Affordability pressures have stalled growth in the Northern Territory – but a new land release and a major gas project could spark a second wave.
The Northern Territory has been in search of some good news recently. The capital growth that Darwin has seen over recent years has slowed, as affordability pressures have pushed the market to its limit.
Therefore, the confirmation in September that the long-mooted Inpex gas project – the subject of a multi-year tug-of-war contest between NT and Western Australia – will go ahead in Darwin Harbour is music to the ears of investors.
“It’s a real coup for NT,” says Chris Winter, director of Herron Todd White Darwin, of the $23bn project. “It’s probably going to be the most significant factor fuelling Darwin’s property market over the coming years – although there is debate over the extent of its potential impact. It’s definitely good news, but it’s still worth playing the ‘wait and see’ game.”
‘Wait and see’ has been the mantra for Darwin for several months. Winter highlights that the number of transactions has slowed recently, like the rest of the country.
“The market has quietened down significantly, but that was somewhat inevitable, given the good growth we’ve seen recently,” he comments.
However, even at this slower pace, Darwin has still managed to outperform all the other bigger capital cities during the September quarter, with median house values climbing by 3.16% compared to Melbourne’s 1.39% and Sydney’s negative growth of -2.07%.
Unit values pulled back during the same period, with the median falling by 1.14%, however, Darwin still came in as the second-best performing market for units for the year, at 10.19% growth in median values.
Residex figures show that, while volumes have slowed, Palmerston is the place to be looking. House prices are well below the Darwin median, with excellent growth prospects in suburbs such as Farrar and Durack. Rosebery is especially impressive, with an average house price of $391,500 and growth over the last 12 months of 29.25%, according to Residex.
Another light on the horizon for Darwin is the release of new land and increased competition in the construction industry.
“The Territory government has been under pressure to increase the supply of land. Increased competition in the construction industry is also stabilising construction costs, and making building a little more affordable.”
While that’s great in terms of solving Darwin’s affordability issues, isn’t there a risk that a huge amount of land release could cause the market to crash? Winter thinks that there is certainly a risk, but it might be softened by mitigating factors.
“A significant amount of the new land is likely to be taken up by the Defence Housing Association (DHA), so that may lessen the impact on end values,” he says. “However, it will subdue growth to some extent, purely because Darwin’s growth is partially underpinned by the high land value, and that’s being eroded.”
A defensive position
Indeed, defence and Darwin have a long history, with troop movements being a major factor in fuelling both growth and rental demand. John Lindeman, head of research at Residex, thinks the outcome of the federal election doesn’t mean that will change any time soon.
“Australian troops in Afghanistan wasn’t really a key election issue”, he says, “so it’s unlikely that situation will change in the near future. However, I’d keep a close eye on both the political rhetoric here, and in the US and UK in terms of ‘if ’ and ‘when’ we might pull out.”
Lindeman cautions that, if troops are pulled out of Afghanistan, it might be worth pulling out of Darwin. The eventual likelihood of this happening just cements the potential importance to the city of the Inpex project.