value of vacant land in a falling market

Dear members, I am in the process of buying a registered or OTP vacant land in Schofields (NSW) area for building own house. However I just saw news that the prices are slow this month and there may or may not be a crash. My question is, if there is a sharp fall, does it apply to recently build high prices H&L package houses/apartments more?
Does it also affect the prices of vacant lands too?
I was under the impression that land price either appreciate or depreciates very little if there is a huge fall. Am I wrong?

 

So many assumptions here. But in short, yes you're wrong. But you could be wrong about the crash as well.

But does it really affect your decision if this is for a house for you to live in yourself?

 

The news has been full of that stuff for the last 1.5 years.

There probably won't be a fall but if there is, it affects the most expensive homes in a suburb more.

Yes

Yes you're wrong.

You need to relax and move forward with your plans. This too shall pass.

 

HI THATbum & propertunity, thanks for your replies. I was more inclined to buy the unregistered land (registering in April 2018). I would be able to save more by then, utilise this time to get building plan ready with a project builder as it takes 6-8 months to get the plans/ tenders ready. now with the fear of prices falling, what if after registration next year, the land values as 30% less of what I am agreeing to pay. I will not be able to pay th difference in cash


If I buy the ones already registered, I need to pay repayments for 6-10 months until builder gets ready with plan before the construction loan happens and construction takes place. So I am a bit worried now.

 

Why does it take 6-8months to get the plans ready?

 

All the project builders are taking more than that to start construction from the time you request tender. I am following someone forum closely for last 2 months. Also visited 5-6 builders and shortlisted them with preferred design and budget. But mostly it takes 1-2 months for getting 1st tender, another 2 months to get the final tender once you ask for changes, then 2-3 months to get final plans ready, it takes more 6 months to submit to council, 2 months for approval, another 2-3 months after approval for the construction to start....

sooner for house and land packages. as the builders already get their plans ready when they sell a package.

 

I might have a contact in Sydney, will see if he is still doing business.

 

Y

That is an incorrect impression. I'm Irish, and I can tell you from first hand experience, the bulk of price falls (or at least sustained price falls) were concentrated within areas of new development, especially city fringe estates and new land releases.

There are several reasons for this.

One key reason is these parcels of land are, at the peak of a bubble, extremely expensive for what they are (usually tiny blocks a long way from more popular areas). They are often bought in bulk by builders hoping to sell house and land packages (or off the plan apartments re developers, the same basic logic applies to that form of recent development too, and was more of a problem re new condos crashing in USA). When prices in these areas stall (usually due to oversupply and a tightening of lending), builders and developers discount because as owners of multiple properties and as businesses they usually have a lot more scope to do this. 'Developer discounting' is one of the first signs a crash might be imminent. As developers or builders discount, individual investors and owners cannot compete, and may also sell, worsening any oversupply (which also tends to be concentrated within these new development areas).

Another reason is leverage. New development areas tend to attract the most recent buyers, who are often inexperienced investors or first home buyers. These groups are vulnerable, especially if they've chosen city fringe areas or OTPs because it is all they can afford. A higher tendency towards lower incomes also means a higher likelihood of job loss in a recession and of defaults. As these market pockets stall, investors often walk as developers slash prices, and owners who lose their jobs can also walk. This is how, in Ireland, areas like Belmayne became 'ghost estates' (called 'zombie subdivisions' in USA). These sectors of the market lost most of their value very quickly, and were unable to attract either buyers or finance.

Another issue is 'the exodus'. As these areas of the market lose value they become very unpopular. No one wants to move to a half finished suburb because the chances of good infrastructure become slim. Buyers who targeted these areas usually didn't want to live an hour's commute from work, they just had to, so if prices come down in other areas they choose other areas or even abandon the fringe estates. This caused many ghost estates to become, basically, slums which again reduced their value. Ireland's whole market dropped over 50% in five years, but I'd say 90% of this as concentrated within fringe suburban estates and apartments, those very recently developed areas.

A price crash will also effect vacant land. The price of land is based wholly on demand for that land, and if the recent noobish investors who've pushed up prices during the bubble leave the market, that demand will drop sharply especially as it applies to fringe suburbs like Schofields.

Contrast this with quality homes in established, inner suburbs. These tend to be dominated by owners, often paid up on mortgages. They are not only more secure, they also see much less in the way of a crash. Yes some very inflated areas in the priciest cities may come down, but still, that asset class usually won't see a long term loss in most bubbles. A lot of the loss the 'good' suburbs/assets experience is contained to the panic, but this tends to bounce back quickly. Most of these sorts of assets have recovered in Ireland. Bubbles burst disproportionately, is what I'm saying. If it were me, I wouldn't buy the land you're proposing to buy.

I do have to say this, though. If you can afford it, and want to live in the area you've chosen, and you're looking at a PPOR... the market cycle can be hard to predict. If you are sure about long term servicability and want to go ahead, a potential correction is something to consider, but at the end of the day you need to make the best decision for you. PPORs are a very individual choice and the direction of the market probably shouldn't be your primary consideration. No one knows if the market is going to crash, just that it's an increasing risk.

Just to give you some further evidence - if you look on allhomes right now, there are 143 homes and blocks on offer in Scofields alone, and just 19 recent sales (in a month). It's not the slowest market in Sydney's West but it is still very vulnerable. Supply is very high.

 

I would argue land is a scare resource and unlike existing dwellings has a different set of demand factors esp to density builds. Related but unrelated. Prices only fall for property that sellers agree to sell for a lower price. Only land falls in value in theory. Nobody would build to sell below cost for the building element. They wouldnt build. Developers make $ on the land and the build if they can. Otherwise it would all be project builders.

My son sells developments and land to developers out that way and he certainly isnt seeing reduced demand. As fast as they release land people buy it and nobody has dropped the price of land out NW Sydney. The duty changes announced may even help drive more demand.

But many who have land for subdiv are now dreaming to think they can hope to get a market high price akin to over a year ago.

Wait until the Metro starts to roll. It will surge again when people realise how close the city becomes. And the new airport when they start to do the earthworks. And the new public hospital at rouse hill.

Yeah they may start to plant a bunch of apartment towers soon....That may be a oversupply. Who knows. They said that about Chatswood and Rhodes too.

 

I have found that in a falling market the development land completely falls out bed (substantially more than properties with houses)
In your case you are doing the right thing buying the vacant land as you are probably paying substantially below what it would have been selling for a year or two ago

In a thread I just started yesterday a Brisbane site fell 35% (based on purchase price)

Developer Metro sells off Brisbane apartment site at 35 percent discount

 

Just out of curiosity how much less are you paying for it compared with a couple of years ago ?

 

Well written reply !
I can't fault this at all

 

Vacant land in a new development will fall the most in a crash. People cant build, and who wants to live in an area with lots of vacant blocks?

 

No I am not getting any 30% less or anything similar. I just got called by REA at 4.30pm saying they dropped the asking price of 580k (for a 460m2 land registered) to by 20k and if I am interested. Called me twice even at 7am to know our answer. Those prices came down close to the price of their initial releases. Now its a resell land owner unable to settle. I don't know whether its a sign of prices falling or its just the personal circumstances of the owner unable to settle, hence re-selling it. I still know a lot of people who are doing to buy their next releases. NewPark estate in marsden park has a new release to be selling tomorrow. I know people in a FB group jumping to get their before 9am to lock their choice of block. So people are still buying vacant lots...

 

Sounds to me like they're trying pretty desperately to sell them. That's probably not a great sign.

 

Yesterday and today I got 2 more calls from those RE agents. One offering me 10k less than what i previously offered on that 460m2 block in Box hill. in total its 40k less than their initial asking price. I had a feeling like they'll agree even if I ask for more burgain. But I have an unhealthy feeling about box hills (NSW) now. Is this a normal phenomenon to have 10/15 blocks on resell market when a release comes to settlement? or is it a sign indicating that the area is going to be a failure? specially when these many resell lots floating after the very 1st release registrars, what will happen when their next releases comes to settlement?

the other agent told me about great offers in Schofields. I wasn't interested as the start prices are higher in Schofields anyway.

Starting to have a negative feeling about buying land and build our dream ppor or even buying any established house in this uncertain market . postponing the plan for indefinite time

 

So you think that when property prices go up and down that it is mostly the value of the house and not the land that is changing?

 

It is probably just the lending changes, I even know people who put deposits down when they were told they could not get a loan a while ago

 

I am now glad that i started reading forums before going ahead. All i knew before is that i need to buy asap and hold the price now and prices would always go up. All my colleagues say they did this 2-3 yrs ago and the ones who didnt do it are now looking at increased prices. I didn't know that prices can fall too. What a fool i was just a week ago and may be still am

 

yup i am seeing some land lots which were marked sold come up for sale again down here in Brisbane as well as some price cutting of around 5%.

LVR changes will be hitting this month as well so expect to see a lot more of that happening as settlements fall through.

I think developers are trying to clear land stock and investors trying to quickly flip at breakeven or small loss before things go south.

REAs and sales people will keep calling you till they get their product sold. If you are getting many calls means no one is buying.