The Smartline Report – February Edition

The month in review: Adelaide

By Herron Todd White
February 2015

We are predicting that 2015 will be similar in many ways to 2014 when it comes to Adelaide’s residential property market. Since reaching the bottom of the property market during 2012 we have speculated that our recovery will be a gradual improvement over time that is set to persist in the short to medium term.

Last year the market showed early growth of around 5% in the first six months however this slowed in the latter half of the year with annual growth ending at 2.5% for the 12 months.

This year we feel that this may play out in reverse with a slow start to the year and an improved second half.

Capital growth will hopefully improve above 2.5% for 2015 but it is difficult to see it exceeding 5%, however we remain optimistic.

We feel that it is critical that the interest rate remains at current levels in order for our property market to continue to improve. An interest rate rise at this time, although probably not causing any decline in capital value, may seriously impact on sales levels and cause the market to stagnate. An interest rate cut on the other hand would certainly be welcomed by current mortgage holders, however our belief is that it will be unlikely to stimulate the market much beyond what we have already speculated.

As always we feel the greatest growth in the Adelaide market is for dwellings rather than units. It is expected that over time, growth in dwelling prices is likely to outstrip that of units and the unit market historically has been more volatile.

Locations close to the city are likely to continue to benefit with increases in property prices. There is a limited supply of properties available within these established locations and constant demand keeps upwards pressure on capital values. As a long term investment, the land value alone should show good solid growth, especially in light of some of the proposed changes to zoning and the South Australian government’s drive to increase population density within the inner suburbs to limit urban sprawl.

An example of a suburb that we suggest may show slightly increased growth this year is Broadview, which is located less than five kilometres from the CBD and slightly to the east of Prospect, which remains a popular established suburb, with a high street that offers an interesting mix of shops, cafes and eateries and has a weekly farmers’ market.

Broadview itself was developed from the early 1900s with most dwellings constructed since the 1940s and is characterised by large allotment sizes and character dwellings. In recent times there has been some infill development and gentrification. The median price of this location is around $450,000.

This price level is considered affordable and being close to the prestige inner eastern and northern suburbs gains the benefit of these locations without the associated price tag.

The outer southern suburbs will continue to be popular with first home buyers and investors mostly due to affordability, however with the recent completion of the duplication of the Southern Expressway and extension and electrification of the Noarlunga train line to Seaford, transport to these areas has improved and certainly adds to the appeal of the locations, along with their proximity to excellent swimming beaches and local food and wine regions. Continuing upgrades and new construction of local shopping is in line with population growth
and this is all expected to result in increased demand and improving capital growth.

Low levels of quality stock being presented for sale appear to be holding the market back, especially in the inner suburbs up to around seven kilometres from the city. This was the case throughout most of last year and it is difficult to understand exactly why this phenomenon is occurring. However it is expected that this will persist for most of 2015. It is worth noting that on an individual property level this is translating in well located, appealing properties in the $500,000 to $1.5 million price bracket selling quickly (usually in less than two weeks) once released to market and potentially achieving a sale price above expectation. However it is difficult to understand why people seem reluctant to put their properties on the market. Perhaps this is in part due to Adelaideans traditionally purchasing a new property before selling their existing home or maybe it is just part of the consolidation phase whereby people are choosing to pay down debt. One thing is certain, when driving around the streets of the inner suburbs our love affair for home renovations is apparent with new dwellings under construction and extensions and upgrades occurring all over the place.

When weighing up the cost of purchasing (including associated costs) against rebuilding, extending or renovating, it appears that currently the latter may be more cost effective or just easier than trying to find the right property in the current market. It is fair to say that with the current limited options available, some potential buyers are feeling a certain level of frustration.

Again our prediction is that 2015 will be very similar to 2014. We are expecting property that is not priced to the current market to experience extended selling periods, with buyers tending to be more discerning and after what is perceived to be good value for money.

Mount Gambier
We begin 2015 with more positivity than in the past few years, with more stability and growth occurring in 2014. This positive outlook is seen through the extra investment within the region through the local timber industry and also through the state government’s support of the James Morrison Academy of Music situated in Mount Gambier along with funding of the new multi million dollar learning centre at the local university campus.

The timber industry will see government funding injected into four local timber mills throughout 2015 which is expected to help secure jobs through an increase in production from new technology and machines being installed.

The James Morrison Music Academy is a new addition to the University of South Australia which will take on 70 students per year with the aim of building to 200 students by 2020.

The local university campus will see a multi million dollar learning facility constructed which is expected to provide positive flow on effects throughout the region. The new learning centre is expected to provide the opportunity for more university courses to be offered in the future. This in turn could see an increase in people travelling to and staying in Mount Gambier to study.

The most popular price range for house sales is within $200,000 to $250,000. This range is seen as an affordable point to enter the market and offers good investment returns. This price range is expected to be the most popular in 2015 until an increase in demand sees property values increase, which is unlikely to occur this year.

An optimistic outlook is predicted for 2015 with the continued growth in house sales numbers over the past three years. With house sales growth up 20% from 2013 to 2014, we look to see 2015 house sales numbers increase and stability in property values continue.

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