Market Report Northern Territory (September 2009)

By

Leader of the pack

High rental yields and bullish prices are keeping Darwin at the top of the property pile.

Sceptics might be predicting Darwin"s imminent downfall but for now, the Northern Territory"s capital market remains buoyant.

Median rental yields for both houses and units are the highest in the country and in the first eight months of 2009, Darwin house values rose 13.35% to $482,00 - the highest in the country according to Residex.

As Herron Todd White ask in their October review: "The question we have to ask in Darwin lately has been not so much 'which suburb is a dud?" as much as 'which suburb has been the least hot?""

According to their report: "Anything under say $550,000 has definitely not been a dud over the past 12 months. The First Home Owners" Boost and the NT Government"s BuildStart Scheme have sparked strong demand for this type of property, leading to very good capital growth."

Darwin is experiencing remarkable growth and with demand far outstripping supply, this looks set to continue. Like elsewhere in the country, premium property is stiff. "Premium property is extremely tough, especially units over $1 million," says Chris Deutrom, Colliers International Northern Territory residential director. "There are signs it"s recovering - we"ve had some reasonable sales the last month - but I think there"s been a bit of oversupply with those properties."

Herron Todd White"s report also highlights this problem. "There is a definite preference for smaller complexes by many buyers, so townhouses even at this value level still attract good interest, but in larger complexes, units down to $600,000 can be harder to sell," said the report. "People who can afford such property, either as owner-occupiers or investors, are still remaining cautious about buying, especially considering the risk of interest rate rises, which would hurt even more at this value level. Also there may be a ripple effect from the anticipated reduction in demand for cheaper property once the Government assistance schemes cease."

However, premium aside, the market around Darwin is thriving. "The satellite city of Palmerston has been doing particularly well the last six months, with new land releases pushing the market forward after a period of undersupply," says Deutrom. "Rapid Creek and Coconut Grove have also been performing well - they are close to beach, close to the city and close to the northern suburbs, with a good sprinkling of higher end and affordable housing."

Indeed, Residex"s September report found that Coconut Grove units grew 18.73% over the last 12 months, with an average three year growth rate of 13.19%.

The common theme throughout the Northern Territory is a lack of land and rental property, which has inflated prices and rentals - something that looks unlikely to slow down. Despite the lagging premium market, houses in the $400,000 to $700,000 range are performing very well and there are a number of infrastructure projects coming up - such as the Impex gas plant and expansion to Darwin airport - which should continue fuel the rental market.

"It sounds boring but we"re not feeling the pinch at all," says Deutrom. "Consumer confidence has been high for the last two years. We may not have any massive increases over the next couple of years but I think there will be steady increase."

John Lindeman of Residex agrees. "Darwin has been an extraordinary performer but that growth has appeared to have slowed," he says. "However, it"s unique - one tenth of our military personnel are stationed in Darwin and the federal government pulls in $1.3 billion a year which directly goes into the Darwin economy. That"s a stable thing - whether the economy is in recession or not."

The sharp drop in commodity prices - along with more difficult access to finance - has delayed the commencement of some expansion projects. In October, QBE"s Housing Outlook Report forecasted that growth in the Northern Territory economy is expected to weaken up to 2012. That said, dwelling construction is anticipated to contribute strongly to growth, particularly over 2009/10, with some 24% increase in commencements

However, the drop back has already begun. In Residex"s September report, Darwin house growth dropped 0.14%, while the Northern Territory decreased by 0.24%. Units performed slightly better, growing 1.25% in Darwin but the Northern Territory dropped by 0.18% - they"re not big dents in the market but a definite reflection of a slow down.

Lindeman estimates that the owner occupied market will follow a similar pattern but the rental market will increase. "Undersupply hasn"t gone away - it has just lead to the development of cities such as Palmerston but even that will be full pretty soon," he says. "It"s the best investment area in the country and also the riskiest but I don"t think that risk will be realised in 2010."

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