November 2022 Celsius Land Update
Land appreciates and buildings depreciate. That was one of the first lessons I learnt in property valuation and is well known to property investors. It refers to the land component of your home increasing whilst the building decreases in value as it ages until it eventually adds no value.
Increasing building costs and construction time periods over the last 2 years have really turned this old adage on its head. With the price of established homes increasing over the last 2 years, a large portion of this can be put down to the increase in the value of the building improvements rather than the underlying land value.
The building cost increases that have caused this have impacted many of our state’s biggest builders with some reporting losses last financial year despite high demand. It is difficult to fathom that many of our builders were more profitable during WA’s years of recession leading up to Covid than last financial year.
The building cost increases have created waves in the property development sector with the commencement of some apartment and land developments now being deferred until either property prices increase or building costs decrease. This handbrake on development, combined with sound population growth, will only intensify Western Australia’s under supply of housing in the short to medium term.
Being a land developer I’m looking forward to a return to normal market conditions when the land component appreciates and the building component depreciates.
Regards,
Brenton