An increase in affordability and the much-hoped-for natural gas project could spell big things for Darwin in 2011.
There appears to be an interesting dichotomy in the Top End, with a steady economy and low unemployment failing to prop up a slowing property market.
“The relatively-small Northern Territory economy is being underpinned by very low unemployment together with firm retail spending and equipment investment,” writes CommSec chief economist Craig James, in his State of the States economic report.
“But the housing sector has begun to slow, reflected in weaker housing finance and dwelling starts.”
As with much of Australia, the blame rests with interest rate hikes and strict post-GFC mortgage lending criteria. And these forces, paired with Darwin’s affordability issue, have contributed to its recent property market slowdown.
“There are a whole lot of issues that have come into play, not the least of which are interest rates and what’s happening in that banking cycle,” says the Northern Territory’s Real Estate Institute (REINT) CEO Quentin Kilian.
“Access to finance is getting harder and harder. Banks are tightening up on their LVRs and becoming a lot more rigorous in the methodology they use in the lending process,” he adds.
However, Darwin’s recent doldrums have seen something of a shift in the affordability stakes, and this may stimulate more buyer activity during 2011. Australian Property Monitors (APM) economist, Dr Andrew Wilson, points out that Darwin has fallen on the list of most expensive capital cities – for house purchases especially.
“The latest median price data now shows that Darwin is the fourth most expensive city in Australia in terms of median house price. It’s gone from being number two consistently behind Sydney to number four, now behind Melbourne and Canberra,” he explains.
“Given economic growth moving into 2011, with incomes rising and unemployment continuing to decline, we’ll see a bit more buyer activity and a bit more confidence in the marketplace,” he adds.
Volatile unit market
The unit market especially seems to have been struggling of late, but those in the know point out that short-term growth figures can be misleading given the relatively small amount of units that are actually sold in Darwin.
“The unit prices in Darwin have fallen backwards in the last quarter by about 6%, but that follows a 9% rise in the quarter before. So it’s one of those data sets that tends to be quite volatile,” says Wilson.
Buyer activity for units in Darwin also shows volatility in pure percentage terms, but once again the overall number of sales needs to be taken into consideration to understand the bigger picture.
“Units took a bit of a hit. The largest movement was at the top end of the market, which saw 28 less sales in inner Darwin, or an 18.4% drop, and a 10% drop in the northern suburbs,” says Kilian.
“Palmerston, however, saw unit and townhouses rise in sales volumes by over 60%, but that is accounted for by virtually one or two developments. We’re talking in such small numbers that one large development can skew the percentages,” he adds.
Now that international oil and gas company INPEX is looking into funding a multi-billion dollar natural gas project in Darwin Harbour, hopes are high that the scheme will go ahead and fuel a new economic boom in the city. Such a large-scale development would inevitably bring with it new workers and a renewed demand for property in the territory capital.
“If that were to go ahead and go into the construction phase I think you could see Darwin’s median house price increase overnight by 50%,” says Raine & Horne Darwin’s general manager, Glenn Grantham. “Demand could quadruple just on the strength of that one major development.”
But Grantham warns that “by the same token, if that one major development fell apart, you could very easily see Darwin drop by 20% overnight”.
The inside knowledge, says Kilian, is that INPEX is keen to secure the funding and go ahead with its big plans. In the meantime however, the city will be holding its breath for a final decision.
“INPEX have just raised $6.6bn worth of capital in a share offer that was oversubscribed by six times,” says Kilian.
“While it’s never going to be absolute until they get that final investment decision at the end of 2011, it’s sending positive signals that the project will go ahead.”