VIC MARKET OVERVIEW
VICTORIA
VIC Market Overview with Julian White What’s your take on the current state of the Development market and where do you see the opportunities for Developers in 2023, given recent developers such as Porter Davis going under?
interest rate cycle, with many believing the cash rate will start coming down again later in the year. The first cash rate increase was in April 2022, so this has been a cycle now for 12 months. Similarly with building costs, these started demonstrating sharp increases early to mid 2022. Feedback we are receiving from active developers is the volatility in these has diminished, and developers have more confidence in the estimates going into feasibility assessments. In line with our comment above, we believe we are through the most challenging period and are now in an early recovery phase. Debt costs aside, all the other major indicators are for a very healthy residential market – unemployment rate is flat at 3.5%, strong wage growth exists across most major sectors, 300,000 net arrivals are expected to permanently migrate to Australia this year (with Melbourne’s student population numbers a highlight), and we have a massive undersupply issues of residential accommodation highlighted by a 0.8% Metro Melbourne residential vacancy rate, very strong rental growth and in 2022 a 27.5% reduction in new supply. So as buyers get more confidence the interest rate cycle is at its peak, these positive market factors will start to weigh more heavily and by the end of 2023 we will be in a much stronger market. One only needs to look at the clearance rate figures that have been consistently in the mid 70% range for the past month to understand that the underlying demand is there and starting to move. It is the
The failures of home builders like Porter Davis do not happen overnight. Build cost escalation, low margins and historic volumes that were not sustainable, are not new issues. But it takes time for these challenges to reach a stage of business failure. So this is not necessarily reflective of market sediment. From observation of developer activity on our campaigns, we believe the development site market has bottomed out and is now in the early recovery stages. We are receiving more offers on campaigns now than in late 2022. The overall commentary from buyers is positive in their desire to purchase to secure pipeline for stronger residential markets to come. The opportunities for developers in 2023, is to be active in securing new projects and be a market participant. We are seeing experienced developers, who have worked through cycles, increase their bidding activity on sites significantly over the past six months. They are typically targeting sites that are core to their business and utilising strong balance sheets to present cash offers. Short-term offers are very powerful at present. Marketwise, what are your forecasts for 2023, and how will increased lending and building costs impact the various markets? Most major lending institutions are predicting we are very close to the top of the current
JULIAN WHITE National Partner Stonebridge Property Group
48 –March / April 2023
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