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Established real estate might be doing it tough, but records are being broken for residential development sites

With Melbourne laying claim to the title of second most liveable city in the world, the local population continues to expand as new residents flock from overseas and interstate to enjoy all that Victoria’s capital has to offer; not least of which is a strong economy and expanding property market offering a good diversity of accommodation options.

Developers have noted the demand for new housing that the city’s population explosion is creating and in turn, are cranking up construction of high density residential dwellings and putting upward pressure on development site prices.

According to a recent report in locally based newspaper The Caulfied-Glen Eira Leader, even as property prices are flatlining around Melbourne’s inner city, local and offshore developers are paying record prices for scarce high density, residentially zoned allotments.

Competition is fierce, with overseas consortiums seeking to cash in on our economic and political stability as well as comparatively low land prices, according to Savills divisional director Nick Peden.

“Melbourne has all the fundamentals in place for residential development,” he said.

“The economy is sound, recent population and employment growth have both been nation-leading and historically low CBD office vacancy indicates a further vote of confidence from the business community.

“All of these factors have contributed to a huge demand for new housing and a consequent shortage.

“The problem is we don’t have enough development sites available and the upshot has been record prices being paid for residential development opportunities all over Melbourne.”

Foreign developers have heard the buzz surrounding comments made by Head of Treasury Martin Parkinson in recent times, who suggested that “Australia is about to enter a boom that should last decades” and have been increasingly active in the local market as a result.

The Australian Bureau of Statistics has forecast population growth for Melbourne over the next 15 years in the vicinity of around 1.6 per cent every year until 2026, meaning an extra 1.5 million people will be seeking accommodation, mostly in and around the CBD.

“There is no doubt that Australia’s economic credentials – having sailed through the GFC relatively unscathed – are looked upon very favorably by the international community and, in this case, developers in the Asia-Pacific region, who are also attracted by land prices that compare well with their local prices,” Peden said.

He expects land values and demand for high-density development sites to continue to increase this year, which bodes well for local property prices that should be largely underpinned by this increased activity.

But a word of warning for investors…. when it comes to the current construction frenzy is to beware of off the plan buys that appear too good to be true. With developers paying premiums for allotments on which to build their wares, chances are prices will be hefty as they add a little extra cream on top for their margins and marketing costs. Don’t get caught out with a property that just isn’t worth the price you might end up paying!



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Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and his opinions are regularly featured in the media. Visit Metropole.com.au


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