Flat market shows positive signs
For astute investors looking to purchase at the bottom of the market, Adelaide might just be a sweet option
It’s fair to say that there wasn’t much excitement and growth for the Adelaide property market over 2014, particularly compared with what happened in Sydney and Melbourne.
But the market also proved to be quite resilient, especially given the concerning local economic conditions.
To name a few, there have been job cuts in manufacturing; the Olympic Dam expansion hasn’t got underway; and it also looks like Canberra will be buying Japanese submarines instead of getting them from Adelaide.
However, Elaine Chase of Positive Real Estate sees the difficult conditions not as a threat but as an opportunity.
“Adelaide is still a good market to invest in at the bottom of the market, but it’s hard to predict exactly when it will begin to rise,” says Chase. “Capital growth might be a few years away or it could be just around the corner.”
Giving some hope that SA’s economy could improve sooner rather than later is the pleasant surprise that two significant upgrades are now happening at once, says the latest Herron Todd White report.
This has come about because the federal Liberal government promised the $620m Darlington upgrade, which is a 2.3km road between the Southern Expressway and Ayliffes Road, Darlington. Meanwhile, the state’s Labor government promised the $896m Torrens to Torrens upgrade, which is a 3.7km road between Torrens Road and Torrens River.
In a twist, there ended up being no squabble over which project would commence first. Instead they came to an agreement that the two projects would run concurrently and begin towards the latter part of 2015.
“This is a great result for SA, providing jobs and stimulus for the local economy, and definitely not what we expected to occur,” says the report.
More reasons for hope
Despite Australia’s mining industry going through tough times, mineral and petroleum production in SA totalled $7.5bn in 2013/14, according to Department of State development figures.
Not only was this the highest level on record, but it also beat the 2012/13 result by more than $1.3bn.
Furthermore, it is expected that the value of SA’s mineral and energy resources production will increase to $10bn per annum by 2017, and that an additional 5,000 jobs will be created in this sector.
Another area that’s on the up is tourism. The falling Australian dollar is helping attract more and more people to SA. A total of 390,000 people visited the state during the 12 months to September 2014 – an increase of 7.5% on the previous year. More good news is that they are also spending at record levels – a total of $735m for the year to September, which was a rise of 7.2% on the previous 12 months.
In particular, the number of visitors from the UK was up by 22% to 69,000 for the year to September, while visitors from New Zealand – South Australia’s second-largest market – increased by 7.5% to 42,000.
There has also been a strategic push towards Asian markets, with the number of visitors from China up by 13% to 31,000 visitors, and those from Malaysia up by almost 50% to 20,000.
In December 2014, the first phase of the Adelaide Convention Centre redevelopment was completed. And the events already booked for the redeveloped Convention Centre will bring a further 70,000 people to SA and contribute about $188m to the state’s economy.
Challenges to watch out for
The weak job market in SA is not doing much good for its commercial construction sector, according to the latest Deloitte Access Economics Business Outlook report.
“Office vacancy rates in Adelaide are among the highest in the country, while ongoing weakness in retail sector investment is being hit from several sides as disposable income growth lags the national average and online business models challenge the correlation between consumer spending and the demand on retail infrastructure,” the report says.
Deloitte also says the cuts to car and related manufacturing have now been joined by the predicted smaller spend on submarines to add to the difficulties facing the SA economy over the next few years.
However, the report makes clear that going ahead with Japanese subs would not mean that Adelaide would totally miss out.
“In fact, there’d still be billions of dollars of local value-add as we stickytape American weapon systems into Japanese subs. Even so, this would be a substantially smaller spend than had more fully blown options been preferred,” the report says.
SUBURB TO WATCH
Elizabeth: Affordability is just the beginning
Located 24km north of the Adelaide CBD, Elizabeth is a good option for investors looking for affordable property with excellent access to amenities.
It contains large block sizes that are ideal for young families. This demographic is also attracted to the range of schools and parks, TAFE SA, and the skate park, not to mention the shopping centre (one of the largest in Adelaide’s northern suburbs), which has had ongoing renovations and extensions in recent years. Moreover, the Aquadome sports club is another popular landmark, and a few years ago it enjoyed a $15.8m refurbishment.
The nearby Lyell McEwin Hospital provides employment options for residents, while many others catch the train to work in the Adelaide CBD.
The supply and demand figures for Elizabeth are encouraging reading, as vacancy rates are just 0.92% and there’s only 0.63% of stock on the market. This is backed up by the fact that houses there typically just spend 56 days on the market, an outstanding figure for the Playford LGA. Don’t be surprised if the capital growth figure starts to climb soon, since it’s been relatively flat in recent years.
Another exciting statistic is the 6% gross rental yield, meaning there are opportunities for positive cash flow.
The most popular properties include modern and established two- or three-bedroom houses. And there are plenty of great deals such as three-bedroom houses on Enford Street for less than $220,000. Properties there are also a simple stroll away from Elizabeth Shopping Centre, public transport and reserves.