Market Report South Australia - (March 2009)

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Property values are still edging up in Adelaide, despite a gloomy economic picture.

The economic news has not been strong lately in Adelaide, as one of its major employers, the auto industry, has been hit with decreased sales.

Central bank Governor Glenn Stevens chose Adelaide to make the announcement in April that Australia was in its first recession since 1991. The unemployment rate in South Australia had risen to 5.9% in March, above the national mark of 5.7%.

That string of news has yet to deter the confidence of the property market in South Australia, however, where values have continued to increase. While unemployment rose, it was up just 0.2%, and while the auto industry was struggling, many of its employees were still there, albeit on four day per week shifts. 

"Having that (0.2%) increase in the unemployment rate, even though it might seem significant, I don't think is enough to have a negative impact on purchasing activity in the housing industry," says Katy Dean, South Australia research analyst with Colliers International. "Sentiment is still pretty strong. The (property value) figures themselves are reflective of that."

She says the auto industry news has been tough, but not enough to deter house and unit prices from still rising in Adelaide. "There's no doubt all of what's happening in the auto industry is going to have some impact," she says. "But in at the end of the day, affordability is still in our favour. We still have the lowest median price in the country (outside of Tasmania)."

Been through it before
Peter Koulizos, a property lecturer and coordinator of Property and Share Investment, says he's seen a similar recession situation before in Adelaide. "I've been through this before, though the 90s recession," he says. "But the upside about this particular situation is that unlike the 90s, we have low interest rates, low inflation, and even though unemployment is increasing, it is still half the level it was at the depths of the last recession.

Those who would have bought property in the last recession have done well after prices steadily increased since, but not everyone has that ability to connect such happenings to a historical context. "Some people have very short memories," says Koulizos. "To me, it's just an absolutely wonderful time to be buying."

There's only one catch, however. Make sure you have the income to cover your new purchase. Not everyone has the confidence to do that right now. "The key is to have a job, and have a good job," says Koulizos. "In this current tight lending environment, you especially need to have a secure job."

That makes it essential for the state to continue to find job growth, including in the resources sector, says David Airey, president of the Real Estate Institute of Australia. While there are some very good investment suburbs around Adelaide, he says, the state needs to increase its resource jobs to continue to push forward its economy. "They've had a lot of manufacturing that has simply disappeared," he says. "I think they might be in for a long, slow haul."

Buyers will find there are at least two very different sectors in the real estate market in South Australia, however. "In general, things are very slow," says Koulizos. "The top end of the market is finding it difficult, but the first homebuyers have been prolific."

That stronger buying in the lower end has meant a much stronger competition for investors looking to buy more affordable properties. Koulizos recommends buying in units, as the rents now often cover any repayments you might have. Coastal areas such as Victor Harbor and Encounter Bay also offer good buys, he says. The northern Adelaide suburbs will the hardest hit by the slump in car sales, since many of the jobs are located in that region.

There have been fewer sales in South Australia lately, as owners would rather hold onto their properties than sell for a discounted price. That, for now, has helped keep the median strong. "I think overall there are a decline in transactions, but our prices have been able to hold up," says Dean. "If you look at our growth historically in just the past four years, it has been quite dramatic. So even if it does drop off slightly, it won't be detrimental because we've had so much growth."

Dean says demand has been strongest in the outer regions, both to the north and south of Adelaide. "Adelaide is unique in that those areas are still only half an hour from the city," she says. "You can live in those outer regions and have that lifestyle and space you don't get in the inner boundary, plus at a lower price."

Unlike some other major cities in Australia, the affordability in Adelaide also means that most buyers don't need to go too far from the CBD to find something in their price range. That will become even more achievable if interest rates continue to drop. "I know (rates) will continue to drop," says Koulizos. "That means the rent income will cover your interest payment. You don't have to go out to a regional mining town to do that, either."

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