Unexpected pandemic-driven strong relocation to the Northern Territory substantially increases demand and short-term price increases. Modest growth, however, is likely over the long term.
As projected, the Northern Territory market has delivered strong recovery after many years of weak property market, with house prices delivering 6 per cent capital growth over the past quarter alone.
Prior to COVID-19, after several years of major price reductions, the market started to improve and, in some areas, to stabilise. Unexpectedly, since the pandemic began, the NT Government estimates that between 2,000 and 4,000 people have relocated to the Northern Territory.
This has a major impact on the small Darwin market that is now experiencing very strong demand for housing, and particularly rental properties. Darwin is currently experiencing a relatively high rate of growth in asking rents, with a shortage of rental properties in evidence.
However, over the long-term demand for housing is likely to be moderate. While government incentives and defence expenditure by both the Australian and US governments are likely to create jobs and attract people to the Top End capital, along with some renewed mining activity, the economy of the Northern Territory is unlikely to show sustainable strong growth. Consequently, once COVID-19 has passed, it is likely that population growth will remain modest.
Therefore, while short-term price growth is expected to be solid at this point of time, unless there is a major increase in business investment, it is likely that medium and long-term capital growth will only be modest.
While at this point of time units enjoy solid demand, overall, units in the NT carry a very high level of risk to deliver negative capital growth due to the risk of unit oversupply. In addition, owner-occupiers have little incentives to buy units as in terms of house price-to-income ratio, houses are very affordable.
In relation to investors, the Darwin unit market generally experience low demand from investors (since the end of the mining boom). While there is an improved demand at this point of time, it is highly likely that over the medium- and long-term investor activity in the NT will be low, as other states and territories are preferred for the long term.