Korgen Hucent gives us a sobering report on the Northern Territory and that the oversupply is bringing a whole different type of investor into that market. He tells us about the new challenge property owners are facing.
Kevin: Let’s go from one end of Australia to another. Two very different markets – Sydney and Darwin – and this time, we’re going to take you to the Darwin Northern Territory market. I’m talking to Korgan Hucent from Ray White at Bayside, working out of the Darwin market.
Korgan, thank you very much for your time.
Korgan: Thanks, Kevin. It’s good to be on the show.
Kevin: I’d have to say as an outsider, Darwin’s had a bit of a patchy year. Would you agree with that?
Korgan: Yes. Look, that’s probably being a little bit conservative. Property values and the market performance probably peaked in mid-2014, and we’ve certainly seen a softening of the market, certainly in the last 12 months. That’s for sure.
Kevin: What impact has that had? Has that brought more opportunistic buyers into the market, Korgan?
Korgan: It has. We’ve seen a drop in volume both in the housing and the unit market of a significant figure. Housing, overall, Darwin is down by about 30%, but the unit market is down and probably more affected by almost 50%. Just a result of oversupply and of developments that were up and running in 2013 and 2014, and now, obviously, just loads of choice. The market is certainly not where it was this time in 2014.
Kevin: One of the questions I wanted to ask you was how would you assess investor sentiment, but I might swing that around and ask you about developer sentiment. What are they saying to you? Are they confident about coming out of the ground?
Korgan: In my conversations on the ground, there’s certainly a loss of confidence both from investors for properties that we manage and just general sentiment, but also developers recognizing that obviously the market is down, and while there’s so much choice around, obviously, people are holding back. They are holding back.
Kevin: It must be an interesting dynamic in the market. You’ve come off a fairly hot time to now a difficult time, and your communication with sellers is probably one of the most difficult things you have to do right now because I imagine there would be a number of people who want to get out but can’t get back what they paid for their properties.
Korgan: No doubt. In the last three, four, even five years, if someone is looking to exit the market, in the current climate, it’s certainly going to be a challenge. It just means people need to either accept the status of the market and make decisions accordingly or be prepared to ride out the next two, three years, what we believe where it’s probably going to remain a little bit flat, and obviously, maybe in the medium-term, things will pick up from there.
Kevin: How has that impacted rental returns?
Korgan: We’re seeing yields at the moment for housing and units combined somewhere around 5.5%, so they’ve come back a little bit, as well. Average housing at the moment, around $550 for an apartment, somewhere around $400 per week. Vacancy rates are sitting somewhere around 9% and have sat there for probably a good two, three quarters now.
Kevin: That’s a pretty big number, isn’t it – 9%?
Korgan: Yes. Again, two, three years ago, it was probably less than 50% of that, so we’re facing right now a market where both the values in terms of the volume as well as the actual values have dropped, and equally, on the rental side, we’re seeing vacancy rates up and rental values drop in some instances, Kevin, up to 20%.
Kevin: Korgan, what’s on the horizon? Are there any developments coming up, infrastructure projects that are going to enhance the market a little bit?
Korgan: There are some positives and some negatives. We’re seeing that the big INPEX gas project brought a lot of confidence back into our market a few years ago. That’s within 12 months of shifting from the construction phase to the ongoing maintenance phase, so that will, we believe, have an impact on the market within the next 12 months.
We have a local election within a few months, so what we’re anticipating is that the government might roll out some spending to bolster up the market and the economy. One of the most significant changes that, as an industry, we’d like to see is the shift from first-home owner’s grant being directed towards new dwellings only to established, and I think that will make a significant impact in improving the status of the market.
Kevin: Just to round out our chat, Korgan, best places to buy right now in Darwin? If I had some money in my back pocket, where should I invest?
Korgan: I think probably the northern suburbs right now would be the place to be investing in or both investing or buying a home within. There’s good value there. Certain parts, despite the challenging market conditions, are still holding values to some degree. Probably two areas that I would pick would be Jingili and Leanyer. Average house prices are probably a touch over $600,000, mid-$600,000 in both those areas, and I think they’re probably the places to be looking at in Darwin.
Kevin: Very sobering, but thank you for your insight there. Korgan Hucent from Ray White Bayside in Darwin.
Korgan, once again, great talking to you mate, and thanks for your time.
Korgan: Thanks again, Kevin.