Adelaide delivering royal returns to property investors

Adelaide may not be known for its showiness and self-aggrandisement but in the past few years its property market has been showboating like a neon-lit investment magnet.

When Queen Adelaide died in 1841 her instructions about her burial conveyed a strong sense of the character that would come to define the city named in honour just five years earlier.

“I request that my mortal remains be conveyed to the grave without pomp or state … to have as private and quiet a funeral as possible.

“I particularly desire not to be laid out in state … I die in peace and wish to be carried to the fount in peace, and free from the vanities and pomp of this world.”

A religious regent – “I die in all humility … we are alike before the throne of God” ­– it is the City of Churches that bears her name.

Eschewing the glitz and glamour of more popular property investment locations like Gold Coast, Brisbane and Sydney, the South Australian capital is known for the quieter pleasures of Adelaide Writers’ Week, WOMAdelaide, the Festival of Ideas and Tasting Australia.

Yet its dynamic property market continues to shout out its investment potential to its larger capital city counterparts.

Adelaide has experienced the highest growth rate of any capital city since the onset of Covid.

In just over two years, an extra 40 suburbs have tipped into the $1 million-plus price range (from 36 to 76).

Dozens of suburbs in the past year have recorded double digit growth, led by Maslin Beach’s massive 45 per cent surge.

Top 10 Median Price Growth Q1 2023 - Metro

Valuer-General figures: March Quarter 2023. Top 10 growth suburbs with 10 or more sales in current quarter.

Andrea Heading, Chief Executive Officer, Real Estate Institute of South Australia, said the state's property market has continued to show its resilience and strength by posting new record median prices yet again.

“With the next Valuer-General results not out until mid-July, we believe we will continue to see a low volume of sales but an increase in the median price of properties.

“Buyer demand remains high, driving a very competitive market,” Ms Heading said.

The volume of sales across South Australia and metropolitan Adelaide demonstrated a continuing cooling off with decreases of 10.5 per cent and 13.5 per cent respectively.

Investors are also being attracted to ever-increasing rental returns.

Vacancy rates in Adelaide are the lowest of any capital city, at just 0.3 per cent. A recent analysis has shown that less than 10 per cent of advertised properties are being offered for less than $400 a week.

“This is reflected not just in the metropolitan market, with regional South Australia also recording low rental stock, however, this appears to be lifting as we see more of a population shift back from regional to the city post the big Covid migration,” Ms Heading said.

Top 5 Volume of sales Q1 2023 - Metro

Valuer-General figures: March Quarter 2023.

Like all markets in Australia, interest rates will affect buyers’ ability to be able to borrow and reduce the number of buyers in the market, but these low levels of inventory are expected to support prices.

Jack Henderson of Henderson Advocacy said real estate prices in Adelaide would remain steady at worst and predicted the market that would thrive the most.

“A lack of supply is holding prices firm, interest rates are increasing holding costs and decreasing serviceability, which is causing buyers to sit on the sidelines and also pushing people into renting over buying, which in turn is causing a lack of rental supply and increasing rental prices.

“The more affluent areas where people have higher disposable incomes and stock is extremely tight usually fare best over the long term,” he said.

He added that the pipeline for new dwellings is also drying up due to increased costs and delayed government planning.

Jack Henderson, Founder, Henderson Advocacy

Sales of new homes in the three months to May 2023 compared to the same time last year are still down 30 per cent in South Australia, although that’s better than New South Wales (-64 per cent), Queensland (-53 per cent) and Victoria (-47 per cent). Western Australia saw the only increase over the year, up by 19.4 per cent.

As did Mr Henderson, Director of National Property Buyers (Adelaide), Katherine Skinner, said there was strong interest from interstate and overseas buyers.

“Even with the increases in interest rates, the rental yields of around 4 per cent in many areas allow for limited cashflow interruptions while your asset continues to see month-on-month growth in a growing market,” Ms Skinner said.

“Adelaide is still extremely attractive for relocators who are looking to come home or enjoy all that the city has to offer and this type of client equates for approximately a quarter of our total client base.

“Until we see an upswing in quality properties being listed for sale, we are not going to see a slowdown in demand and or upon rental price increases.”

Investors, first home buyers in different camps

First home buyers are the ones feeling the pinch in Adelaide, although the government has just eased their stamp duty burden for new home purchases.

Ms Skinner said the entry level and first home buyer market had jump from $400,000 in 2020-21, to around $650,000 in the 2022-23 financial year. 

“We are seeing exceptional performance in the sub-$800,000 price bracket, with prices still surprising us week-on-week

“For many, this price point is still affordable and many have readjusted their budgets from $1 million-plus taking into account changes in their outgoings. 

“Demand is still huge for blue-chip locations within the city fringe for quality family-style homes and this will no doubt continue. 

“For many investors and first home buyers, targeting properties within the Northern and North Eastern Suburbs on sizable blocks will hold them in good stead for future capital growth, driving them towards their next home, along with areas in the Port Adelaide region and surrounds – think Birkenhead, Rosewater, Royal Park – that are still seeing strong results and in our opinion are still relatively undervalued for what they can offer.”

The city also seemed to be better positioned to cope with the increase in mortgage stress across the country.

Of the top 25 areas around Australia with the highest number of mortgaged households, only two were in Adelaide – Onkaparinga and Salisbury. But while they were heavily mortgaged, unlike many others on the list, they had enjoyed price growth of 20 and 33 per cent respectively since August 2021.

Rising interest rates may dampen the market later in the year, she said, the lowest levels of stock in many years was behind the Adelaide market’s continued strength.

There was a consensus that investor attention should focus on houses rather than units.

“The unit market in Adelaide has always had a somewhat stagnant growth pattern although this did change over the Covid period, with many first home buyers now resigned to the fact they can only afford to purchase a unit due to a big shift in entry level price points. 

“That being said, for investment purposes we would always recommend a standalone home where possible.”

Mr Henderson said demand for space would continue to see houses outperform units in Adelaide’s still relatively affordable property market.