Slow times but no need to worry
Prices aren’t expected to go through the roof in Adelaide
this year, but a super-tight vacancy rate is keeping investors interested in the city of churches.
Adelaide’s going through something of a slow patch at the moment, admits Raine& Horne South Australia CEO Kevin Magee, but that’s not to say that it’s suffering any more than the rest of the country.
“Pricing dropped 1.3% across the state for residential property over the last quarter, but I understand that RP Data results still place Adelaide as the best-performing capital for the last quarter. That’s probably a reflection of our strong economy, with ongoing infrastructure in defence, mining and so forth. So we don’t really see the price drop continuing,” says Magee.
He adds that buyer activity has seen a slight increase in recent weeks, thanks in part to the attractiveness of Adelaide’s super-tight vacancy rate to investors. And it appears that interstate investors in particular are making the foray into Adelaide’s property investment scene.
“In January, the vacancy rate went from 0.9% down to 0.33%, so we have a super-tight rental market and that’s created a lot of interest from investors,” says Magee. “Interstate investors are less conservative than the Adelaide buyer, and they can see what Adelaide has to offer in comparison to their own local market.”
In terms of volume of sales, the Real Estate Institute of SA (REISA) president Greg Nybo notes that the start of this year has been slower than the last, with home sales expected to reach around 20,000 by the end of the year – 1,000 less than 2010’s figure.
“While a figure of 20,000 does represent a slower market, it importantly shows that housing stock is still turning over at a considerable volume,” he says.
And in terms of who’s driving the market, Nybo believes that it’s the middle to upper-end of the market that’s seeing the most action, with first homebuyers struggling in the wake of the state government’s withdrawal of first homebuyer grants for established properties.
“They’ve now only got the $7,000 federal government grant when buying an established home, and the state government doesn’t provide any stamp duty concession whatsoever for first homebuyers buying an established home,” explains Nybo.
“There is an $8,000 boost from the state government if you build a new home, so they’ve got a very clear strategy on construction,” he adds.
Rents set to rise
PRDnationwide research director Aaron Maskrey says that Adelaide’s low vacancy rate is expected to contribute to an increase in weekly rents “as currently the median weekly rent of $310 is the most affordable of all Australian capital cities”.
WBP Property Group’s Outlook report also notes that, while limited growth is expected for a period of two to three years as prices re-adjust with longer-term trends, “rental markets are expected to improve from an already strong position – an attractive prospect for investors drawn to growing yields.”
However, Maskrey warns that while South Australia’s affordability makes it an attractive proposition for would-be investors, it also contributes to average rental yields that at the moment are less than staggering.
“Due to the affordability of the SA market, yields are typically lower than in other regions,” he says.
In terms of what investors are going for at the moment, Magee notes that established properties in Adelaide’s northern suburbs are always popular thanks to their potent combination of good yields and high demand.
He adds, however, that the spate of affordable house and land packages that have been cropping up around the city – especially to the north – has kept the prices of nearby established properties in check, and that this creates the opportunity for investors to pick up established properties in strong rental suburbs at good prices.
“A lot of land is being opened up in the northern areas for new house and land packages, and it’s making established property owners have to really review pricing,” he explains.
He singles out Salisbury as an area with good yields, employment and population growth – but strong competition from new developments.
“Just up the road from the established area of Salisbury, you’ve now got these large tracts of house and land packages for $220,000 to $250,000. And these developments are pushing down prices on established properties in the local area,” explains Magee.
“So for investors it’s a great time to pick up in the area. You’ve got realistic sellers who realise that first homebuyers are being attracted to these new homes.”
Strathalbyn, too, hits Magee’s radar, thanks to its improved vacancy rates, increasing development and green belt location – around 50km south-east of the Adelaide CBD.
“I wouldn’t have mentioned Strathalbyn as an option for investors a year-and-a-half ago, because our vacancy rate was more open. But now any one property has a queue of potential tenants who want to live in the Strathalbyn area and commute to the metro. It’s a combination of the very tight vacancy rate and people getting more comfortable with travelling to work,” he says.
Nybo points to the state government’s $1bn Playford Alive urban renewal and greenfield project on the northern fringe of Adelaide as one area to keep an eye on.
“A lot of massive infrastructure’s going on out there: they’re opening the new northern expressway, there’s the electrification of the train line to the city, and new schools are under construction, so it’s very significant,” he says, adding that areas to the north benefit from a greater availability of land and strong employment in the defence industry.
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