NORTHERN TERRITORY

Rental hikes lead the nation

Predictions of strong capital growth are attracting increasing investor interest in Darwin, where local tenants are said to be struggling with the nation’s highest rents.

In recent months, Darwin has achieved a title that its renting residents, at least, would perhaps prefer not to celebrate: the capital is now equal to (if not surpassing) Sydney as the most expensive city in Australia to rent in.

So just how did a location that is home to around 127,000 people rank up there with Sydney, a city of over four million people?

It largely comes down to issues of supply and demand, says Quentin Kilian, president of the Real Estate Institute of Northern Territory.

“What’s driving this is simply undersupply,” Kilian explains. “The demand is still there, and there are a lot of people wanting to come to town, but if we haven’t supplied the market with sufficient housing – which we haven’t for the past 10 to 12 years – then we create a situation like this.”

And according to APM senior economist Andrew Wilson, Darwin’s rental crunch won’t be easing any time soon, with upward pressure on rents a casualty of “a chronic shortage of housing [that] continues to put the rental bite on tenants”.

“It’s a horror story for tenants,” Wilson adds, “and it’s nirvana for landlords.”

Market view not so rosy?

Not everyone in the industry agrees that the housing and rental situation is as dire for residents – or as profitable for investors – as it’s being made out.

Chris Deutrom, general manager of Elders Real Estate, Darwin, says the city’s overall property market hasn’t seen much price movement in recent months. Furthermore, despite reported stories of tenant bidding wars and local renters being squeezed out into the suburbs, he believes the rental market is reasonably balanced.

“At the moment, some properties are taking five to six weeks to rent, so the rental market has come off a little bit in areas,” he says.

“It remains high – it’s still probably the second highest in Australia [behind Sydney] or thereabouts – but it has come off a little.”

In saying that, Deutrom concedes that the $34bn Ichthys gas project has generated investor interest in the local property market, as it has created several opportunities for buyers to secure strong investment returns.

“We’ve just had a good run with some apartments in Parap where they leased to JKC, which is one of the groups tied up in the Inpex gas,” Deutrom says.

The 10 residential apartments, sold in Parap over a six-week timeframe, ranged in price between $585,000 and $710,000 and were leased for around $900 per week, a healthy yield of 6.6–8%.

Katherine

Katherine is 320km southeast of Darwin. It’s a key regional centre for the Territory, supporting cattle, horticulture, agriculture and tourism industries as well as the RAF Tindal base 17km southeast of the town. The area’s ancient limestone formations and subterranean caves keep a strong tourism industry afloat.

Katherine is also home to the remnants of the gold-mining industry that was led by the now closed Mount Todd mine. The town is also fairly self-sufficient in terms of its amenities, albeit relatively basic.

Perhaps the biggest black spot to investing in the area is the ongoing uncertainty about government land release and Aboriginal land rights issues, as well as the area’s propensity for flooding.

Aside from that, there may be some opportunities for investors looking for cash flow at an affordable entry point. The median price of $330,000 belies the fact that there are plenty of buying opportunities well below the mark of $300,000, with a median rental yield of 6.6%.

In the 12 months to April 2013, there were over 70 sales in the suburb of Katherine, and among these the average amount each vendor dropped their listing price by in order to make a sale was just 4%. This suggests that the buying market is fairly competitive and willing to meet vendors on their terms.