Are Darwin’s strong yields set to grow stronger?

Over the past few decades, Darwin has had a reputation for offering investors “returns they could only dream of in the more populous capital cities”, but demand has historically been inconsistent.

Now, however, the city can expect greater levels of stability and diversity, thanks to a diverse range of new additions in the area, according to Herron Todd White’s Darwin managing director, Will Johnson.

On the agenda are: a $5 billion road funding commitment from the NT government, $6 billion worth of combined Australian and US government investments into defence assets, $1.5 billion to develop commercial-grade resources or manufacturing facilities in Darwin, and the $4 billion joint federal and territory government investment in housing in remote communities over the next decade.

These programs follow hot on the heels of the recently completed $250 million expansion of the Charles Darwin University.

According to Johnson, these new projects offer investors a chance to harness strong rental demand for lower initial starting costs.

“The Darwin market hasn’t experienced the capital growth that other capital cities have seen,” Johnson said.

“From an affordability perspective, Darwin is very accessible for investors. You can purchase a house for $500,000 in Darwin and be receiving a rental return of circa 5.5 to 6 per cent. You’d be hard-pressed finding a house at that price point in Sydney or Melbourne,” said Johnson.

LJ Hooker Darwin managing director David Loy shared that the economic activity slated for Darwin has “created an air of optimism in the Northern Territory”.

Previously, uncertainty over interest rates had made investors cautious, but now, Loy noted “we’ve seen the Reserve Bank of Australia maintain the cash rate at its first meeting for 2024 and inflation data is heading in the right direction,” leading investors to be “more confident in their decision-making than they were this time last year”.

The RBA’s decision to hold the cash rate again at their March meeting further cements this tide of confidence.

Loy continued: “The Northern Territory is stepping into a purple patch of infrastructure activity at a time when there’s already a skills shortage on the ground. We’ll likely see workers follow the jobs trail, increasing demand for rental accommodation.”

“For investors who are seeking new opportunities over the next 12 months, Darwin is well-positioned,” Loy stated.

And it isn’t only residential investors who can expect strong rental returns over coming years – according to statistics from LJ Hooker Commercial, commercial yields are also strong.

Currently, industrial property investments have a typical yield of 7.5 to 8 per cent in rental returns, a proportion that LJ Hooker Commercial noted is “considerably higher than you’d find for comparable in the eastern capital cities”.

Retail property assets have been transacting between 7.5 and 9 per cent in recent years, while office assets benefit from tight supply.