Peaking or plummeting?
As Darwin property prices continue their impressive run of price growth the question mark hanging over the market is the same as it has always been: how long can the good times last?
They call it ‘Boganomics’. It’s this idea that a fundamentally bogan thing to do is invest in a market when it is at the peak of a major growth period, only to sell when the market hits the bottom of a subsequent period of price falls.
In a word, Boganomics is unwise. And for Darwin – on paper, at least – it is starting to look like investors who enter the market now could risk doing what the first part of Boganomics suggests.
On some measures, growth in the market shows signs of peaking.
“Darwin is probably the only city where lower interest rates haven’t seen a commensurate effect on affordability,” says BIS Shrapnel residential researcher Angie Zigomanis.
Zigomanis adds that a boom in the gas production sector has been responsible for much of Darwin’s strong property price growth up until now, but many of the once drivers of that growth are changing.
“The Inpex gas project had a big impact on rental stock and rental levels, but on most levels of affordability the market is starting to strain,” he says. “I think we’ll see okay demand, but I don’t think it’s enough to drive strong price growth... There are factors pushing up and factors pushing down.”
Australian Property Monitors senior economist Andrew Wilson agrees that affordability is an issue for the Darwin housing market, but urges investors to keep in mind a unique attribute of the Northern Territory.
Normally, growth in markets tends to stall when prices become too far out of reach of the majority of buyers, Wilson says, but this affect can be negated somewhat if there is a shortage of property.
“Darwin has a seasonal price cycle,” Wilson says. “It gets a lot of activity in the dry season, which tapers off during the wet. This acts as a disincentive for the supply of new properties, so there is often a shortage of supply.”
This leads Wilson to conclude that Darwin housing’s affordability issue – even if does cause a slowdown in demand – could be balanced out by a low supply of new properties over the short-term.
Life after the gas boom
If the dynamics of the Darwin market could insulate it from falling over the next year or so, the big question mark for investors should be what happens when construction of the city’s major gas project ends in 2016?
After all, the gas project is widely viewed to be what has been driving Darwin’s strong rent and property price increases. Take it away and the extra gas workers coming to the city and putting pressure on rents goes too.
A report by QBE LMI puts the city’s future into perspective: “With resource-related investment expected to begin to trend downward from 2014/15, and rising levels of new construction preventing the dwelling deficiency blowing out, price growth is forecast to weaken through to 2015/16, taking the median house price to 660,000 by June 2016,” it says.
Suburb to watch: Larrakeyah
Blessed with cool ocean breezes, courtesy of its beachfront location, Larrakeyah’s environment is somewhat unique in hot, humid Darwin. For investors on the hunt for good value, it offers a lot.
Among many attractions, the suburb is home to the Larrakeyah Barracks [for army and navy personnel], the Cullen Bay Marina area, the Mindil Beach Reserve and Bicentennial Park, which features a waterfront esplanade. The leafy, well-maintained suburb also has excellent childcare facilities and good schools. Its proximity to the CBD, just a kilometre away, and the marina mean it is close to a range of shopping and dining options.
These elements, along with a high number of parks, have made Larrakeyah one of the city’s premium suburbs, Real Estate Central director Braden Menzies says. “Properties in the area are highly sought after. It is a very popular area.”
While older-style, elevated houses dominate the suburb, there is also a good range of units. Menzies says units often sit right on the city fringe. “They tend to be within walking distance of the CBD. This means they are in particularly high demand.”
Larrakeyah’s rental market is strong, Menzies adds. The vacancy rate is low [1.13%] and when a property comes on to the market it is snapped up quickly. The average rent is at $600 a week, which puts the average rental yield at a handy 7%.
Can you afford to buy in this suburb? Find out how much you can borrow