By Herron Todd White
Firstly, a brief update with how the COVID-19 pandemic is impacting the Norther Territory’s property market over the previous month. As you might be aware, the NT has been less affected compared to the southern states, mainly due to the minimal amount of cases and zero community transmission. However, there is no doubt the local economy has suffered considerably, with minimal tourism from interstate and no foreign tourists providing that necessary tourism cash injection over the dry season.
Despite the poor economic conditions, recent market sentiment in the residential sector has actually shown a positive direction, with agents advising strong interest for potential purchasers coupled with a lack of supply for new stock. The volume of sales appears to be increasing, although pricing remains static. This can be attributed to several factors, one being Darwin is considered quite close if not at the bottom of the property price cycle. Additionally, locals looking to possibly travel over-seas or relocate interstate have decided to settle down and purchase a home in Darwin. Darwin has always been considered a transient city, however due to the recent pandemic we suggest in the short term any transitioning to other locations has been put on hold. Whether this strong market activity is sustained and translates to upward capital growth however remains to be seen but is a good indicator for positive signs heading into the back end of 2020.
Looking to our main focus of investor activity, Darwin has always shown strong rental returns and therefore has been a popular location for local investors to watch their money grow. A consistent downturn over the past four years has led to what many property professionals are considering the bottom of the market and offers potential purchasers not only strong returns but the possibility of capital growth.
Popular investment options can range between both units and dwellings; however, units are the most affordable options for those looking to purchase their first investment for obvious reasons. The Darwin CBD region has the largest choice of units in the area, with a one-bedroom unit on the fringe of the Darwin CBD selling in March of this year for $90,000. To give a strong indication of the current economic situation, this same unit sold for $340,000 in 2013 indicating a massive value drop of 74 per cent. A unit of this configuration would rent for approximately $250 a week, equating to a gross yield of 14.4 per cent. Whilst this yield may be seem quite high, a potential investor must also take into account expenses such as the body corporate fees which would significantly impact the returns.
Established dwellings make up the majority of the Darwin property market and can be found in every area except the Darwin CBD. The median price for this type of property ranges from $650,000 in the premium Inner Darwin segment to $447,000 in the Northern Suburbs. Gross rental yields for these segments sit at approximately 4.2% to 4.7% respectively. (REINT Quarterly: March 2020). This is contrasted with an average of 2.4% for the average house in Sydney. ( SQM Research: July 2020). The bulk of this market is made up with local investors, with Darwin mainly missing out on the large scale international investment other capital cities have seen in the past decade.
With regards to newer dwellings, the classic investor stock in Darwin has been driven by Defence Housing Australia property stock which is still being sold with relative consistency today. These properties are sold with a 9 year plus 3 year option, and are generally have a standard semi-modern fit-out. They attract rental yields of approximately 5% and include a ratchet clause not allowing the rent to drop from the original amount. The type of property would offer a solid option for investors over a longer period. Looking to the short and medium term, Darwin still provides opportunities for investors to put their money in property. Whilst capital growth may be some time in the future, recent signs of strong purchasing activity are positive signs. How the COVID-19 pandemic impacts the market in the medium to long term however remains to be seen.
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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.