Commercial Property Outlook 2009 - Northern Territory

With the Northern Territory continuing to grow, the shortage of housing and units is only going to become a much larger problem.

Darwin

Darwin is the only capital city that has reported a consistent, although modest, increase in its median house price through 2008. According to figures released in October, Darwin jumped 6.2 per cent for the 2008 year.

A tropical beachside location has been an absolute winner for Northern Territorians with weekenders in Dundee Beach and Dundee Forest. Despite the remote location, 12km south west of Darwin, the long term price growth in Dundee Forest has been an extraordinary 26 per cent a year.

Strong results are forecast for Woodroffe and Moulden, in 2009, with federal government’s control of suitable land development within commuting distance of Darwin a key impetus for jumps of more than 20 per cent.

Darwin’s rural area median house price maintained positive growth of 8 per cent for the last 12 months.

However, as drops in consumer confidence are expected to influence price growth, it is forecast that median house prices will fall with a 4 per cent decline. As economic conditions stabilise, it is expected growth will return, with a 5 per cent increase in 2009/10.

Higher housing interest rates and escalating building costs, spurred by competition for trade labour and equipment from the mining sector, have added considerably to the affordability issue already present in the Darwin market.

With commencements well below underlying demand, and population growth estimated to have remained solid at about 2 per cent, the Northern Territory’s dwelling stock balance is estimated to have gone into deficit in 2007/08.

The mining sector represents a significant proportion of the Northern Territory economy. Strong wage growth in this sector over the five years to 2007/08 has stimulated population growth, and pushed up property prices. Over the second half of 2008, there has been a turnaround in the direction of the global economy. Issues in financial markets have flowed through to the general economy. Commodity prices have fallen back sharply, and this is expected to significantly impact on Darwin as mining production contracts, labour demand and wage growth are anticipated to slow.

Alice Springs

In Alice Springs the median price increased for the last year by 8.9 per cent.

In future, slower wage growth is expected to limit house price and rental growth. Even so, underlying supply/demand fundamentals of the residential market are expected to be strong.

Lower house prices and expanded First Home Buyers’ Grants are providing some upside through increased affordability. These incentives have been largely negated by economic uncertainty but according to local agents, there has been some increased activity in the first home buyer market and an increase in values.

Overall, the outlook for Alice is that the property market will continue to perform strongly in 2009. Alice is considered to be a fairly stable market, not vulnerable to national and international events, so it is expected to show gradual long term growth with a slowing of the market at worst.

The current housing shortage in Alice, coupled with major government funding and good employment opportunities should see Alice experience another solid year of activity.

Commercial and Rental

The median weekly rents for houses in the whole of the Northern Territory increased and, with vacancy rates so low, rents are likely to continue increasing.

The median weekly rent for a 3 and 4 bedroom house in Palmerston showed solid growth over the 12 months.

For the year October 2007 to October 2008, Darwin (6.5 per cent), along with Adelaide (6.9 per cent), were considered the best performer in terms of property value growth.

Darwin recorded the greatest increase in average gross rental yields with an improvement of 0.81 per cent, followed by Perth at 0.76 per cent and Sydney, 0.58 per cent.

With vacancy rates in Darwin continuing to remain tight, annual rental growth has increased by an annual average of 8.4 per cent over the two years, 2007 and 2008.

Being a small market, Darwin’s vacancy rate can fluctuate quickly. The vacancy rate was at 1.8 per cent at September 2005 yet increased to 4.6 per cent by December 2006, possibly due to a number of individual projects coming on line. The market then averaged a low 1.3 per cent in 2007.

The Darwin property market has been very tight, and this has shown through strongly in the rental market. At June 2008, the vacancy rate for rental properties was an estimated 0.3 per cent.

Darwin has now become the most unaffordable city in Australia for renters, after median rent prices jumped 25 per cent for houses and 20 per cent for units last year.

Housing vacancy rates in Alice Springs decreased considerably throughout 2008.

Alice’s property management sector is showing current vacancy rates at 0 - 0.5 per cent.

For most of the year the town’s vacancy rates for both houses and units were below 1 per cent, bottoming out at 0.2 per cent for units. During December and January there is usually an increase in vacancy rates, sometimes as high as 10 per cent, but for this year it looks as though it will be around 5 per cent.

Like house rentals, vacancy rates for units are at record lows. All types of inner Darwin units achieved above 15 per cent returns for the year - the northern suburbs showing steady growth. This acted as a lure for both investors and owner occupiers, rejuvenating the suburbs of Bakewell and Gunn.

SOURCES:

BIS Shrapnel – Residential Property Prospects 2008-11
BIS Shrapnel – December Update (Residential Property Prospects 2008-11)
Real Estate Institute of Australia (REIA) Focus Group Final Report
REIA – Media Release “Signs of Positive Activity in the First Home Owners Market,
Let’s Keep it Going (10 January 2009)
Real Estate Institute of Tasmania (REIT)
November, Tasmanian Property Market (23 December 2008)
REIT – Tasmanian first home buyers up 10 per cent in December, 2 February 2009
Real Estate Institute of Victoria (REIV) – State of the Market
RPData – Top Performing Rental Yield Areas
RP Data Media Releases – Property Hotspots for 2009 (26 December 2008)
Property Pulse – Industry Market Wrap Up
Macquarie Real Estate Economic Research
Weekend Australian Financial Review (Weekend AFR) articles over November and December 2008
Sunday Tasmanian, Boon in Burnie’s Upper Echelons (4 January 2009)
Money, Your Home – Property Outlook 2009-01-14
BRW – Top 500 Private Companies, August 28-October 1 2008
BRW – November 6-12 2008
The Australian, Darwin Goes Through the Roof as Rental Hotspot (26 January 2009)
Realestate.com.au – Rental Yield 2009 Winners
The Australian Financial Review – Special Report (January 23-26, 2009)
Real Estate Institute of South Australia Market Update – SA Property Market
Reliable in Long Term (23 January 2009)

Disclaimer: There are many uncertainties in forecasting movements in the market such as government policy changes, interest rate changes and global economies. Therefore, the forecasts in this report should be taken to be indicative of market directions. First National takes no responsibility for actions taken on the basis of this report and we encourage all vendors and buyers to conduct their own research.