What a crazy week in property!!! The government released its incentives last week. Almost straight away our concerns became a reality; land supply tightened. I don't think anyone was prepared for how quickly the market would change. One or two of the larger builders who have seen this a few times before, are experts at profiting from government incentives. You only need to look back to 2008, when Kevin 07 opened the checkbook, to find a similar blueprint for what has happened. While it might not be quite as easy as the government writing a check to the larger builders, the result should be.
The tightening of land supply took about 48 hours. It is now a seller's market to buy land. Large developers will continue to bring land onto the market. The supply rate will depend on the speed and ability to get titles. Controlling the supply of land moving forward will impact the price of land. For example, before the incentives, you could purchase land in a new estate and receive a discount of $10,000 to $15,000 off the retail price. In addition to this, many land developers were paying referral fees, from $7,000 to $15,000. This is between $15,000 to $30,000 in discounts, buyers will no longer receive. Expect further price increases on new land releases as we speak.
In established areas, where land supply is already tight, it has become a bidding war, with multiple offers on each lot increasing the prices. So buyers are on average $20,000 worse off than they were at the start of the week when it comes to land.
The builders have moved already. A week ago a $10,000 to $15,000 discount would have been achievable. Many have removed discounting and some have increased pricing by 2 to 3%. While it is tempting to be cynical, there are some genuine concerns. Due to the short time window, the increase in building activity onsite could lead to delays, and an increase in the cost of labor. Both of these will eat into the builder's profits.
The reality of a 2 to 3% price increase, plus no discounting, means the consumer is going to be paying an extra $20,000 to $25,000 on the home than they were last week. When you start adding the two together it is starting to look like an increase of $45,000!!!! As well as the prospect of extended building time frames.
So has it worked?
To achieve the objectives of putting people back to work, the customers need to obtain finance approval and then start building. There is too much uncertainty at this stage.
At Piran Property Group we are advising our customers looking to build, to lodge for DA applications ASAP. This will allow the flexibility to choose builders after planning and building approval is granted and to avoid delays. Higher quality, smaller builders will not be as affected by the rush and could provide a great value option should the larger builders become too busy to deliver quality service.
The incentives have created a great opportunity if you're looking to sell your home.
Contact us today to see if we have the right strategy for you to capitalize on the market.
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