If Adelaide’s economic performance is anything to go by, then there’s no reason for its property investors to break a sweat. In fact, according to the recently published CommSec State of the States report, the South Australian economy is tracking along extremely well, with its annual economic growth rate of 6% being the third highest of any state or territory.
The Festival State is also third for retail spending and equipment investment (which, at record highs, is up 13.1% per cent on last year’s figure), fourth for construction work and third for population growth.
And this stable economic performance is something that APM senior economist Andrew Wilson sees as a major boon for the Adelaide property market.
“Adelaide has a lot of good prospects in terms of its economy, and it’s exposed to the resources sector,” he says.
But all this economic activity doesn’t seem to have filtered down to the state’s housing market just yet. Dwelling starts are 10% below their 10-year average and home lending numbers are nothing to shout about.
“Adelaide is still a soft market, as most of our markets are,” says Wilson. “It’s still in the recovery phase and there’s still lowish buyer activity there.”
As an indication of buyer activity Real Estate Institute of South Australia (REISA) data shows that 3,678 houses settled across the Adelaide metropolitan area during the June quarter, which is a significant drop on the 4,368 house settlements from the same period last year.
REISA president Greg Nybo adds that Adelaide’s supply and demand equation has yet to come into balance.
“The number of properties on the market is high and number of sales is low, so this is causing a flat market,” he says.
The root of the city’s oversupply, says BIS Shrapnel senior manager for residential property Angie Zigomanis, is that its high levels of construction in recent years exceeded what was required by the city’s population growth rate.
“But construction’s also coming off so we don’t necessarily expect a big oversupply to be coming there,” he says.
Indeed, according to the State of the States report, dwelling starts in South Australia during the June quarter were 10% below its normal rate of activity for that time of year.
“We’ve got a fairly flat price situation over the next three years, and real price growth will probably be below inflation,” adds Zigomanis.
Wilson, however, is more optimistic about Adelaide’s growth prospects, and he believes that – while the Adelaide property market is likely to move sideways as the year progresses – South Australia’s strong economic performance and exposure to the growing Australian resources sector should send property prices northwards during the first quarter of next year.
And Nybo is quick to underline the City of Church’s traditional stability, which he sees as a major selling point given the volatility that some of the country’s other capital cities have experienced.
“It is a positive sign that we are not seeing large price drops across the metropolitan region, and this is important as it shows the long-term stability of our property market,” he says.
“Interstate, there have been considerable reversals in price growth, but again, Adelaide has shown that whilst things are definitely tough, the stability of our market still remains.”
He adds that a range of suburbs are still holding up extremely well, with Henley Beach and Largs Bay showing quarterly capital growth rates of 30% and 18.5% respectively according to REISA June figures, which shows that well priced, quality housing will always be in demand.
“What this quarter’s figures show is that SA, like the nation, is at the holding stage of the property cycle, but when we look at long-term trends, they show that our market will bounce back in the medium to long-term,” he adds.
“The housing market definitely moves through cycles, but what is important to remember is that there are still genuine buyers in the market.”
Adelaide-based property academic and author Peter Koulizos notes that the city’s rental market is proving to be quite slow at present, citing a personal example of his troubles in finding a tenant.
“I was looking to find a tenant for one of my rental properties, and I had to drop the rent to attract someone. You’re far better off taking $5 or $10 a week less than leaving a $350 a week property vacant for three weeks – because that’s a lot of money you’ve got to make up. And a lot of my students are finding the same thing,” he says.
He believes that this phenomenon is due to a lack of confidence among the locals, who are choosing to stay at home rather than take on a tenancy agreement in today’s uncertain economic climate.
“You’ve still got migrants that have to rent, but there are less of them than there were a couple of years ago and there are less international students than there were a couple of years ago,” he says. “So all of that together has made for a much softer rental market.”
But, judging by SQM Research figures, “softer” is certainly a relative term when it comes to Adelaide’s rental market. The city’s vacancy rate may have dropped by 0.6% in the year to June 2011, and by 0.2% between May and June this year, but its current rate of 1.6% is still well below the 3% mark that’s considered to be the benchmark for a balanced rental market.
And Koulizos doesn’t see any reason for South Australian investors to panic, noting that Adelaide’s solid economy, numerous infrastructure projects and growing resources industry all bode well for the future.
It’s all promising. Yes, the picture doesn’t look too rosy at the moment, but the foundations are being laid for some great economic prosperity in South Australia,” he says.
Outside of the state capital, REISA figures for South Australia’s major regional towns show that Port Augusta is the standout performer, recording annual growth of 8.54%, while Mount Gambier (5.65%) takes second spot.
“Owner-occupiers and first homebuyers are returning to the Port Augusta market, with properties in the $200,000 to $300,000 range generating the most interest,” says Raine & Horne Port Augusta principal Greg Kipling, who adds that three-bedroom homes in good areas can be picked up in this price bracket.
“Port Augusta’s geographical proximity to Roxby has seen a lot of people move here so they can commute to the mines for employment. When you add other major employers such as the Flinders
Power Station and the Port Augusta Hospital to the mix, you can understand why a lot of families and young people are looking for homes in Port Augusta.”
Do you have more than $120k in your super fund? You could use your super to buy property - Find out how