Slow and steady wins the race?
Adelaide may not be a property investing hotspot just yet, but local landlords can still expect modest price growth over the next 12 months.
From a property investor’s point of view, Adelaide represents a fairly run-of-the-mill prospect at present. There are no large-scale mining projects to boost the local economy, no big supply-and demand issues to drive up rents and values, and no huge construction projects to attract workers and renters to the area.
But while there may be a distinct lack of serious growth drivers in the city, Real Estate Institute of South Australia (REISA) vice president Ted Piteo is quick to point out the other side of the
story: Adelaide house prices might not have increased significantly in recent times, but they haven’t moved backwards either. And finally, the property market is showing small signs of improvement.
“Housing is a medium- to long-term investment that has provided long-term security for many Australians, and we’re confident that the number of sales [throughout SA] will continue to slowly rise over the course of 2013,” Piteo says.
He predicts that both sales volume and value will increase over the coming year, particularly in Adelaide’s middle-ring suburbs, which have been the city’s top performers of late.
REISA is not alone in this assessment, with APM also forecasting “modest price growth” for 2013.
“The Adelaide housing market can look forward to modest price growth for 2013, with all indicators pointing to a slight improvement,” APM predicts in a recently released report. “This is consistent with Adelaide’s house price cycle, which is typically less volatile than the other major capitals.”
Rental growth slow
Depending on where you look, data on vacancy rates in Adelaide varies. The latest research from REISA estimates that around 3% of all rental homes in the city are sitting empty, while SQM Research places the vacancy rate at a much tighter 1.3%.
Either way, it appears that the vacancy rate is stable – for now.
“Anything under a 3% vacancy rate is generally considered a landlords’ market,” explains Louis Christopher, managing director of SQM Research. “Right now, it’s still a landlords’ market, but that hasn’t always translated into rapidly appreciating rents in Adelaide.”
Underlining his point is that gross rental yields in Adelaide have barely moved over the last 12 months. However, investors with variable-rate mortgages have benefited financially from declining interest rates across that period, so at least landlords’ balance sheets should be moving in the right direction.
Moving forward, Christopher expects vacancies to increase rather than tighten as renters cobble together deposits and purchase their homes instead of renting. “While there should be a move of renters turning themselves into first home buyers this year, it doesn’t seem to be, at this stage, a major shift,” he adds.
Real estate academic and author Peter Koulizos agrees, suggesting that this trend will gain traction later this year and into 2014: “I expect more renters to move into the first home buyer market, and I think growth in rents will be relatively slow in the next 12 to 18 months,” Koulizos says.
Spotlight on: Adelaide’s best yields for units
The city’s far north is the clear winner for any Adelaide investor in search of cash flow. A cluster of suburbs around the Elizabeth area are offering some fantastic rental yields at the moment, with Elizabeth North offering the highest yields in the city, at 8%.
The high yields can largely be explained by a combination of average rents and rock-bottom median prices. None of the suburbs in this list have a median unit price exceeding $200,000; some, including all the Elizabeth suburbs, are priced well below $150,000.
It is highly that likely these areas will be good for cash flow only, as capital growth prospects look dubious. Property values fell during the 12 months to April 2013 in all 10 of these suburbs, most notably in Alberton, where values slid back by almost a third of what they were in 2012.
A sign of perhaps further falls to come is that most vendors are slashing their asking prices by well over 10% in most of these suburbs. This is one indication of a market where demand from buyers is soft.
The McGrath Group’s Paul McGrath says Glenelg’s evergreen demand makes it a
great investment spot
Selling points: Glenelg is a premium seaside suburb in Adelaide with stunning sandy beaches. The main street is littered with cafes, restaurants and shops and leads down to a world-class marina. The suburb retains a village feel, and properties can still be purchased within walking distance of the main strip and beach for affordable prices. It is only about a 15-minute drive to the international airport.
Most sought-after properties: There is a huge range of properties in the area and, with the local council allowing higher-density living within many zones, it has become very popular with developers. Two- and three-bedroom ground floor units are in especially high demand, but a garage is vital (or at least a carport or car park).
Top amenities: The shops are by far the biggest attraction, but they are followed closely by the beach and the wonderful carefree summer lifestyle on off er. Public transport is excellent, making travel to the city and airport easy.
Local industry and businesses: Most residents either commute to the city or work within the local shopping area, at local businesses or the major Westfield Shopping Centre 10 minutes away. A growing number of residents also take advantage of easy access to the airport to commute to the mining areas in the north of the state.
Best streets: The Esplanades always perform well, but if your budget does not allow for it, then First through to Sixth Avenues in Glenelg East are a safe bet.
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