South Australia’s unexpected solid performance continues to defy doubts about its prospects
Now that the state election is out of the way, a sense of certainty about South Australia’s future has calmed the jitters among investors.
“In the near term, we’re going to see stability because the state election is over and we know who won. That uncertainty has gone so we can move forward with more surety in terms of the infrastructure planned and the economy as a whole,” says Peter Koulizos, author of Top Australian Suburbs.
Even with the federal election looming, experts believe that the property market will continue to trend upwards, thanks to its strong economic fundamentals.
“I still think Adelaide has a lot to offer. It was one of the slowest performers over the past year, but it has a strong economy. It has one of the lowest unemployment rates in the country so they must be doing something right over there,” says Tim Lawless, research director with rpdata. com. “The market is also still very affordable, so you can buy within a few kilometres away from the city for under $400,000 quite easily. That sort of buying power is very appealing to a lot of people.”
The withdrawal of the federal stimulus for first homebuyers hasn’t slowed the market down but has given investors the opportunity to return to the property market as evidenced by the increase in investment loans by around 5.2%, according to Propell’s Market Report.
“This clearly demonstrates a growing confidence in Adelaide and South Australia’s property market which should see interstate buyers competing with locals for quality assets,” it says.
Median house values rose by nearly 2% in the February quarter to $400,000 according to Residex. Over the past year, house values climbed by 7.95%, trumping Brisbane’s 6.52% annual growth. The unit market staged a slightly stronger year-on-year performance at 8.01% to reach $306,000.
The rental market has remained tight at a 1.19% vacancy rate, well below its long-term average of around 4%. The average weekly rent for houses in the metropolitan area rose by 5.4% over the past 12 months to $295, according to Propell Valuers.
As at the end of June 2009, South Australia’s population grew by 1.2%, or an increase of 19,600 persons. This takes the total estimated population to 1.62 million – accounting for about 7.4% of the total Australian population according to the Australian Bureau of Statistics.
The economic outlook for South Australia is relatively strong in comparison to eastern seaboard states given the increased investment and development activity in the mineral industry as well as continued spending on infrastructure according to the Propell report.
It noted that the development and upgrading of Adelaide’s infrastructure has been of high importance to the state and illustrates the significance of transport infrastructure to the state economy as a whole. In the 2009/10 state government budget paper, it has been outlined that a reported $11.4bn will be spent on infrastructure in Adelaide over the next four years, the report says.
Propell also points out that about 70% of the Australian Defence companies are now located in South Australia and “will play a significant role in the development of new and innovative defence technology systems predominantly in the electronics and maritime sectors. Australia’s defence spending is expected to increase dramatically from $4.5bn to $5.6bn per annum over the next four years, with the SA electronics sector expected to grow 4.8% annually in the future.”
Koulizos adds that the new train line’s first stage has already been completed at Hindmarsh. “The Labor government planned to build a new hospital in the CBD as well. It also planned to turn one of our arterial roads called South Road into an expressway, and this will continue under the new government. It is certainly very promising for SA and in particular Adelaide’s property market because the expenditure has already started and since we kept the same government, it will continue.”
The unemployment rate fell to 4.7% in February 2010; the lowest level since July 2008 according to the ABS. Australian unemployment fell marginally to 5.3% for the same period. South Australia’s unemployment rate has been lower than the national rate since May 2009.
While the current volume matches demand, some experts are concerned about the potential oversupply. “South Australia is already building at a reasonably high level, so it’s not like Sydney where the level of building is nowhere near enough. SA doesn’t have the massive shortfall that may drive price growth in the future,” says Angie Zigomanis, senior analyst at BIS Shrapnel. “If they continue to build at that rate, we could end up with an oversupply. At the moment, the market is in balance. There’s not much pressure in terms of undersupply.”
John Lindeman, head of research at Residex, agrees: “Adelaide is a bit of a problem because they’re currently building enough to match demand from its population.
“SA has an incredibly high migration rate and when overseas migration comes in, they need immediate accommodation. About 90% of Adelaide’s population growth comes from overseas migration. But a lot of the young people are leaving – moving to Melbourne and Sydney – so they’re leaving a lot of empty houses. Then more houses are being built for the migrants who are coming in.
“I think something’s going to give here because eventually these houses will be filled and there’ll actually be an oversupply. It’s not apparent unless you look at the figures very closely, but that’s what’s happening. It’s a problem market, so unless they stop building houses they’re going to have far too many. It’s one of the markets that does have an oversupply.”