Sydney new residential  lot releases fall to Adelaide levels
Sydney new residential construction falls to 1950's levels
Sydney residential property prices must rise to correct this supply shortage

Respected Property researcher BIS Shrapnel has recently issued its September Release on the Residential Land Market 2007-2011.

In respect of the number of new land lots being released in Sydney BIS Shrapnel states that:

1.“the number of lots released declined to an estimated 3,100 lots in 2004/05, and a low of 2,800 lots in 2005/06”

2. “this remains below the 7,600 lots per annum average over the five years to 2001”,

3.  “lot production has fallen to a similar level to that of Adelaide”,

4. “this level will be maintained in the short to medium term as the combination of government policy, decreased land availability and affordability constraints, conspire to prevent development of greenfield land”, and

5.“after the greenfield land cost, development costs and government charges, developers cannot make an effective margin at current values, and we expect they will elect to hold back on development until demand improves and lot prices rise sufficiently to make development viable. This will prevent any significant increase in lot production until rises in income growth make the affordability equation more attractive to purchasers”.

BIS Shrapnel also makes the following observation about the effect that the record low numbers of Sydney new lot releases are having on new dwelling construction:

1.  “This has resulted in new dwelling construction in Sydney falling to levels not seen since the 1950s”.

Implications

Compass Capital Property Group are of the view that:

• Sydney residential property prices have generally been flat since 2003, while prices in all other capital cities have shown solid rises – Sydney prices are now 20%-40+% below historical relativities with other capitals (see our article of 3 October)

• During this time, because of the shortage of profitable development opportunities:

• the supply of new lot releases in Sydney has fallen to less than 40% of the average level over the 5 years to 2001 (i.e. to levels similar to Adelaide), and
  
  
• volumes of new construction have fallen to levels not seen since the 1950s,

• This excess demand has led to extremely low rental vacancies, and historically attractive rental returns (see our article of 5 May published in Money Management Magazine),

• This excess demand will, because of the very long lead times in the construction industry, take years to clear, and can be satisfied only by an increase in price sufficient to allow developers to make a profit,

• Property prices are just now turning in Sydney and good capital gains can be expected (see our articles of 3 October, 11 September, and 31 August).

 Articles referred to may be found in the Media section of our website.

Should you or your clients wish to invest in Sydney (or other eastern seaboard) property, in either off‑the‑plan or completed stock, and receive attractive rental yields (usually around 5% gross, guaranteed for up to 3 years) and very good capital gain prospects, please contract us to discuss the small selection of high quality property that we have sourced for First Choice Club members.