SA - Excerpt from the March 2010 Market Report

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Falling behind Sydney and Melbourne for most of the past 12 months has prepared South Australia for a solid resurgence in 2010

South Australia's year-on-year performance is relatively subdued at just 5.12% according to Residex data. However, 2010 is shaping out to be another bumper year for the southern state.

According to Tim Lawless, research director of rpdata.com, last year's laggards such as South Australia will see stronger performance as the leaders consolidate their gains.

"The market that showed the greatest growth in 2009 will be replaced by the markets that have underperformed. Cities like Adelaide, Brisbane and Perth being the underperformers in 2009 are poised to be the better performers in 2010. The risks are also minimised in those cities because they're still early in the cycle and values have not grown that much compared to Sydney, Melbourne and Darwin," says Lawless.

Growing undersupply
Ask any agent in Adelaide what is affecting the property market and they will likely say undersupply, undersupply and more undersupply. The state is well ahead of its predicted population growth and a lack of new land has left renters struggling to find homes.

South Australia's population grew by 1.2% or 19,400 over the year to June 2009 boosted by strong net overseas migration gain of 17,073 persons according to the Australian Bureau of Statistics. It also recorded a natural increase of 6,954 persons during the same period.

However, dwelling approvals continue to decline. In the year ended October 2009, the number of dwelling approved in South Australia fell 16.3%. Sharp falls occurred across the board, with the Eyre Statistical Division recording the largest decrease (30.7%).

For investors, though, this is great news. Rents are up, prices are moving forward and vacancy rates are 1.3% - on par with Sydney and Melbourne. According to the Residex, Adelaide's median house price is up 2.46% to $370,000 in the November. Solid demand for units lifted values by 4.20% during the year ending November 2009.

"South Australia is punching well above its weight and has weathered the storm very well," says Michael Brock, president of the Real Estate Institute of South Australia. "We have seen prices increases over the past 12 months, which is very much on the trend. On the back on the Olympic Dam and potential mining projects, investors are seeing SA as the next state to take off."

However, the severe under supply leaves investors with a challenge: where can they buy property? "While we've seen first home buyers and investors coming into the market, the general population isn't persuaded to put their house on the market and move," says Andrew Koukouro of Century 21 Central. "There is definite shortage of housing in the lower market and in the middle market. In Adelaide the middle market is around $450,000 - $650,000."

As way of example, Koukouro says he recently put his own property on the market and had 1,000 internet hits in three days. Koukouro thinks the problem of supply will improve "when people feel their jobs are safer and they are more confident".

The lack of consumer confidence, which is preventing owners selling up, has also been noted on the rental market, with tenants choosing to hold onto their leases rather than move and risk higher rents. It's a case of 'better the devil you know, than the devil you don't'.

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