Green shoots appear but dark clouds remain
Adelaide’s stint at the bottom seems to be coming to an end as more signs of recovery start to appear. But experts remain wary about the city’s prospects
As Sydney and Melbourne prices continue to soar, affordable markets such as Adelaide logically should be the next area to target. And judging by the recent numbers, it would seem that priced-out interstate investors are making their move into this market.
During the 12 months ending May, Adelaide raced past Brisbane and Perth
to become the third-highest-gaining capital city in Australia, behind Sydney and Melbourne, according to the CoreLogic RP Data stats.
Median dwelling values grew by 3.4%, while Sydney and Melbourne racked up 15% and 9% growth respectively.
Adelaide also outperformed Brisbane during the quarter ending May, with its median house price growing by 1.9% compared to a drop of 0.9% for Brisbane.
Domain’s data shows a similar trend, according to chief economist Andrew Wilson. “Adelaide is holding its own, although it’s a conservative market,” he says. “Although there’s still a question mark on its economy, there’s no doubt that parts of that market have picked up, thanks to the lower interest rate.”
In particular, the middle- to upper-end markets are experiencing a surge in demand which has helped trigger a solid increase in prices.
The Real Estate Institute of Australia reported that over the March quarter the inner-ring suburbs of Adelaide saw prices soar by 9.8%. Compared to the same quarter in 2014, the median house price jumped by 10.2%.
Outside Adelaide, Mount Gambier
is the hottest market for buyers. The strong buying activity pushed median prices up by 10.9% during the three months ending March.
“We’re starting to hear that investors have taken their eyes away from Sydney and now going to Adelaide, and that’s what’s been keeping these markets buoyant,” says Wilson. “I’ll not be surprised if we see another 5% growth again this year for the Adelaide market.”
Despite the recent solid showing, Angie Zigomanis, senior research analyst at BIS Shrapnel, is not convinced that SA and Adelaide are out of the woods yet.
“Their markets are still a bit flat,” he says. “The growth is still meandering through and not getting any spike. That’s because there’s not much triggers for growth in these areas. If anything, I expect more downsides in that part of the country due to Holden shutting down. If South Australia doesn’t get the submarine contract, the state would be under pressure.”
With the level of supply currently on the market remaining strong while demand for mortgages shows only a modest increase, the market is slightly in favour of sellers, according to the Commonwealth Bank-Core Logic Home Buyers Index.
“Adelaide has shifted from balanced market conditions three months ago to conditions that are now more favourable to sellers,” the report says. “When negotiating on the sale of a home currently in Adelaide, sellers have a slightly stronger negotiating position than buyers.”
Biggest gainers, losers
During the past three months, suburbs in the Salisbury, Prospect and Norwood St Peters local areas have racked up solid growth, led by the Salisbury Downs median unit price surging by 34%. The attractive price points and the high rental yield of around 7% make this suburb a prime target for investors seeking both growth and income.
In contrast, the West Torrens suburb of Underdale suffered massive losses, with the median unit price plunging by 24% during the same period. Also among the biggest losers are Gilberton, which recorded a drop of 21% in median unit price, and Summertown, which suffered a 19% loss in its median house price during the same period.
SUBURB TO WATCH
Tea Tree Gully: Great amenities with a splash of country charm
Situated just 22km from the Adelaide CBD, Tea Tree Gully boasts excellent amenities, including quality schools and restaurants.
Transport options are also good, particularly due to its proximity to the O-Bahn Busway. The Westfield Tea Tree Plaza is nearby in Modbury, along with Modbury Hospital.
In the suburb itself there is the historic Tea Tree Gully Hotel, which has recently undergone $2m worth of renovations.
It is also close to the popular Anstey Hill Recreation Park, which is a popular spot for bushwalkers, birdwatchers and photographers. In particular, there are bush walks, views of Adelaide city, and an abundance of plant and animal life which draws tourists to the suburb.
Rising demand for Tea Tree Gully is already shown by the vacancy rate of just 0.33%, according to Real Estate Investar.
Houses on Ellis Street are especially sought after. They are only a short walk from Tea Tree Gully Primary School, restaurants and pubs. They are also close to the bus stop linking the O-Bahn with Tea Tree Plaza and the CBD. Three- and four-bedroom houses there may be over the $500,000 mark, yet their country charm and proximity to sought-after amenities ensure they are worth it.
There are also many houses on large blocks which have potential for renovators or subdividers in Tea Tree Gully.
Do you have more than $120k in your super fund? You could use your super to buy property - Find out how