Rental returns are high, but they may be yet another symptom of Darwin’s poor market performance
While Darwin may have the highest rental yields of all Australia’s capital cities, this may be a sign of further problems.
“Rental yields in Darwin are often correlated with the type of work and employment. There is a big defence base and a big resource base – a lot of middle and senior management would be housed in freestanding residential properties, whether it be apartments or houses, scattered around the area,” explains Damien Lee, head of acquisitions at Caifu Property.
Large companies may be willing to pay more to secure good housing for their staff, which therefore bumps up the rental return numbers.
“Yields in Darwin have always been OK, and pretty steady, but nothing that’s outperforming the base yield in some other markets,” Lee says.
Given the short-term nature of Darwin’s employment market, this spells bad news for the city, at least in the near future, unless the economy stabilises. “It really needs some of those bigger contracts to come back in and kick that marketplace back up again,” Lee concludes.
High incomes supporting affordability
With prices continuing to drop, Darwin still has affordability on its side, which is reflected in growing numbers of first home buyers entering the market.
“Darwin is Australia’s most affordable capital city housing market due to its high wages at a time of continuing house price and rental falls,” says Kate Forbes, national director of property strategy at Metropole Property Strategists. “Over the past decade (2008 to 2018), prices are up 30.3% compared to a 60.8% increase in household incomes.”
However, recent figures indicate a slight decline in affordability. According to the June 2018 Housing Affordability Report published by the Real Estate of Australia, housing affordability in the state actually decreased in that quarter – the proportion of income required to make loan repayments rose by 1.7 percentage points over the June 2018 quarter to 21.5%. Rental affordability fell over the quarter as well, but compared to 12 months previously it increased by 0.5 percentage points.
Perhaps drawn by its affordable housing, first home buyers are making forays into this market. The report indicates that the number of loans released to such buyers rose by 6.6% over the June 2018 quarter. First home buyers now make up nearly 30% of the Top End’s owner-occupier market.
SUBURB TO WATCH
THE GAP: Positive news for Top End suburb
Located in Alice Springs, The Gap is a rare suburb seeing some positivity in the Top End. After several years of negative growth, property prices finally inched upwards in the 12 months to August 2018.
The unit market performed slightly better than the house market, with a lower average discount, a greater increase in the weekly median rent, and stronger yields in the year to June 2018. Units also recorded a higher price hike, with values rising by 2.2% compared to 0.6% for houses.
Amenities are easily accessible, including the Alice Springs Hospital, which is located less than five minutes away from The Gap.
Growth: The Gap recorded positive growth for the first time in several years
Units: The unit market performed better than houses in the year to June 2018
