The growing gas industry in Darwin has grabbed the imagination of investors, but gas is not the only reason the city’s property market is booming

Darwin has been doing the rounds among property investment circles, which imagine it as something of a city on the brink of a boom. And why shouldn’t they? Rents and prices have been climbing steadily and many other indicators paint the city as an alluring place to invest.

Yet amid the buzz, some analysts are now saying investors need to be reminded of something they may have forgotten – reality. Despite healthy looking fundamentals, Darwin remains well behind most capital cities and prominent regional areas in many ways.

Population size is one factor. Leveraging off a state population of roughly 230,000, many forget that the city is home to only 127,000 people. This figure may be growing, but the low population base means the Darwin economy will never have the diversification evident in other capital cities, let alone places like Newcastle (540,000) or Wollongong (288,000).

Rents are another area to dwell upon. Investors speak of a gas boom, but nowhere in Darwin ranks among the 25 most expensive council areas in Australia for median weekly rents. Top marks go to the iron ore community of Port Hedland in WA, where it costs $1,900 a week to rent a house.

Of course, if the market has been booming, many may be asking why any of this should matter. The answer lies in expectations. Darwin may well continue to perform strongly, but with its small size and still one-sided economic base, one has to wonder: how long can it last?

Weighing forecasts in

President of the Real Estate Institute of Northern Territory (REINT) Quentin Killian says it is important for investors to understand just why Darwin has been tracking well in recent times. And it’s not just a matter of volatile one-speed economic growth from the gas industry, he says.

RP Data figures show there were just 790 Darwin properties advertised for rent in the three months to August, a 16% fall on the same period the year before when there were 915 properties.

Killian says Darwin property prices have been soaring because rapid economic growth was not catered for. “And we’re not preparing for it now,” he says, reflecting on a Housing Industry Association forecast that 1,270 new Darwin homes were built in 2012 when 2,100 were needed to meet population demand.

The year ahead

The simple matter of a supply and demand situation, where a thinning supply of housing is being matched with accelerating demand, is one of the reasons ANZ’s head of property research Paul Braddick tips Darwin to be one of Australia’s bright spots in the year ahead.

“Looking ahead, the Territory’s housing market will continue to be supported by solid underlying fundamentals and the positive economic outlook,” he says. “Given these conditions, we expect Darwin house prices will record further rises over the next 12 months.”

Braddick adds that over 2012 Darwin recorded a bounce back in prices that was underpinned by a strengthening economic backdrop. The initial phase of the $34bn Ichthys Project to bolster natural gas production drove an extremely sharp 230% increase in business investment, he says.