Slow but steady growth
Adelaide is unlikely to ever display the dramatic highs of other capital city markets, but its slowly growing market is getting healthier – and proving more attractive to investors
Rapid change is not a hallmark of the Adelaide property market. Rather, much like the gradual fall of sand through an hourglass, change occurs at an incremental pace.
As a result, it can sometimes seem as if not a whole lot is happening, let alone changing, in the market. For example, it looks like recent predictions that SA is finally beginning to grow will be difficult to sustain in the face of the 0.2% growth recorded for this market in the latest RP Data-Rismark Hedonic Home Value Index results.
However, according to Real Estate Institute of SA (REISA) president Ted Piteo, the Adelaide market ended last year on a positive note with strong indications that the upswing would continue into 2014. There was a rise from $395,500 to $403,650 in Adelaide’s median house price over the 12-month comparison period, he says.
“This is the first time in almost three years that the median price has crossed the $400,000 threshold. This is a great result, particularly when coupled with the increase in the volume of sales over the December quarter,” he says.
The increase in volume of sales indicates that more buyers are starting to enter SA’s capital city market.
A further positive indicator is the fact there was also a 15-day decrease in the time properties spent on the market, plus a nearly 1% lower vendor discount on advertised prices.
Piteo believes these indicators mean consumer confidence is improving and Adelaide’s market is bouncing back to a healthier state.
His upbeat assessment of the market’s status is supported further by the latest Herron Todd White report. It emphasises that throughout 2013 the market saw improving conditions. These included growing sales interest and activity, a reduction in the number of days on the market, and even some minor price improvements.
The improving conditions have largely been driven by investors returning to the market due to numerous factors in their favour, such as low vacancy rates, steady rental rates, ongoing low interest rates, and comparatively affordable property prices.
According to the report, the market is also likely to appear increasingly attractive as it is believed to have now reached the bottom of its cycle and is starting to show signs of capital growth.
Just to add to the slow-grow mix, the latest RP Data-Rismark February Hedonic Home Value Index results show that, yet again, Adelaide remains the most affordable of the mainland capital cities, with a median dwelling price of $396,550. The attractions of this ongoing affordability should increase investor interest in the market.
Stamp duty no. 1 issue for buyers
Indeed it seems that the perceived need for a reduction in stamp duty is the biggest issue for SA property buyers.
A recent REISA survey found that, while stamp duty has long been ranked number one in the issue stakes, dissatisfaction with it has now reached almost double that surrounding issues like housing affordability and land tax.
Stamp duty on Adelaide’s latest median house price is currently $16,730, plus $2,989 for an LTO transfer fee.
REISA CEO Greg Troughton says that since 2000 the median house price has risen from $136,000 to $403,650, an increase of 200%. Over the same period, stamp duty on the median house price has risen from $4,270 to $16,730, an increase of 291%.
Stamp duty reform is necessary because it is inequitable and is impeding the ability of people to buy and invest in property, he says. “Stamp duty thresholds and rates should be reviewed annually to better reflect market conditions.”
No longer most liveable
Meanwhile, Adelaide recently lost its top spot as Australia’s most liveable city, in the Property Council of Australia’s annual ‘liveability’ survey.
After four years at number one, the SA capital (with a score of 63.9) was relegated to number two this year, largely due to increasing pessimism about local economic and employment opportunities. Survey participants were also unhappy with the state government and the public transport system.
Richard Angrove, from the SA division of the Property Council, says there is an urgent need for active tax reform, job growth, population growth and a revised infrastructure strategy. The survey results are a call to action for both the government and the opposition, he says.
SUBURB TO WATCH
The north Adelaide region of Elizabeth serves as a stark reminder of how important a player Holden has been for the city and for SA. Established circa 1955, the area was originally developed by the car manufacturer to help house its workforce.
However, Holden’s departure should not distract investors from the value that can be found in the suburbs of Elizabeth and, in particular, the highly undervalued Elizabeth Grove, Andrew Harvey, from Raine & Horne Salisbury, says.
“If you look around Australia-wide at what has to be paid to get good returns, it is generally quite high. Elizabeth Grove is probably one of the best entry points in Australia – in terms of median price, rental returns and potential capital growth – especially when you look at the purchase-price-to-rent ratio.”
Quiet and spacious, with lots of lush green parks, the suburb is midway between two large shopping centres and has a range of schools nearby. It is well served by public transport links to the Adelaide CBD, but there are also many entertainment and nightlife options in the immediate vicinity.
Elizabeth Grove is dominated by three-bedroom brick, late 1950s to early 1960s style houses. There are also a fair number of semi-detached, ex-Housing Trust properties.
Harvey doesn’t believe Holden’s departure will have a long-term impact on the suburb. Not only is there talk of another car manufacturer moving into the site, but significant expansion is planned for the nearby RAAF Base, which will benefit the local economy and the rental market.
Given its median property prices, Elizabeth Grove has the potential for some pretty spectacular capital growth in the coming years, he adds.
Can you afford to buy in this suburb? Find out how much you can borrow