NT developers cash in on rising rents

NT developers cash in on rising rents

Posted on Thursday, June 07 2012 at 9:53 AM

As the Darwin and Palmerston rental markets continue to tighten further, placing upward pressure on rents, many developers are shifting their new housing from a sales listing to a rental listing for a stronger return, according to LJ Hooker Darwin’s Robert Higgins.

In the RP
Data-Rismark May Home Value Index,
Darwin topped the gross rental yield list at an impressive six per cent for
houses and 5.9 per cent for units, firming up its number one ranking above all
Australian capitals for gross rental yields.

In the same
month, Darwin housing prices continued to underperform – the May index
demonstrates that house prices fell for the month by 2.4 per cent, the second
largest fall across capitals, following Melbourne.

What this
all indicates is that rental vacancy rates are tightening and rents are rising,
so the rental market appears the more desirable option for developers right
now, as they wait for the sales market to surge again. At least that’s Higgins’
rationale.

Buyers
agent Tod Peterson of Peterson’s Property Search said what these figures also
indicate is that developers are struggling to sell their new housing stock at
the moment because “that market is oversupplied”.

He doesn’t
doubt that the rental market is very tight though. “From a landlord’s
perspective it looks great but from a tenant’s perspective it doesn’t look
crash hot. Tenants will on average currently spend eight to 10 weeks to find
something decent that ticks all the boxes. Prices are also rising. On a two-bedroom
unit, last year a tenant may have paid $500 per week, this year it’s likely to
have risen to $570 per week.”

Peterson
bought a unit off the plan for a client last year for $500,000 and it now rents
for $590 per week.

Darwin and
Palmerston are in the grip of an accommodation crisis, driven by major projects
in and around the Darwin Harbor, said Higgins.

“Since late
last year we have already seen a significant rise in rents, particularly around
the low to middle rental brackets. Many developers have taken advantage of this
situation in different ways by retaining properties previously for sale and
renting them instead,” he said.

“In the
Darwin CBD one developer had significant stock in two recently completed
buildings still for sale, and has since taken these properties off the sales
market, now targeting serviced short-term rentals and executive leases.

“Another
developer in the Parap area who has taken his properties off the market is now
targeting bulk rental situations for companies that need new and secure
accommodation for their workers. This situation extends right out to Palmerston
where another developer has offered to those investors that have already
purchased in his complex to lease their units back with their authority – so
sub-lease the apartments out – giving the investors a guaranteed income, and
the developer an opportunity to capitalise on the current rental market.”

Higgins
said with bank lending for developers still tight it’s unlikely that many
larger residential developments will get off the ground over the coming couple
of years, even though the demand exists to service it. “What you will see is a
lot more small to medium size developments in the suburbs surrounding the CBD,
that is if the developers release them for sale to the public rather than keep
them as rental stock for themselves.”

The Darwin
market is “swings and roundabouts”, said Peterson. “Soon enough prices will
catch up again.”

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