The month in review: Darwin
By Herron Todd White
The three biggest economic drivers in the Northern Territory are tourism, mining and defence. These three sectors account for nearly half of the Territory’s economic output. In addition, the Territory’s Government also plays a significant role in local economic development. The Territory has a relatively high level of public sector spending with public administration and safety being the largest employer, making up 21% of total employment. All these economic drivers have a significant effect on the residential property market.
Darwin’s proximity to Asia makes it an important gateway for Australia, not just from a trade perspective but also a national security perspective. Darwin has proportionally more defence personnel than other cities and is home to approximately 8% of permanent defence personnel according to Northern Territory Government’s Defence Strategy Report 2015. Hence, this has had a large impact on the residential property market across Darwin and Palmerston. The new subdivision of Muirhead in the northern suburbs is a master planned residential community of approximately 1,150 lots on a 167 hectare site jointly developed by Defence Housing Australia (DHA) and INVESTA. DHA retained 40% of the land with the remaining 60% being sold to the public. This development has been very well received by the market and has also helped to ease the land supply in the northern suburbs.
Tourism is also a key industry and major contributor to the Northern Territory’s economy. It is estimated that approximately 8% of the Territory’s workforce is employed in the tourism industry either directly or indirectly. Most businesses in Darwin experience fluctuations which correspond with the season, divided by the dry and the wet. During the dry season, the city is flooded with interstate tourists and backpackers. Many property owners take the advantage to rent out their properties for shortterm stays during this period and the majority of them are fully furnished holiday rental apartments typically found in the Darwin CBD and the city fringe marina suburb of Cullen Bay. These properties are very popular amongst investors as they offer strong return and flexibility of being used as a holiday apartment or permanent accommodation. The lower exchange rates are expected to have a positive impact on the tourism industry, as it becomes more attractive to travel within the country for locals and also international holidaymakers to Australia.
Darwin’s apartment market has experienced a rollercoaster ride in recent years. After construction of the $34 billion INPEX LNG project began in 2012, increased supply of new accommodation is being experienced associated with this project, with more than 1,000 new apartments added to the Darwin’s CBD skyline. Property investors were enjoying some of the strongest rental yields on the leaseback agreement offered by a number of developments. However today, the winds have changed, as there are large amounts of unsold new and old inner city apartments experiencing extended selling periods and lower price points. This is largely attributed to the removal of the first home owner’s grant from existing properties and the winding down of the LNG project. Sales volumes and rents have slumped and vacancy rates continue to climb.
There are a number of long standing issues plaguing the Territory in recent years. Despite having the highest rental yield of any capital city in the country, the Territory continues to struggle on many fronts including deficit net interstate migration, the lowest number of home ownership and the shortest average period of tenure in the country. High cost of living is one of the major causes for the transient change in population and this has had an adverse impact on the property market. The NT Government has recognised the severity of the problem and has since implemented a number of initiatives to ease housing cost pressures, increase housing choice and improve housing affordability. Real Housing for Growth is one of the housing assistance programs aimed at attracting and retaining people who work in key service industries. Under the program, eligible key workers will be able to lease NT Government backed head leases at 30% below market rates. Other home owner incentive schemes including Home Build Access and Home Buyer Initiative were also introduced to provide more home ownership opportunities. More than 1,500 allotments were released in the new subdivisions of Zuccoli and Durack Heights. The scheme has not only encouraged the construction of new dwellings, but also helped to spur job growth in construction trades.
Apart from housing schemes available to first home owners, the recently announced $20 million Home Improvement Scheme in the NT Budget is a double boost to local tradies and existing homeowners.
This scheme helps to stimulate the home improvement and maintenance industries especially at a time when the economy is moving towards a slower growth phase. Home owners are able to obtain up to a $2,000 voucher to do minor improvements, repairs and upgrades to their homes.
The current weakened property market and historic low interest rates present buying opportunities for first home buyers. Coupled with recent changes in Government grants on existing properties, there could be no better time to get onto the property ladder or perhaps even considering making the Northern Territory a long-term home.