By Herron Todd White
The greater Darwin residential market, like other cities, faces many influences and drivers of market sentiment and ultimately price movement.
To begin, and more prominent for all regions and sectors of Australia, is the impending economic fallout from COVID-19 or Coronavirus. Without taking away from the seriousness and current health implications of this, we see the wider economic fallout from this virus having a much wider reaching and larger impact on our property market and all markets in general. Without sounding too negative, sentiment will take a battering in the short term, with the long term implications still unknown at this stage. Uncertain times ahead!
Secondly, and most applicable to Territory markets, is population growth. The growth or more correctly, lack thereof, has a very big say in how our local market will go. As noted in previous Month in Review issues, Darwin and the wider Territory’s population has been either steady or in decline over the past two to three years, where all other states experienced growth. Unfortunately not only does this create a smaller pool of buyers, but local community sentiment takes a hit. While the reduced population number is small, it’s not an increase. People and businesses see this as a negative. While we see the long term (two years plus) outlook as relatively positive due to large scale projects currently in the pipeline, this does not relieve current sentiment in the short term. Ultimately this leads to a reduction in prices across all sectors of the Darwin property market. We currently have the lowest median house price at $460,065 as at December 2019 (source: REINT) of any capital city and a big reason is due to lack of growth in our population.
The cash rate sits at 0.25 percent (as of 19 March 2020), the lowest in history for our country and with the impending effects of Coronavirus, is widely tipped to reduce further.
We saw an uplift in sales volumes for the December quarter with 33.3 percent for dwellings sales across Darwin overall (source: REINT) yet no change, or zero percent in total dollar sales volumes for the quarter. What this is telling us is that the Territory market looks to be turning with regard to volume and we see this trend as likely to continue with lower median home values showing why we can have an uplift of one-third in sales volumes yet no increase in overall value. We see this as a shining light and hopefully a shift in market sentiment that will continue.
A driver of the increased volumes is also the investor market. Corelogic’s March 2020 report shows Darwin as having the strongest gross residential yields of all capital cities at 5.9 percent. Whilst most owners are experiencing low or no capital growth, they are underpinned by positively geared assets, a great incentive for those looking to get into the market or avoid the low yields of other capital cities. With the financial market and stock exchange facing volatility, bricks and mortar is likely to offer more security to investors.
It is hard to look past the current situation of COVID-19. This is causing a raft of issues that will have wider reaching implications for the Territory. Tourism is something that coming into the peak dry season (southern winter months) allows local businesses to really thrive on the back of warm weather. With the recent travel bans, lack of domestic travel and social distancing concerns, it is hard to imagine the local sentiment garnering any positivity.
The Northern Territory government is delivering a $65 million Jobs Rescue and Recovery Package (source: https://business.nt.gov.au/recovery) stimulus for Territorians that will ease some pain in the short term however with business looking into a lean few weeks and months ahead, the outlook is not great. We see this as having a direct impact on local property markets, particularly commercial, as tenants and businesses feel this pinch. The positive upside is for the residential market where home renovations can be carried out and largely funded by the government.
Speaking locally with agents and reflecting on sale data, we are seeing the uptake in sales volumes being driven by first home buyers, reflecting the Commonwealth Government’s guarantor loan scheme where first home buyers can buy properties up to $375,000. We are seeing properties of value with the most activity, with 54% of sales occurring at a price below $350,000 in the inner Darwin unit market.
The inner Darwin unit market has shown a 4.4 percent increase on the December quarter and 13.1 percent on the year in recorded sales volumes (source: REINT). Local commentary around is showing an increase in the younger professional market and first home buyers keen to take advantage of the great schemes on offer. As we continue to ride out the economic impact of the current global economic situation, we believe that this sentiment will continue for our first home buyers throughout 2020.
All external issues aside, one factor of the market that we continue to rely on is the strength of the coastal northern suburbs market which continues to buck the trend and ride out outside factors. This is evident with a 61 percent increase in sales volumes for dwellings on the quarter and an increase in median value of 0.4 percent. This is not directly attributed to falling prices or cheaper properties, with 33 percent of these properties having a value of more than $600,000. While these are well off the peak of the market, to echo the earlier point, if there is volume first, higher values will come second when an economy begins to turn.
Generally speaking, wide sweeping societal changes are coming and some are now in force with the key element being the current Coronavirus pandemic. This is tipped to have a huge impact on the wider economy with the brunt of this yet to be felt. However, we are yet to see any direct impact locally here in the property market, although it is early days. Historically, when a stock market crashes we see an asset such as a home being far more illiquid than shares, not to mention that people will always need a place to live. So while we may see fewer transactions in the market, locally the property values may remain insulated from such losses, but this remains to be seen.
Speak with a Darwin Mortgage Broker today.
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.