South Australian resources are there to be developed; it’s just a matter of finding the right investors
Adelaide has always been a subdued market; free from the volatility of some of Australia’s other capitals. Property movements are thoughtful and gradual, like the tortoise to the resource states’ hares. When the Olympic Dam project was still on the verge of getting underway, South Australia was poised to join its western and northern brothers on the positive side of the national economic average. However, it has stalled and so Adelaide returns to its subdued state.
“Olympic Dam has flattened confidence in South Australia to some degree,” says Andrew Wilson, senior economist at Australian Property Monitors.
“There has been no sense of any revival in house prices this year. They’re still moving south; not collapsing, but without a lot actually happening.”
Like a lot of the other states, Wilson says Adelaide has seen some bargain hunting in traditionally higher priced suburbs where value opportunities have come to the fore, but the city of churches is currently bound to play follow the leader for the next year or so. “I think Adelaide will follow the rest of the country as it moves forwards next year,” Wilson says. “But it will be a laggard in terms of that recovery scenario.”
For confidence to return to the Adelaide market, commentators agree that someone needs to kick-start the economy.
“Adelaide needs more investment. It’s lacking some of the necessary drivers, until something happens,” says Andrew Peterson, from Next Hot Spot. “Had Olympic Dam got over the line, South Australia would have gone from a have-not to a have. That’s a 100-year project, so delaying it by four or five years, in the short term, is really damaging.”
After missing out on such a considerable boost, the state government has put out the ‘help wanted’ sign.
“They’ve said they’re open for business,” says Peterson. “They know they can’t afford to develop infrastructure themselves, so they are looking for private investors. In the week that BHP pulled their heads in on Olympic Dam, Rio Tinto got into bed with a company called Tasman Resources, which is exploring the Vulcan site, next door to Olympic Dam. Their initial report is that they’re getting the same positive results.”
Peterson says the corporate competition between BHP and Rio Tinto has been fuelled further by the state government’s dedication to resource projects.
“[Premier] Weatherill has come out and released Woomera for exploration, which has still got some lingering Indigenous rights issues that need to be sorted out,” he says. “They’ve made it very clear, saying ‘we need the business, we have the resources, they will be developed, here you go, now get into it’. I think [BHP is] making the end result bigger, because it’s stimulated the government and competitors into thinking ‘let’s have a crack at this’.”
Big name makes a move
One investor to take interest in the city of churches recently has been billionaire property developer Lang Walker. According to Peterson, Walker has set his sights on a project in the trendy O’Connell Street precinct of North Adelaide.
“He has gone into a mixed-use development on a block that’s been vacant for 10 years and if you look at a guy like Walker, he doesn’t do too many deals against his own interests,” says Peterson.
“It’s a $200m project and that’s a good sign. It’s good circumstantial evidence when people like that are putting their dough in there.”
Vacancy rates improve
Some good news has come out of the September quarter data, with the Adelaide metro market experiencing a tightening of the rental vacancy rate.
The Real Estate Institute of South Australia (REISA) reported that metropolitan Adelaide recorded a vacancy rate of 3.06% in this period, which is down from 3.91% in the previous quarter. The new figure is also the lowest for 12 months, which is providing investors with their first piece of comforting news for months.
Investors outside of the city weren’t so lucky, with the regional vacancy rate moving from 3.74% to 4.02% in the same period.
The best districts were: the Mid North (1.6%); Adelaide Hills (2%); and Riverland (2%), while the worst areas were: Yorke Peninsula (10.8%); and Fleurieu/Kangaroo Island (5.8%).