South Australia has been left wondering what could have been after seeing its expected meal ticket ribbed into confetti. Investors now have to ask, what will pick up the pieces?
And just like that, it’s gone. The Olympic Dam expansion project, which had so long been touted to create boom times in South Australian property markets, is to be no more.
In August, BHP Billiton chief executive Marius Kloppers announced weak commodity prices and the rising costs of mining production had caused the company to abandon its US$30bn plans to expand Olympic Dam into the world’s largest open pit mine.
The property markets that were set to directly benefit from the expansion – including Roxby Downs, Port Augusta, Whyalla, Port Pirie and a host of others – now have to wonder what will come next. Without the expansion, will these markets experience huge falls? Will all the speculators who had been buying property in these regions in anticipation of the expansion jump ship? Will the rest of the state suffer too?
These are some hard questions and the answers haven’t emerged just yet. For the meantime, state authorities are saying it is time for SA to stop licking its wounds and face reality. Raymond Spencer, the head of the state’s economic development board, believes there are plenty of other opportunities in the resources sector.
Spencer in September told an American Chamber of Commerce luncheon in Adelaide there was also more to life than mining. “While the announcement from BHP Billiton was no doubt extremely disappointing … frankly, we have to get over the announcement and get on with developing advanced manufacturing services,” he says.
One sector of the market not mulling over Olympic Dam is first homebuyers. The Real Estate Institute of Australia (REIA) reports the latest measure of first homebuyer loan numbers in South Australia is up 8% on figures for the previous quarter.
Institute president Pamela Bennet says this may have been a reflection of improved affordability in South Australia and across the country. “The quarter recorded an improvement in housing affordability with the [nationwide] proportion of income required to meet loan repayments decreasing 0.8% to 31.9%,” she says.
Despite increased activity, the institute’s South Australia president Greg Moulton says affordability could be further enhanced if the Reserve Bank were to initiate another rate cut.
“Housing is a major expense for all South Australians, whether they rent or own a property so interest rates really drive this cost,” he says. “Our members noticed a small increase in buyer inquiry levels after rates were cut some months ago, so we know buyers are very sensitive to interest rate adjustments. What we would like to see, later this year, is further easing of rates, to really kick-start the market again.”
For investors in Adelaide, another lingering concern is the growing amount of rental vacancies. Statewide the rental market continued to report higher than average vacancy rates, according to REIA, but in Adelaide the figures are perhaps the most alarming.
The city recorded a vacancy rate of 3.91% for the June quarter, up from 3.55% in March. This marked 12 consecutive months where the percentage of city vacancies exceeded 3%.
Moulton says it will take a long time for this situation to remedy itself, adding that the city’s rental market will need to heat up first.
“In tougher economic times, both in sales and rentals, we see a pattern of people staying still a little more and not moving unless they really need to,” Moulton says.
For Moulton, landlord expectations also play a role. “The main pattern to vacancies definitely relates to price… this is the critical factor in leasing property quickly. Once the price gets a little high for the area, the inquiries are very slow which really highlights the importance of being in touch with the local market.”
REIA reports the vacancy rate in regional South Australia was 3.74% over the June quarter, down from 4.43% in March.
Areas having a difficult time with vacancies include the Yorke Peninsula (10.5%), Kangaroo Island (6.7%) and the state’s west (6.1%).
Tighter rental markets were seen in the Eyre Peninsula (2.7%), Upper Spencer Gulf (2.9%) and the Riverland region (2.6%).