Victorian Residential Construction Market update Feb 2024

I attended a breakfast seminar this week where the valuation firm Heron Todd White gave a presentation on where they see the market and provided some data for January 2024.

Unless otherwise stated, the data relates to Victoria only.

New sales listing was up 20% for metro Melbourne compared to January 2023 and up 25% in Regional Victoria.

Valuations completed by Heron Todd White in January 2024 were up 20% compared to 2023 and up 27% compared to 2022 for metro Melbourne. In regional Victoria they were up 17% compared to 2023 and 14% compared to 2022. 67.4% of all valuations were for refinances and 24.9% were for purchases.

The point to remember here is that all lenders require valuations for a refinance, whilst most lenders only require a valuation if the purchase is in LMI territory and will rely on the Contract of Sale price sub 80% LVR.

They noted the change in Median house price over the period 2018 – 2023 with all states increasing. But some states much more than others.

NSW - +31%, Vic - +13%, Qld - +50%, SA - +63%,

NT - +18%, ACT - +42%, WA - +27%, Tas - +50%.

Relocation due to Covid, they believe, played a huge part in these numbers due to an increase in demand for properties with a lot of young families returning to their home state. Read people leaving “Lock Down” areas.

Over the past 6 months new or recently renovated properties have been selling for a premium over those properties needing some TLC. There is still a perceived “Building Risk” with material and tradie shortage. Or if available both can come at a high cost. There is also concern with the high level of builder insolvency.

The presenter gave an example of a property purchased in Doncaster for $1.485m in 2016. It then sold untouched for $1.33m in 2023. The original purchaser wanted to subdivide but had trouble with council, locating a builder, building costs and increasing interest rates. The new purchaser bought it as a pure investment property.

He spoke about the challenges facing building projects.

- The cost of building materials have escalated circa 15% over the past 2 years.

- Contracts are being terminated for delayed start or completion.

- Builders seek 52% of claim payment at frame stage – normally 30%. Or

- Builders seek 80% of claim payment at lock up stage – typically 65%.

- Up to 55% of the “fixed price” contract made up of variable items.

The last three points the lenders are totally against.

He also provided this table that shows change in the median cost for land & construction in growth areas between 2022 & 2024 compared to the median house price in the same location of the same period.

In some locations, house and land packages where cheaper two years ago.

Please email if you have any questions relating to construction or development loans.

phil@phaservices.com.au

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