Darwin's party is over

Posted on 7/12/2006  

6 December 2006:

Why has the Real Estate Institute of Northern Territory been trying to hide its latest market report from public scrutiny? The answer, in simple terms, is that the Darwin property party is over.

The figures show a sharp decline in fortunes for the Darwin and NT market. Indeed, data in the September quarter report from the REINT is a continuation of a trend evident right throughout 2006 – a steady decline in sales in various NT markets.

What makes the September report more notable is that it shows, for the first time, that prices are starting to react to the decline in sales. In a number of key markets, prices fell in the September quarter.

It means that investors should approach the Darwin market with caution. Prices are unsustainably high (a median house price close to $400,000), yields are no better than 4% now and the market trend is downwards.

This may explain why it’s been so difficult to extract a copy of the report from the REINT. The institute has always been happy to hand its quarterly market analyses to media while the news has been good. Now that the story is negative, it’s become very reticent. Phone calls are no longer returned and requests for the report have been evaded.

After a month of trying, unsuccessfully, to get the report, I gave up on the REINT and obtained a copy from another source. And the news is not good.

In the apartment market, sales are down 17% this year. In Inner Darwin, the most important segment of the unit market, sales are down 25% compared with last year. Outside of Darwin, sales have dropped also – in the September quarter Alice Springs sales were 33% below the previous quarter and Katherine was down 43% for the quarter and 64% for the year.

In terms of unit values, there were significant declines in the median price for Darwin overall (down 7% compared with the previous quarter), Inner Darwin (down 8%), Palmerston (down 5%) and Katherine (down 7%). Only the Northern Suburbs and Alice Springs showed price rises in the quarter.

The REINT report comments: “Perhaps prices in the city are starting to get too high.”

There was bad news in the housing market as well. Sales levels in Inner Darwin were down 18% compared with the June quarter and down 11% compared with the previous year. Palmerston and Darwin Rural also recorded falls in sales in the quarter, as did Tennant Creek and Alice Springs.

The Northern Suburbs of Darwin recorded an increase in sales but a fall in the median price of almost 10% for the quarter. There was no change in prices in Palmerston and little movement in the prime Inner Darwin precinct.

The claim in the report that Darwin’s median price rose 10% in the quarter is a nonsense, presumably a mistake, given that no single sector of the Darwin market showed any major price increases and the biggest single sector – the Northern Suburbs which accounted for half of Darwin sales – showed a 10% decline in prices.

Outside of Darwin, Tennant Creek prices fell 8% and there were minor falls in Alice Springs and Katherine.

Vacant land sales decreased in every market except Palmerston, which showed a small increase in the September quarter but a 7% fall compared with a year earlier. There is no sign yet of price declines, probably a reflection of the general shortage of residential land in Darwin.

The REINT report admits the downward trend in sales turnover and blames interest rate rises for “a dampening effect” on the market.

The other worrying trend for investors is the continued fall in income yields. The typical return on a three-bedroom house in Darwin is now 4% and it’s just 3.3% in Inner Darwin. It means Darwin, with a median house price of $385,000, doesn’t have much relative appeal any more, compared with other capital cities.

Even remote Katherine, which has a history of going under water in periodic major floods, offers returns no better than 6.7%. Investors wouldn’t want to consider such a market for less than 10-12%.

The one appealing feature remaining in the Darwin market is low vacancies – around 1.7%, according to the report.

ENDS

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