30 May NT property slows down
In recent times Northern Territory home sales take a huge hit. Quentin Kilian, CEO of the Territory Real Estate Institute says it is the lowest quarterly levels on record and he explains why.
Kevin: The number of home sales in the Northern Territory is at its lowest quarterly levels on record. That’s according to data released by the Real Estate Institute there in Northern Territory. There were 479 homes sold across the Northern Territory in March in the quarter, which was a drop of 13%. To have a look into this, I’m joined by the Real Estate Institute of Northern Territory’s CEO, Quentin Kilian.
Quentin, thank you for your time.
Quentin: Good morning.
Kevin: What’s behind this? Is this anything to do with the mining downturn?
Quentin: It could be partially linked to that, although the fly-in fly-out workers who were predominantly here not so much for the mining but for the INPEX build that we’ve had, the big LNG project, which is coming to an end. They didn’t have as big an impact on the private housing market as one would have imagined. A lot of those guys were accommodated in work camps and other areas.
I think the biggest reason for what we’ve seen in this large downturn is an exodus of population from the Territory and a general malaise at the moment in the economic situation, so we haven’t seen investors coming back into the market.
They rushed off to go particularly to Sydney and Melbourne where the heat was coming into the market, and we’re yet to attract those investors back in. It’s good timing for them, because of course, the prices are also starting to come down a bit, but at the moment, they’re not here.
We have seen a fairly sizeable downsizing in the population, so unfortunately, real estate being the commodity that it is, if you don’t have people to sell it to, you’re not going to move any product.
Kevin: Yes, a median price of $582,000, I believe. Is that correct?
Quentin: Yes, $582,500, and it’s the first time that it’s actually dropped in about two years. It fell 4.3% in the last quarter, and that, again, is predominantly driven by the fact that the sales numbers were down, so there was less volume going through, and it meant that the volume that was going through the under $500,000 / under $600,000 sector actually had more of an impact in this quarter.
Prior to that, the volume that was actually going through was predominantly above the $600,000 mark, which to some degree, overinflated the median to a figure that it probably shouldn’t have been at, but it was.
Kevin: Of course, there’s no real correlation between median and values, because median is really just a reflection of where people are buying, which is the point you’re making.
Just on another point, the loss of the First Home Owner Grant – which I think was sometime last year – has that contributed to the fallen sales?
Quentin: We believe it had a major impact on it, particularly in Alice Springs, Katherine, and Tennant Creek, so outside of metropolitan Darwin more so, but yes. Because the First Home Owner Grant was only taken away on existing properties – it was retained on new purchases at $26,000 – what it was doing was driving all first-home owner purchases into the new home market.
Yes, it did stimulate around about 1200 new builds for the year, but those new builds were priced at the $600,000+ mark. So again, that inflated the median price and took a lot of the heat out of where we believe the first-home buyers should be, which is largely in the existing home market with the much cheaper do-it-up type properties.
Kevin: What about supply? Of course, there is a direct correlation between supply and demand and values. What’s happening there? Are the listings coming on?
Quentin: We have plenty of listings. There are lots of listings. In fact, there’s probably too much supply, and again, this comes back to having a resurgence in population. So as we’ve been getting the supply coming in, we’ve been losing the population, so we haven’t had the buyers into the marketplace to be snapping up those bargains that are coming in.
And we’re now starting the see the effect of that with vendors. It’s taken them a good 12 months to realize where the market is going, and now we’re starting to see vendors discounting their prices to meet what offers are still coming through in the marketplace.
Kevin: What is the level of discounting at present?
Quentin: In general, I couldn’t tell you, but it’s not as harsh as we believe it should be. We feel that the discounting should be a bit stronger than what it is. But time on market now has been stretching out to around 120 or 130 days, which is putting, again, additional pressure on, because in some markets you might say “Okay, it’s been on the market for such a long time, I’ll just put it on the rental market and we’ll make do,” but we now have very high vacancy rates, which is telling the vendor, yes, you could put it in the rental market, but even in that market, you’re going to have to discount heavily to get a tenant.
Kevin: Even with the exodus of people from the Northern Territory, which is what you’re indicating, I think, with investors, a drop in the interest rate, which we saw, is not going to make all that much difference.
Quentin: It could spark some new buying, because anecdotally, what I’ve been hearing over the recent couple of months – the data that we’re looking at, picked up from March, going backwards, of course – looking at March and April itself, I’m starting to hear from our agents that here’s a little bit more foot traffic happening through the opens, that they’re getting a bit more interest, so it’s showing some very early signs of a recovery. Taking the interest rate out – assuming of course that it flows through to actual home loans – could have possibly sparked some of that interest in the first-home owner sector again.
Really, what we need to do – from our view, anyway – is to stimulate that first-home owner sector in the existing market, because that then will stimulate the sales by the aspirational buyers who want to sell to them and the empty nesters who want to sell to the aspirationals and downsize. So we need to stimulate that early part of the market in order to stimulate the rest of the market.
Kevin: One final question about returns for investors; what can an investor expect?
Quentin: This is still a good thing. We still have yields that are sitting close to 5%, so they’re still sitting around 4.5% to 4.9%, which although we have high vacancy rates and we are struggling with the population base, there are still rental yields that are much better than what the other major capital cities are offering.
So for the investor who is actually looking at the marketplace, it may require you to adjust your rental prices for a period of time until the market becomes re-stimulated, but you’ll still get rental yields that are much, much stronger than any other city.
Kevin: Yes, that’s certainly a good sign for investors. Quentin, I want to thank you for your time. Quentin Kilian has been my guest, CEO for the Real Estate Institute of Northern Territory.
Quentin, thanks for your time.
Quentin: My pleasure, Kevin.