The month in review: Darwin
By Herron Todd White
September, 2009
Since 2007 the Darwin residential sales market has
fluctuated. The first quarter of sales for 2008 represented
a decrease in overall sales, whilst the first quarter of 2009
showed a significant increase from 2008, also surpassing
the total number of residential sales concluded in Q1
2007.
The major movement in sales within the Darwin market
for Q1 has been within the budget and middle sales
brackets. Since 2007 the overall number of sales sub
$500,000 has decreased, however the number of sales in
the middle bracket ($500,000 - $1,000,000) has more than
doubled in Q1. This is as a result of large increases in land
prices, a number of new sub-divisions which have hit the
market, and the Build Start incentives that have been
offered by the Territory Government to accompany the
first home owners boost scheme offered by the federal
government.
At present the middle sector of the market is where the
largest change has been achieved. The prestige residential
market has remained quite steady from 2007, with the
same number of sales being recorded in Q1 2007 as Q1
2009. However the sub $500,000 market is by far the most
active sector of the market. This trend has continued on
from Q1 in 2007 and 2008 and is clearly the driver of the
current market. This is not surprising when we look at the
combined effect of the stimulated purchasers within this
sector and a housing shortage leading to rapid escalations
in rentals, despite interest rate reductions.
These graphs are very indicative of the Darwin market
at present, by far the most active is the budget end of
the market. We are seeing properties on the market for
only short periods of time, with good growth also being
achieved in prices within this market. The data paints a
clear picture of the inflation within the sub $500,000
sector, though what it doesn’t provide is a buyer profile.
These properties are almost always being purchased by
owner occupiers, escaping the rental increases. There
should therefore be fewer renters but now that there are
even fewer properties the rents aren’t slowing. Interesting
for a location dependent on a transient population,
eventually something has to give. When and what is the
question. If owner occupiers slow, investor properties
increase, rental stock increases and the rental market will
slow or alternatively, Darwin becomes too expensive and
the number of renters reduces to reach equilibrium. At
present neither shows any sign of occurring.
However, the graphs don’t paint an entirely accurate
picture of the activity within the $1 million plus market.
There has been many more sales within this sector. They
have been within new unit complexes yet to settle. What
it does show is how few sales within this sector there
really are, and the growing acceptance of units as a viable
alternative to a detached dwelling rather than being seen
as a secondary form of accommodation within a preferred
location.
The most significant factors having an impact on the
market over the last three years are follows:
LNG Gas: INPEX is the single biggest reason for the
continued positive expectations across the Top End.
Whether warranted or not, guaranteed or not, people’s
expectations are that the levels of expenditure throughout
and after the projects development will continue to
stimulate the economy and fuel the continued growth
in both incomes and property prices. Should this
development not go ahead the future expectations for
Darwin are by no means bleak but it would no doubt
give sufficient reason for many investors to rethink their
current high levels of confidence.
The First Home Owners Boost Scheme: Boosts to First
Home Owners Grant has had a large impact on the activity
within the market and more recently the boost scheme
and its expected conclusion have significantly lifted the
activity in the lower market. Due to a low rental vacancy
and escalating rents many people are looking to escape
the rental cycle and enter the property market for the
first time. However, good things always come to an end
and the boost scheme will tier down and be concluded
by January 2010, leaving only the original grant. Possibly
investors will then enter the market taking advantage
of the continued high rentals. BUT, we haven’t seen any
evidence of this happening yet and there may be a large
void for investors to fill.
Darwin has not avoided a unit boom and there is now a
high number of large unit complexes being completed
around Darwin leading to an oversupply of units. This has
lead to many developers in planning and construction to
reconfigure plans and provide fewer top end units and
more small affordable units (studio, 1 and 2 bedrooms)
and avoid longer sales periods and potential value
contractions. A similar re-think occurred within Darwin’s
largest development.
Land prices and the continued high construction cost:
Large escalations in land prices over the last 12 months
has come as a result of the N.T. Governments Build Start
grant, the Federal Governments First Home Owner Grant
and its boost Scheme in conjunction with a fundamental
lack of supply. There has been too few land releases to
satisfy the demand and though there are plans for more
large scale subdivisions, the government timetables for
their release are clearly unrealistic, given the level of
development occurring in these locations. The market has
reacted accordingly and the land values have surged.
Though the current economic slowdown has apparently
eased the labour shortage around the country, there
remains a limited supply of labour in Darwin. A
prominent Darwin developer, when asked about an ease
in construction costs due to an ease in the labour market,
commented “it’s gone from ridiculous to just hard”
referring to their ability to find trades people.
The impact of higher land values and continued high
construction costs has seen many completed properties
shift from the lower bracket to the middle bracket as well
as recent subdivisions begin within this middle sector. A
really good example of this is Rosebery, the land price of
a standard residential block 0f 600sqm has gone from
$170k to $240k in 6 – 8 months. Completed home sales
within this area lagged some months behind the shift
in land but a good 4 + 2 home has gone from $550K to
$630K.
This does not show any sign of easing. Large new
subdivisions are some time away, though some have
begun selling, nearly two years ahead of a settlement
date. Yes two years wait for vacant land.
|
