How do we know what the next big thing will be? If we understand the past, we might get a handle on what the future will look like.
To this end, Macroplan has undertaken a number of longitudinal studies looking at land price movements over the last 20 years. We chose the Victorian land markets because these are thought to be the most competitive land markets in Australia. In turn, the market place allows us to see how prices affect consumer, rather than any other variable such as rezoning or lack of land.
We reviewed price movements in two major geographical areas, the south east from Berwick through to Officer and Pakenham; and the west, from Point Cook through to Werribee, and then into Geelong.
What we found is that people’s tolerance to price is quite predictable. When land prices began to rise as supply started drying up in a residential sub-division, people could choose to either move to the next sub-division along, or they could move five to 10 km further out to take advantage of cheaper prices. What influences their decision?
Our research showed that when the supply of land further out from the centre was between 25 and 35% cheaper than the current sticker price, this was sufficient to attract people to move from up to seven km away. The trade-off in distance was seen to be insignificant at that level.
Because of this, places like those in Victoria have shown regular price waves over time.
In other state capitals it’s more difficult to see these price waves, but they are quite predictable, making them a reliable guide for investment potential.
We also undertook studies to determine the waves in apartment prices, and they are very different. The data is more complex and less predictable.
The reason for this is that there have been a significant number of investors compared to owner/occupiers. It’s also a relatively new market, and the first main wave of apartment building in Australia has really only been the last 10 years. Price levels increased significantly during this time due to lack of supply and so price waves themselves have not been observable.
What we have begun to see already is significant drops in apartment prices. Over the past 10 years, lack of supply initially drove up these prices but this is now unwinding. In Melbourne and Sydney, more off-the-plan apartments purchased since 2013 have a lower price today than they did then. We are beginning to see a stabilisation of the apartment markets and, over time, as apartments are built outward from city centres, we’ll begin to see those price waves.
So the next big thing is land. As much more land is being released around Sydney and Melbourne, understanding the long-term residential price waves will provide valuable investing strategies. In addition to residential properties, investing in businesses which service local communities; from early childhood care through to retail and smaller professional services will be another opportunity.
About the author:
Brian Haratsis is MacroPlan’s Founder and Executive Chairman. Brian is an economist and future strategist with over 30 years experience as an advisor to governments and major corporate clients throughout Australia and New Zealand. For more information or to discuss your property research requirements, please contact Amy Williams on 02 9221 5211 or firstname.lastname@example.org.