Sydney Building to Surge by 2015

Date: 24/11/2010

New house and land packages are expected to be more affordable and accessible in Sydney as new lot production is expected to more than double its current rate providing welcome news to home buyers, property investors, builders and developers.

Projections by BIS Shrapnel indicate that a recovery in new lot production in the NSW capital - which has seen land production increase from an average of 1,700 lots per year between 2005 and 2009 to just under 3,000 this year - will continue, with lot production forecast to peak at over 7,000 lots in 2012/13.

BIS Shrapnel has attributed the change to "a confluence of factors" supporting the start of a recovery in lot production in outer Sydney - seeing the gap shrink in cost of buying a new house versus purchasing an existing, cheaper dwelling.

"The rise in prices for established houses has meant the premium required to purchase a new house compared to an established house has narrowed," says Zigomanis. "Consequently, upgraders have become more willing to sell their current dwelling to purchase a brand new house on a new subdivision."

Zigomanis adds that developers are benefiting from a reduction in state government levies, which has allowed developers to proceed with projects that, previously, were made marginal when these imposts were introduced. Demand will also be underpinned by a significant deficiency of dwellings Sydney-wide, and further strengthening of economic conditions and income growth.

Mortgage Lenders are also influencing the move toward new house and land packages with product offerings such as 'no deposit home loans' and '105% finance' on new house and land packages. An offer not currently available for home buyers wanting to purchase an existing dwelling.

The increase in lot production has been greatest in North West Sydney, where incomes are higher and the premium to purchase a new house over an established house is narrower than in other areas such as South West Sydney and on the Central Coast. However, BIS Shrapnel projects that, as the overall Sydney upturn gains momentum and prices continue to rise, lot production will pick up in both South West Sydney and the Central Coast.

BIS Shrapnel figures also suggest that average lot production will continue to increase across the country over the next five years, with the Gold Coast and Sunshine Coast seeing average per-annum increases of 32% and 27% respectively.

Melbourne is expected to see the largest new lot production over the next five years, with average production forecast at more than 17,000 lots per year.