Property Prices Tick Higher as Units Outperform In Adelaide
On the back of three months of modest growth, sitting at 0.9% for the quarter, Adelaide property prices again recorded only a slight gain in November of 0.5%.
Over the course of the month, units were the best performer in Adelaide, registering a 0.8% increase in median value underpinned by a strong average yield of 5.4%.
In a positive signal that demand remains steady, the auction clearance rate held strong at 78.7% while the rental market remains tight, underpinned by an incredibly low vacancy rate of just 0.8%.
Knowing when to draw the line
While across the capital growth has been minimal, there has been a selection of stand out suburbs in the north-east and west that have made solid gains.
Katherine Skinner, Director of National Property Buyers is starting to see strong competition for properties in some of these areas, however, warns that many buyers are getting wrapped up in the hype and are overpaying.
“It continues to be a tricky time for buyers who need to be smart when assessing any potential investment property. It is vital for investors not to chase a purchase at a price that is too high. Knowing where to draw a line in the sand when emotions are running high, and owner-occupiers aplenty are pushing prices to new limits is one of the most important skills to have when purchasing an investment property,” said Ms. Skinner.
“We are seeing strong growth and new price brackets becoming the norm in the north-eastern and the western suburbs, where competition is fierce with buyers paying well in excess of asking prices to secure a property before Christmas.”
Negotiating in the Adelaide market
Over the past six months, director of Sydney based InvestorKit, Arjun Paliwal has purchased on average, one property per week in Adelaide on behalf of his clients.
“Adelaide in comparison to other cities has a lot of their listings with guides and ranges.
"While in Sydney, for example where everything either goes to auction, or when you have offers above or under, I find a lot of Adelaide price setting is in guides, and as a result, people should not assume that a lowball strategy is the best way to go," said Mr. Paliwal.
“The risk is that you could constantly miss out on properties using tactics that might work in other markets, but don't necessarily work in Adelaide. This is because you could have some very well-placed properties, let's say 360K to 380K, and they genuinely will sell in that 375K to 380K (range). Just because you want to negotiate, you're going to miss out on a few deals."
Buyer beware – zoning changes - a mixed blessing
Across Adelaide, a number of local councils are looking at significant zoning changes in a bid to increase density. This can often be a catalyst for price increases according to Ms. Skinner.
“With proposed zoning changes looking to come into effect across many suburbs throughout the metropolitan area in July 2020, now could be the right time to secure an investment that is set to benefit from these changes.
“Whether it means an opportunity for future subdivision which isn’t currently there, or an opportunity for three dwellings instead of two once these changes come into fruition, now is the time to do your research and find great deals which will provide future flexibility for improvements.”
Taking a more cautious approach to the changing landscape, however, Mr. Paliwal suggests that before investors start chasing a potential uplift in value, they need to understand how zoning changes could impact the appeal of a suburb.
“Across the city of Charles Sturt council, there's been a lot of subdivision occurring. Just be mindful that when you're buying bigger blocks the character of some of these suburbs is changing."
“Make sure you're buying the right place for the future, not just for the current appeal of the suburb, as you could be left with a property that is out of place moving forward."
Keep your finger on the pulse in a moving rental market
Despite the modest growth across Adelaide and South Australia, a tight rental market is starting to put upward pressure on both rents and prices in certain areas.
“Tight vacancy rates are definitely starting to uplift average rent in the more in-demand suburbs of Adelaide and investors should be having robust conversations with property managers to test higher amounts, because relying on comparables with low samples in high owner-occupied markets means that you will be leaving money on the table,” said Mr. Paliwal.
“In north-east Adelaide vacancy rates are tight and we are seeing properties rent quickly. Investors should not lose sight of the rental opportunities by looking at comparable rents from the last three or six months.”
“We've had two recent purchasers in the north-east where the rental appraisal based on comparables from the past six were around the $365 to $385 (per week) mark. On both of these occasions, we spoke with local property managers who challenged the appraisals indicating that they would rent for $400 to $410. In both cases, this rate was achieved and tenants were secured within one to two weeks."