Green shoots of recovery or false hope?
Holden’s announcement of the impending closure of its Australian operation leaves SA reeling, but how will it impact on the state’s economy and its property market?
When General Motors-Holden announced the imminent closure of its Australian manufacturing operation, late last year, it marked the end of a formative era for SA.
The company’s long history in the state contributed to significant population growth in Adelaide
in the decades following WWII and the development of the suburb of Elizabeth. For many years Holden was the flagship of SA’s car industry and one of the state’s major employers.
Months of confidence-eroding speculation ended when GM announced its decision to close down, but it also became clear that the fate of at least 1,600 state workers had been sealed.
While GM Holden managing director Mike Devereux said it was a priority to ensure the best possible transition for those workers, there was immediate consternation about what the closure would mean for the wider South Australian economy.
A National Institute of Economic and Industry Research report estimated the Australia-wide cost to the economy would be an annual $4bn and that over 65,000 jobs would be lost by 2020. Twelve thousands of those jobs would be in SA.
APM’s Andrew Wilson believes that, while the economic and confidence impact of the closure will be significant, there is too much political capital involved for nothing to be done. There will have to be policies and initiatives designed to moderate the employment market and the closure’s impact on it, he says.
The bigger picture is that SA’s economy is a poor performer and has been for some time, in Wilson’s view. “There is not a lot of significant economic activity for SA to hang its hat on generally. The unfortunate Olympic Dam saga and now the double whammy of the Holden closure have impacted on the real economy and confidence.”
Unemployment is now sitting at around 7%, which is about 1% over the national rate, he says. “This situation will take some time to recover from and is fundamentally negative for income and house price growth.”
All of this means that the SA property market has long been a flat market overall and is set to continue to be for some time.
Meanwhile, the Adelaide market has always had less peaks and troughs and volatility than other capital city markets, Wilson says. “Going forward, the market will remain subdued market due to the generally weak SA economy. I forecast very moderate price growth of 1-3% over the coming year.”
Investor attractive features
However, not all is bad for the Adelaide market. It is worth noting that, while growth is never likely to be spectacular, the Adelaide market tends to be far more stable than other markets.
According to the latest data from REISA, Adelaide’s median house price is set to increase 2% by the end of the year. This is positive as it will be the first annual increase since 2010.
Adelaide’s market is the most affordable of the mainland capital cities. Probably for this reason, the city consistently records one of the country’s highest levels of first home buyers. Further, Adelaide also has the best rental yields of mainland capital cities – along with a low vacancy rate which means there is demand for rental properties.
All of these features are positives and should be appealing to investors, but limited capital growth has continued to keep the market off the radar, Wilson says.
The latest Herron Todd White report supports Wilson’s views, albeit in a slightly more upbeat fashion. It states that “the first green shoots of recovery” were now appearing in the Adelaide market.
While it concedes that interest rate cuts did little to stimulate the market, with sales volumes remaining at low levels, it isolates the following factors as indicators of improving sales conditions:
• Increasing use of auctions as the sales method
• Improved auction clearance rates
• Contraction in the time properties spent on the market
• Contraction in vendor discounting rates
• Increasing number of sales transactions
Job security and the unemployment rate, along with high electricity and water rates, were all continuing to weigh heavily on Adelaide’s residential property market, the report notes.
Until SA experiences some economic growth, and a related increase in consumer confidence, Adelaide’s market will continue to be a buyers’ market and pressure on property values will remain, it concludes.
Suburb to watch
Quiet and peaceful, Cheltenham is considered a hidden gem by its fans. First settled in the 19th century, it is known for its historic cemetery and its former racecourse, which was the site of some of Australia's earliest aviation endeavours.
Situated just 9km from Adelaide’s CBD and only 5km from the beach, its convenient location is further enhanced by an abundance of affordable character homes. “Proximity to all amenities including schools, good public transport, and good shopping and café’s close by are further selling points,” Daniel Harris, from Harcourts Ouwens Casserly, says.
The on-going redevelopment of the Cheltenham Race Course into the St Clair’s Precinct has created “village square” style shopping in the suburb. It is also set to include a waterway and wild life sanctuary and walking trails to complement the existing park spaces.
These features, along with an active community centre, proximity to the beach, and a generally tranquil atmosphere mean that Cheltenham is particularly good for young families.
Character bungalows on generous sized blocks of land dominate the suburb and are particularly popular for renovation, Harris continues.
Prices and value in the suburb are only set to increase, according to Harris. “2013 saw 4% median capital growth and the median house price in late 2013 was $530,000. I believe the popularity of the area will improve once again with the St Clair development and the rising Adelaide market overall.”
Cheltenham’s current vacancy rate is 0.93%, which means that rental properties in the area are in high demand.