Values suffer but yields remain robust in Darwin.

Australia’s long hot summer has not treated the Northern Territory well. The shockwave from the hiking of interest rates by both the central banks and mortgage lenders has reverberated throughout the housing sector for months, exacerbated by bad weather. This has caused problems in all markets – especially Darwin and its stratospheric prices.

The figures are stark. RP Data reports that median values for Darwin fell by a staggering 9% in the three months leading up to February; while the house median price fell by 8.2%, and units saw a 12.6% drop in values. That level of price falls inevitably raises the question: “has the bubble burst?”

Cameron Kusher, senior research analyst at RP Data, believes that investors at the Top End shouldn’t panic just yet.

“Darwin’s obviously cooling down, but it has historically been a volatile market – that’s not helped by its relatively small population,” says Kusher. “Listings are continuing to increase, but the fundamentals of the market are still sound.”

Andrew Wilson, APM’s senior economist, agrees that there’s little cause for alarm.

“The market has moved backwards, but part of the reason for that is the cyclical nature of the economy,” he comments. “The falls in prices reflect the extremes of the seasonal nature of the economy, and we would expect prices to recover some or all of the losses as workers come back and put pressure on rents and house prices.”

The lull may be down to a little more than just seasonal variation, according to Deloitte Access Economic’s latest Business Outlook report: it points out that a number of key resources projects are “winding back rather than revving up”. It comments that Darwin’s population growth – once higher than the Australian average – dipped lower in early 2010, and has not yet recovered.

CommSec estimates construction is down 24% on the decade average; meanwhile, housing finance commitments are 30% lower than its decade average and 19% down year-on-year for February. This lull in activity is clearly contributing to the slowdown in the housing market, making the seasonal moderation more pronounced than usual.

Even so, Access Economics is confident that the NT will come back around. “There are some megaprojects on the horizon, including the potential wrapped up in the bigger-than- Christmas Ichthys gas field and associated LNG processing facility in Darwin, as well as a possible tripling of output at the Wickham Point LNG plant,” says the report. “And projects such as Inpex will affect the timing of both the cyclical swings.”

John Edwards, CEO of Residex, agrees. He says that mining projects and ports in the NT have historically come on stream rapidly and made a significant difference due to the state’s small population: something like Inpex, therefore, could cause a significant boost.

Nevertheless, while capital growth might be in the doldrums for now, rental yields are holding up. Kusher reports median yields in Darwin are holding firm at 5.5% for houses and 5.7% for houses – still solid returns in anyone’s book.

“Rental growth is looking good, especially with the already attractive yields – that may continue to attract investors into the Darwin market,” adds Kusher.