Property buyers pay millions for Melbourne vacant land and homes in need of a bulldozer

Some buyers look for the right house, but for many in some of Melbourne’s blue-chip suburbs, it is less about the house and more about applying the long-held real estate adage location, location, location.

Prices for tight, vacant blocks of land, rundown properties ripe for demolition and even family homes in perfect condition without a heritage overlay (meaning they can be demolished) are soaring.

A scarcity of inner-city land and growing demand for properties with development potential from foreign buyers and developers have resulted in prices hurtling up to $1.82 million over reserve at auctions.

High renovation costs are also encouraging more Melbourne families to start afresh. 

In Toorak, an original 1930s four-bedroom house at 680 Orrong Road with no heritage overlay has received interest from local developers, families and overseas buyers.

Its 807-square-metre allotment and prestigious address would set hopeful buyers back by $4 million.

Kay and Burton’s Jamie Mi said overseas buyers loved the idea of potentially building something perfect themselves because it was difficult to find the right property in the top end.

Even if there was a contemporary property on the site, they would still ask whether it could demolished or if there were any restrictions, she said. Some local families were also very open to building in Toorak.

In nearby Monomeath Avenue, a vacant 658-square metre block with planning permit for two Nicholas Day-designed townhouses is expected to fetch more than $2.8 million at auction.

Demand for homes with development potential had “grown dramatically”, with more local and international property developers in the market, RT Edgar director Mark Wridgway said.

A three-bedroom home headed for the bulldozer at 12 St Georges Road in Toorak rocketed $1.82 million above its reserve last November, and is believed to have set a Toorak land value record of nearly $10,400 per square metre.

Last year, a knockdown property in Kew also soared $1.7 million above reserve, while a tiny and vacant 64-square-metre vacant block with a planning permit for a tri-level townhouse sold in Albert Park for $1.3 million.

Many of Melbourne’s period homes — particularly in the inner city — are protected by heritage overlay so development opportunities are rare.

The lack of vacant land also means it is hard to pinpoint pure land value in blue-chip suburbs such Toorak, though Mr Wridgway said it could range from $4500 to more than $10,000 per square metre.

Hocking Stuart director David Wood said prime Albert Park land was also fetching just over $10,000 a square metre.

An envelope of land without heritage overlay — where a buyer could potentially build a larger house — was arguably worth more money than a site with an untouchable single-fronted facade, he said.

On rare occasions when homes can be demolished, agents are likely to point to “no heritage overlay” or “nil grading” in its advertising.

Jellis Craig auctioneer Andrew Luke said demolishing and building a new home might be more economical than renovating a period home. 

A house with development potential doubled the marketplace of potential buyers, with families hunting for homes and developers and builders looking for land to make a profit, he said. 

At the bottom end of the market there is an abundant amount of land on the city’s outer edges, with Wallan offering the cheapest at a median of $248 per square metre, Domain Group data shows.

Craigieburn had the most number of land sales over the December quarter, while Doreen in the north-east recorded the strongest annual growth for land prices at 18.5 per cent.

The median price for land in Pakenham also soared 17.3 per cent over the year.

Some western suburbs had weaker values and growth because there was more land, Domain Group chief economist Andrew Wilson said, adding that affordability and the first home owners grant would continue to drive demand for house and land packages.