Adelaide property a safe haven for investors
Quiet but reliable growth, good returns and ongoing demand have highlighted the capital of SA as an investor hotspot, while regional centres struggle under the weight of economic decline
Abuzz in South Australia is news of its ongoing tax reform, which will shoot SA from being the second-highest taxing state to the second-lowest, a move that could be a game changer in the economic performance of the state.
SA Treasurer Tom Koutsantonis applauds the reform, saying the restructuring of the tax system was necessary to protect jobs, in light of future threats to the state, which include:
- the slowdown of the Australian economy
- the withdrawal of federal government support for SA auto-manufacturing and navy shipbuilding industries
- federal government cuts to health and education
“By abolishing stamp duty on non-real and non-residential property transfers, we will remove a large barrier to business investment and expansion, encouraging economic growth and job creation,” says Koutsantonis.
Safety in numbers in Adelaide
Adelaide’s growth over the past year has raised its combined dwelling median price by $14,500 in the 12 months to February 2016, to a median of $464,160, CoreLogic RP Data reports.
Property consultant Michael Whitrow of Real Team Property Group says Adelaide is a kind of safe haven for property investing.
“[We have the] lowest mainland median prices, among the highest rental yields and steady tenant demand, helped by the large number of overseas students seeking accommodation convenient to one of Adelaide’s universities,” he says.
Demand is good, Whitrow states, evidenced by realtor feedback in the metro region that quality listings are in short supply. Metro vacancy rates have slipped 0.4% since February 2015 to 1.9%, says a March report by SQM Research. The report states that Adelaide rents have seen an overall increase in the past 12 months, by 0.4% for houses and a substantial 3.5% for units.
New developments in the works and CBD infill initiatives could impact on returns in the future. Urban regeneration initiative Renewal SA is in the master planning stages of a 17.1ha land release 2km south of the Adelaide CBD, which will become home to up to 1,000 dwellings in an innovatively designed community.
A government-driven densification policy in the metro area is also underway to combat Adelaide’s low population density, aiming to infill inner- and middle-ring suburbs in a bid to fill the gap in public transport expenses and revitalise retail and commercial life within the city.
“Medium density allows as many as six or more additional dwellings to be built where one stood before,” says Whitrow. “Two of the effects of this are that there are many more townhouses for investors to buy; the other is that established homes on larger allotments are becoming scarcer, and more expensive to buy.”
For high rental yields, Whitrow is currently looking towards the Playford and Onkaparinga LGAs, where investors are pocketing returns averaging 6–7%. “Adelaide’s western, southwestern and northern middle-ring suburbs show strong indications of future capital growth, albeit with lower yields,” he says.
A Herron Todd White report prepared for Westpac says the emergence of slight declines in some outer suburbs to the north and south of the CBD shouldn’t cause concern just yet.
“This is more likely to reflect a moderation of these markets following the previous peak, rather than a general downward trend in values,” the report states. “Despite some declines in value, Adelaide’s outer suburbs are benefiting from the development of infrastructure, including new shopping facilities and significant road works.”
“Collectively, these will help to support values in outer metropolitan locations over the longer term.”
Corrections in regional areas
The Iron Triangle – Whyalla, Port Augusta
and Port Pirie – are in an ongoing correction phase following the slowdown in the resources sector, the report states. “Therefore, those considering buying a property within the Iron Triangle will need to consider the impact that the uncertain local employment market will have on the region’s real estate values in the short term.”
In Whyalla, Arrium steelworks’ desperate financial position has caused job uncertainty, while the impending closure of the Alinta coal mines and power stations will leave 450 workers jobless.
While regional cities are facing their challenges, many continue to provide high returns for investors. Whitrow says, “I’ve sourced many high-yield rentals around South Australia for clients who, to their surprise and delight, also enjoyed capital gain over time, in addition to strong cash flow through the period of their ownership.”
SUBURB TO WATCH
Warradale: Glenelg lifestyle without the price tag
Embracing a variety of housing types that cater to its varying demographic, Warradale, located 12km southwest of Adelaide, is lifting its game through rejuvenation of old homes.
“There’s an abundance of redevelopment due to the availability of larger blocks that were typical of its 1950s and 1960s development,” says Simon Tait, sales consultant at Gary J Smith Glenelg. “It’s also an extremely attractive option for families to take advantage of large-size blocks.”
Besides being just a quick drive from Brighton Beach and the foreshore of Glenelg, Warradale also boasts excellent public transport – buses and trains – to make the 25-minute trip to the Adelaide CBD, and is also close to private and public schools.
“Warradale is perfect for high-density living due to being adjacent to Westfield Marion, the largest shopping centre in South Australia,” says Tait.
“Also, buyers who can’t afford to buy in Glenelg or its immediate suburbs are finding Warradale an excellent alternative.”
Warradale’s house median is $534,500, while Glenelg’s median is just under $900,000.