Adelaide could be slowly clawing its way back
Lack of economic stimulus, rising unemployment and job insecurity paint a poor picture for SA. However, some positive indicators are showing light at the end of the tunnel
Adelaide’s performance over the past five years can be summed up in one word: boring. The weak economy and lack of infrastructure development have resulted in practically zero growth in property prices.
Positive Real Estate property coach Adrian Ravish says this slump reflects the basic law of supply and demand.
“With the reality of manufacturing being so heavily hit, as well as some key natural resource sectors being uncertain, Adelaide has not had a lot of economic stimulus,” he says.
The latest ABS report shows that SA’s unemployment rate soared from 6.6% in December to 7.3% in January 2015. And rising unemployment levels and job insecurity have largely contributed to negative market sentiment.
“A decline in the manufacturing industries, coupled with the failed SA mining boom and the delayed proposed expansion of Olympic Dam, is at the forefront of concern,” Ravish says.
The closure of Adelaide’s Holden manufacturing plant forecast for 2017 has also contributed to a period of uncertainty for the population.
“There’s a looming lack of contract renewal – and much uncertainty circling the lack of new projects,” Ravish says.
Nascent growth on the cards?
Despite the dreary outlook, there are some positives emerging. Ravish says the affordability of houses is attracting significant interest. “The continued reduction of standard variable interest rates, combined with minimal SA price growth since 2011, has resulted in a considerable improvement in home affordability.”
The latest CoreLogic Hedonic Home Value Index showed that Adelaide’s median dwelling price was the second lowest in Australia, sitting at $410,000.
“[SA] has been well known for its affordability, and this has made it popular with first-time property investors and developers alike,” says Ravish.
He predicts it is unlikely growth in median house prices will surpass 2% until 2017. But vacancy rates remain low across the city and rental yields are steady.
“Adelaide’s 2014 final quarter median rental rate was recorded at $350 per week, which is a growth of 1.4% over the three-month period, while unit rents remained at a stable $300 per week,” he says.
“Northern Adelaide was the best performer across both the detached-house and unit rental markets, with rents up 3.3% for houses and 4.1% for units.”
In terms of the economy, property lecturer and author Peter Koulizos is stoic about SA’s ability to turn around.
“The low Australian dollar is going to benefit states like SA and Victoria,” he says. “It will make our agricultural exports more appealing; it will help our manufacturing sector.
“But the other great economic driver for South Australia is international students. With the dollar going down it makes it far more affordable now than it was a year ago to attend university here. Adelaide, in particular, has one of the cheapest costs of living in the country and some of the cheapest rents and house prices.”
Experts remain positive about SA but admit that the market is not 100% safe.
With the closure of Holden’s car manufacturing plant and the oversupply of new land, the northern suburbs are likely to become Adelaide’s most vulnerable region.
“It’s not going to be the end of the world but it’s going to have an impact on those suburbs nearby, because a number of the workers are in the plant or other businesses that supply material to
Holden,” says Koulizos.
“Many years ago – decades ago – Chrysler closed down, and it wasn’t the end of the world for Adelaide. Only 10 years ago Mitsubishi shut down, as well at Tonsley Park, and it wasn’t the end of the world for the surrounding suburbs.”
Ravish says government infrastructure developments are likely to be SA’s best hope for overcoming its economic woes.
“The Adelaide market is likely to remain unchanged until we see key infrastructure projects actuate and see some positive economic opportunities commence, such as the defence submarine contract and the natural resource sector,” he says.
SUBURB TO WATCH
Magill: Diverse suburb is the place to be
The sprawling suburb of Magill features a distinctive blend of eateries, antique shops, gracious architecture and leafy streets, making it a unique haven in eastern Adelaide. Just 7km from the CBD, this suburb offers something for everyone.
Magill is popular with established families, young professionals, students and couples. With such a diverse range of excellent amenities, it is easy to see why.
In terms of education, this suburb is jam-packed. Norwood Morialta High School has campuses in both the north and south of Magill and is considered to be one of Adelaide’s best public schools. There are several primary schools in the surrounding area, along with parks and sporting facilities. The University of SA also has a campus in the middle of Magill, making it popular with students.
The main shopping centre on the corner of Magill Road and St Bernards Road provides amenities such as supermarkets, a pharmacy, gyms, restaurants and other small businesses. And with Morialta Conservation Park to the east and the Hope Valley Reservoir to the north, nature is right on the doorstep of this suburb. Bus routes criss-cross the area; there are regular services straight to the CBD, and a trip there by car takes less than 15 minutes.
With properties receiving an average of 743 visits, Magill is in high demand. While the median house price of $539,000 is not cheap, there are some bargains to be had. Four-bedroom homes perfect for families can be found on Gava Street, Fredrick Street and Alton Avenue for under $415,000.
Can you afford to buy in this suburb? Find out how much you can borrow