Melbourne developers offer big rebates as unsold lots surge

Larry SchlesingerReporter

Aug 5, 2024 – 5.28pm

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Melbourne developers are offering big rebates and discounts and accepting low deposits as they try to clear a mountain of unsold housing lots and revive the country’s biggest – and worst-performing – house-and-land market.

New figures from project marketing firm Red23 show stock availability in Melbourne’s greenfield housing markets hit 2800 lots last month, up 24 per cent year-on-year and the highest level in almost four years.

Melbourne’s struggling new homes market faces a host of headwinds. Eddie Jim

Of this stockpile, about 30 per cent – more than 800 lots – are already titled, shovel-ready lots, a 464 per cent increase on a year ago and a record high, according to Red23.

Melbourne’s struggling new homes market faces a host of headwinds: the narrowing gap between new and existing homes – Melbourne is the only capital city where values are falling – the continuing impact of overselling lots during the pandemic, affordability and borrowing challenges, and weak buyer sentiment.

The slowdown in lot sales bodes ill for federal and state government efforts to increase supply and alleviate a worsening housing crisis. Melbourne historically accounts for about 40 per cent of the national house-and-land market, which is a popular housing option for first home buyers, families and new migrants.

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Red23 managing director Terry Portelli said an incentive scheme like the $25,000 HomeBuilder program, which was introduced during the pandemic, would be an effective way to absorb unsold titled lots.

“It would be advantageous to have a similar incentive reintroduced,” Mr Portelli said.

‘Melbourne is still in the change room’

In the absence of such a scheme, Melbourne developers are taking matters into their own hands by offering price reductions of up to $35,000 and an average rebate of $20,000, as well as accepting low deposits.

Dennis Family Homes is accepting 5 per cent deposits on lots at its Modeina estate in Burnside in Melbourne’s west. In Fraser Rise, in the city’s north-west, buyers can secure lots at Wolfdene’s and Blueways’ Taylors Run estate with a $10,000 deposit and a $10,000 discount thrown in.

Developer Golden Age is offering up to $25,000 off title lots at its Willow Springs estate in Rockbank in the city’s west, while ASX-listed Stockland is accepting $10,000 deposits and offering a $20,000 rebate on select lots in some of its Victorian estates.

Colin Keane, director of greenfield market specialist Research4, compared the performance of the Melbourne house-and-land market to a laggard in an athletics race.

“Melbourne is still in the change room, whilst the other [cities] have already starting running. It’s actually worse than that – most of the other runners have already finished a lap,” Mr Keane said.

He said the “overselling of product” in 2021 and 2022 on the back of the HomeBuilder stimulus, which brought future customers into the Melbourne market early, was a key reason for the city’s underperformance.

“Unlike other states, Victoria sold too many lots [during the pandemic] which is why it is stuck at the bottom of the cycle for a longer period,” Mr Keane said.

He also cited the shrinking gap between the price of a new home in the growth corridors and an existing home in the established suburbs, which has made the value proposition of building a new home less attractive.

“The median house price in Melbourne has been coming down, which is making land [now averaging over $400,000 a lot] look more overvalued,” Mr Keane said.

The result of these headwinds is that lot sales, which hit a record high of almost 34,000 in Greater Melbourne in 2021, have crashed to about 600 a month this year, or just over 7000 if annualised.

By comparison, the more affordable and much smaller Perth market (with a median lot price of $310,000) was averaging 1000 lot sales a month and doing “very well”, Mr Keane said.

Also doing “very well” – despite a $410,000 median lot price – was south-east Queensland, with about 900 lot sales a month, and the small Adelaide market, with 250 a month.

There will be a real tension between those wanting to participate in the market and the inability of developers to lower their prices.

— Colin Keane, Research4

Despite a median lot price of more than $700,000, Sydney was doing “well”, averaging about 600 lot sales a month (on par with Melbourne), and sales volumes were forecast to keep improving, Mr Keane said.

“Lot sales account for only 25 per cent of new housing demand in Sydney compared with 40 per cent in Melbourne,” he said.

Mr Keane forecast a “steady improvement” in the Melbourne market from the end of the year, but with the “sticking point” being that returning customers will be price sensitive and on a strict budget.

“There will be a real tension between those wanting to participate in the market and the inability of developers to lower their prices [due to high fixed costs]. So it will be a slow recovery with most of the interest in the smaller, cheaper blocks,” he said.

Tom Trevaskis, CEO of Melbourne developer Moremac, said inquiries were half what it would see in a “normal” market, and sales volumes were at a similar level.

“There are sales to be made, but sentiment is low,” he said

“The challenges are around borrowing capacity and sentiment. This is having a national impact, but is more acute in Victoria,” he said.

Mr Trevaskis said the emergence of a positive narrative around the Melbourne market or fresh stimulus was required to turn things around.

Some major developers are already adjusting their strategies.

Villawood Properties executive director Rory Costelloe said the developer was not looking at buying any new sites in Victoria, but was in negotiations on sites in WA, SA, northern NSW and Queensland.

Others such as Young Rich Lister Andrew Welsh’s Wel.Co are focusing on opportunities in South Australia and regional Victoria, where market conditions are stronger.

Mr Welsh said sales were flying at Wel.Co’s South Australian projects. “We’re doing 15 sales a month in Adelaide,” he said.

At its newly launched Echuca estate on the Victorian border, Wel.Co sold 20 lots in June and 12 July. Sixty per cent of buyers were from Melbourne and Sydney.

“A new four-bedroom home in our Echuca estate costs about $550,000 compared with $800,000 for a similar property in Craigieburn [on Melbourne’s northern outskirts],” Mr Welsh said.

real estate the next bubble to pop