Investors should stay apprised of land supply issues

By Rich Harvey, CEO, propertybuyer.com.au

One of the first rules of Australian property investment is understanding how demand affects everything from house prices to rental yields.

However, it's not just demand for houses and units that impacts investment. After all, no homes can be built without land to sit on.

With that in mind, investors should pay close attention to the latest release from the Housing Industry Association (HIA) and RP Data.

The latest HIA-RP Data Residential Land Report showed that the market is continuing to tighten, with the total number of residential land sales falling 1.8 per cent during the final quarter of 2013.

This represented the second consecutive quarter of declining land market activity.

Meanwhile, land prices surged, with the median price rising 4.2 per cent - its highest level on record.

"Considering that the number of house and unit sales rose by almost 8 per cent over the December quarter and were up by 18 per cent compared with a year ago, the slowdown in land sales over the second half of 2013 is counter to broader housing market trends," said Tim Lawless, RP Data's research director.

"With vacant land prices continuing to rise at a time when volumes have moved lower we can surmise that demand is exceeding supply which in turn drives prices higher. With housing affordability coming increasingly under the spotlight, an improvement in the flow of land supply would be a welcome scenario."

Demand isn't likely to decrease any time soon, and limited land supply will likely only lead to higher house prices. With this in mind, savvy investors would be wise to buy investment property in Sydney sooner rather than later if they're trying to minimise costs.

On the bright side, this atmosphere is also likely to lead to even more capital growth for property owners.