Developers go completely mad!

By Leith van Onselen

In November last year, I wrote an article entitled The house and land value trap, which described the extraordinary incentives being offered by Australia’s housing developers in order to stimulate sales of house and land packages.

Today, Property Observer has provided a comprehensive list of incentives being offered by developers in a bid to lift sales, which are in addition to generous incentives on offer in New South Wales, Queensland, Tasmania and South Australia:

These are some of the specials currently on offer.


Listed residential developer Peet is offering savings of up to $30,000 on “certain lots” in residential communities on the outskirts of Melbourne. The ‘Mega House and Land Sale’ is available until the end of January. The participating Peet communities are Aston in Craigieburn, Kingsford at Point Cook, Cardinia Lakes in Pakenham, Quarters in Cranbourne West and Livingston in Cranbourne East.


Listed developer Devine is offering to pay mortgage repayments for up to a year on behalf of approved purchasers who sign an unconditional contract to purchase a new Devine house and land package before February 28 2013 under its Devine Mortgage Break promotion. Repayments must be the minimum required repayments on a 30-year loan and interest only during construction. Property Observer calculates this would equate to savings of around $22,000 given a $300,000 mortgage over 30 years at the average standard variable rate of 5.98% (according to

$22,000 – $30,000

Melbourne builder Carlisle Homes is offering a $30,000 discount off the retail price of double-storey homes and $22,000 off the retail price of single-storey homes in its luxury Affinity and T Range collections. There is currently no end date to this promotion.


Up until February 25 2013, Stockland is offering approved purchasers a$10,000 VISA gift card to spend as they wish. The VISA gift card will be on offer to buyers of selected land and house-and-land packages at four of Stockland’s NSW communities, includingMcKeachies Run in Maitland, Murray’s Beach on Lake Macquarie, Brooks Reach in the Illawarra and Bayswood at Vincentia on the NSW south coast. Prices start from $326,544 for a three-bedroom, one-bathroom, one-garage home.


Melbourne builder Eight Homes is offering $8,000 off the price of eight different designs of three- and four-bedroom houses. The reduced prices are based on a standard floorplan with E1 façade. The cheapest house starts from $131,900 (previously $139,900) for a four-bedroom, two-bathroom single-storey house rising to $241,900 (previously $249,900) for a four-bedroom, two-bathroom double-storey house. There is currently no end date to this promotion.

$76,000 – $126,000

Discounts of up to $126,000 are on offer for residential lots in The Highlands community in the Ecovillage, Currumbin Valley on the Gold Coast. The lots are just eight kilometres from Currumbin Beach and are up for sale under bank instructions, with the properties being marketed by Colliers International. Lots range in size from 2,800 square metres to 8,300 square metres set amidst 60 hectares of green mountain forest and creeks.

$5,000 to $25,000

Residential developer Mirvac is offering a range of rebates, free inclusions and land discounts as part of its Right Here, Right Now Summer Bonus campaign on specific NSW master-planned communities. In Elizabeth Hills, Mirvac is offering $25,000 rebate on specified land lots In, Ayre, there are discounts on offer on land from $5,000 to $25,000 as well as air-conditioning free of charge and upgrades included in house-and-land package prices valued up to $10,000. In Saddlers Ridge it is offering a split-system air-conditioning and upgrade packages included free of charge and value at $7,000. In its Hidden Waters community there is the offer a $5,000 landscaping bonus.

Unfortunately for Australia’s developers, the latest new home sale figures from the Housing Industry Association (HIA) revealed that annual sales hit 16-year lows in November, with the detached house segment performing most poorly (see below chart).

Clearly, such developer incentives are failing to stimulate demand and could actually be precluding the new home market from functioning properly. From my earlier post:

A buyer of land that comes with an incentive, such as a new car, pays stamp duty on the higher contract price, resulting in more stamp duty being payable than if the price had been lowered by the amount of the incentive. Moreover, when the buyer seeks finance, the bank is more likely to value the property at a lower level than the contracted price, thereby reducing the amount that the bank will lend and effectively increasing the borrower’s required deposit.

Indeed, earlier this year it was reported that bank valuations on new house and land packages were coming in -15% below developers’ sale price valuations, meaning that new home buyers were being forced to contribute 15% more funds (on top of any housing deposit) in order to cover the valuation shortfall, or forfeit the sale.

However, while straight-out price reductions are superior to back-door reductions via incentives, Australia’s developers appear unable to cut prices directly:

Australia’s property development industry appears to be caught in a pincer. If they don’t abandon incentives in favour of transparent land price deductions, financing of new house and land packages will remain problematic and sales will likely continue to struggle. At the same time, reducing the listed price by the same value as the bonuses and incentives being offered could lower their collateral value, potentially triggering the banks to call in more equity from bank-financed developers to bring their loans back to agreed conditions and/or loan terms. Straight price cuts are also more likely to aggrieve recent purchasers that paid higher prices.

As noted last time, the core problem with the new house and land market in Australia is that prices remain above what many buyers can afford or are willing to pay. And until prices deflate, the rate of home sales and construction activity is unlikely to rebound materially, leaving Australia’s property developers holding large land banks that they cannot offload.

Unconventional Economist


  1. I believe the term is, between a rock and a hard place.

    They that sow the wind shall reap the whirlwind

    • If they are all offering a discount, then that price is the new price which is not a discount. They are having to, not by choice but forced to drop prices to what is considered the norm now.

      So, on top of that you should be able to push for even more discount.

    • I am a little bit sympathetic with developers, because they have not been the instruments of this problem in the first place, they have merely been forced into playing along to stay in business.

      The difference between a developer who is a land banker and a developer who is not, is that the former still has a business and the latter does not. This is precisely because urban planners have forced them into a kind of gladiatorial contest for the “approved” land supply – even if it is alleged that there is “20 years worth” of it.

      As Bob Day said HERE:

      “……I heard a state bureaucrat say recently that the government had released enough land for 15 years supply. I raised my hand and asked “15 years supply – at what price?” He didn’t know what I meant. I said “at $200,000 a block it may well take 15 years to sell. So why don’t you double the price and then you’ll have 30 years supply?”……”

      • “I am a little bit sympathetic with developers, because they have not been the instruments of this problem in the first place, they have merely been forced into playing along to stay in business.”
        Im sorry but I cannot agree with any of that!
        I work in the industry and these developers have for the most part played it like a fiddle. Its only now that things are not going their way that they are claiming to be hard done by. The smart ones made their money and knew when to get out or even diversify. Those that thought this would be never-ending boom will find out, or should I say are finding out the hard way.

        • What I would say is that there are many property developers whose background is “building”, who are completely blameless of any part in promoting urban containment planning i.e. land racketeering.

          The sharp operators who are so smart as to have deliberately supported this stuff and gamed it all along, are not really property developers in the traditional sense. They are speculators. They do not even need to get involved in building anything at all to make their fattest profits, in fact being involved in actual building is unnecessary hassle.

          I have long believed it is the big money CBD property investors who are the most deliberately venal supporters of urban planning fads. They make by far the fattest capital gains of anyone merely via market distortions from urban planning, and this is most definitely without actually building anything at all.

          You are quite right that there are stupid young cowboys who have got involved in property development without actually knowing anything, unlike a wise old feller like Hugh Pavletich who got out of it when he saw what was happening, or sharp operators who worked out how to game the system along with the pure speculators.

    • Yes – just shows how debt shy people are getting when record low interest rates are generating so little business for the Merchants of Debt that they are resorting to desperate bottom feeding tactics.

      If the truly desperate and uninformed are able to resist this sort of bait the days of generation debt may be on its very last legs.

      Who in their right mind would put their own home at risk when the kids haven’t saved a brass razoo?

      • What is the point in trying to save a brass razoo, when the experience of the last 15 years is that house prices will go up by twice as much per year as you can save, leaving you needing even more debt than if you had just been foolish and bought in in the first place with “no deposit”?

        Of course smart young folk will have been renting and waiting for the prices to crash, but it has been a long hard wait, hasn’t it, especially if you have parents, family, friends, girlfriend etc all telling you you are an idiot for holding off buying.

        Here is a chance for parents who are leaning on their children to take the plunge in the housing market, to put THEIR money where their mouth is. This is a cunning, cunning, cunning ploy. Of course it has to be the very last little pump-up of the bubble.

        • Then there are some (of the smart young) folk who are simply willing to rent while hanging our for their inheritance of the family home/grandparent’s property.

          …I’ve seen cases where the parents have downsized, selling the family home to the kids at a bargain basement price (well, relatively speaking), on the condition the kids pay them a monthly allowance.

          You can’t take your home to the grave, and for many families this is a “win-win”, and beats saving their “inheritance” till a lump-sum to be spent when they’re buried

  2. This is starting to look like nothing more than bad management on behalf of the developers. They simply got greedy and failed to take advantage of demand when it was there. In any other industry management would be taking a hard look at their product, i guess developers are used to being a protected species.

  3. These developers don’t just pluck $20,000 from thin air to give away,they screw it out of their sub contractors forcing them to work at a cheaper rate.

      • This is already a problem. When developers have to pay $1,000,000 per acre for land that is “approved” under the grand urban plan, in contrast to the $10,000 per acre that farmland is actually WORTH, of course everything else to do with “housing cost inputs” gets screwed down.

        Developers are all paying so much for land under the conditions of growth containment planning, that every square foot not actually sold to a customer is significant; the cost that has to be built into the selling price of the parcels actually sold, is significant. It really makes a huge difference in US cities with pretty much a free market in development, when the land has been bought for $10,000 to $50,000 per acre (the latter being really prime stuff). This is chicken feed in the context of the total cost of development and the cost of the buildings. Therefore, developers are keen to maximise the “amenity” of road widths, public green space, lot sizes, and so on, because the value sacrificed can be more than recouped in the prices of the finished developed building/land parcels because of the amenity effect and the general “class” of the development.

        But in Australia and other examples where the land is literally “racketeered”, the developer has usually had to pay hundreds of thousands of dollars per acre, and even millions. This is why sections are so darn expensive; most of the cost is actually “raw land”. In affordable US cities, a section for $30,000 (yes, not a typo) is almost all “cost of development”. The fact that a much SMALLER section in a growth-constrained city might be $300,000, is almost entirely due to the massive difference in the original purchase price of the land.

        And it really matters whether the developer can turn 50% of the land that he paid so much for, into finished product, or 60%; or 70%. Every 10% sacrificed to “social” use rather than saleable private use, forces up the cost price to the developer, of the saleable bits, by some tens of thousands of dollars per acre.

        This why not only lot sizes are tiny, but developers are desperate to keep public space, green space, road space in developments to a minimum, which is totally the opposite of what developers like to do if the land is as cheap as it should be.

        But developers are an absolutely hopeless bunch, they haven’t got a clue about all this stuff and they regard what is happening here as “normal”, and you can’t get them interested in lobbying for reform. Hugh Pavletich is a rare and honourable exception. Of course once developers have started working within the system, they are heavily vested in it not being reformed, because they have so much to lose, having paid far too much for every bit of land they have secured just to stay in business. Developers will be one of the vested interests furiously lobbying councils against reform, and against their competitors being allowed to do a development on rural land for which they paid genuine rural prices. Of course this rural land will be “too automobile dependent”, being beyond the existing urban fringe; so there is the convenient excuse for bureaucrats to keep the racket going.

        It would take too long to describe now, but “freedom to develop” is actually far more efficient in the long run, even if development occurs in a “splatter” pattern beyond the existing urban fringe, and infill later. “Planning” a contiguous “carpet” expansion of the city fringe, has numerous unintended consequences that are utterly destructive of efficiency and equity.

    • I remember buying a property moons ago and overheard two of the sales people talking, and one said to the other, and I quote “I cannot keep up with selling blocks, I have already increased the price of blocks I’m selling by more than fifteen grand each today” I thought it was disgusting they were ripping off the public like this, but then again some members of the public are gullible. They tried to hold me off from buying until boxing day, I told them no (I was already given a price.) and they didnt want to accept my deposit,I told them if they didnt take it today we were leaving and going down the road to buy.Out of interest we visited again after Boxing day and guess what, the prices had gone up another $20,000. Its not only the contractors they screw its the customers. The developers win both sides of the fence.

  4. It’s a perfect storm for developers – first home buyers stretched as far as they can possibly go, interest rates at ’emergency’ low levels (but still nobody is buying).

    Added to that is the fact that (in Melbourne at least) some of these estates at at the urban extremeties where there are no jobs, no public transport and no services. Who would want to live in Cranbourne East over 50km from the city (a two-hour ride on a slow train)? Or at Point Cook where it’s impossible to get onto the Westgate between 7am and 9am every day? There’s a material lack of support for people living in these estates that just can’t be glossed over with fountains, lakes, free landscaping or European appliance packages.

    Potential buyers know that living in a new estate has these ‘hidden costs’ and they’ve made the judgement that even with 20 or 30 grands worth of bribes that it’s not a good proposition. The answer is increased subsidies direct from government: It’s only a matter of time before the building industry puts its hand out for first homebuyer bribes from the States…

  5. I would love to be a fly on the wall in their offices.

    Is there still any profit in it? Are they aiming to break even? Are they eating into [email protected]? How long do they think they can last?

    I used to think that we’d see the bubble burst by the disappearance of the FHB coinciding with the retirement of the Baby Boomer but now I’m thinking it’s going to be caused by caused by bankrupt developers and the mass dumping of developments and existing FHB already mortgaged to their eyeballs being unable to complete the build.

    How many 1/4 built toxic properties can banks keep on their books? How can their PR manage such obvious cracks in the always sunny never-been-a-better-time world?

    They probably CAN’T.

    • Diogenes the CynicMEMBER

      Banks would probably be unaware of this – the data mouldering away in manilla folders called “security packets.”

    • I used think that too Nathan, that the FHB and Boomers would cause the bubble to burst.

      Then I face palmed my forehead and said “its the economy stupid!”

      Unemployment figures are the numbers to watch. Once they get over 7.5% things are going to start to get interesting.

      Here is a link to an interesting PDF called Avoiding Recessions and Australian
      Long-Term Unemployment. Its about recessions pre 2000 but as we haven’t had once since then its still relevant.

  6. Like a pack of hungry wolves, how long before they turn on each other and someone breaks from the pack and drops prices?

    As soon as some of them smell blood they may look to reduce the competition a little?

  7. If those discounts are being offered by House and land package vendors in outer suburbs, banks ought be looking at the value of the security/asset on balance sheet of all developers with substantial land banks.

    That was what brought Sir Paul Strasser and Parkes Developments undone in the Sydney/NSW market in the 70’s or 80’s.

    The banks got very uncomfortable with the value of the land bank against the loans they had made against it, particulalry as there is only negative cash flow with a land bank. And if other cash flow dries up as new home sales are down it all hits at once!

    A 10% fall in a house and land package when the construction industry is not stretched to 110% capacity is probably a 20% fall in underlying developed land value and maybe 40% fall in value of en globo land (assuming 50% of package is land values and 50% of developed but vacant land value is in development/services costs).

    My maths mightn’t be exact and you might disagree with some of the proportions but I hope you understand the point about the greater volatility of value as you move from high labour and materials content such as existing house to low labour and other materials content such as en globo land.

    • +1 David Collyer, do you have a comment on the issue of margin calls on falling land bank valuations?

    • It isn’t that easy, Explorer. After the GFC, the listed developers flattened their borrowings and are now about ~25% geared. All are multi-faceted, so rental incomes on office buildings are probably enough to secure and service that debt. They are under no pressure to realize their landbanks.

      In hindsight, shareholders should be kicking them for not selling more at the peak. RE executives draw very large salaries because of their deep market knowledge and great wisdom. Not demonstrated here.

      • What is happening to unlisted developers is between them and their bank. Given banks insist on big presales for apartment developers, they likely have low ratios for bare land w/o cashflow. They’re not stupid. Oh, wait…

      • “the listed developers flattened their borrowings and are now about ~25% geared…They are under no pressure to realize their landbanks”

        If that is the case why do they go to so much trouble to conceal the real price with rebates and gifts?

        • Peter Martin has an excellent piece on this phenomenon in today’s Fairfax. Developers know some buyers are dim and some are as sharp as knives. With rebates and gifts, they can tailor sales – in this climate, any sale is a great sale – for maximum $$$. Dimwits pay full price; ‘negotiators’ who want to buy get loaded with trinkets until they say ‘yes’. I had thought, like many, the discounts were to maintain final prices. I think this explanation fits better.

          • Except you don’t have to negotiate the gifts and rebates. They are advertised as such.
            I don’t buy it.
            Surely the best way to get a sale is to transparently and obviously drop your price below that of your competitors.

          • @ Patrician 4.51pm. The developers aren’t mad. Consider the spammers with transparently foolish phishing offering you a lottery win or the estate of a long-lost uncle. You and I laugh at them, but it is actually a filter to identify the gullible.

            Same with the RE offers. Nobody in their right mind would buy now. Fine. They are sifting for naive fools to sit before their rat with a gold tooth – you know, the one who can talk anybody into anything.

            They are also using anchoring – last year’s price buys a new home AND a BMW. A price cut doesn’t do that. People would flip into …

            Don’t Buy Now!

      • David, re

        “After the GFC, the listed developers flattened their borrowings and are now about ~25% geared”

        What do you mean by this?

        How does one “flatten their borrowings”?

        • They sold long-lead time developments, reduced investment, sacked staff, issued equity and rode down the i rate cuts. Most of that cash flow went to reduce
          borrowings. It was touch and go for a while there, some are a fraction of their former selves (Centro, Becton).

          • Thanks for that.

            What do you put the latest rash of “completely mad” developer sales down to?

            If not bank pressure what’s the urgency?

  8. Are we witnessing an historic reset in the oz res property market?
    If I was optimistic I would say the price-fixing cartel was broken and the price mechanism will tranparently kick in to find the level to stimulate demand.
    But I am a realist and as long as the risk of a margin call hangs over the leveraged developers they well bend over backwards to conceal the falling values of their growing stockpiles…and the politico-housing complex will help them do it.
    Then there are the Harry Triguboffs of this world. What would motivate Harry to sell down his towering vacant tax deductions? End vacant possession without penalty now.

    • GunnamattaMEMBER

      If I was optimistic I may look for the historic reset as well.

      But if the price mechanism kicks in (from where we have 66% of bank lending on mortgages, and banks getting circa 30-40% of their funding from international wholesale markets) then we would presume that the wholesale markets would be pricing in the possibility of RE price downturn in their lending to Megabank Australia.

      So I would have thought that MegaBank Australia would be mighty keen not to see any overt price adjustment in RE. It isnt just overleveraged developers that are the issue here, but banks overexposed to those developers (maybe) and to the market those developers are in (certainly).

      Thoroughly agree with end vacant possession now (and I dont believe banks should be allowed or encouraged to keep RE on their books, or developers they lend to do do it either) and think the taxation system needs to fundamentally change to blast the Triguboffs off their tax deductions.

  9. Drop incentives.

    Drop any form of grant from gov/taxpayer.

    Protect and absolve buyers miss sold dodgy loans once they lose the house.

    You either have the debt, or you have the house. Bank takes house and yr debt free.

    That will be all we need to hold banks and the money they lend to RE credit markets in check.

    Let free market run with it.

    Anyone who buys now or did post 2009, the exits are at the front and rear of the aircraft. Please remove your shoes and the short off yr back before exiting.

  10. I have never seen Peet market direct to the public like this in Qld, let alone the heavy discounting.

    They have had virtually zero public profile in Qld until the last 6 months.

    Can anyone give a Vic, NSW etc view?

    • TheRedEconomistMEMBER

      Yet to see any mention of the many informative and thorough pieces you can ready here in MB, Business Spectator or Property Observer.

      Fairfax has truly lost it.

  11. tsport100MEMBER

    It’s called avoiding a margin call.

    For developers to actually lower prices to meet demand, they’ll have to write-off a significant chunk of the collateral their finance is secured against… setting off a margin call!

    Isn’t this the same basic problem world wide… so many institution are insolvent because they leveraged to the absolute limit at peak valuations…. never having a plan B should ‘reality’ inevitably set in?

  12. Long time lurker… But would like to chip in my 2 cents.

    -That Phil Soos article is excellent, I’ve read so many Bull vs Bear debates on line but that article, may not show everything but summarises enough to show the big picture.

    – In regards to Developers/Builders… I have no pity for them…
    I’m lucky enough to have a property manager friend at one of the big Melbourne developers and also another friend working as a land manager at suburbs outer west/north of Melbourne… These guys couldn’t help it but brag about their 60-70K tax per annum the last few years, implying their sub 200K salaries and 50-60K yearly bonuses after selling so many properties at huge mark ups…

    I spoke to them recently and actually changed their plans for the next year or two… One is opting for a Mazda 6 novated lease instead of his usual Audi S5, and postponing plans to buy more land as investments.
    This supports the bear-ish inclined thinking from many… If property managers are cautious and wary of the market you know it’s on the way down.

  13. 131,900 has got to be pretty damn close to cost price for a 4 bedroom build. The land value must be zero.

    • GunnamattaMEMBER

      …..and on a quiet saturday afternoon you would still hear the echoing refrain of a Phonse Kyne 3/4 time address.

      If their one room apartments are rolling off the line at 465K then buyers would do well to look at Barcelona or somewhere (almost everywhere) in the world where there is better value for money.

    • $15,000 @ David Jones nowadays would just about get you a coffee machine and a blender………….that is assuming of course that you can find someone at a register so that you can pay for them.