Despite a sluggish economy, investors are winning in Adelaide
Unemployment and job insecurity are high in SA, but Adelaide has remained buoyant
Investors are finding themselves on the winning team in South Australia, where vacancy rates are staying firm and unit yields have increased, despite an oversupply of apartments in the state and a rough economic climate.
Yield figures are positive, with the current median rental intake for units being $289 per week, according to SQM Research’s February figures, up 4.2% in 12 months. Houses, however, have increased rents by just 0.1%, to an average of $368. As a state, SA is in fourth place nationally with its vacancy rate of 2%, coming in behind Hobart, and Canberra and Sydney (tied at 1.8%).
These rising rental figures are a stark contrast to the trend in property values over the past 12 months. Units rose only 0.8%, compared to houses at 2.96%, according to CoreLogic February figures. It’s likely this is due to the increasing construction of apartments in the city suburbs. However, Eliza Owen, market strategist at OnTheHouse.com.au, says it’s possible units may follow the house price upswing with some lag time.
There are more contradictions in the SA market. While REISA figures reported an all-time-high median price of $425,000 at the end of 2015, they also reported a significant drop in overall sales volume.
And while the prominence of new developments has softened unit values, Owen suggests that interest from developers seems to have fallen away, “with the value of building work done in the state barely above GFC levels”.
Poor economic conditions continue to dampen growth prospects in SA, with unemployment and job insecurity ranking highly on the list of contributing factors. ABS labour force figures released in January reveal SA still holds the unenviable title of highest unemployment rate in the nation, at 6.8%.
The unemployment issue will need to be countered with new and innovative forms of job generation, says Owen. While the introduction of the ALDI chain and the ongoing Young Entrepreneurs Program has helped, Owen says “a more fundamental concern is that investing in such programs requires funding, which the state government currently lacks”.
“Attempts to improve the economic situation in SA include tax reform to generate revenue, with the merits of raising the GST still up for debate,” Owen adds.
Alex Ouwens, president of REISA, noted in his December quarter Market Update Report
that the state’s “punitive stamp duty regime” was a thorn in the side of home buyers and a potential contributor to the drop-off in property sales. At CoreLogic’s February median house price of $474,000, buyers are forking out $20,330 in stamp duty, according to RealEstate.com.au calculations.
The impending closure of Elizabeth’s Holden manufacturing plant in 2017 adds another question mark to Adelaide’s economic uncertainty, as well as a potential flow-on effect on surrounding property markets. However, it’s not all doom and gloom, especially for investors. Despite everything, Adelaide continues to defy its own circumstances and maintain a fairly buoyant property market.
Real estate experts are encouraged by the overall numbers, which show Adelaide is still full of prime opportunities for reaping excellent rental returns, often in prestigious suburbs that remain affordable.
Katherine Skinner, senior property manager at National Property Buyers Adelaide, is one such optimist. “Typically, high-performing, sought-after inner suburbs like Norwood, Kent Town and
North Adelaide provide a good return on units, with very low vacancy rates,” Skinner explains.
“A little further out, suburbs in the northeast like Golden Grove and Para Hills offer very affordable purchase prices with high rental returns, and these areas are experiencing substantial capital growth as well, which should create a flow-on effect in the surrounding areas.”
Skinner warns there may be a slight softening in demand later in the year as more developments are completed, and to watch for oversupply in the outer suburbs. “In the north, Munno Para West has many properties listed consistently, as Morphett Vale
does in the south. Obviously this brings prices down both for sale and for rent due.”
The new Royal Adelaide Hospital, located on North Terrace on the fringe of Adelaide CBD, is due for completion this year, which could have a positive impact on demand and the values of local suburbs. Urban regeneration initiatives by Renewal SA are also underway in the city and Riverbank, and in the northern suburb of Bowden.
The standout performer, according to REISA, is Hendon, a northwestern suburb 10km from the city, with the tightest vacancy rate in SA at 0.56%. The median house price of $405,000 has increased
by 10.3% in 12 months, and investors are sitting pretty with a rental yield of 4.36%.
SUBURB TO WATCH
Bowden: A flagship renewal project
The suburb of Bowden is on the map for all the right reasons. Once renowned for its ‘crime and grime’, Bowden has been turning the stigma around since it was bought by Renewal SA as a flagship urban renewal project in line with The 30-Year Plan for Greater Adelaide
As a result, this once-avoided suburb is undergoing major transformation, with a focus of sustainability and a merging of Bowden’s industrial history with its modern future.
Designed to be developed as a totally walkable neighbourhood, Bowden will be filled with contemporary apartment buildings, easy public transport and a pedestrian pathway that directly accesses the city.
Bowden also offers lifestyle factors such as parks, bike trails, community gardens, a commercial district and an urban cafe vibe. Proximity to the new Royal Adelaide Hospital adds to the suburb’s appeal.
While 3,500 dwellings are approved for construction over the next decade, Bowden is expected to skirt the oversupply issue of other Adelaide suburbs due to the unique lifestyle it offers.
Senior property manager Katherine Skinner, from National Property Buyers Adelaide, has witnessed Bowden’s rising popularity in action. “You can already see this area booming, with new cafes and restaurants opening, new bars, new shops ... and this is only the beginning.”