In addition, the $13,000 state government handout for those buying or building a new home ended on June 30, which also may have contributed to a drop in demand.
The December quarter update to the land survey – out in early 2013 – will provide further evidence if the spike in the cancellation rate was exacerbated by these factors or is a longer-term trend.
What does remain though is a peak residential lot “overhang” of around 5,000 lots – land held mainly by listed developers – with is likely put further pressure on pricing.
“We are in for a lot of pain, and there is no clear sign of a turnaround either,” says Papaleo.
Papaleo says the current incentives being offered by residential developers – ranging from $10,000 to $50,000 – are being dissolved into the pricing, causing a “re-benchmarking to remove the distortion”.
“This will result in the need for a reduction in the price.” he says.
The market has also not been helped by a rise in supply following plans announced in June to extend Melbourne’s urban growth boundary outwards over the next 20 years to incorporate six new fringe suburbs and provide new homes for up to 100,000 people.
There are currently 24 precinct structure plans (PSPs) in various stages of planning, according to Melbourne’s Growth Area Authority, with each PSP catering for master-planned residential communities of between 10,000 to 30,000 people.
“Supply has been forced up at the worst possible time,” says Papaleo.
According to Papaleo, a pick-up in overseas migration will have flow-on effects for the Melbourne property market and help spur a recovery in the fringe residential new housing market.
“Net overseas migration has come off the bottom of its cycle, but there is usually a 12 to 18 month lag before it feeds into the housing market,” he says.
A pick-up in overseas migration could result in a rise in demand for fringe housing from these new arrivals but could also see them acquiring established housing and those displaced residents choosing, in some cases, to buy a lifestyle property on the outskirts of the city.
This article first appeared on Property Observer.
