Many experts were quick to declare Darwin’s recent sluggish performance a sign that the boom is over. However, the latest data show that there might be plenty left in the tank to sustain another growth spurt.
After slowing significantly since the beginning of the year, Darwin’s property market appears to be strengthening again. During the three months ending August, Darwin racked up 2.25% growth in house prices to $522,500, outperforming all other cities bar Canberra and Hobart, according to Residex. Units recorded a similar increase in median value – up 2.05% to $422,500. During the past 12 months, house prices rose 8.18% while units surged by 13.40% – the second-best performing market behind Melbourne.
John Lindeman, head of research at Residex, says the conditions for growth are still solid and should continue in the future. “That market is still growing in value,” he says. “In the last five years values went up 76%, in the last three years it went up 32% - that’s after many experts said it cannot grow anymore. It slowed down a bit but it’s still growing and I can’t see any reason why it won’t continue. Once again I make the statement, if the conditions for growth are in place; the market will continue to grow. Darwin exhibits all those conditions and there’s no reason why it can’t keep growing.”
Lindeman also dismisses claims that the delay and completion of some of the biggest projects in NT will drag down prices. “I think the growth in Darwin is more to do with the huge government infrastructure there to support the troops deployed overseas, such as to Afghanistan. There’s an enormous movement in personnel in the territory. Every year you get 16,000 moving in and another 16,000 moving out. That’s 14% of the population. NSW has 2.4% of its population moving in and out of the state. What that’s doing is keeping the rent high because every time someone moves in, the landlord can increase the rent because of high demand. That’s why Darwin has the highest rental yields in Australia.”
This high demand for rental is also affecting demand for properties to purchase, says Lindeman. “As long as our overseas commitments remain in place, and they look like they’re going to, and we’ve also got enormous investment projects there like offshore gas, I can’t see that changing. I think the market can still support further growth. When you look at those sorts of conditions, like what happened in Port Hedland, median house price is now about $1m and it’s still going up. People are paying that so there’s no upper limit really.”
Not without risks
While the prognosis for growth remains strong, investors need to watch any changes in government policies surrounding overseas troop deployment. “I think if the government decides to reduce troops for overseas deployment, Darwin will certainly feel the impact. If we pull out of Afghanistan, if we withdraw from our overseas obligations, if we reduce the number of people patrolling the shores and looking after boat people, if all these are scaled back or no longer a priority, then Darwin is likely to suffer the most.
“That’s also because the Darwin market is the smallest capital city market in Australia, so it’s very volatile. It’s more like looking at regional markets like Townsville or Cairns in the way it behaves. As long as you’ve got the conditions for growth it can be spectacular, but as soon as you remove those conditions prices can drop dramatically. Also, a lot of the growth in Darwin is investor-driven. But this will stop very quickly when the demand for rental decreases. It can change very quickly.”
All systems go for now
Investors with current property in Darwin can sit tight for now, says Angie Zigomanis, senior analyst with BIS Shrapnel. “From an investment perspective, long-term growth is still expected to be solid, underpinned by continued strength in the resource sector driving income growth. However, in the current market, any purchases should be made based on a longer term horizon for capital growth, rather than short term gains”.
Darwin also suffers from chronic housing undersupply which will help stem any slowdown in prices, says Zigomanis. “There is still an underlying shortfall of dwelling stock to accommodate the local population, so this will prevent prices going backwards. On our estimates, the Darwin market is likely to have one to two years’ worth of dwelling deficiency, so it will still take a number of years of elevated levels of new dwelling construction to erode the dwelling shortfall,” he says.
Quentin Kilian, CEO of the Real Estate Institute of Northern Territory (REINT) says property prices will bounce back once the Inpex project announces their final investment decision on the $12bn gas plant at Darwin Harbour.