NT Darwin Crash - Why are the asking prices still High?

That's the coolalinga development. Generally considered a total disaster...

http://www.ntnews.com.au/news/north...ay-off-all-debts/story-fnk0b1zt-1227390211037

 

Unless people are under financial stress or mortgagees in default there's no rush to sell, which is why they'll still ask for high prices. Unemployment is still low in Darwin so it's unlikely that owner occupiers are going to be facing serviceability issues, particularly with low interest rates.

In terms of investors people that purchased recently might be getting burnt if they have vacancies or people who have aggressive strategies, but there are also a lot of people who purchased a long time ago so they can hold off with vacancies for a while without much financial consequence.

 

Painting an IP in Darwin is a killer in this weather...

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I'd still have to think hard about spending this much on a one bedder in a major capital like Brisbane or Perth. But 29km from Darwin? Speechless...

 

Humidity hasn't even kicked in yet

 

True. You can get 3 bedroom semis for 150k just 25km from Adelaide.

 

It's this sort of stuff that caused me to start this thread in the first place. Crazy. Although, I think you're paying for the supposed "Guaranteed 10 year Government Lease" rather than the actual apartment.

On another note, I went to another auction recently. 2 bedroom unit. Starting price round the 500k. The Auction unsurprisingly didn't get off the ground again..No bidders. This is the third time that I've seen this happen...out of three auctions. Probably because you can buy a similar unit brand new for about 470k with 30k government incentives easily.

I suspect RE Agents, might be using auctions to educate stubborn sellers about the true value of their property? Any REs here in soft markets able to add some insight? Keen to learn.

 

So Hammer, I'm curious, what would people find 29klm from Darwin? What is the idea behind that development? I really have to get up to Darwin one day.

 

I think it has a lot to do with work...or more importantly the promise of work.

INPEX, the 36 Billion dollar gas plant is close to Coolalinga. Also any new industry in Darwin will have to be built in the vicinity because Darwin proper is on a peninsula and simply has no land left. Don't let maps deceive you. All the free land around Darwin is either Defence or swamp.
The only place the city can expand is Palmerston and Beyond (ie Coolalinga).

The City has expanded a great deal over the past 5 years due to the mining boom, But has recently started to contract a little as now that has all subsided, leaving a few empty houses and a LOT of empty units.

I suspect this Coolalinga development is part of the boom hangover.
It was designed and built when Darwin was in a housing crisis and the city was almost at double-digit growth due to the promise of INPEX. Coolalinga was supposed to include a huge shopping centre and be the start of a new suburb. The shopping centre is now 2 years late and just a huge hole in the ground. It is unsurprisingly now surrounded by a lot of properties for sale... .

INPEX is housing most of its workers in its own camps now which has sorted the housing crisis. The construction phase will also finish up in a year or 2...freeing up a few thousand workers.

The newspaper is reporting that the Coolalinga developer owes tradies a few million bucks in unpaid bills as well.

Anyway, that's my take...I've been watching all this like a hawk for the past 3 years but compared to most of the people on this forum I'm totally a rookie with this stuff so there is surely someone else out there with better knowledge...

 

I too am looking at buying my first home in Darwin and have been keeping an eye on the market for sometime. Here are my believes;

Although things are going downhill, the N.T still has one of the highest rental yields in the county sitting at around 5% plus.

As long as the asking rent can cover the interest only repayments, I would imagine investors can hold out for some time before they would be willing to let it go at a lost.

If you have a NT home before 2009 or managed to get into the market at the beginning of the high. Using the capital gain of that one property one can build a portfolio of 1-2 investment properties over the last 4-5 years. Even at the current asking rent, investors may only need to pay $50-200 extra per week to maintain the interest repayments, a lot of families could hold out for a while and hope things can get better.

What can make things move;

Interest rates – this will have a direct effect on investor’s bottom line. Likelihood of this happening? None for the next year or two, even if the US raises they rates and our dollar get in the mid US$60 cents. For export reasons the government would welcome a mid US$60 exchange rate. China would export more and in turn china buys more off us. However, due to what’s happening in Sydney there have been discussions regarding different interest rates for investment properties.

Unemployment – during a bull property market, investors and developers tends to feel more wealthy, although the size of the loan is bigger than ever before, they are likely to take more risk in spend or borrowing. That big TV, new car, holiday, bigger home or let’s head down the highway and start a new subdivision…When the market now in the opposite direction the confidence is low, people stop spending. In time this will have a chain effect on all kinds of employment fields, trade, and service.

Movement of non-local money – let’s face it, Darwin market would not be this high without the assistance of external funds injected (southern investors) into the local economy. The NT government and investment advisers have been singing songs about how great the N.T is for years. Inpex with 8000 workers who needs accommodation, services, entertainment, future large defence projects, gas pipelines etc. This song did work and money did flow into the N.T. But the promise return was not so great. The 8000 Inpex workers did not help consume the now over supply and still more to came accommodations. Even now the N.T Gov and local real estate agents are still trying to sing the same song. Defence projects, pipelines…the question is would southern investors still react the same way? Once the non-local money stop coming in and moving out of the N.T, local money would not be able to hold up the current asking prices. People who needs to sale would have to lower the price.

I have decided to wait for a another 12 months before buying.

 

Another factor is the amount of listings in Perth and Darwin has plunged 20% over the last 12 months so there is less supply in the market.

 

Thanks for this interesting explanation RE: Coolalinga development. Is there much there now - if you look on maps there doesn't seem to be much actually there?

As I recall the plan under Shane Stone in the 90's was always for Darwin to become this enormous chain of cities with 1-2 million people spread to Humpty Doo and beyond.

 

Where are you getting these stats from? Mine say that it's exactly the same (Darwin + Palmerston = approx 1500 source - re.com)

Infact I have a very strong hunch that it should be much higher but the RE agents are working together to ensure that doesn't happen....

 

There isn't much at Coolalinga. It was supposed to be the start of something bigger. However it does service a large area. Lots of people in Darwin love to live "rural". Infact the rural area for a long time was one of the fastest growing areas in the country.

You can see a map in the brochure here;
http://www.thepavilionsdarwin.com.au/downloads/pavilions_brochure_web.pdf

Apparently there a two lots of Units there...the first ones sold out! That was in the middle of the Boom though...things did get a bit nuts then....

 

Thanks for that response - so the units and houses got subdivided but the shopping centre is two years behind or something? Despite the unflattering picture painted of the developer in the NT News article they do seem to have an impressive list of completed projects across the NT as per that brochure that you linked.

It's inevitable that Darwin will grow further down the highway as time goes by but its not as if there's any shortage of residential land at Palmerston. I'm just making this observation as someone who has been to Darwin several times over the years -

 

You're correct. Darwin's fundamentals are still good and Coolalinga will develop further as time goes on. But with Palmerston now having house and land packages for $480k...albeit only on 300m2...it's still a better deal than Coolalinga.

correct again. However since the Shopping centre was approved, Another even bigger one has started to be constructed in the Palmerston CBD . I suspect this has something to do with why the Coolalinga shopping centre remains a hole in the ground.

 

All these things are great but they're kind of tied to a growing population and a higher oil price....Neither of which are happening right now.

Also the macro data coming out of China is a bit iffy, and those CBD appartments are a time-bomb.

Totally happy to be wrong...1000 refugees are coming here and all the reasons you've pointed out and more means Darwin should be great in the future...but right now?

It all seems a bit risky for the RE prices being asked....

Here's another example...
http://www.realestate.com.au/property-residential+land-nt-darwin-201292045
I'm sure it's lovely but so are about a zillion others. 600k for a 2 bedroom..Body corp at least 6k per year...

 

Not necessarily as a lower oil price means that construction costs are lower due to cheaper transportation, construction and everything else that the cost of fuel has a direct effect on.

Agree with you that Darwin is probably not the best spot in the country right now, but i do believe that it has the fundamentals to be a strong property market in the future.

 

My take on this is quite simple:

Oversupply & correction – No Crash.

• Darwin had a steady property market prior to INPEX.
• INPEX Was announced & Darwin experienced growth from developers / investors & families wanting a piece of the action. - and rightly so...
• Property became in demand due to limited supply & prices increased accordingly.
• Developers do what they do best & were incentivised by the Gov, (in the way of land release/relaxed planning schemes) to cater for this new demand.
• Supply goes full steam ahead & developers developed / investors invested & families buy & rent like wild fire - Everyone is happy & living the dream
• But then…..
• Developers over develop & oversupply the market causing prices to drop / late investors want out / families choose better locations to rent + hold off buying & Mass Hysteria sets in - Not really.
• And the transfer of assets start to flow from the impatient to the patient.

The market is now adjusting to the oversupply & rents are reasonable & values will adjust accordingly. - Until next time.....

INPEX Hasn't gone anywhere & is now ramping up to maximum construction capacity - 8000 workers. FIFO Workers live at the propose built manigurr-ma village in Howard springs & bladin central & have very little effect on housing in Darwin.
http://www.inpex.com.au/news

What I have learnt from my mentors & my own mistakes, is that smart savvy investors can make money in any market & over the long term they don’t lose sleep over “timing the market” although its good if you can. They lose sleep over not purchasing “more” good quality properties in well-established locations that pay for themselves & continue to “year on year” compound.

I agree that Darwin is currently maxed-out & its growth is limited over the short term.

A few good snapshots on Darwin’s future + other interesting reads:

Darwin city master plan:
http://www.darwin.nt.gov.au

NT Infrastructure project snapshot:
http://www.nt.gov.au

New TGN Darwin Mine:
http://www.ntnews.com.au

Palm hospital as mentioned:
http://www.ntnews.com.au

NT Pipe line connecting states:
http://www.ntnews.com.au

Timor sea oil & gas discoveries:
http://www.dmp.wa.gov.au

List of developments:
http://www.consultaustralia.com.au