Darwin May 2017

The month in review: Darwin

By Herron Todd White
May 2017

The Darwin residential market experienced over a decade of consistent growth until January 2014. Over the past 24 months, the market has proved that it is not immune to the cyclical nature of any other market in the world and has experienced a down-turn. You would most likely be aware of this if you have read any recent property-related article that refers to Darwin. Confidence has now decreased, with both sales volumes and values decreasing across the market. Private residential construction has also decreased, down 29.2% year-on-year, and housing financial commitments for owner occupation is down 8.5% year-on-year (source: Territory Economic Review, February 2017). But in any soft market there is always the eternal optimist who is looking to take advantage of a good deal and we are now starting to see more evidence of this occurring, particularly among young investors who have their fingers on the pulse and the ability to improve dated properties at cost. The Northern Territory Government has also flexed its muscles during this period and increased its property-related spending up 49.4% year-on-year. This is mainly through redevelopment work for public sector housing such as the redevelopment of the Kurringal Flats and the more recently announced Home Improvements Scheme, which subsidises property renovations by providing a discount of $4,000 on a job valued at up to $20,000.

There are also some sectors of the market that are now starting to see resurgence. Areas of particular interest include the Palmerston dwelling market, which saw an increase in sales volumes of 56.5% from the September quarter of 2016 to December 2016, and up 26% year-on-year (this is based on the latest figures released by the Real Estate Institute of the Northern Territory). Bear in mind this has come off an extremely low base of only 49 settled sales in September, to 69 in December. Value levels remained negative, down 2.1% from the previous quarter and 12% year-on-year. Areas of the blue-chip northern suburbs also reported positive sales growth, with the Sanderson LGA (this includes the suburbs of Anula, Karama, Leanyer, Malak, Wulagi, and sections of Marrara) up 19% year-on-year, and 16.3% from the previous quarter. The Nightcliff LGA (Alawa, Brinkin, Coconut Grove, Jingili, Lyons, Millner, Moil, Muirhead, Nakara, Nightcliff, Rapid Creek, Tiwi, Wagaman, and Wanguri) reflected negative value levels, down 17.3% year-on-year and sales volumes down 7.2%.

What’s driven this resurgence for certain parts of the dwelling market is the reintroduction of the First Home Owner Grant (FHOG) for existing property. This is particularly evident for the Palmerston area and Sanderson LGA, which is typical first home owner stock. In the Palmerston area, we are now starting to see value levels as low as $300,000 for a 3-bedroom, 2-bathroom dwelling in Moulden and values ranging from $420,000 to $480,000 in the better areas of Gunn and Rosebery for a 3-bedroom, 2-bathroom dwelling. Dated dwellings in Malak are now selling from $350,000, and in the better areas of Leanyer, 3-bedroom, 1-bathroom, ground level, ex-government housing starts at $450,000.

As we noted previously, financial commitments for owner occupation on existing properties was down; however, what is interesting is that first home buyers’ commitments increased 2.9%.

This explains the decrease in the Nightcliff LGA that is traditionally non-first home buyers, particularly the areas of Lyons, Muirhead, Nightcliff, Rapid Creek, and Coconut Grove, with value levels starting at a minimum of $550,000.

The Darwin CBD unit market is still in significant oversupply and we are now starting to see higher vacancy levels, reduced rents, and decreased value levels. The Reserve Bank of Australia (RBA) has issued repeated warnings on the risks associated with the considerable additional supply of apartments scheduled for completion, primarily in the eastern capital cities over the next couple of years. The RBA’s February 2017 Statement on Monetary Policy notes: “Much of the apartment construction is geographically concentrated, particularly in inner-city Melbourne and Brisbane. This increases the chance that (localised) oversupply could develop, and would exacerbate the effect on local area prices if that were to occur”. We are not exempt from these concerns in Darwin and are already starting to see the impact this oversupply is having on the market.

The prestige inner-Darwin dwelling market is not immune to general market conditions and has experienced a decrease in overall sales volumes, with only a few key sales occurring recently that has bought down the average value level. The rural-residential market has also decreased and is expected to remain this way over the next 12 to 24 months until overall economic activity starts to strengthen again, as consumers are more likely to purchase lifestyle blocks in times of stronger economic conditions.

The next major residential property project due to start is Berrimah Farm and Northcrest. The development will comprise 2,000 single residential lots, 40 medium-density lots, commercial space, a retirement village and two schools. The development will be the only land release within the Darwin City Council and will have good proximity to both the Darwin CBD and the almost complete Gateway shopping centre in Palmerston. The development has the potential to facilitate growth within the Territory housing market. Initially the development will be a good test of the market as we know that demand for new builds has decreased in the green field development of Zuccoli over the past 12 months. Building margins have also decreased, with build rates as low as $1,600 per square metre over the main living area, compared to $2,000-plus per square metre in the peak of the market. Population growth will also be an issue for this development as the Territory has a relatively stagnant population mainly due to high levels of interstate migration; a young, transient population; and the fly-in, fly-out workforce of the Inpex Ichthys project. This may have an impact on overall demand.

Although there are other projects planned for Darwin and the Territory in the future, there is no immediate private investment planned for Darwin that would have an impact in the short term on the property market. Effective policy from the NT Government could have an impact in the short term. The reintroduction of dual occupancy for SD zoned allotments greater than 1,000 square metres would allow for the currently non-existent, mum-and-dad developers to have an opportunity to enter the market. This would allow for the sub-division of large inner-city allotments in prime locations such as Fannie Bay, Parap, Larrakeyah, and Stuart Park. This would also create a shift away from the dominated builder-based developers who primarily focus on green field development. It may also give those smashed avo-eating Gen Ys an opportunity to own an inner city property that is affordable, allowing them to take full advantage of the government’s FHOG on newly built property, and giving them more incentive to stay in the Territory rather than leave. Although this would not turn the market overnight, it would be a step in the right direction at a time where all alternatives should be tested.

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