The Darwin property market has been carried along by the momentum of the INPEX Ichthys project for the last few years – but is it all about to come crashing down?
On the face of it, the Northern Territory looks to be a storming economic performer.
With one of the fastest Gross State Product growth rates in the country at 4.5%, a low unemployment rate of 4.9%, and the INPEX Ichthys offshore liquefied natural gas (LNG) project still providing work, there’s much to applaud.
However, the picture is very different if you scratch beneath the surface. For one, the $34bn INPEX project’s construction phase is due to end in 2016, and there are already signs that the labour-intensive part of the project is winding down.
Indeed, Deloitte Access Economics wonders if a slowdown isn’t already underway for the NT. It identifies the following leading indicators:
- Building approvals have fallen, and so have new housing finance commitments.
- Retail sales have barely shown any growth over the past year, while car sales have recorded a fall.
- Population growth has gone from second strongest in the nation to weakest in the course of two years.
The Top End may have been a beneficiary of the resources sector over the last few years, taking in those drawn to the state by the promise of work. However, it now seems that a reversal is taking place, and Darwin is going the same way as its western cousin Perth
With that in mind, shifts in economic fortunes can have a significant effect on the housing market, which may explain why values have plummeted in the last year, particularly in the unit sector.
CoreLogic RP Data’s Tim Lawless says the pain isn’t over yet either.
“Expect to see values drift lower as the big infrastructure spending is winding down,” he says. “There’s not much coming in after INPEX.”
Indeed, while there are a few more LNG projects on the horizon – including the $13bn Greater Sunrise Timor Sea project – the current LNG price means the numbers don’t stack up and these may struggle to enter the construction phase. Potential border disputes surrounding Greater Sunrise could also derail this project.
While rental yields – historically high due to the mobile workforce’s propensity to rent rather than buy property – maintain a solid position at an average of 5.1%, this isn’t likely to last.
“Rents are starting to fall,” says Lawless. “We’re seeing falls of 7–10% already.”
The big concern is Darwin’s rocketing vacancy rate. Less than 1% back in 2013, it’s now up to 3.3% and climbing, according to SQM Research figures. Deloitte Access Economics reckons vacancy rates are as high as 7% in some parts of the market.
This will undoubtedly continue to push down rents and house prices as owners seek to divest themselves of expensive albatrosses around their necks.
AMP’s Shane Oliver reckons it’s going to take at least two more years for mining investment to unwind and for prices to hit bottom.
“Housing supply picked up and came onstream at about the same time as commodity price falls,” he comments. “The worst is over in terms of commodity prices now, but we’re still only halfway through the unwinding of the mining investment slowdown. We’re in for another couple of years of price declines.”
With Australian military activity at a relative low, Darwin isn’t being used as a staging post for the Defence Force either – which is also putting a dampener on demand.
One bright spot, however, is the Territory’s tourism industry. Like its tropical eastern neighbours in Queensland, there has been a big lift in international tourist visitor numbers and visitor nights over the past year. The lower dollar is clearly playing a role in encouraging domestic and overseas tourists back to the Top End.
However, tourism in the Territory is a very seasonal activity, with most visitors choosing to avoid the swampy, searing heat and cyclone risk of the wet season. Even if tourism continues to recover, don’t expect it to have a major impact until the mercury and the water levels fall.
Elsewhere in the NT
Heading south, Property Power Partners founder John Lindeman mentions Tennant Creek, at the crossroads of the Bruce and Sturt Highways, as a potential location for investors on the hunt for rental yield.
“Tennant Creek has the highest rental yields in the state,” says Lindeman.
While Alice Springs – historically a jumping-off point for visitors keen to make the pilgrimage to Uluru – may also be a beneficiary of the tourism recovery, Lindeman isn’t so sure it will make enough difference to improve the city’s prospects.
“The development of the airport near Uluru has gutted the Alice Springs tourist trade,” says Lindeman. “It’s difficult to see how the town will recover.”