Adelaide property market enters downward circle: HTW residential
Historically the South Australian market has lagged behind the east coast markets which have shown signs of decline since late March, according to the latest Herron Todd White (HTW) residential report.
The valuation firm presented an 'investor playbook' of real estate performance within each service area this month.
The report notes throughout the month of July, South Australia remained community transmission free of COVID-19.
At the time of writing, one new case has been recorded since 29 June which has been linked to a resident returning from quarantine in Victoria, the report noted.
Even as restrictions ease, the labour market has remained subdued with the South Australian unemployment rate increasing from 7.9 per cent in May to 8.8 per cent in June which is now the highest in the country.
As at 30 June, CoreLogic’s Home Value Index indicated the metropolitan market remained 2.04 per cent up on the same period 12 months ago, however has seen a 0.19 per cent contraction month on month.
"Considering the most recent market data and east coast market direction, it appears that the South Australian market could be entering the initial stages of a downward cycle.
"At this stage the decline has only been slight and will be monitored closely in the short to medium term," the valuation firm said.
Broadly, national investor activity has been in decline throughout 2020. May data released by the Australian Bureau of Statistics indicates that investor loan commitments nationally are 11.9 per cent down year on year and 15.6 per cent down month on month.
The report notes the level of uncertainty surrounding COVID-19 has been a major deterrent to investors entering the market.
"Depending on proximity to the CBD, the investor market has historically been driven by rental returns within the outer ring and capital growth within the middle and inner rings.
"Gross yields of six to nine per cent are common within the established suburbs in the outer ring," the valuation firm said.
Advertised rents range from $250 to $350 per week with median house prices ranging from high $100,000s to high $300,000s.
Representative of typical investor stock is the June sale of 140 Elizabeth Road, Morphett Vale (pictured below) for $240,000.
Post settlement this property was immediately let at $350 per week, generating a gross yield of 7.58 per cent.
Popular within the outer ring are multiple occupancy properties, typically comprising former housing trust maisonettes.
Providing its purchaser with multiple options was the sale of 4 and 6 Knighton Road, Elizabeth North, which recently achieved a sale price of $350,000.
The property comprised two individually titled four-bedroom maisonettes with a combined land holding of 1,653 square metres.
The dwellings had previously been let at $260 per week, suggesting a gross yield of 7.72 per cent.
Rental returns within the inner and middle rings are eroded as values increase and achievable rentals reach a ceiling.
Advertised rents range from $400 per week and cap out at $1,200.
Median price levels vary through the inner and middle rings ranging from the mid $400,000s to $1 million plus.
The high value to low rental ratio produces gross yields of three to five per cent.
Investors are typically seeking out capital growth with holding income being an added bonus.
The report notes suburbs which have achieved increased levels of capital growth in the March quarter year on year include West Lakes Shores (25.41 per cent), Colonel Light Gardens (15.41 per cent), Athelstone (13.89 per cent) and Flinders Park (5.34 per cent).
Capitalising on the strong market activity within West Lakes Shores were the vendors of 24 McDonald Grove who purchased the property in August 2018 for $900,000.
The property was cosmetically renovated and sold for $1.105 million in December 2019.
Higher density flat dwellings are popular with sophisticated investors given the multiple income streams and entry price point.
The inner eastern suburb of Kent Town has seen two significant multi occupancy transactions in the past 12 months, being 1-9/4-6 Wakefield Street (pictured above) which achieved a sale price of $2.325 million and 1-10/21 Wakefield Street (pictured below) which achieved a sale price of $2.62 million.
These properties comprise nine and ten units respectively across two levels of multiple accommodation.
The sale of 1-9/4-6 Wakefield Street was advertised with a gross rental of $130,000 suggesting a yield of 5.6 per cent.
Strata units provide an affordable entry price point for those making their first foray into the market. These properties can be seen as a steppingstone and provide a forced savings style of investment for younger investors.
Capital growth can be limited whilst gross yields can be eroded by additional fees and charges associated with strata levies.
For a typical 1970’s cream brick strata unit, gross yields fluctuate around five per cent. Selling for $261,000 and let at $275 per week is the recent transaction of 6/11 Shipsters Road, Kensington.
The unit comprises two bedrooms and one bathroom and is located on the first floor of a two level strata complex. The sale indicates a gross yield of 5.47 per cent.
"The South Australian market has historically provided purchasers a more stable option to the larger metropolitan markets around Australia.
"Investors should have confidence in the South Australian market in the medium to long term, being cushioned from the COVID-19 fallout," the valuation firm said.