Project House Prices Edge Up

Wednesday, August 7th, 2013
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In a positive piece of news for the property development and residential construction industry, the amount builders and property developers are able to charge for houses they build is on the rise.

The increases remain modest, however. Around the country, prices for project homes (new homes or homes built off the plan) rose by 0.95 per cent on a capital-city weighted average basis in the June quarter, according to estimates from the Australia Bureau of Statistics.

Brisbane led the way, with prices rising 1.96 per cent, whilst prices rose 1.55 per cent in Perth and 1.34 per cent in Hobart.

Compared to 12 months ago, project house prices are up 3.85 per cent, with significant increases having taken place in Brisbane and Sydney.

All else being equal, any rise in prices for project houses is a positive development for builders and property developers as it means they are able to charge more and therefore derive more revenue from each new house they build.

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While new house prices are rising more slowly than those for established homes (up 2.4 per cent in the quarter and 5.1 per cent year-on-year), the rise in project house prices is a sign builders and property developers are finally regaining some pricing power in the market after several years of very weak selling conditions.

Housing Industry Association economist Diwa Hopkins says even the rise in established house prices is welcome for builders as it signals a return to demand in the market.

“These price developments signal increased activity in the housing market, with lower interest rates an obvious contributor,” Hopkins says. “Another likely contributor is improved confidence. While still delicately poised, confidence has mainly tracked higher in financial year 2012/13. This compares with the previous year when pessimism was quite entrenched.”

Compared to 12 months earlier, average to solid gains in project house prices have been observed in Brisbane (5.73 per cent), Sydney (4.72 per cent), Hobart (3.94 per cent), Perth (3.65 per cent) and Melbourne (3.52 per cent).

Unsurprisingly, prices remain virtually stagnant in the weaker housing construction markets of Canberra and Adelaide and have surprisingly contracted 2.24 per cent in Darwin over the past year despite a strong economy and high levels of new housing commencements compared with historic standards over the past 12 months.

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