SA excerpt from the October 2010 Market report

South Australia has posted steady – if understated – growth throughout 2010. Could 2011 be its year?
South Australia’s property market is a strange beast. It is neither fuelled by population inflow like the eastern capitals, nor booming from the resources industry like Perth, the Northern Territory or vast tracts of Queensland. Effectively, it’s a little bit ‘six of one, half a dozen of the other’ – and that’s been reflected in property prices.
According to Residex figures for June, house price growth in Adelaide has performed below the Australian average for the last year – coming in at 7.76% (as opposed to the national median of 9.4%). That’s less than half of the growth of Sydney and Melbourne – but a higher rate than Brisbane and Perth. Quarterly growth sits at 1.72% – again below average, but squarely in the middle when compared to other cities.
Matthew Bell, economist at Australian Property Monitors (APM), says Adelaide is an “interesting” case. “The market has both strengths and weaknesses,” he says. “One of its pluses is that it’s more and more exposed to the resources boom – via projects like the Olympic Dam and a few others – and stands to benefit from them. One of the area’s big weaknesses, however, is its relatively weak population growth: it only stands at about 1.3%.”
Bell is bullish about future growth, though. “Adelaide’s big strength is that it’s a mainland state that’s very affordable. Your average unit is only $290,000, with houses not much more than $400,000. Also, people are starting to move to Adelaide from the bigger cities, thanks to an increasing employment and infrastructure investment.”
John Lindeman, head of research at Residex, is concerned about the long-term prognosis for Adelaide’s population.
“The issue is that children who grow up in Adelaide quite often move interstate to the eastern capitals as soon as they can,” says Lindeman. “That means that overseas migration accounts for the bulk of the state’s population growth and keeps the market ticking along.”
Lindeman explains that could be problematic for potential investors – especially as the signs point to Adelaide developing an oversupply of property.
The unit market is particularly affected by this, he adds, and rentals are already slowing.
He projects that unit growth will be “very little” for the foreseeable future – and that growth in general will track about 1% above CPI. “I’d recommend investors to stay out of Adelaide for now,” says Lindeman. “There are too many dwellings. Yes, there are opportunities there, but you have to be very careful as to what you purchase and where it is. Unfortunately, I can’t see the situation changing any time soon, due to the population growth issue.”
University lecturer Peter Koulizos, who is also the author of Top Australian Suburbs, disagrees that there’s a potential oversupply issue. “From what I’ve seen, there’s not a supply problem – if anything, it’s the opposite, especially where units are concerned. If anything, property development has slowed as developers have found it more difficult to get finance from banks.”
Koulizos says there are only two blocks of apartments under construction at the moment, and that units are still highly sought after in the suburbs, due to their affordability and proximity to the CBD. “The best indicator for over- or under-supply is vacancy rates, and they’re low city-wide. In fact, I’m currently building some units for rent and without advertising I’ve got one already signed up for a two-year lease and a second about to sign.”
Koulizos argues that Adelaide’s relatively quiet market is at least partly down to election fever. “We’ve not only had the federal election, but state elections too. That’s led to some pent-up demand, which should lead to a good spring selling season.”
Koulizos is optimistic about the city’s long-term prognosis. “There’s a large battalion moving into the Edinburgh RAAF base next year, which will see demand for private rental grow in the northern suburbs; the various defence contracts are ticking along and increasing employment, and SA has dodged the bullet on the reworked mining tax, as uranium, copper and gold – which are SA’s major industries – have escaped being caught by the tax.
“We’ll see good things happening in Adelaide from 2011 onwards,” he concludes.

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