Market Report Northern Territory (August 2009)

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Darwin falters

The Top End could see a return to more modest growth as its massive price rises finally hit a ceiling.

Darwin is still the shining light in Australia's somewhat murky property market. Double-digit annual growth continues to defy any talk of a 'downturn'. But Residex's August quarter figures showed a softening price growth. A 3.6% growth is still a better achievement when compared to Brisbane, but it fell well behind Melbourne and Sydney, which indicates that the Top End market is mortal after all.

According to John Lindeman, chief property analyst with Residex, Darwin's endless growth is unsustainable, but it doesn't signal a price crash. "I wouldn't say [the median price is] heading back down," says Lindeman. "It'll just stop growing because it's reached a point where rents and house prices are so high that they can't go much higher. It's just hit the limit, but I don't think it'll come off - reduce in value - in the way that WA did."
Things are different here...

Markets in the Territory can't really be compared to markets in other states. "You've got a lot of federal government ownership of land there, so it's a different market," notes Lindeman. "Around 25% of all the employment is taken up either directly or indirectly by the federal government. When we get involved in foreign ventures like Iraq or Afghanistan, all the troops, all the infrastructure support, everything goes through Darwin. That's when these places tend to boom."

In that way it is more like Canberra, whose market is almost entirely dependent on the level of public sector employment.

Even with reduced military deployments, however, there are still many reasons for investors to feel confident about Darwin. The chronic undersupply that fuelled this boom in the first place is not likely to ease in the near future. Also mineral exploration, natural gas and live cattle export as well as a continuing military presence in the city and regional areas of NT are driving demand.

"All of those things combined mean it's still quite a good market, but you'll find it will be more in the way of rent return than anything else," says Lindeman.

In fact, Darwin boasts by far the highest average yield of any capital city. Rents for both houses and units rose by over 10% in the last 12 months. The problem has now become that people simply cannot afford to pay any more. Rents are likely to stop growing over the next six months, but with median prices also in a holding pattern, those juicy returns will not be affected.

For investors focused on yield, Darwin is still a strong market. Expectations of above-average capital growth, however, must be scaled back, as Darwin is in for several years of more modest price appreciation.

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