Darwin

The Smartline Report – March Edition

The month in review: Darwin

By Herron Todd White
March 2015

Darwin has shown stellar property growth over recent years so exactly how will the market react to interest rate cuts put in place by the RBA? Over the past decade the Darwin housing market has been a solid long-term performer, recording some of the highest capital gain rates of the major cities.

Reductions in cash rates will inevitably bring mortgage rates even lower, but how much difference will this make when they are essentially at rock-bottom levels already.

Theoretically these cuts should provide a boost to the current flattening house price levels. However, this is counteracted by low consumer confidence and softer labour markets. Higher unemployment rates and prudent macro-economic policies by the RBA will further inhibit chances of a steep climb in property prices. We can expect some increase in first home buyers attempting to get their foot in the market in response to the extremely low interest rates, however recent changes to the FHOG will limit purchasing of existing stock and shift these buyers to new stock only. Owner-occupiers must be wary if and when the rates head north again, being sure that they aren’t over committed to a property, and can afford increases in mortgage repayment
requirements.

Darwin is an excellent example of a ‘shallow’ housing market which is characterised by minimal volume and depth. We can expect prices to stabilise or even marginally decrease in response to a current downturn in commodity prices unless recovery in the tourism sector boosts interstate investors. Changes into the development phase for the Ichtys Inpex project will also lead to higher end tenancies being taken out by contract workers. The Darwin property market is very much employment driven, we have seen this by its reactionary boost from the Ichtys Inpex project over the past few years.

Darwin is still experiencing some of the highest gross rental yields of any capital city market due to strong population growth and increased rate cuts will definitely keep investors happy, offering a larger spread of their money and presenting better returns. But whether we see a bumper year in price growth due to lower interest rates is a lot less likely. Correlation between interest rates and property prices is a fickle thing. When speculating about property prices in the greater Darwin market, an educated guess would look a lot closer at
employment levels and infrastructure projects than interest rates.

www.smartline.com.au

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. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325

 

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