Uncertainty rules in South Australia; however, are there still options for investors?
If there’s one thing that characterises the South Australian property market at the moment, it’s uncertainty. Not only has the region had to deal with rising interest rates and the end of the First Home Owner Grant boost like other parts of the country, but it has also suffered from the announcement of the proposed mining tax and the ensuing war of words between the mining companies and the government, massive drought and a recent state election.
Add to that the growing global concern over the European sovereign debt crisis, its affect on financial markets and talk of a forthcoming federal election, and you can understand why, as Kevin Magee from Raine & Horne South Australia puts it, “buyers are being much more conservative and cautious in their purchases”.
While growth has been steady in the last year – sitting at about 7%, according to Residex – the ‘sit tight’ attitude has resulted in a significant slowdown in the market. Rent increases have also stalled, with increases of just $10 per week seen for both houses and units compared to May 2009.
It’s potentially indicative of a market that’s grinding to a halt, suggests John Lindeman, head of research at Residex. “The modest growth that Adelaide
has been showing over the last year or so has pretty much fallen away,” he says. He doesn’t really see the situation improving in the longer term, either. “The real problem with South Australia is that it has the slowest population growth of all the mainland states,” Lindeman explains. “There’s an enormous amount of interstate migration out of the region, as young people move east or west, and as such the area relies heavily upon migration from overseas.”
Lindeman is not completely pessimistic about Adelaide, however. There is increasing demand in areas where migrants settle, and he also points to the unit market as one that is faring better than houses, with 2.99% growth seen in the quarter leading up to May and 0.88% growth in May.
Lindeman believes the stronger performance of the unit market is a direct result of the interest rate rises and the end of the First Home Owner Grant boost, with first-time buyers shifting their attention towards more affordable units.
Peter Koulizos, university lecturer and author of Top Australian Suburbs, is more bullish about Adelaide’s prospects. He agrees that the market has significantly slowed, but thinks that there will be a light at the end of the tunnel by the end of the year. “Don’t expect astronomical price rises in the next four to six months,” he comments. “I wouldn’t be surprised if there are even price drops. However, I’m confident that prices will be higher on 31 December than they were on 1 January this year.”
Koulizos argues that infrastructure spending will add value to properties in the long term. “Now is a great time for investors to be buying,” says Koulizos. “As demand slows, there’s potential to pick up a bargain, especially one located in a seaside location. There may also be the possibility of picking up distressed stock from a development.”
Magee agrees. “The market is difficult to predict,” he comments. “Prices will grow, but until the mining tax question is resolved, I’d say that this is a market for the astute investor, rather than for occasional players. If those astute investors get it right, however, they could stand to gain enormously.”
Islands in the sun
The rest of the state is a “very interesting picture,” says Lindeman. He suggests Riverland could be an area to look at.
He also believes it’s time to turn away from the resources industry. “The best areas for investors right now are the coastal resorts,” he says. “A few years ago, everyone expected these areas to boom as Baby Boomers retired to them; however, with the stock market fluctuations and resulting superannuation losses, many had to keep working. “That retirement migration is still going to happen – it’s just a question of when. Places like the Fleurieu Peninsula and the Yorke Peninsula are good bets for growth,” he says.
Koulizos also picks the Yorke Peninsula as a bright light, although for very different reasons. “A whole new stream of copper has been discovered near Ardrossan, and there are already workers moving there,” he reveals. “While most of the SA mining industry is down in the doldrums, Ardrossan and surrounding towns could be a good bet.”
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