Market Report South Australia - (January 2009)

By

17th April 2009

Home prices have slipped in Adelaide and sales volume slowed, as buyers are seemingly lacking confidence heading into the early part of 2009.

But there already are some more anecdotal signs that cautious buyers have started to regain interest with the lowered values. Vendors willing to slightly lower their value are finding the interest is still there in Adelaide.

"The days when people would pay any price without regard are gone," says Robin Turner, president of the Real Estate Institute of South Australia. "Buyers are more circumspect."

Peter Koulizos, property investor and author of The Property Professor's Top Australian Suburbs, says decreased prices were inevitable after such a slow sales period.

"Like the rest of Australia, things are fairly slow here," he says. "It's taking a while to sell property, and vendors have been a bit more realistic in their asking price."

But as prices have come down, so too has some interest in buyers returned.

"Now there's a cautious, cautious optimism," says Turner. "Properties which are well priced and appear to be a fair value are trading well."

Overall transactions are still down about 25% from last year, says Turner, but his confidence in the state market is buoyed by the fact prices have not made any major shift downwards, just a slight correction.

That's in part because rather than mark down their prices with a major shift, some vendors have been pulling their properties off the market if they are not selling at a desired price, says Turner.

"The people by and large will not sell their property for less than they think they are worth unless they have to," says Turner. "Some have withdrawn their properties, and that's lifted noticeably as well."

Domino effect

While many looking to unload properties in South Australia have had a slow going of the process, the lower price range, like elsewhere in the country, has maintained steady activity from first home buyers.

It's a story many experts have highlighted already, but the question is what will be the overall impact of increased first home buyer activity?

As those transactions are completed, the vendors could start to take their proceeds and look to upgrade into a nicer second home. If first home buyers can contribute enough, it will ultimately create a domino effect, improving sales in all sectors of the market.

Turner says he's already seen some evidence of this happening.

"It's pushing the market from the lower end and its creating an upwards domino effect," he says. "The people selling houses to first home buyers are often walking out with the proceeds of the sale, and some of them tend to upgrade to a more expensive house. That then works its way through the market."

When people are happy and buying homes, it sends a positive vibe through the market that touches all sectors, says Turner.

Koulizos says the domino effect will come into play, but he's yet to see enough activity on the lower end to dramatically shift any other sectors. After all, January figures showed negative growth in Adelaide.

As he's already pointed out in this magazine, Koulizos says access to borrowing has been limited lately by banks putting a tighter grip on their money. Not all first home buyers are actually able to buy a home right now, despite the government incentives.

Banks in South Australia want to see a minimum of 5% to 10% deposit and evidence of a savings plan right now, he says.

Positive outlook

But despite any concerns, both Turner and Koulizos see a positive future in South Australia. With the cheapest median house price in the mainland, it's a more accessible market.

"One of the major factors this year is that Adelaide has the most affordable median house value," says Koulizos.

There are also signs more growth is coming, says Koulizos.

"Based on the data out for last year, there was only two capital cities that showed capital growth (on the mainland) in houses, and Adelaide was one of them," says Koulizos. Darwin was the other. "I see that growth continuing."

As a smaller market, Adelaide has thus far lacked the volatility of Perth or Brisbane.

"We didn't have the big booms that some other states had, so therefore we didn't have the big drop that accompanies that growth either," says Koulizos.

There has been some drop, however, and it might be enough to entice some investors in seeing Adelaide as an area of opportunity still.

Because of lowered interest rates, investors can make good yields on rental properties.

"Interstate investors will realize with interest rates just below 5%, and yields on units just about the same, they can neutrally or even positively gear their property," says Koulizos. "The days of positive gearing are back again. Certainly by the end of this year, there will be many properties, mainly units, in good quality middle ring suburbs that will be positively geared."

In previous years, however, South Australian investors had to look in regional or mining areas to find positively geared properties.

"Investors are in for a wonderful time, but they need to gain some confidence, which basically means they need to keep their job," says Koulizos. "You can throw more (government) money at them, but it's not going to help very much. It took time for the market to go down, and it's going to take some time for it to go up again."

Both Koulizos and Turner recommend investors stick to the middle to inner areas around Adelaide. Mining areas are not as advisable as they used to be.

Rental properties are still keeping strong demand in Adelaide, but Koulizos says they have been steadily increasing as fewer overseas migrants come.

"We don't have as many jobs for them," he says.

What will continue to drive the demand in the city, however, is a strong demand by overseas students who see Adelaide as a more affordable place to get a degree, says Koulizos.

"It's an economic alternative from some of the eastern universities," he says.

Can you afford to buy in this suburb? Find out how much you can borrow

Top Suburbs : redcliffe , woolloongabba , cardiff south , gladesville , homebush

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