Darwin top of the capitals in rental yield: Herron Todd White
Herron Todd White's recent in month report highlighted Darwin was still attaining the highest rental yields of any capital city in Australia, sitting at 5.5% for both houses and units.
Despite having the highest rental yields, HTW noted CoreLogic RP Data's Home Value Index shows that Darwin has recorded the most substantial decline in values with a fall of 3.2% over the three month period to August 2015.
"Local agents have seen lower levels of investor transaction in the past 12 months with owner occupiers forming a greater proportion of buyers in the current market," according to Herron Todd White's November review .
It noted the level of investment lending has shown signs of cooling in recent months, with lending finance data released by the Australian Bureau of Statistics showing a 35.6% decline in the value of new lending to investors in the Northern Territory between May and August 2015.
The report explains that there are a number of developments under construction and near completion, including Horizons on Harvey, Mauna Loa Apartments, Jepun on Smith Street Mall, Catalyst, 29 Daly Street Darwin, Tech 1 and a number of boutique buildings on inner streets of Stuart Park and Larrakeyah, with a total of 500 apartments.
"Darwin CBD is currently experiencing a high level of apartment construction driven by strong demand from first home buyers due to the FHOG being limited to new properties.
"Among these developments, 2-bedroom sales above the $600,000 mark have seen fewer transactions compared to 1-bedroom, studio and 2-bedroom apartments in the price range of mid $400,000 to $550,000 which particularly appeal to investors and are offering a gross yield in the range of 5% to 6%."
The report goes on to add that although rents have come back in the past six to eight months, the relatively higher rental yield compared to other state capitals keeps properties in Darwin attractive to interstate investors, especially new apartments, due to the benefits of better rental rates, tax savings, less maintenance issues and depreciation benefits.
"In previous years, up to 70% of off the plan apartments were sold to investors.
"In contrast, the current demand for off the plan properties has shifted towards a more even market of investors and owner occupiers.
"In the past, several developments in the inner Darwin CBD were offering attractive incentives of up to 8% guaranteed rental returns.
"These developments had been well received by both local and interstate investors.
It suggested that today, most of the current off the plan apartments no longer provide such incentives apart from the Northern Territory Government’s Real Housing for Growth head-leasing initiative developments.
"Under the plan, 2,000 new homes will be constructed in the Northern Territory in the next four years and these properties will be leased to eligible key service industry workers at 30% subsidised rent.
"At present, properties available under the scheme are The Eclipse development in Coconut Grove in Darwin’s north, Farrar Village development in the satellite city of Palmerston and a number of developments in Alice Springs."
These developments have been well received by investors due to the attractive return of guaranteed rental income stream for a ten year period, according to the November review.
"Looking at detached housing specifically, Defence Housing Australia properties in the northern suburbs of Muirhead, Bellamack, Johnston and Zuccoli in Palmerston are still attracting both local and interstate investors offering yields ranging from 5% to 6% with a ratchet clause in place which ensures rent cannot fall below the contract rental price.
"At present, Darwin is experiencing higher than normal rental vacancy at 3.3% as a result of rising home ownership as tenants have been able to get a foot onto the property ladder.
"Looking to Palmerston, owner occupiers formed a greater proportion of buyers in the new subdivision of Durack Heights and Zuccoli as FHOG are available to purchase house
and land packages.
The report also suggests that established stocks of both units and detached dwellings in Palmerston, Darwin CBD and the northern suburbs have been the hardest hit segments in the current market.
"Local agents have advised that these stocks are experiencing extended selling periods and a lack of interest as investors and first home buyers are purchasing new properties.
"The continued decline in house prices for established homes will affect investor borrowers who are looking to borrow money using their equity to purchase investment properties plus the need to stump up a bigger deposit.
"The current trend of softening in Darwin is likely to persist over the coming years. The cumulative effect of APRA’s tighter lending conditions and more expensive mortgage rates will affect investors’ confidence and the long term sustainability of Darwin."
