Land sales on 'long climb' to recovery

by Adam Smith20 Jan 2012

Home building may be on a downward trajectory, but a rise in land sales could portend better days ahead for the sector.

The HIA - RP Data Residential Land Report has found vacant land sales are beginning a "long climb back" to pre-GFC levels. HIA senior economist Andrew Harvey has warned celebration of the 1.3% quarterly increase may be premature, as volumes still remain 16.8% lower than in the September 2010 quarter.

"Land sales are an early leading indicator so an upturn in trajectory is essential to the prospect for an eventual recovery in new home building activity - although we really do need much higher sales levels to make a material difference," Harvey said.

Should land sales prove to be on the mend, RP Data senior research analyst Cameron Kusher said a flow on effect will benefit the economy at large - not just the building sector.

"When people build a new home they typically purchase furniture and homewares, buy new electrical goods and spend money on hardware. Should the improvement in land sales continue it is likely to provide a much needed boost for retailers," Kusher said.

But Kusher echoed Harvey's conservative tone, saying the market had "a long way to go" before it reached healthy levels. He pointed out, however, that the uptick in sales pre-dated successive RBA rate cuts in November and December, and in fact came at a time when many buyers were expecting rates to move higher.

"With successive 25bp cuts to interest rates in November and again in December 2011, we would expect that a steady improvement in sales activity which commenced in the December 2010 quarter is likely to continue and perhaps gather further pace," he said.

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