The Smartline Report – April Edition

The month in review: Adelaide

By Herron Todd White
April 2015

The majority of new land releases and estates in South Australia tend to be in the outer suburbs and generally aimed at first home buyers. Currently first home buyers are eligible for a $15,000 grant for new homes on property of up to $575,000 in total value.

Two of the newest releases to the north are Springwood at Gawler East and the soon to be released The Green at Virginia. This is in addition to the significant number of land releases already on offer in Parafield Gardens, Munno Para/Munno Para West, Blakeview and Andrews Farm/ Davoren Park.

Springwood was released in November last year, and is located two kilometres east of the township of Gawler with the benefit of having easy access (via car) to its established services and infrastructure.

Springwood covers 219 hectares and will accommodate around 2,500 dwellings once complete. The majority of the allotments on offer are considered low maintenance with five options available ranging from 128 square metres up to 400 square metres with the price ranging from $71,000 to $177,000. There is a traditional block available which is around 450 to 600 square metres and costs between $179,000 and $200,000. At the moment vacant allotments within this estate are being sold with free levelling and retaining, which could save the purchaser up to $30,000.

The Green at Virginia is one of three outer northern locations which has recently been re-zoned to residential use. The first stage is for 186 homes and construction is expected to commence in the latter part of this year. The ten year project which is expected to deliver 700 homes once complete will see the population of Virginia triple in size.

Most properties within these estates are sold as house and land packages. Large developers sell generic style housing with the standard accommodation being a 3-bedroom, 1 or 2-bathroom detached dwelling with an equivalent area of around 120 to 150 square metres on allotments of around 200 to 250 square metres. The packages start from around $275,000 to $300,000. Building costs are $1,100 to $1,200 per square metre for a base house and externals and $1,500 per square metre fully finished. With the constant supply of new land being released to market this large selection of available land in the outer northern suburbs is starting to show distinctive signs of oversupply. Demand has slowed and extended selling periods are starting to occur. In an effort to increase market share it has become apparent that there is an increase in incentives being offered by developers. Cash backs are becoming more common again with land sales and as such the reported sales price can be inflated due to these cash backs at settlement.

While this market is aimed at the first home owner, it is currently being driven by investor groups, accountants and private superannuation funds chasing high rental returns and depreciation benefits. Currently gross returns are around 6% to 8% and are among the highest in the metropolitan area. Yields are sitting above the long term average for the Adelaide market. Vacancy rates are also holding low however caution applies to future rental returns due to potential oversupply, not to mention local economic conditions and the recent increases in the unemployment rate. With investor activity coming from both interstate and international buyers with limited local knowledge it is important to obtain good advice and do your homework when it comes to investing. There are a number of examples where properties have been contracted at levels well above other local sales. It is also worth noting that astute

purchasers can find established near new dwellings within these new subdivisions ready to move into and some at below land and building cost. The expectation is for very limited capital growth in the short to medium term in most of these new estates.

Literally at the other end of the metropolitan area, down in the outer southern suburbs, land around the Seaford and Aldinga areas has seen increasing demand over the past two years, probably in the order of 10%. This can be directly attributed to two major infrastructure projects that are now completed. Firstly the duplication of the Southern Expressway which has noticeably improved travel times to the area and secondly the extension (and to a lesser extent the electrification) of the train line from Noarlunga to Seaford has improved public transport accessibility. These suburbs are also located close to the southern beaches.

As an example over the past three years land prices in Seaford Meadows have increased by approximately 15% with a 300 square metre site increasing from $125,000 to $130,000 back in 2012 to approximately $150,000 to $160,000 today. As a rough comparison $150,000 to $160,000 could buy an allotment of around 400 to 450 square metres in the new Springwood Estate at Gawler East.

St Clair is a 64 hectare development located around eight kilometres west of the city on the former Cheltenham racecourse site. Once complete this infill estate will supply around 1,200 new homes. It is distinct from the outer metropolitan land releases due to its proximity to the city and the fact that it is surrounded by established suburbs. St Clair benefits greatly from being close to existing shopping centres and café and dining precincts with metropolitan beaches only five kilometres away. As a result this is reflected in the land price and first home owners looking for detached dwellings within this subdivision have fairly limited options available. People began moving into completed homes back in 2011. The St Clair Village Shopping Centre, which is anchored by a Coles supermarket with numerous specialty shops and 300 car parks, opened in 2013. The new train station to service the area is complete, providing a direct link into the CBD and greenways, designated bike paths, which stretch from the city to Port Adelaide are close to completion. Further works will extend these greenways to Outer Harbour and add a path to the coast at Grange. Within St Clair blocks of land are generally offered for sale without restrictions on which builder to use and timeframe to build. Allotments range in size from around 250 to 500 square metres, with 275 square metre allotments currently for sale for $350,000. This price bracket for land is likely to deter the majority of investors where rental return is their investment objective. This estate is not characterised by house and land packages. Purchasers can buy land and then develop the site with their own choice of dwelling. The cost to build can therefore vary considerably. Some of the allotments may be considered to be over capitalised while others may benefit from capital gains (due to lower building costs). With the exception of those highly capitalised properties St Clair is likely to show capital gains over the medium to long term. This is mostly due to the location of the estate (proximity to CBD and beaches), access to public transport and overall local amenity. Demand for vacant land within St Clair appears to have been slowly improving in recent times.

In the middle to inner suburbs there is very little land coming on line. Developers are more likely to buy an existing dwelling and then subdivide and develop with dwellings as they are unable to make an acceptable return by buying and subdividing and then selling the land only. If land becomes available there is generally

good demand and interestingly prices in some instances for vacant sites can be higher than similar size sites with dwellings due to these improvements needing to be removed to allow development to occur.

Due to the limited nature of in-fill sites in the middle and inner suburbs our expectation is that well located allotments are likely to continue to remain in demand and as such see a relatively consistent increase in value especially in the medium to long term.

Please note that information in this publication is subject to change without notice. Smartline assumes no responsibility for any errors, omissions or mistakes in this document. © Smartline Home Loans P/L 1999 – 2015. Australian Credit Licence Number 385325


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DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.