Surging land prices show the way for property investment

Land on the rise

Just when you thought it wasn’t possible for the median price of Australian land to rise any higher, it’s once again exceeded expectations.

The latest report from HIA/ Core Logic has found that median vacant land is at $256,683 – an increase of 8.5 per cent over the last year.  So despite the dampening down of house prices in many cities, land prices are still very buoyant. 

What’s behind the rise?

As with all things property it’s pure supply and demand. There’s simply not enough stock on the market to meet the needs of buyers. Land releases have been slow. The south west of NSW, around the Camden area, has been earmarked for further land release but this won’t happen for a while. It’s also the first major land release in NSW for over a decade.

In Victoria, the government is also releasing 10,000 lots over the next two years and creating 17 new Melbourne suburbs in a bid to stem the sheer demand for housing.

Land release is never a fast process. As the machinery of government slowly grinds along and processes are carefully followed, the demand for more land keeps growing unabated.

Meanwhile The Property Council has highlighted gaps in the current land release system, meaning that much of the land earmarked for new housing doesn’t actually end up as new homes.

The new restrictions on overseas developers getting access to loans also affects the rate of new builds. As Core Logic points out: “the private businesses that build new homes have no incentive to greatly increase supply given it will reduce the profitability of a new development.”

Vacant land is always highly attractive – in many cases, more attractive than land with a house already on it. It means you have a blank canvass to work with. You’re spared the costs of demolishing an old, rundown abode. And you’re not limited by any of the pre-existing features that land with a building has.

This is why vacant land is always so popular whether it be in Sydney’s north shore or in greater western Sydney.

Little wonder then that the demand for vacant land is still steadily surging even as parts of the property market plateau. The record rises for vacant land prices show there’s a confidence in the long term stability of the property market.

Does this mean any vacant land is a successful investment?

No, it doesn’t. All property investments come with the crucial caveat: which property market is it in? For example, Canberra has been experiencing high land prices in recent years. However much of this is due to the scarcity of land releases rather than the city being a top performer. Perth is also seeing record land prices – a record of $277,780 for a median block, an increase of 4.1%. Yet Perth is on a longer-term growth trend, rebounding from its post-mining slump.

Regional areas and rural towns have an abundance of vacant land. But for them to be considered as a worthwhile investment they need to meet the criteria. Which is:

• sustained population growth
• positive rental yields
• steady growth in property prices
• employment growth

There are other factors that will impact on whether to invest in vacant blocks of land, such:

• as the local infrastructure
• any development that may affect housing demand (for instance an oversupply of apartments)
• any planned development that add value to the area (for instance, a university or entertainment complex)

The rise in land prices shows the strong confidence in the Australian property market. To find out how to make an investment that suits your needs talk to us today.