Weak economy weighs on the market recovery
While there have been signs of recovery appearing in the market, the shadow of a slowing economy and increasing supply continues to create doubt about long-term prospects
is certainly looking attractive at the moment. With the median dwelling price sitting at just $405,000, it offers the cheapest entry point into the property market of any mainland city. Predictably, investors are starting to take notice and make a move into this market.
“With houses at half the price of Sydney’s and 25% cheaper than Melbourne’s, the city is proving attractive to price-sensitive groups such as first home buyers and retirees. Where else can you get a good capital city lifestyle at this price?” asks Linda Phillips, senior economist at Propell Ltd.
Even with the closure of the car industry and increasing unemployment making the headlines, the market has remained resilient.
During the June quarter, the median dwelling price rose 1.8%, taking annual growth to 4.5% and even outperforming Brisbane’s 3.4% growth, according to CoreLogic RP Data.
“It’s true the 7.2% unemployment rate is still the highest level of any city, but there are signs that this is now peaking,” says Phillips. “The car industry has been unwinding for some time, and this uncertain variable is becoming better understood, with the impact limited, it seems, to the older and state housing suburbs in the north around Elizabeth.”
With things not looking as bad as feared elsewhere across the metropolitan area, buyers have been returning to the market.
“Adelaide has never seen the scale of growth of other markets, but on the plus side it has always been a steady market, and over time the average growth has managed to match other cities’. It also has the bonus of offering higher rental yields, reflecting the lower prices,” says Allan Romaniuk, residential manager SA/TAS, Propell Ltd.
“The sweet spot for investors in this city is to locate a suburb that has above-average growth prospects, combined with a higher-than-average rental yield. This helps to limit the downside risk on any investment.”
Despite promising growth in the property market, BIS Shrapnel senior research analyst Angie Zigomanis remains cautious about future prospects amid rising supply and weaker demand.
“The dwelling excess in the South Australian market after the post-GFC surge in construction began to be absorbed over 2012 and 2013, resulting in improvement in prices. However, the excess increased in 2014 as purchasers and builders responded to large and temporary increases in incentives to first home buyers of new dwellings,” he says.
“This rise in construction is coinciding with slowing underlying demand as net overseas migration inflows ease. With the state continuing to face headwinds in a number of industry sectors, there will be little to place upward pressure on prices apart from the low interest rate. As a result, the residential market in Adelaide should remain challenging as rental growth also suffers from oversupply.”
Areas to watch
According to Phillips, the northern suburbs are starting to be affected by the winding-down of the car industry, particularly older suburbs with state housing stock that is now physically obsolete.
“Such houses are difficult to lease but offer the opportunity for redevelopment, especially if several neighbouring houses can be purchased to create higher-density development,” she says.
To the north, Phillips points out that there is considerable new stock on the market which has been supported by rent guarantees.
“At present there seems to be an oversupply of stock in those areas near RAAF Base Edinburgh, so the trade-off for the rental guarantee seems to be lower prospects of capital growth,” she says.
In contrast, the southern suburbs and those to the west of the city have held their value better than the northern suburbs, and it is here that most of the capital growth is occurring.
Suburbs such as West Beach, Fulham, Henley Beach and Grange are close to the oceanfront while being conveniently situated for the city and airport. There are redevelopment opportunities here that are of interest to investors. Similar opportunities lie to the south of the city in suburbs such as Clarence Park, Clarence Gardens and Edwardstown.
SUBURB TO WATCH
Magill: Close to Adelaide’s amazing amenities
Those who are searching for a house near some of Adelaide’s best amenities don’t need to look any further than the suburb of Magill.
Situated just 7km from the Adelaide CBD, Magill is filled with leafy green streets and is home to quality cafes, restaurants and shops. Additionally, many of its residents commute to the CBD, Tea Tree Plaza or the northern suburbs.
Another notable highlight is Magill’s education resources, including the University of SA campus, Magill Primary School and Norwood Morialta High School. The Penfolds Magill Estate Vineyard helps attract tourists to the area.
The range of properties in this suburb include established homes on large blocks (some with renovation and subdivision potential), duplex-style cottages and more modern villas and townhouses. For the families that target this area, the three- or four-bedroom houses on big blocks are ideal.
In particular, three-bedroom houses on Jervois Avenue and Windsor Avenue are a good option. They may be over the $600,000 mark but are close to a wide range of schools, shops, cafes and restaurants, as well as desirable schools, the university and the popular Gums Reserve.
Can you afford to buy in this suburb? Find out how much you can borrow