Market Report - South Australia (August 2008)


Adelaide's property market is beginning to suffer from interest rate rises and decreasing affordability, but population growth and the resources boom are giving investors plenty to think about.

Not immune to the nationwide effects of interest rate rises and a decrease in housing affordability, South Australia's property market has seen a decrease in capital growth rates recently, but many pundits believe that the Festival State still represents an excellent investment opportunity.

Andrew Donnelly, CEO of property researcher Braxton Chase, singles out Adelaide's property market for a ringing endorsement.

"Whilst other cities feel the heat from affordability problems and interest rate rises, the bells continue to toll over the City of Churches' property market," says Donnelly.

"Adelaide's residential market continues to be the most affordable mainland capital and has also been the most resilient in the face of high interest rates and mortgage stress."

Colliers International's Quarterly Economic and Property Report provides cautious support for Donnelly's emphasis on Adelaide's affordability, stating that the South Australian capital is "still relatively affordable compared to other capital cities". However, the report also points out that South Australia as a whole recorded the biggest reduction in affordability of any state or territory last year, showing a decline of 10.8%.

The ANZ April Housing Snapshot too points to declining affordability as one of the South Australian property market's key issues.

"With interest rates rising this has led to a significant deterioration of affordability which, after being well below for many years, is now approaching the national average," says the Snapshot.

Real Estate Institute of South Australia (REISA) President Robin Turner agrees that housing affordability has been on the wane, and believes that a recent slowdown in capital growth rates will be welcomed by new homebuyers in the state.

"The affordability issue has been in the spotlight in recent months so the slower rate of quarterly growth is good news for people trying to enter the market," says Turner.

Residex data indicates that quarterly capital growth for houses in Adelaide dropped by 1.9% in the two months between February and April (from 5.92% to 4.02%), and by 1.85% in rural South Australia (from 5.71% to 3.86%).

Turner however points to a good quarterly performance from properties at the lower end of the market as a stabilising force on the South Australian housing market.

"Affordable areas all performed well this quarter and these lower brackets are expected to sustain the property market over the next few months as we ride through the rate rise waves," says Turner.

"It is important to remember that last year's rises were unsustainable and there always had to be a correction in the market. The positive thing about SA though is that for existing homeowners, there is rarely any backwards movement so their assets are still in good shape."

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