The Smartline Report – August Edition

The month in review: Adelaide

By Herron Todd White
August 2016

The Adelaide market is traditionally a bit slow in the winter months with house sale numbers down and agency activity diminished while we wait for the warmer spring months. This year we have had the federal election which anecdotally seems to have had some effect. In line with this market values in recent winter periods remain flat with little sign of growth. This is despite currently low and very attractive interest rates relative to the past decade. However with the reasonable prospect of limited interest rate rises and more likely a hold or reduction in rates there is still investor incentive. Unfortunately South Australia has been affected by a slump in confidence which has resulted from rising unemployment and predictions of that to continue as the closure of large scale vehicle manufacturing at GM Holden and associated industries starts to become a reality. There are also uncomfortable signs in the Iron Triangle towns of Port Augusta and particularly Whyalla where the steelworks and iron ore related industries are under intense pressure. On the brighter side of the ledger, defence projects on the horizon for Adelaide are likely to create employment in the coming few years and several infrastructure projects.

Location and affordability continue to be the main drivers of the property market. Properties within five to ten kilometres of the CBD and along the coastal strip continue to see good interest when offered for sale. This coupled with limited supply ensures that prices in these locations remain relatively strong. For example the suburb of Colonel Light Gardens sees very good interest when properties come on to the market and there is a limited supply available.

One of the most interesting markets at present is that of apartments, particularly within the CBD. Adelaide is following the trends of the eastern state capitals and accommodating construction of high rise apartments in the inner CBD and inner suburban transport corridors. Stamp duty concessions remain for off the plan apartments which will continue to encourage demand. There is a question surrounding potential oversupply, particularly in the CBD , although this is in our view mostly in the lower price brackets and for the investor market. If the number of projects coming on stream continues, it will probably cause a stagnation of apartment values in the short to medium term for certain projects. Until an equilibrium between supply and demand is established buyers need to accept the risks of investing in this market and make sure they are taking a long term view. This is our recommendation particularly in the CBD.

The median apartment sale price in metropolitan Adelaide is in the mid $300,000 range and currently value growth is around 1% per annum which isn’t great or commensurate with rises over the past decade.

There are several high rise apartment projects underway in fringe locations and a growing number of smaller projects situated in specific urban corridor growth precincts. The development in the urban corridor zones is relatively new and while sales have occurred from developers there are no resales as this market is considered to be in its infancy.

The apartment market in the inner city and inner western suburbs is expected to be supported by the imminent opening of the new Royal Adelaide Hospital. This facility moves from the north eastern city edge to the north western edge and it will follow that allied services will be attracted to the area in order to take advantage of the proximity to this significant activity hub.

In summary the Adelaide property market remains stable with no widespread volatility. Certain sectors may need to be monitored but the market does not experience exaggerated fluctuation as a rule.

Mount Gambier
In recent years, the property market in Mount Gambier has been reasonably stagnant. So what does it need to improve? Well in our eyes there are two main drivers: employment and an increase in population. That being said, the local population is unlikely to increase without an increase in employment. The forestry sector is probably the largest employer in the south east region with nearly 3,500 directly employed and more than 9,000 people indirectly employed. This equates to around 35% of employment for the region. The local newspaper, The Border Watch has recently reported that, “approximately 150 enterprises rely on the sector with around $581 million in wages flowing into the community. In the last three years harvesting levels have doubled and a survey of local contractors indicated that the forest and harvesting and haulage industry will require more than 500 new employees by the end of 2017.”

What does this mean for the property market in the region? Well, this is positive news, not only for the general economy of the area but also the property market. For a number of years now, there has been uncertainty in the local economy and the property market. Positive news like this generates confidence in the region and encourages investment in the area. Basically, the upswing in the forestry sector is likely to increase demand for property, reduce the supply (currently an oversupply of property) and may increase property values in both the residential and commercial sectors in most price brackets.

These factors indicate that now could be a good time to invest not only in the Mount Gambier property market but the south-east of South Australia.

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 – 2016. 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.