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Saturday, 26 October 2019

Resi land values down 8 per cent in FY2019

Land values down

There's an old rule of real estate that says find out where the people are moving to and buy the land before they get there. 

Over the long run in Australia this has been very wise advice with the value of all land increasing more than fivefold over the past two decades from $1 trillion to well over $5½ trillion.

But the adage might also note that prices can still fall from time to time. 

Over the 2019 financial year, there was a decrease in the total value of Aussie land from $5.9 trillion to $5.7 trillion.

This was driven by a significant -7.7 per cent decline in residential land values from $4.8 trillion to $4.5 trillion.

As the most populous state New South Wales was the main contributor with a decline of $174 billion or -9 per cent. 

Although Victorian resi land values fell by some -10 per cent or $140 billion.

Declines were generally considerably smaller elsewhere, both in absolute and percentage terms. 

The declines of the past two years are now over since the election result, with a sharp return to growth noted since June. 

Investors should also be able to deduce from the above figures that the bulk of the increase in residential real estate prices over the years has been driven by land rather than building costs. 

For this reason, they should aim to own properties with a high land to asset ratio of ideally well over 50 per cent, in areas where demand is both high and growing.