Property prices are going up, but limited economic drivers and a strong influx of supply are restricting Adelaide’s growth potential
The Adelaide market seems to be representative of the national property scene. “Like the rest of Australia, the Adelaide property market is very fragmented, with some suburbs showing three times the capital growth of others,” says Michael Yardney, CEO of Metropole Property Strategists.
He notes that while dwelling values in general increased by 5.5% in the year to October 2017, the continued lack of economic development is worrying.
“I know some investors are looking for opportunities in Adelaide, hoping (‘speculating’) prices will increase, but there are few growth drivers in Adelaide, with fewer than 8,000 new jobs created there [in 2017],” Yardney says.
The findings of CoreLogic’s Pain and Gain report for the June 2017 quarter seem to support this viewpoint: while 7.5% of houses and 12.4% of units in Adelaide were resold for less than the purchase price, areas like Walkerville, Norwood and Mitcham reported significant levels of resales at a profit. Beyond the metro, the regional SA house market also recorded an increase in profit-making resales.
CoreLogic data also suggest that property completion levels are falling, which could mean that supply and demand may balance out soon. Dwelling approvals have gone down; thus, once the stock under construction is completed, housing supply is expected to stabilise.
Unit lifestyle encouraged
Houses continue to be more popular than units in SA, with residents mainly seeking good-sized detached dwellings, such as renovated character-style properties.
However, zoning changes in several council areas of Adelaide are spurring high-density infill development, according to Herron Todd White’s Month in Review report for October 2017.
“There is increasing developer activity in areas where higher-density developments are being approved. Suburbs such as Magill, Tranmere and Prospect are experiencing good demand from developers as a result,” the report states.
More properties are also being constructed on small blocks of land, and smaller homes like townhouses are also gaining ground, as long as they are located near the fringes of the CBD. These dwellings mainly cater to the rental market and small households.
However, many homeowners in Adelaide to hold to the tradition of owning a large home with enough space to entertain guests. Thus, developers will have to consider the readiness of the market for smaller dwellings. While HTW experts believe that this mindset could one day change, it’s not likely to be in the near future.
SUBURB TO WATCH
CUMBERLAND PARK: Inner-city suburb is a growing pocket
In the inner-southern part of Adelaide just 5km from the CBD, Cumberland Park is one of the lucky suburbs experiencing capital growth in the state’s fragmented market.
The growth rate is not significant, but it is stable. House prices recorded 3% growth, whereas units saw a 1.2% increase. As a result, the latter has remained quite affordable at a median price of $345,943 despite the suburb’s central location. Moreover, yields are significant at 5%, which could attract the interest of investors looking for the right area.
Residents are served by a Woolworths, and the private secondary school Cabra Dominican College makes its home here.
Location: Cumberland Park is about half an hour from the CBD by bus
Yield: Investors could gain high returns of about 5% in the unit market