Recovery hopes dashed amid weak economy
The recent recovery in the housing market appears to have stalled as the weakening economy takes its toll on confidence
If only Adelaide
could snag some of the investor money currently going into Melbourne and Sydney. Alas, despite its affordable offering, investors remain wary of putting their money into South Australia.
It’s easy to see why. SA’s performance has been pretty muted, even in a supposed ‘boom cycle’. Understandably, investors would prefer to be in ‘exciting’ markets where there’s a lot of momentum, even if it means they’re paying more for their investments.
Adelaide’s ‘steady’ market is just not cutting it when investors know they can get better returns on their money.
This subdued investor activity is on full display in the recent stats from both CoreLogic RP Data and Domain.
During the month of July, Adelaide’s median house price fell by 1.5%, the biggest drop across capital cities in the country. While unit prices grew by 2.7% during the same period, the overall return on investment is relatively modest at about 8%, compared to Sydney’s 22% and Melbourne’s 15%.
Adelaide rents have remained virtually flat over the past year, with house rents rising by just 0.4% and unit rents up by 0.3%.
The sluggish rental market has seen gross rental yields across Adelaide slip a little further to 4.2% gross for houses and 4.7% gross for units, according to CoreLogic RP Data stats.
Domain also reported modest growth in the Adelaide housing market, with just a slight increase in the median house price over the June quarter and a 3.3% rise over the 2014/15 financial year.
“The prospects of a solid recovery in buyer activity for the Adelaide market have lessened, with recent results indicating generally fragile buyer sentiment,” says Andrew Wilson, chief economist at Domain.
“A sustained improvement to the local economy would be the key to driving house prices — in particular a fall in the high levels of unemployment.
“Adelaide remains the most affordable mainland capital city, with relatively high yields and low vacancy rates likely to attract increasing numbers of investors.
“The outlook for the market remains mixed for the remainder of 2015, though price growth for the year is likely to match last year’s result.”
Reasons to be concerned but hopeful
SA is no doubt suffering from low confidence amid the state’s slow-moving economy.
According to Deloitte Access Economics, the state is currently facing pressures coming from:
- The demise of its car manufacturing sector, which has taken a heavy toll on parts manufacturers
- The recent announcement by Alinta Energy that it will be closing its Port Augusta power station
- The uncertainty over the state’s defence manufacturing sector, which is at risk of losing tens of thousands of jobs as shipbuilding work dries up
The timing couldn’t be worse for SA (coming at roughly the same time as Holden exits manufacturing in the state and Alinta makes its closures). However, these events are not make or break for the state’s economy and its job base, according to Deloitte Access Economics.
The economic forecaster points out there are two big positives that investors shouldn’t overlook:
- Interest rates are at record lows and will be staying “lower for longer”.
- The Australian dollar has also come well down from its earlier peaks.
“These cyclical shifts in interest and exchange rates are increasingly working in South Australia’s favour, providing support for businesses in the farming sector, tourism and the manufacturing sector more broadly,” Deloitte says in its Business Outlook
It also noted that despite the weak economy, retail sales are solid and housing construction and population growth are holding up amid a national slowdown.
“South Australia’s growth is slow, but the economy is in better nick than it’s given credit for,” the report says.
“But keep an eye on the job market. While employment growth has been positive over the past year, it isn’t shooting out the lights, while job vacancies have been flat and unemployment has been on a rising trend.”
SUBURB TO WATCH
Plympton Park: Affordable but under the radar
One of Plympton Park’s greatest strengths is surely its location. It’s just 8km from the Adelaide CBD and has excellent bus and tram options to get residents there. Further, it is only 15 minutes from the airport but is not disturbed by the ongoing noise of aircraft.
Then there’s the fact that it’s 10 minutes away from Glenelg
Beach, which is one of Adelaide’s popular tourist destinations.
There are a good range of shops, medical facilities and parks in the suburb itself, and it’s also less than 10 minutes from Westfield Marion, which is the largest shopping complex in Adelaide. Additionally, it will benefit from a $350m expansion over the next five years, which will include adding 65 shops across two levels and more than 1,000 parking spaces.
It seems people are already starting to catch on to the potential this suburb has to offer. This is shown by the fact that auction clearance rates are a high 92.2% and vacancy rates are a low 0.83%, according to DSRdata.com.au. Additionally, houses there typically spend 38 days on the market, which is a strong statistic for the Adelaide area, according to CoreLogic RP Data.
Aldridge Avenue has three-bedroom houses which are valued at around the median price. They are also close to bus stops and the local shops.
Can you afford to buy in this suburb? Find out how much you can borrow