Red hot rental market squeezing tenants

A booming rental market may lead to property price growth, but one commentator suggests caution

Tales of accommodation discrimination and apartment sharing with strangers continue to emerge from the country’s most expensive rental market, Darwin.

This comes as rents for both houses and units continue to be the most expensive of all the capital cities.

Herron Todd White’s Brendan Clark says the median rent for a three-bedroom house has gone up by 1.9% in the last quarter and 16.3% over the last year. The median house rental is now $650 a week, while the median unit rental is $550 a week.

This strong rental demand is fuelled by several major infrastructure developments led by the $34bn Ichthys gas project, which is attracting a large number of workers into the Territory.

Predictably, Darwin also has the lowest rental vacancy rate of all the capital cities, which means landlords can afford to be picky with their tenants, while collecting the highest rental yields of any capital city (6.2% for houses, 6.3% for units, according to RP Data).

Hotspotting’s Terry Ryder says that a sustained period of high rent rises tends to, eventually, lead to price growth. “After one to two years of rising rents, tenancy costs become so high that renters decide they can buy a home for roughly the same weekly or monthly commitment.”

At this point, multiple tenants leave the rental market and become buyers, which helps to push up dwelling prices in competition with investors, he says. “This is a driving force in the Darwin property market at the moment. With current tenants being driven into buying by the high rents, this could lead to capital growth in the northern suburbs.”

Clark says the Darwin CBD is dominated by investor owners looking to cash in on high rental yields, while the more affordable northern suburbs are mainly the province of owner-occupiers.

Think before you leap

Meanwhile, Ryder believes the time might be right to sound a note of caution about the NT property market.

He notes that recent data indicates the market may be starting to slow down – with property prices holding steady, but the number of sales dropping.

“A major drop-off in sales volumes is ominous because a change in the number of sales is usually a forerunner to pricing changes.”

Further, while the NT has recorded a 26.5% rise in residential building approvals, this might contain the seeds of oversupply, Ryder adds.

“The market requiring the most caution is the city unit market. Darwin has had a substantial oversupply in the recent past and may have another in the near future.”

Suburb to watch

The Gardens

A small, leafy pocket of Darwin, The Gardens is within walking distance of the city’s finest amenities, including Mindil Beach, The Gardens Golf Course, Sky City Casino, the Darwin CBD, the Botanic Gardens and Amphitheatre, and Cullen Bay Marina.

Boutique in nature, The Gardens is located perfectly on the edge of the CBD, according to Jeremy O’Donoghue from O’Donoghue’s First National Real Estate. “Its central location means it is at the heart of Darwin and its attractions,” he says.

Given the suburb’s proximity to the CBD, it is well served by the city’s bus system. There is a range of both primary and secondary schools to choose from, and a number of doctors are close to hand. Local industry is limited to The Gardens Golf Course, which is a public course set in beautiful natural surrounds.

O’Donoghue says that most of The Gardens is zoned for townhouse dwellings. “There are still some spectacular homes in this suburb, but it is predominantly upmarket townhouses which line the streets.” The suburb’s ‘hotspot’ streets are Gardens Hill Road, Melville Street and Blake Street, he adds.