The Northern Territory has been a star performer for years – but is it time for new investors to back away?
Numbers don’t lie – and, if you look at the numbers, it seems like Darwin
’s spectacular growth is finally reaching a plateau.
According to Residex figures, the Northern Territory’s capital has seen house price growth slow to a crawl: it registered at less than 0.5% in the second quarter of this year, and presented a negative growth number of -1.1% in June. RP Data figures concur.
Residex’s head of research, John Lindeman, believes the shine has finally come off Darwin’s housing market. “What we saw in Darwin leading up to the end of the 2009 financial year was spectacular – indeed, growth hit 14–15% at some points. However, it looks like that’s now finished in terms of houses. Our projection is that prices are now likely to correct over the next year or so, with Darwin either falling back or showing minimal growth until the market comes back in line with the national average.”
Property valuers Herron Todd White (HTW) says declining affordability is at least partly to blame for the market flattening. Indeed, median house prices remain above half a million dollars– only outstripped by Sydney, Melbourne and Canberra.
The issue has also been compounded by a limited supply of vacant land. While this has worked to promote capital growth over the last few years, the upward pressure this exerts on prices is now pushing affordability to its very limit.
HTW notes that a number of subdivisions are on the drawing board; however, while these may help to ease price pressures, many of the developments are located in outer suburban areas and as such the valuer says they “may not appeal to a wide range of purchasers”.
It’s not all bad news, though: units are still showing growth, at over 15% for the last year and quarterly growth accelerating to 2.01%, according to Residex. The research firm’s CEO, John Edwards, attributes this to “investors chasing the highest rental yield in Australia”.
Indeed, that’s where Darwin comes up trumps. Rental yields are still considerably higher than anywhere else in Australia, at 5.37% for houses and 5.59% for units, with the highest rents in Australia (averages of $520pw and $450pw for houses and units, respectively). HTW even reports yields of up to 7% in strata title units in the northern suburbs and Palmerston.
Lindeman attributes this performance to Darwin’s significant transient population.
“Darwin is Australia’s main hub for overseas personnel on peacekeeping missions in places such as Afghanistan and East Timor,” he says. “That includes both supply and troop deployment and return – which requires huge amounts of personnel. That overseas activity is not likely to cease any time soon.”
Lindeman estimates that there are 10 people posted in Darwin for each one overseas, keeping demand for rental property high. The steady population turnover as postings end and new personnel arrive has also contributed to high rental income. “About 10% of the population turns over every year,” he says. “In contrast to other cities, where tenants can stay for several years, a significant proportion of tenancies in Darwin are relatively short term – meaning that landlords can increase weekly rents more often, as new tenants come in more frequently than elsewhere.” So, while capital growth may have stalled in Darwin for now, it’s still a very profitable place in terms of cashflow.
The eye-watering property prices probably mean new investors should stay away, at least for now, but those who are already in the market would do well to hold onto their investment, purely for the sake of the stellar rental returns.
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