Going Down South

Going Down South

Adelaide’s property market is quiet, but investors who play it right may reap returns.

Unfortunately for South Australia, its economical standing in the country mirrors its geographical location – at the bottom. The region has always been overshadowed by New South Wales, which benefits from the contributions of economic powerhouse Sydney, and Queensland, with its booming tourism industry. Even Victoria, with Melbourne as its shining star, has seen more economic triumphs than South Australia.

The region has but one saving grace: Adelaide. Although all factors indicate that the city should be struggling with underperformance – unemployment is currently nudging 8%, for example – its property market is actually on par with Perth’s. During 2015’s three winter months ending in 31 August, which is the traditional winter lull for Australia’s property market, Adelaide’s overall residential property price decreased by an almost unnoticeable margin of just 0.1%. Unit prices, in fact, saw an increase of 1.9%. Looking at the city’s growth over the year between 2014 and 2015, overall residential property price grew by 0.5%, with houses growing by 0.3% and units by 2%. With the median price for properties currently at AUD 405,000, and the price for most properties near the CBD in the AUD 400,000 to 500,000 range, Adelaide is the most affordable capital on Australia’s mainland.

No doubt, the abovementioned growth is not stellar. It is, in fact, below the inflation rate. However, the sleepy nature of Adelaide’s property market is actually an advantage. It has the ability to remain relatively unaffected by the external factors, maintaining a moderate growth despite variations in interest rates and booms and busts in the economy. Unlike the property markets of Sydney and Melbourne, where the peaks are sharp (Sydney’s property price growth can hit 20%, compared to Adelaide’s more reasonable single digit growth) and the troughs deep, Adelaide’s market presents a much smoother curve. It is one that does not easily go into a bubble or an intense downturn. It may be a slow growing property market, but it is also a less volatile one.

The main challenge in Adelaide’s economy recently is the death of the car manufacturing industry, which has cost over 10,000 job losses, leading the city to see higher unemployment rates than the rest of Australia and less demand in its property market. However, industry watchers believe that the outlook will become more positive in the coming spring with the government’s approval to locate the construction of a new fleet of submarines in the city, which has always been one of the country’s main military bases. and promised infrastructure spending. Some optimistic observers believe that 2016’s growth may actually exceed 2014’s.

The city centre has become a focal point of renewal and development. New bars and cafes are springing up, the new AUD 2.1 billion Royal Adelaide Hospital is being built, and a facelift for the town centre has been suggested. The AUD 1.5 billion Adelaide Riverbank project, which is to commence this year, will have an expanded Festival Centre providing even better quality entertainment, an upgraded casino, a new hotel, restaurants and parking spaces. Industry insiders are also seeing a trend of residents, mostly retirees with empty nests, downsizing and moving back into the city centre into smaller apartments after selling their homes in the suburbs. Supporting these developments is the AUD 900 million three-lane highway along South Road currently under construction and with an estimated completion date of late 2018.

Several suburbs of Adelaide, namely the inner westerns ones including Seaton, Brompton and Bowden as well as the ones surrounding the airport, are also seeing great development potential or undergoing urban renewal and may eventually become hotspots for property buyers. Bowden, in particular, has welcomed an AUD 1 billion dollar development that will take up 16.3ha when completed. In its latest phase, 200 new units will be added on a 5000sqm parcel of land that was recently released. This is expected to create 800 jobs by mid this year and inject activity into the local economy for the next three to four years. Complementing the residential development are a town square and retail precinct, which will create the right environment to attract job creators and job seekers to the city. The entire development is predicted to house about 3500 people in 2400 homes eventually. Moving further out from the CBD to the middle ring suburbs, houses from the 1950s to 1970s in these areas are also seeing high demand from developers – the current trend is to put two or three dwellings on these sites that were originally single residences.

As in all cities, Adelaide’s coastal suburban neighbourhoods are popular and are performing relatively well, with properties commanding higher prices due to their prime location. These include Semaphore in the north and Seacliff in the South. The former saw the median price for houses rise by 8% to AUD 534,000 in 2014, while the latter saw house prices increase by an impressive 30% to AUD 637,000.

The outlook isn’t as positive to the north of the CBD, in suburbs like Salisbury and Elizabeth. Here, prices have hit rock bottom and a house can be had for less than AUD 200,000. Some experts, however, have pointed out that low prices mean these areas are great for investors looking for good rental yields of possibly 6% and great cash flow. Because Adelaide has a large population of students and young working professionals, demand for rental property in the city is always healthy, keeping yields up and vacancy rates low. Price growth can also be expected in the medium to long term – the recent recommendation that banks tighten their lending criteria means that more investors are expected to flock to these areas in search of cash flow, which will eventually push prices up.

In general, although Adelaide’s economy remains uninspiring especially when compared with Sydney’s and Melbourne’s, the city’s housing supply has also been sufficiently kept in check to keep in balance with the lower demand. Approximately 6000 to 8000 new dwellings are approved each year – a controlled number that is healthy for the current market situation. Things are also likely to start looking up. At the start of 2015, the government approved funding for the AUD 1 billion dollar expansion for the Adelaide Airport, which will see increased terminal capacity, the addition of a 250-room hotel and office complexes. With 8500 staff, the airport is already the state’s largest employer but the expansion will it increase its headcount to 17,500 by 2020. BHP, the world’s largest mining company, has also been in talks to expand the Olympic Dam mine to create the world’s biggest mine. Should this happen, Adelaide can look forward to an injection of 10,000 more jobs. Only time will tell if these projects are enough to propel Adelaide’s market to one that can rival Sydney and Melbourne.

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