Adelaide submarines here to stay but has investors' ship sailed?

Adelaide has been one of the best performing markets in the country over the past three years, with record growth rates and affordable housing stock as compared to many of the other capitals.

Interstate investors have favoured the small South Australian capital over other options for years and have been buying houses under $600,000 throughout 2023 and 2024, with 4 to 5 per cent rental returns and double-digit capital growth year-on-year.

Some buyers were even getting in earlier in the cycle for $350,000-$400,000 around 2017 and 2018 when submarine construction announcements and major hospital upgrades were first on the agenda for the area.

In the years since, values have accelerated in a continual upward trajectory and are now reaching levels of $650,000-plus for similar quality homes.

Home buyers too have been driving price movement, with first time buyers entering the Adelaide market in record numbers over the past few years.

Australia will initially operate between three and five US-built Virginia class submarines from 2032, before switching to the next generation of British-designed but Australian-built SSN-AUKUS submarines from the early 2040s.

The SSN-AUKUS submarines will be built in a new purpose-designed shipyard at Osborne, with up to 5,500 workers directly employed on the build program. 

According to CoreLogic, the 12 months to October 2024 saw another 14.8 per cent capital growth for Adelaide, including 4 per cent for the last quarter.

These numbers certainly don’t indicate a slowing market, however, data-driven investors may come unstuck with Adelaide if they are relying on the statistics alone.

As a qualified property economist, data is something that we use to prove or disprove market movement and forecasting.

As an investor myself and having spent more than 20 years in the property field, I can tell you that data is only one piece of the puzzle, and you need to look at broader measures when you are making investment decisions.

Property data is always recorded retrospectively and will tell investors what the market was doing three-to-six months ago, not what it will do over the subsequent period.

Adelaide buyers may be arriving too late

Too many buyers agents and investment gurus are advising buyers on interstate markets without immersing themselves in that local market.

Most are not inspecting properties physically, consequently they are not getting a handle on the demand and activity on the ground.

The early signs that Adelaide is coming to the end of its run are emerging and only the buyers, investors and agents on the ground will see it.

The data will have investors thinking it’s still forging ahead, and they will be coming late to the party.

The tell-tale signs of a market reaching the peak of its growth cycle, which are now evident in Adelaide include:

• longer days on market indicating there is less demand and more price sensitivity
• yields falling below 4 per cent in many popular suburbs
• fewer buyers attending open homes
• fewer unconditional or cash offers being received on properties.

Couple these factors with the unprecedented growth Adelaide has seen since 2019 and you can safely say that it is nearing the peak of the current cycle.

Most capital cities experience three or four years of strong growth conditions before reaching the peak, but Adelaide has outperformed and has moved through its fifth year of buoyant conditions with ease.

Adelaide has a $45 billion infrastructure spend and this has driven outstanding growth results for the state capital.

Longer term South Australia prospects solid

So, what happens if you have recently purchased in Adelaide or intend to buy there in 2025? Will you lose all your money?

For those that are coming late to the party for Adelaide, rest assured, you won’t lose all of your money, as the market is not expected to bust.

The forecast is for another 12-18 months of slightly more subdued growth conditions, but toward the end of 2025 and in to early 2026 there is likely to be a small correction of 10 per cent-15 per cent.

Then it is expected to soften off and stabilise.

Due to the significant infrastructure spend and job creation being see throughout the state, the market in Adelaide still offers a solid five to ten year investment outlook for anyone taking a longer term view on the performance of their property portfolio.

This correction and softening will only have a short to mid term impact.

So don’t take Adelaide off your investment list altogether.