The month in review: Darwin
By Herron Todd White
The development sector of the market has remained relatively soft throughout the second half of 2016, primarily due to high barriers to entry and the weakening of the residential market.
If we consider the smaller development project of duplex constructions, typical hot spots include Muirhead in the northern suburbs and Zuccoli and Durack in Palmerston. This segment of the market tends to be dominated by local builders who have the ability to derive margins from bulk land purchases from the developer directly and from the obvious cost efficiencies in completing the construction works in house.
Land affordability and cost of construction are typically the barriers to entry preventing mum-and-dad investors from taking on such a project. The reliance on bringing in experts in planning, finance and construction also comes at a price and can prolong the lead in time to any development, resulting in costly erosion of desired gross profits.
We would advise that any novice investor approach this type of development with caution. It is advised to undertake extensive background research and seek advice from industry experts such as independent property valuers, town planners, local council and real estate agents prior to any commitment to purchase or construct. The use of expert opinion will provide a body of knowledge to assist in making an informed decision about the viability of a development. Something as simple as completing a basic SWOT analysis, which acts to identify strengths, weaknesses, opportunities and threats of a proposed project can also provide clarity on the likely impacts the development may experience.
The recent decision of the current NT Government to place on hold a policy allowing for dual occupancy of single dwelling (SD) zoned blocks over 1,000 square metres by way of a two lot subdivision has further impeded mum-and-dad investors from entering the development market. The aim of the policy, as described by the NT Planning Commission in the March 2016 discussion paper is as follows:
“… dual occupancy helps to deliver diversity in housing choice and affordability for changing demographics as well as a more compact urban form to reduce urban sprawl and maximise efficiencies through existing infrastructure.”
One of the benefits of the policy for the average home owner whose land satisfies the 1,000 square metre requirement for subdivision are the opportunity to provide an affordable alternative to the broader market within areas typically considered out of reach due to the high cost of entry into that market segment. Another benefit is an opportunity to experience the development process on a small scale without many of the disadvantages and pitfalls of more traditional, larger development projects.
On a broad scale, encouraging development promotes growth and opportunity across many other sectors of the market with obvious flow on effects to the economy. Naturally, any policy needs significant community consultation to ensure that the existing aesthetics and local needs continue to be satisfied. It was not the expectation, nor was it the intent of the policy to see that all residential land over 1,000 square metres should be or will be subdivided. The reality of the situation is that it is unlikely to affect whole suburbs or even entire streets, more likely to be the salt and pepper effect of a small number of properties spread over a number of suburbs and streets.
Given the current downturn in the residential market, it is unlikely to present much of a viable option for would-be novice developers, with market sentiment currently weak. This may present the perfect opportunity to implement the scheme for dual occupancy which would see a very small number of applications likely to be received, allowing for proper and careful application of the policy in real terms and providing the government with an opportunity to test the water. Then, in the event that the market demands more development opportunities and suburb densification, we (the broader market) are in a much stronger position to make more informed choices across a variety of property types and locations.
Variety and sophistication within older established suburbs can be achieved without sacrificing existing community values or expectations with carefully considered and correctly implemented policy.
Find out more information and to chat with a local Mortgage Broker in Darwin.