Market Report South Australia (August 2009)

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Investors see long-term potential in Adelaide

Mining and Defence are the twin pillars keeping investor sentiment buoyant in SA.

The Adelaide property market is having rather a sedate year overall. Prices have not fallen, but there has been no sign of the mini boom that gripped the city in 2007-08. 

"They missed the boat," says Residex chief property analyst John Lindeman. "They were busy looking for minerals when everybody else was mining them. By the time they'd found them, China said, 'Well, we don't want them any more.'"

Whether or not Chinese demand for Australian resources returns to 2006 levels remains to be seen. The SA government, however, is not waiting to find out. It is aggressively pursuing growth opportunities in a variety of sectors including manufacturing, minerals exploration and defence.

Port Adelaide has become a hub of extraordinary activity. The new Royal Australian Navy submarines and Air Warfare Destroyers will be built at the Osborne shipbuilding and maintenance facility. Also next year, 140 US defence experts will visit the site to determine whether it is suitable as headquarters for the US Navy's Southern Hemisphere maintenance operations. 

With such exciting opportunities on the way, Port Adelaide and surrounding suburbs are definitely shaping up as hot spots to watch.

"We will see some very well-paid people moving into those areas, which traditionally are not the more affluent areas in Adelaide," says Kevin Magee, CEO of Raine & Horne SA. There is already significant subdivision and redevelopment underway in and around the port, most notably in the suburb of Woodville, which is located halfway between Port Adelaide and the CBD.

Renewed confidence
Magee is seeing a return of investor confidence right across SA. On a range of indicators, including clearance rates, median capital growth, days on market and offer levels, SA appears to be looking with hope to the future.

"The level of what buyers offer on properties is normally about 6-7% below the advertised price," says Magee. "We're now seeing that discount level has gone down by about 2-3%, so more near the asking price, on average."

Lindeman hopes that investors are prepared to be very patient. "[SA does] have huge potential in the long term, especially with uranium mining, but that really is a long-term prospect, because you've got to change the government's policy on uranium mining, export of uranium, there's a whole range of issues," he says. "Prominent Hill, which has just started, will take years before it gets into full production. Honeymoon is another one that's still a long way off."

Low population growth is another issue that SA has battled with in the past. The current influx of migrants, however, is set to widen exponentially. "Migration is way ahead of what was forecast for SA," says Magee. "We're going for two million [population] in 2048. They're now saying that's going to happen 13 years earlier. Also, our skilled migration levels are up 13% over last year."

Lindeman counters by pointing out that many young people who grew up in Adelaide are leaving for better jobs in Sydney, Melbourne or Perth. "Ninety per cent of the growth rate is coming from overseas migrants, and they're nearly all people who will work in those manufacturing industries," he says. "And they can just as easily leave again."

For renters, inner-city living is becoming more popular. This is not, however, simply a lifestyle choice. "Rental affordability has become an increasing issue and as such many tenants will now choose a unit rather than a house because the rent is lower," notes Magee. "Compared to other states, Adelaide has a relatively low volume of units available to meet this demand, particularly near centres of employment and the CBD." This is resulting in continuing upward pressure on unit rents.

Adelaide has always been a conservative market, and this tendency shields the state from crippling price drops. "Adelaide is that nice, steady investment that occasionally has a boom, but when it drops, it's around 1% then it recovers," says Magee. "For a long-term investor it's steady, solid returns. Buy in Adelaide and over 10 years you'll double your property value. It doesn't matter where you buy - that's normally what occurs."

So if you have patience and aren't expecting gigantic capital growth any time soon, perhaps Adelaide is worth a look.

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Top Suburbs : nundah , st peters , nightcliff , bendigo , glendenning

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