Darwin dreams come true
A year of truly staggering price growth has come to light in Darwin, but investors have to wonder if the market has room for further increases
Following a tumultuous summer, economists and property observers can finally breathe a sigh of relief – at least they are better at being right than the meteorologists.
This is not just because of the cyclones, bush fires and record temperatures that have been thrown the way of the weather bureau. A look at January figures from RP Data reveals that Darwin property has done exactly what most pundits expected it to: grow, grow, and then grow a little more.
In fact, at more than 12% growth over 2012, house prices have not just gone up – they have rocketed at lightning speed and are now galaxies away. Darwin’s current median house price of $560,000 is $80,000 up from what it was exactly a year before. It’s the kind of growth that makes for investor dreams, and it hasn’t just been seen in one suburb, district or region of the city but in the entire urban area.
“Demand is definitely strengthening,” says BIS Shrapnel senior residential manager Angie Zigomanis. “In the last year we’ve seen vacancy rates tighten considerably, and so median house prices have shot up as well. The impact of the Inpex Ichthys LNG project has also been significant. When you’ve got a small city like Darwin, a $30bn project makes a big difference.”
Zigomanis adds that the Inpex Ichthys project is part of what has given the Darwin market a new lease of life. He says the city had its strongest property price growth during and just after the global financial crisis, partly as a result of new government administration offices moving into the area and projects that were still working their way through development. That growth hit a ceiling in 2011, and prices went backwards for much of that year. It was only in the autumn of 2012 that the city’s fortunes began to change.
When the Inpex deal was first announced, it was estimated that around 3,000 jobs would be directly created and a stream of new rental accommodation would be required to meet demand from natural gas workers. This was reflected in improved confidence in the city. A Property Council-ANZ survey at the time found that confidence in the Northern Territory shot up 15%, putting NT’s confidence levels far above its fellow states.
Time has certainly shown the improved confidence to be merited, evidenced by the over 12% growth in the median house price over 2012.
A happy ending?
When considering the awesome growth in Darwin house prices, the obvious question is how long such value increases will last? And, according to Zigomanis, there is reason enough to be cautious.
“As the market was growing over the GFC, affordability eventually deteriorated. After the growth of the last 12 months, it has probably deteriorated further. You have to ask: how hard can that affordability barrier be pushed? So, whether growth in 2013 will be single or double digits, it’s a matter of how much affordability plays a part.”
Malak is one of Darwin’s more established areas, developed primarily in the 1970s. It is approximately 12km northeast of the CBD and within a 10-minute drive of Darwin International Airport.
Much of the suburb surrounds parks and open areas, making it appealing to families with children, who, not surprisingly, make up close to half of all households, according to Australian Bureau of Statistics Census data. That said, there is also a significant portion of residents who remain single and childless, suggesting the market is varied enough to whet most investor appetites.
With the slight slant towards families, houses dominate much of the market, comprising 67% of properties. Units, however, are gaining new traction in the market, having surged 10% in value over 2012, according to RP Data. This suggests increasing popularity as more seasonal and fly-in, fly-out workers come to the city in search of cashed-up jobs in the natural gas sector.
Rental growth certainly hints at a changing tenant market. Median weekly rents on units are now at an attractive $415 a week, pushing the median rental yield to 6%. This is the figure beyond which most investments become cash flow positive.
Vendors appear to be picking up on the new demand, and the average vendor discount has tightened to 3%, hinting at a market in which sellers know that buyers are eager to purchase and they can negotiate a good price. This would certainly explain why the average listing time of properties is exceptionally low at just 48 days, proving that buyers have been quick to snap up whatever is being advertised for sale.
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