Despite the recent healthy growth in median values, SA remains the most affordable mainland state to invest in.
A state election – which South Australia faces in 2010 – is usually accompanied by caution and uncertainty. Coming out of a tough year, with job layoffs in the state’s all-important auto manufacturing sector and a sluggish premium end property market, few would question a general air of unease.
Yet there has been plenty of reassuring news. The property market in SA slowed during the first six months of 2009, but fared better than many other states due to its defence, mining and technology industries.
"Good population growth combined with significant infrastructure development and affordable housing options will be the key drivers of sustained growth for the SA property market," says Aaron Maskrey, research director with PRDnationwide.
Estimated population growth has been recorded at 1.2% for the 12 months to June 2009, which is consistent with historically strong figures for the state. In terms of infrastructure, the top 50 proposed projects in SA have an estimated value of $55bn. This significant level of spending is concentrated in the state’s capital, accounting for 60% of the investment, while regional areas will receive around 40%. With this continued investment, strong growth and affordability, SA can expect high levels of activity driving growth in median price.
Despite predictions that the exodus of first homebuyers from the market following the end of government stimulus would leave a vacuum, early signs for 2010 are bearing out this long-term confidence and indicate that the local property market has reverted to a normalised and more consistent state, where demand sits evenly placed across all price ranges.
“The lower price bracket – up to $450,000 – really was strong in 2009 thanks to the first homebuyer boost. It brought forward a number of buyers into the market who perhaps weren’t going to be buying until 2010. They have now made their purchase so that market has slowed up a little, but I believe it’s been compensated by investors in that lower price bracket who have come back into the marketplace,” says Michael Brock, president of REISA.
Brock believes the interest in SA is akin to what happened with Perth’s mining boom in the 1980s. “People are buying in anticipation of strong growth and these government projects are underpinning SA’s economy for decades to come,” he says.
Affordability still the key
According to the REISA, the median house price for Adelaide’s metropolitan suburbs increased in December for the third consecutive quarter, up to $382,500. This positive result represents a rise of 2.41% for the quarter and positive growth of 6.25% for 2009. Residex data showed similar upbeat numbers with median house values rising by 3.34% to $400,500 in the January quarter, even outperforming Darwin in terms of quarterly growth rates. On a year-on-year basis, median values in Adelaide have jumped 8.82%.
While these results are encouraging, it also means that affordability remains Adelaide’s strongest selling point. Adelaide’s median house price is still around $87,000 cheaper than in Perth, $228,500 cheaper than Sydney and $138,500 lower than Melbourne.
“The affordability in SA’s house market is its key driver of growth,” says Maskrey. “Investors should avoid luxurious markets as affordable product is an apparent theme in this market and has a higher susceptibility to growth.”
Bart Quinn, state manager SA for WBP Property Group, says Adelaide continues to offer good value older housing stock in a number of middle ring suburbs, located within seven to 15km of the Adelaide CBD, including Woodville North and Hillcrest in the north, and Park Holme and Clapham in the south. These areas can expect to benefit from solid capital growth in 2010 as purchasers are priced out of the more highly sought neighbouring suburbs.
As long as affordable interest rates are maintained, Quinn anticipates the middle price bracket will gain momentum, fuelled by renewed interest from upgraders, and increasing demand from investors who will be attracted by the strong rental market. Demand from buyers appears to be growing, as seen in auction clearance rates: last year these wallowed at 42–43%, but currently clearance rates sit at around 65%.
The rental market, which has in the past hovered around 2.5–3% vacancy rate, is currently down to 1.12%. Many suburbs registered double-digit rental growth averages, with the key driver being high demand. Brock notes the rental market is particularly tight in the western areas and those located within 10km of the CBD. “Properties coming up for lease are just being snapped up,” he says.
A further positive driver for a number of Adelaide suburbs is the soon to be completed Northern Expressway. The Expressway will link Gawler to the inner northern suburbs via Port Wakefield Road, effectively creating a non-stop commute to Adelaide. “History shows that proximity and access to good road infrastructure has positive implications for local property values in both the long and short term,” says Quinn.
Brock says the areas moving ahead in leaps and bounds are anything on or near water, and cosmopolitan areas like Henley Beach, Norwood and Hyde Park. “They’re in high demand because they have a real divergence of prices and are within walking distance to shops, cafes and transport,” he says.