The ever-consistent Adelaide property market rolls on

Property prices in Adelaide have recorded a modest rise in prices in February, gaining 0.1% according to the latest data from CoreLogic.

It’s has been a slow and steady grind higher for Adelaide property prices in recent times and that looks to be continuing with prices up 0.8% on the quarter.

While values are creeping higher, they also didn’t fall away in any dramatic way during the recent correction in prices across the country.

Throughout 2018 and 2019, capital city house prices fell by around 8% based on Corelogic data, however, Adelaide’s market remained robust and is still currently sitting at its peak.

In terms of the current vacancy rate, Adelaide is sitting at 2.8% which is down from 3.1% at the end of 2019.

The median house price in Adelaide is now $477,129, while units are $325,243 with units increasing 0.2% while house prices were flat on the month. Gross rental yields are currently 4.3% for houses and 5.5% for units.

Sentiment weighing on prices

Peter Koulizos, Program Director at The University of Adelaide, feels that sentiment is still holding price back in South Australia.

“Both house and unit values have increased ever so slightly in recent times in Adelaide. Yields have remained relatively steady over this time period.”

“Consumer sentiment in South Australia is similar to that of the rest of the nation where currently there are more pessimists than optimists. The coronavirus threat is the most recent negative impact on consumer confidence.”

Despite the stability of Adelaide prices there are still opportunities for investors according to Mr. Koulizos.

“Investor opportunities lie in two areas. Firstly, finding undervalued properties in up and coming locations close to the CBD or sea. Secondly, looking for lenders who are keen for property investor business as most lenders are making it quite difficult for owner-occupiers and investors, despite never-been-seen-before low interest rates.”

Mr. Koulizos sees the local jobs market as a driver and suggests that is could be a possible risk factor.

“The major risk for investors are the same as they are for the rest of the population that has borrowed money - unemployment and/or underemployment. The increase of part-time jobs is faster than the rate of increase of full-time jobs and unless at least one person in the household has a full-time job, it is very difficult to pay off a mortgage," he said.

“Thankfully investors have rental income to help pay the mortgage(s). Suburbs to watch include Torrensville, Mile End and Richmond.”

The conservative market

Andrew Shields, Interim General Manager of REISA, feels that the Adelaide market is relatively insulated but there are some things to think about for investors.

“Adelaide is a very conservative marketplace. People like to do things in a very conservative way and that just feeds through to market," said the Interim GM.

“The Premier recently indicated that there are a number of things that are driving the economy forward, but within the real estate market, wages and job growth and immigration and the factors that point to gradual growth.”

“Markets around the country are also having to allow for some headwinds with the coronavirus. So there are people suggesting this will take 2-3 months for that to truly unfold.”

New land tax changes are due to come into effect in the near futures and Mr. Shields believes this could impact house prices across the state.

“We have a sheltered market, so I don’t see any major bumps in the road going forward. Locally, at the end of last year, we had land tax reform and that legislation will kick in in July in the next financial year. So the impact will be that people will either offload at the end of this financial year or take a wait and see approach," he said.

“So they will see what the land tax looks like from an economic point of view and they’ll make the decision to either hold or sell.”

In the current market, Mr. Shields is seeing investors looking at both sides of the coin at the moment.

“All the property managers that I talk to are seeing a huge demand for property for leasing. So there is high demand, so perhaps first-home buyers are looking to rent instead of buying. Which might be a reflection of their confidence.”

“However, when you consider that the median house price in Adelaide is currently at its high and it’s only $485,000, which is significantly less than Sydney or Melbourne, so it’s clearly an appealing proposition for investors.”

Going forward, Mr. Shields sees growth on the radar for Adelaide.

“I think cheap capital and the ability to get that money will feed into the market, so I do so Adelaide growing in the short, medium and long term. And I think it’s safe to say that it is a conservative market - so growth but at a moderate level.”

Desperate buyers

Katherine Skinner, at National Property Buyers, believes there is plenty to like about Adelaide property at the moment, with many homes selling quickly despite the global headwinds.

“February certainly saw interesting times in the media, and there is a cloud of doubt as to whether these obstacles will impact the housing market, and to what degree.”

“There are still plenty of optimistic investors around looking for good opportunities, however owner-occupiers are really driving the prices far in excess of where we would place particular properties and not making them a viable high-performing investment," said Ms. Skinner.

“Opens have been busy, and investment-grade stock is selling fast and often sight-unseen. This is a sign of desperation when people are missing out regularly and just want to get a purchase made – a very dangerous game indeed.”

Katherine Skinner also suggests that there are certain areas within the Adelaide market that investors need to pay close attention to.

“House prices in many of the Western suburbs have exceeded all expectations, and investors looking within this region need to be educating themselves prior to proceeding with an acquisition.”

“There are markets within markets and best performance suburbs are always changing as the property cycle in each market continues to move, so doing your research is critical to making the right investment.

“The Northern Expressway is due to open in March, and whether this will significantly impact housing prices in those regions is unknown.”

“School zones are still extreme growth drivers within the family home market, so if you’re investing it is always advisable to know your zoning and work out whether the demand for high quality rental within that area will outweigh the premium price you will pay.”

Slow growth to continue

John Lindeman from Property Power Partners believes that weak population growth will mean gains will be slow in Adelaide.

“Adelaide has the lowest population growth rate of all our State capital cities and suffers from an annual outflow of around 10,000 residents to the eastern States. They are mostly young people seeking better or different employment, lifestyle and education opportunities.

Mr. Lindeman also feels that Adeialde needs to see more job creation to really get the economy moving.

“The decline of the heavy manufacturing industry and closure of many large factories has hit the northern satellite cities of Salisbury and Elizabeth particularly hard, and these suburbs now offer the lowest priced houses of any Australia capital city, but there’s little prospect of an immediate recovery.”

However, Mr. Lindeman thinks there are segments of the market that will outperform.

“Adelaide has a small boutique unit market with high rental demand in the inner urban student precincts and high buyer demand from downsizing retirees and professional couples in suburbs such as Glenelg, particularly for well-appointed low maintenance units situated along the light rail route.”

“Overall, the Adelaide housing market has produced low but consistent growth over the last decade and this is likely to continue.”