To Lend or Not to Lend: The Land Subdivision Dilemma

Whilst the residential land subdivision market typically experiences more volatility than other market sectors, we formed a view earlier this year that there were low levels of land supply due to planning and rezoning delays.

This combined with positive migration, would assist in providing a floor on asset values as the housing undersupply sets in. At the same time a tightening credit market presented our investors with very attractive risk adjusted opportunities to lend at lower LVR’s in this sector.

Woodbridge Capital has spent a lot of time working with industry consultants, valuers and agents to verify this view whilst selectively increasing our investment exposure to this sector during the past six months.

For example, we recently had a borrower go unconditional on a contract to sell their residential land subdivision site in Tarneit, Melbourne for 29% above their purchase price and the independent market valuation obtained at our loan settlement. This sale price means the loans effective LVR has reduced significantly when the loan is repaid in early 2024.

As also reported recently in The Australian Financial Review last week, another site in Tarneit attracted substantial interest with 18 offers and an eventual sales price of $83M which bodes well for the sector considering this is a large sales price where there is typically less liquidity in comparison to smaller sites.

We are monitoring closely the residential land subdivision sector to understand if it is the beginning of a new cycle that is going to be supported by an under supply in housing and rising migration.

In the interim we remain comfortable with our current fund exposure to this sector given our first hand experience, the underlying thematic and recent sales activity.