Addressing question of supply
While Darwin continues to go from strength to strength, the city’s undersupply of stock remains a problem. However, there are options for canny investors
Sometimes strange dilemmas can come with great fortune. And this is currently the case for the property market in NT’s booming capital city.
Darwin continues to enjoy the spoils of its strong economy and growing population. As a result of this happy situation, in the latest RP Data-Rismark Home Value Index results Darwin was once again streets ahead of the capital city field.
Over the three months ending May 2014, it was the best-performing capital city, with a 5.5% growth in dwelling values. Over May itself, it also recorded 1% growth in dwelling values, making it one of only two capitals to show any growth at all.
Further, over that three-month period, the city again had the highest rental yields of any capital city, with both units and houses recording yields of 5.8%.
This is all good news, but Darwin’s oft-cited shortage of housing stock is an ongoing major issue, which increasingly impacts on investors.
Tod Peterson, from Peterson’s Property Search, says housing availability has always been a huge problem, largely due to the drip-feed system of limited land releases. But now an apparent change in mindset seems to be leading to more buyers, and thus competition for limited stock on the market.
“A lot of renters are converting to buyers because rents here are sky high and people are simply sick of it. Also, people used to come here for work and rent, but now we are seeing people who are buying on arrival.”
However, Peterson says there are still opportunities in Darwin for investors, especially as rents will remain high while demand exceeds supply. “The interesting thing is that the government seems to have realised that infill housing and zoning changes are cheaper and easier than building new suburbs.”
For this reason, he suggests that investors adopt the following strategies to try to get around the problem of undersupply:
1) Entry-level houses in the northern suburbs have increased in price dramatically over the last year. But it is possible to get single-storey, three-bedroom houses on good-sized blocks of about 820sqm. As it is now legal to rent out a granny flat to a non-dependent, it would be worth an investor’s while to put one on such a property as a separate entity. This would cost about $120,000, but it could then be rented out (independently of the main house) for about $350 a week. For an investor this equates to a 15% rental return as well as a potential equity gain. Make sure you choose your area well and do your numbers before embarking on this strategy.
2) Secure a unit or apartment that can be set up as a corporate rental as the returns tend to be significantly better. As long as the property fits the requirements of a corporate management company, it will do well. For example, decent-sized, well-fitted-out two-bedroom units can attract about $1,000 a week, and vacancy rates are low. It is possible to secure such a unit for about $520,000 to $580,000.
Suburb to watch: Alawa
Named after the original Aborigine inhabitants of the area, Alawa is one of Darwin’s northern suburbs. Thanks to its relative proximity to the CBD (just 15 minutes’ drive), the suburb’s star is on the rise.
Tim Mackenzie, from O'Donoghues First National Real Estate, says it is a popular suburb because it’s close to Casuarina Beach, the parklands of Rapid Creek
and the Jingili water gardens.
It is also near the Territory’s biggest shopping centre, Casuarina Shopping Centre, as well as Charles Darwin University, the Casuarina Senior College and the Royal Darwin Hospital. Alawa has its own primary school and shopping precinct.
Originally constructed in the 1960s, a lot of housing was rebuilt after Cyclone Tracy. This means the housing in Alawa is not uniform like it is in many suburbs of Darwin.
Mackenzie says properties consist of elevated and ground-level homes, with a typical block size of around 850m2. The suburb also has units, generally older properties with one or two bedrooms.
“However, the most sought-after properties are multibedroom family homes, either elevated or ground level.”
Alawa prices will continue to grow in the future as it is a central suburb, close to sporting facilities, the university, and with an easy commute to the CBD, Mackenzie says. “As new suburbs are created further out in response to Darwin’s growing population, suburbs like Alawa grow in popularity.”