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Adelaide has interstate investors adding up the numbers

Houses in Adelaide in foreground with central business district in far background
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Investors who have bought in Adelaide in the past 12 months have immediately enjoyed strong capital gains. Photo: Shutterstock

Adelaide has interstate investors adding up the numbers

Low vacancy rates, a lack of listings and strong price growth in Adelaide has attracted an influx of Sydney and Melbourne investors, who are rapidly heating up residential markets across the City of Churches.

Low vacancy rates, a lack of listings and strong price growth in Adelaide has attracted an influx of Sydney and Melbourne investors, who are rapidly heating up residential markets across the City of Churches.

While a red-hot Brisbane property market has captured a wealth of media attention, Adelaide’s preliminary auction clearance rate of 89.7 per cent in the week to October 10 was comfortably clear of the Queensland capital’s 81.3 per cent.

According to real estate company Ray White, the average number of registered bidders per auction grew to 6.9 in July, compared to 2.6 the year before.

And as the market grows increasingly competitive, property investors who bought in Adelaide this year have been rewarded with immediate capital gains.

The latest PointData Lay of the Land Spring Edition showed that 73 per cent of properties in metropolitan Adelaide have had an annualised price growth of 10 per cent or more in the six months to August 2021. 

The proportion of Adelaide properties experiencing this level of growth is up 61 percentage points from May 2021.

University of Adelaide’s School of Architecture and Built Environment Program Director-Master of Property, Peter Koulizos, said that for investors chasing yield, Adelaide represented an appealing option, with low vacancy rates driving higher rents and yields.

“The very low vacancy rate and relative affordability of property in Adelaide is encouraging investors from the eastern states to look beyond Brisbane and their states’ regions,” Mr Koulizos said.

“Local real estate agents and property managers are telling me that a significant number of their clients are based in the eastern states.”

Mr Koulizos identified gentrifying inner west suburbs, such as Torrensville, Thebarton, Underdale and Richmond, as being resilient investment prospects if the market was to ease off and as presenting the best growth prospects for the coming two to five years.

“On the other hand, areas to avoid would be CBD apartments apartments and fringe areas where there is a high supply of new property on small allotments of land,” he said.

This increased supply includes Oakden in Adelaide's northeast, where land to build up to 1,500 homes has been released by the South Australian government in a bid to ease stress on the housing market and contain prices.

A $3 billion project involving the construction of 12,000 homes is also underway in Adelaide's northern outskirts. Called Riverlea, developers say it would create the state's "largest master-planned community.”

Buyers’ Agent Grant Foley identified Adelaide as one of his top five investment prospects nationally for established freestanding houses under $650,000.

He said in the 12-month period to September this year, the median rental price had increased 8.9 per cent for houses and 9.4 per cent for units.

“The median rental yield in Adelaide is sitting at 4.1 per cent, which is certainly appealing to investors,” Mr Foley said.

“The Adelaide property market has historically been a sustainable one over the years, which means it generally doesn’t experience booms or busts. 

“The buy-in price for a house in the city of churches remains affordable for buyers and investors alike, including potentially purchasing within its investment grade middle-ring, which is not an option in most other capital cities.

“The robust six-month price growth recorded in the Adelaide market is consistent with many markets around Australia, driven via the inflationary effect of record low interest rates.

“The current growth rates are not sustainable for the long-term, however the cycle likely has a way still to run but APRA changes announced last week are intended to take some heat out of the market.”

Fuel left in the tank?

The spring report identified the top 10 suburbs by annualised growth over the past three months.

The city’s eastern suburbs and inner-south dominated the list, with Glen Osmond leading the way at 49.2 per cent, followed by Clarence Gardens (45.3 per cent) and Toorak Gardens (43.7 per cent).

Of the top 10 price growth suburbs, only Glandore, Black Forest and Clarence Gardens had a median sale price under $1 million.

Glandore is the most accessible with a median price of $689,477 with a three-month annualised growth rate of 38.8 per cent that prompted a warning from PointData that these previously inexpensive suburbs are becoming “increasingly unaffordable”.

Data from market analysis firm CoreLogic shows Adelaide house prices rose 17.9 per cent in the past year, and 5.3 per cent in the past quarter.

The Government of South Australia’s latest statistics list the median property prices for the second quarter of the year at $540,000 for metropolitan Adelaide and $280,000 for major regional towns. 

A year earlier those figures were $477,000 and $278,000, showing it was the metropolitan areas that were delivering the strong growth.

Atlas Property Group Director Lachlan Vidler said Adelaide was still presenting itself as an attractive location for investors, with the third highest rental yield out of all capital cities and capital growth of almost 20 per cent over the past 12 months.

“This current level of growth will not continue in perpetuity, but one of the big positives of Adelaide has been the overall affordability in comparison to other capital city markets such as Sydney and Melbourne,” Mr Vidler said.

“With the recent big price increases, it is inevitable the market will begin to lose some steam, but for now the biggest drivers of the current market are low interest rates, extremely strong buyer demand that is reflected by the 32 per cent decrease in days on market over the past 12 months, and record low levels of listings that are 27.4 per cent below five-year averages and 23.2 per cent below this time last year.”

Mr Vidler said the more affordable end of the market in the sub $500,000 to $600,000 bracket provided opportunities for a range of buyers. 

“Naturally, the top end of town can also see some great upwards price movement, but they will also be more susceptible to negative, or slowed positive, growth," he said.

“The northern parts of Adelaide have often had a more negative reputation, including places in the Salisbury and Edinburgh areas but these locations have been experiencing some positive gentrification and will be spots to continue monitoring.”

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