The Adelaide property market is expected to see gradual improvements this year as buyer activity picks up.
Buying activity in the Adelaide property market may have dropped over the past year, but Century 21 South Australia state manager Michael Coxon notes that lower interest rates and warmer weather are now combining to boost buyer interest.
“In 2010 we had approximately 26,000 property transactions across Adelaide,” he says. “And for 2011 we’re online to achieve around 21,000 property transactions.”
“But what we’ve found in the Adelaide market is that, whilst activity has been fairly stable over the last couple of months, we have noticed about a 20% increase in the numbers attending our open inspections.”
What’s fuelling the resurgence in buyer interest, he believes, is the combination of continued low unemployment in South Australia (5.3% at last count by the ABS) and a pent up demand for housing.
“According to the Real Estate Institute of South Australia, Adelaide in particular has a pent up demand for approximately another 20,000 dwellings. And so if we manage to have any further interest rate drops or reductions over the next 12 months, we expect that that will translate into more demand for housing,” says Coxon.
“Our population has increased, but the number of transactions has decreased,” he adds in explanation of the pent up demand situation. “Provided the planets are aligned, people will come back into the property market and pick up those bargains that are to be had.”
That’s not to say that there are bargain basement properties on offer across the board, says Raine & Horne South Australia CEO Kevin Magee, but he notes that vendors are starting to meet the market’s price expectations, “which has resulted in a limited release of property which is well-priced to sell.”
“In addition, buyers with pre-approved finance are gaining an advantage over other buyers in the current market,” he adds.
Upgraders lead the charge
Coxon notes that it’s upgraders, in particular, who have been making the most of the current favourable buying conditions – with highly competitive three-year fixed rate mortgages proving to be popular amongst this segment of the market.
“Upgraders and investors are starting to come back into the marketplace,” he says. “However, we are seeing demand picking up in other sectors of the market.”
In terms of the areas that investors are targeting, he nominates the new Playford Alive development – 30km north of Adelaide and 8km from Gawler – as one market that’s really starting to create a buzz.
What’s attracting investors here, he says, is the depreciation tax benefits that are associated with new builds, and the fact that build costs have remained “relatively stable” over the past six months while rents have been on the up.
Indeed, it’s the city’s tight rental market that’s expected to draw in investors this year, as they look to buy for yields and hold for growth.
“The rental market has seen vacancy rates fall to under 2%, and so what we’ve found is that our rental portfolios have increased and the demand for rental properties has increased,” says Coxon.
WBP Property Group South Australia state manager Bart Quinn adds that while he expects capital growth in the city to remain flat compared with the last couple of years, “the local rental market will gain strength and attract investors back to the marketplace.”
Still waiting for the Olympic Dam effect
Outside of Adelaide, the excitement surrounding the $30bn Olympic Dam mine expansion becomes ever more palpable with each new development.
The bill supporting indenture agreement between the South Australian government and mine owner BHP Billiton passed through the state government’s lower house in November and, at the time of writing, was awaiting approval in the upper house.
Coxon, however, warns investors not to get ahead of themselves.
“Whilst there have been a number of projects that have been signalled to come online, until they actually do translate into activity and the increase of employment, we won’t see a pickup yet,” he says.
That said, he does ultimately expect a “significant demand” for properties in northern regional areas of South Australia as a result of the mine expansion.
“We expect that we’ll see demand increase in areas like Port Augusta, Whyalla, and to a lesser degree Port Pirie and possibly even Port Lincoln; those areas are within striking distance where people may fly in and fly out to those locations,” says Coxon, adding that these areas currently offer exceptional value for money.
And when it comes to the effect that the Olympic Dam expansion will have on the Adelaide market, he believes that it may take some time for demand to filter through and generate capital growth.
“I probably would be expecting that, but it would be more of a long-term effect,” he says.
“I would be certainly anticipating that we remain pretty cautious about where the market is heading, but we anticipate that next year will see a gradual improvement in the market,” he adds.
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