The recent Residential Property Prospects 2012–2015 report by BIS Shrapnel forecasts just a 9% gain in prices for Adelaide in the next three years to 2015, which represents a 1% decline in real terms, once inflation is taken into account.
“Construction in South Australia has been exceeding underlying demand,” says report author Angie Zigomanis. “With state economic conditions also underperforming compared to national growth, the result has been downward pressure on prices.”
However, Zigomanis says there are also some bright spots for the state.
“With Adelaide being the most affordable of the mainland state capitals, the reductions in interest rates should also assist affordability and stabilise the price falls. While expanding mining projects such as Olympic Dam will have a positive impact on the state economy, they will take some time to ramp up and ultimately be reflected in the residential market.”
Unlike states such as Victoria, Tasmania and NSW, South Australia is actually poised to join the resources boom, once the dust settles on global economic negativity.
“Adelaide is interesting, because it does straddle the two-speed economy,” says ANZ head of property research Paul Braddick. “It could be one of the stronger economies if some of the big projects like Olympic Dam are approved.”
Braddick also says the sentiment remains quite strong in the state because people generally believe Olympic Dam will go ahead.
“The Olympic Dam is such a massive project, but given the situation in Europe and the global commodity markets, the politicking around and the mining tax, it’s still under a cloud. If the project goes ahead on its existing timetable, the Adelaide housing market and overall South Australian economy will do pretty well,” says Braddick.
He says that although the rewards offered up by the project make people wonder why there is a delay, it takes great dedication from investors to outlay the necessary funding.
“The basic problem is that because it’s an open cut project, to get where the ore body is, they need to go very deep and this will take up to three years of just digging and moving dirt, which could cost around $6–7bn,” Braddick says. “There’s no return on the investment until that point and people are wondering whether Europe is going to melt down, whether China is slowing too much and what commodity prices could be after three years. The company has to invest a lot upfront and there’s always the risk that when they finally begin producing, the returns won’t be as positive as they might have looked 12 months ago.”
Property author and lecturer Peter Koulizos remains confident that the project will go ahead as scheduled.
“The 10,000-person village that BHP will require once the mine has expanded is currently under construction, so somebody thinks it’s going ahead,” he says.
Koulizos says BHP has until December to make its decision, before it has to go through the environmental impact process all over again.
“I had the [SA] mining minister Tom Koutsantonis speak to my students last month about the impact of the mining boom on property prices and he said that BHP hasn’t asked him for any extensions on time, so as far as he’s concerned, it’s full steam ahead.”
Work in progress
Uncertainty might be surrounding mining projects, but Adelaide continues to tick along with a number of other projects that will add value to suburbs both in the inner ring and along the coast to the south of the city.
“A lot is happening in Adelaide at the moment,” says Koulizos. “The new medical research centre is taking shape; the foundations are being laid for the brand new Royal Adelaide Hospital; the duplication of the Southern Expressway is underway and so is the extension of the train line to Seaford. Plenty of good things are happening, but unfortunately it’s all under the umbrella of the uncertainty for global financial markets, which puts a dampener on the property market.”
Koulizos says that not only are the projects creating employment, but that nearby suburbs will benefit from an increase in well-paid staff in the area.
“There will be more people working at the new hospital than the old one and generally people working at hospitals earn more money than average. This will drive the property market, so in the long-term that will have an effect, particularly on the suburbs closest to the hospital.”
Koulizos says Seaford and Port Noarlunga South will benefit from a new train line and the Southern Expressway, while a new development will stimulate the inner north-west.
“Bowden Village is a new urban renewal centre, where the old Clipsal Electrical and Origin Energy factories used to be,” he says. “That’s going to have apartments, townhouses and shops.”