Soft numbers continue to weigh on confidence
While the two biggest data providers, Domain and CoreLogic RP Data, reported contrasting readings of the South Australian market recently, the reality remains that the Adelaide market faces a challenging year ahead
CoreLogic RP Data’s reading of the Adelaide market during January shows a sluggish market – no change over the month to January and a drop of 0.3% in median values during the three-month period. Over the past year, detached housing values rose by just 1.5% and unit values dropped by 3.9%.
In contrast, Domain showed a solid result over the December quarter, a healthy 6.7% median house price growth over 2015 – its best annual result since 2007. It also showed Adelaide unit prices rising strongly 5.2% over the year – the highest annual growth rate since 2008.
The discrepancy can be attributed to the different times the readings were taken and also the fact that each of the data providers uses different methodology to calculate their median numbers.
Andrew Wilson, senior economist with Domain, explains their data clearly shows Adelaide is on a positive path.
“It’s certainly a positive story for Adelaide home owners, with the city recording five consecutive quarters of house price growth for the first time since the boom period of 2010,” he says. “With growth continuing at its current pace, it is highly likely that the median house price will break through $500,000 by mid-year.”
“The auction clearance rates were good and we’ve seen growth in the mid to higher price range in the north of the city. There’s a feel of an even market, especially with the northern suburbs now getting a bit more investor activity.
Wilson adds that Adelaide’s tight rental market, and low vacancy rates, would help attract more investors to the state.
“Rents are rising. It’s a bit of a sleeper market, but I think it’s going to have a positive year this year,” he says.
It’s still about the economy
Despite the mixed reading, the uncomfortable reality remains. The subdued economic growth is continuing to drag sentiment at a time when unemployment is a high 7.2%, according to local expert and property author Peter Koulizos. He adds that, in addition to high unemployment, the rising underemployment is also impacting people’s confidence.
“There are many people, even people my age, in their 50s, who have been working in high-level full-time jobs that are now facing underemployment,” he says. “Instead of working five days a week, they’re only now working three or four days a week. So they’ve had to curb their spending, including spending on property, whether upgrading their own home, buying a holiday home or buying an investment property.”
Deloitte Access Economics points out that the lower Australian dollar should play in South Australia’s favour, but because it has been so high for so long the State’s strong manufacturing sector took a very big hit.
It notes that the cash-strapped Federal Government is pretty much hamstrung in doing anything about the so-called “Valley of Death” defence of manufacturing in South Australia.
“Old contracts have finished and new ones haven’t started yet, which leave a skinnier pipeline of defence manufacturing work in South Australia. And although submarine spending will be big bucks at some stage, we reiterate the risk that the number of subs eventually built could fall shy of the State’s earlier hopes,” says Deloitte Access Economics.
“On the bright side, job growth is holding up and unemployment appears to have eased back from an earlier phase of threatening to break through the 8% level. Yet there are still a whole bunch
of challenges ahead of this State.”
Areas at risks
With more manufacturing closures this year and next, the areas around Elizabeth Downs
are most exposed, according to Koulizos.
“Because Holden is closing, all the suburbs surrounding the Holden plant will be impacted. It’s not the end of the world. We’ve had similar events happening before when Chrysler and Mitsubishi shut down many years ago. But it will have some impact, and the impact will be negative. And it will be long term as well,” he says.
Koulizos adds that while prices are low now, they may drop some more due to lack of demand.
But, over the long term, he believes the government will find a use of these factories, and reinvent the area just like they did in Newcastle
“Newcastle took a long time to reinvent itself, but it managed to turn its fortune around,” says Koulizos. “I know the local council and the state government are proactive because these are Labor-held areas, and they want to claim to be doing the right thing in that particular area. I’m sure it’ll reinvent itself, but it’s not going to happen overnight.”
SUBURB TO WATCH
Enfield, SA: High growth, high demand suburb
Located just 7km from Adelaide CBD, Enfield is a popular suburb due to its proximity to the CBD and its lifestyle aspects, according to Mick Heasman, director of Northgate Real Estate.
“It’s got great amenities, such as a good local shopping strip and major centres,” he says.
Heasman says the dominant renters are often young families that have grown up in the area and want to remain here, as well as 20- to 40-year-old couples. Rents for houses hover around $350–$450 per week. Units fetch around $270 per week, according to Heasman.
Indeed, rental yield is strong, even with increasing house prices, and vacancy rate is tight at 1.5%.
Enfield is currently going through massive gentrification with 80s houses slowly being converted into modern houses.
There are a number of beautiful parks and recreational facilities in the area. There are two primary schools – St. Gabriel’s Primary School and Enfield Primary School, both located in Enfield.
Residents can get to Adelaide by bus or car in approximately 30 minutes. Moreover, the council provides local buses for the aged.
The best buys, according to Heasman, are older homes on larger allotments that are still suitable for redevelopments. “This has been the case for the past five to 10 years,” he says. The best streets are those closer to the city or Regency Road, where the value and demand are strong.”
With interest rates at their lowest for more than 50 years, there are some great rates available. The best thing to do is to compare rates from all the lenders. Let us help take the leg work out of doing this - Compare Home Loans now