Slow recovery set to continue as economy struggles to grow
Adelaide’s market is growing slowly but steadily. However, the state’s broader economic woes continue to hold back the pace
Even in the interconnected, busy world of the 21st century, life slows down over the chill of winter. And, traditionally, so too does the property market.
For Adelaide’s already sedate market, this certainly seems to have been the case this winter. According to the latest RP Data Core Logic Home Value Index results, the city posted only moderate growth of 1.5% over the three months ending 31 August 2014.
However, its year-on-year result shows growth of 5.9%, which is the third-highest result of the capital cities (after Sydney and Melbourne). This would seem to indicate that growth in the Adelaide market is occurring, albeit in a slow and steady fashion.
RP Data senior research analyst Cameron Kusher says property values across SA will continue to rise, but the pace of these increases will be quite moderate.
“Sales volumes are likely to lift further as interest rates remain low,” he says. “However, I don’t see enough competition or confidence to result in any significant acceleration in value increases.”
The pick-up in sales activity and dwelling approvals is noteworthy in itself, but Kusher says it is unusual that, despite the low mortgage rates, there has not been much in the way of capital growth. This is likely to be due to the wider economic conditions of the state.
SA continues to experience weaker overall economic conditions compared to most other states, he explains. Retail spending growth is slower, population growth is comparatively minimal, and unemployment is higher.
“These economic factors will most likely continue to act as a drag on consumer sentiment and, as a result, will also curtail any substantial growth in home values.”
A further issue for Adelaide, and SA, is that investors don’t appear to be targeting rental returns, Kusher says. Instead they have a focus on capital growth, and that is just not there in SA at the moment.
“Most investors prefer inner-city units and Adelaide simply doesn’t have an abundance of new inner-city unit development taking place, nor is there much of a pipeline currently.”
In Kusher’s view, anyone looking to invest in SA needs to do so with a long-term timeframe. Economic conditions are not as strong in SA as they are in other states, and therefore he anticipates that value growth will remain quite moderate over the coming few years.
Taking a careful view
The latest Herron Todd White report also describes the Adelaide market’s it paints a slightly brighter picture. It notes that sales transactions are increasing, excess stock is being absorbed, days on the market are decreasing and vendor discounting is reducing.
The report also notes that the median price has improved by approximately 3% over the last year and it predicts that capital growth of between 2% and 4% per annum will continue in the short term.
While the market is still largely favourable for buyers, the report highlights a number of market sectors that investors might want to approach with caution. These are house and land packages in the city’s outer northern suburbs; suburban multilevel apartments; and inner-city apartments purpose built for student accommodation.
Property sector’s role in state growth
Meanwhile, in a bid to tackle SA’s economic woes, the state government recently announced a new 10-point plan. As part of its drive to facilitate economic growth and create jobs, the government is offering businesses financial guarantees worth a total of $50m.
Property Council South Australia acting executive director Lino Iacomella says the government’s plan is a good one because it will create demand for building construction to house the extra jobs.
“Hopefully, it will also generate positive migration into South Australia that will, in turn, boost demand for housing construction,” he says.
The property sector is a huge part of the state’s economy and should contribute to growing SA through property investment and development, Iacomella says. Adoption of the planning reforms proposed by the state’s Expert Panel on Planning Reform would further help this.
SUBURB TO WATCH
Brooklyn Park: Affordable inner-city investment
Sitting 5km west of Adelaide’s CBD, Brooklyn Park’s inner-city fringe status is making it an increasingly desirable location, and one that is still affordable.
Jonathon Kiritsis, from Ray White Mile End, says the quiet suburb’s proximity to the CBD, as well as to beaches and Adelaide airport means it offers great convenience. “A number of local schools and shops, and being positioned between the city and the sea with great public transport on offer, ensures that everything is close by.”
Bordered by Kooyonga Golf Course and Sir Donald Bradman Drive, the largely residential suburb has an array of properties and home styles. While two- and three-bedroom homes built in the 1940s to 1960s on 600–800sqm blocks dominate the suburb, there are also a large number of two-bedroom units/flats.
Kiritsis says Brooklyn Park is undergoing a large amount of development, with lots of new homes going up. “We should see great, solid growth in the area over the next five to 10 years and beyond, although it currently still offers great value for money.”
Streets that are not under the flight path from the airport are better choices. And properties on large allotments that offer development potential for future growth, as well as newly built or renovated properties, are in particular demand, Kiritsis adds.
Brooklyn Park’s convenient location means it also has a healthy rental market. It currently commands yields of 5%, while the vacancy rate sits at 1.08%, which indicates there is demand for rental properties.