The month in review: Darwin

By Herron Todd White
June, 2009

The precarious position of Darwin’s middle market is largely a result of the contrasting performances of the markets around it. Middle markets are typically pulled from the top or pushed from the bottom. In Darwin’s case the upper market has slowed, yields are down and
the vacancy rate within this sector is far higher than its more affordable counterparts. Prestigious unit buildings are being completed with buyers looking for the rents promised in a time when there was an abundance of corporate rentals, which are now notably absent.

Conversely, the bottom end of the market has been extremely active with the first home buyers grant and rapidly escalating rents forcing many transient southern Darwin arrivals to slug it out with disgruntled renters, investors and first home buyers. This has placed upward

pressure on the ‘affordable’ home values and lifted the middle market entry point to around $500,000.

What does seem interesting about the perceived top of the middle market is the standard of housing that is transacting at this level. The market still perceives $750,000 to $800,000 as the start of the upper market or prestige market, but the standard of housing that is
now deemed to be prestigious has reduced. Suburbs and dwellings that would have previously been considered upper middle market are now considered prestigious and as a result are experiencing extended sales periods and a reduced number of sales. These locations are suburbs such as Stuart Park, Parap, some parts of Ludmilla, the new Lyons development and consequently parts of
Leanyer, now all with detached homes selling for $750k and above.

The current shortage of available land has also had a significant impact on the middle market. The most notable shift has occurred throughout the near fully developed Rosebery in Palmerston. Largely as a result of poorly managed land releases there is now a significant shortage in land throughout all of Darwin but in particular Palmerston. As a result there has been a surge of up to $50,000 in the value of land over the last 4 to 6 months.

A motivating factor is also the N.T. Governments Buildstart program offering a $14,000 grant to those that commence construction of a dwelling before 30 June 2009 (now extended in line with the FHOG boost scheme). This, in conjunction with the first home buyer’s grant and stamp duty concessions, has placed a lot of pressure on land values throughout Darwin and has even had an impact in areas such as Katherine.

The interesting thing is that this growth has been much slower to flow through to the values of completed dwellings. Looking at the suburb of Rosebery, six months ago a standard 650msq block was selling for $170,000, now it could achieve $220,000 to $240,000. In the same suburb a completed dwelling with 4 bedrooms and 2 bathrooms, six months ago was selling for $550,000, now the majority are still transacting for around $550,000.

There have been sales up to or slightly above $600,000 but these are substantial dwellings that would have previously been large over capitalizations which the market is now prepared to offer additional value to, but in the main the average home has remained consistent.
Well, what is going to happen now?

The shortage of land is not going to be rectified in the next 2 – 3 months but the government has recognised residential the problem and land is coming. There is an estimated 730 allotments to be released in 2009 (though this assumes that problems providing services to Bellamack can be rectified….. soon) and a further 840 allotments in 2010, of those 870 lots are to be in Palmerston alone, with a currently unknown number set aside for ‘affordable housing’ by the NT government. That is a lot of land.

Once the grants have come to an end and the land is available the market may consolidate and level off. At what point it levels and if it contracts is really dependent again on the top and bottom markets. The upper market is unlikely to surge again soon. The bottom, entry level, market is the great unknown. The extended first home buyers grant boost scheme will soften the landing from any FHOG hangover but it is unlikely to prevent any reduced activity. If rents hold or continue to grow there will always be pressure on new arrivals, long term renters and investors to buy cheap housing and in doing so place continued pressure on the middle market and hold the values within this sector.

Of course the alternative is that the demand continues, with the impact of FHOG being replaced by other stimulating factors and the upper market rejuvenates. Is it a bird? Is it a plane? No it’s ………..INPEX.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © 2008 Smartline Home Loans P/L. ABN 38 085 370 270