Western Corridor."

The latest round of COVID lockdowns is expected to have little impact on Melbourne's demand for vacant residential land.

"When COVID hit last year, no one wanted to buy land and were a bit spooked. But this year, people realise that once borders and markets reopen, prices will start to skyrocket again, especially due to the supply constraints," Mr Dhillon said.
"Councils can't keep pace with demand for services created by new housing developments.

"Lack of infrastructure is, in turn, slowing the speed of new land releases. There are also broader planning concerns with the Victorian Government committed to protecting Melbourne's green wedges between new developments."

Mr Dhillon says that the speed bumps to land releases is ironic as many farmers on Melbourne’s outer fringes are keen to sell their properties as they either wish to downsize or are being forced out by onerous land tax levies.

“The Council rates are another issue that is forcing many to consider selling their farmlands but due to a lack of infrastructure they are unable to sell.”

Raine & Horne Land Victoria are specialist Land Sales Agents who deal exclusively with Development Sites & Blocks of Land throughout Victoria and to find out more contact them today on (03) 9052 5600.