Adelaide investor prospects subdued for now
Investors casting their eye over Adelaide should hold off for at least another 12 months, according to CBRE’s assessment of the South Australian market.
Sam Reilly, CBRE’s global research and consulting manager, says the short-term forecast remains subdued due to a “lower than national average population growth and declining activity in the construction sector”.
Despite the poor outlook over the next six to 12 months, some parts of the Adelaide market have shown signs of growth at a time when the rental vacancy rate is 0.9% - the lowest in the country.
In comparison, the Sydney vacancy rate is 1.4% and it is 1.7% in Canberra.
According to Melissa Gow, CBRE’s director of valuation and advisory services, South Australia’s temporary position on the wrong side of the two-speed national economy is being mirrored in its residential market which is in a phase of cyclical contraction, with interest rate movements likely to determine capital value trends over the next 12 months.
However, Gow says a prolonged period of low vacancy could result in renewed interest from investors as upward pressure is placed on rents.
More positive long-term forecasts for the South Australian residential market are being driven by the “ripple effect” of substantial resource projects once they begin production.
“Noteworthy projects such as the expansion of Olympic Dam are expected to have a flow-on effect on employment and infrastructure spending in the state,” says Reilly.
The heritage suburb of Maylands, 4 kilometres north-east of the Adelaide CBD, has outperformed every other Adelaide suburb to record annual capital growth of 14.1% and a median price of $708,000.
More affordable suburbs that have also recorded impressive capital growth of 12.8% and 12.3% respectively are West Croydon and Virginia, with median house prices under $480,000.
The western suburb of Findon has the strongest units market in Adelaide, posting capital growth of 16.6% and a median value of $311,000, followed by St Mary’s, a suburb just south of the CBD, where prices have risen 14.7% over the last 12 months to a median value of $239,000.
While there have been reasonable price gains across all price brackets, the cheapest quartile experienced the biggest decline in house prices – most notably, the outer northern suburbs of Elizabeth Downs and Elizabeth North where median prices decline 5.7% and 4.7% respectively.
The tightest vacancy rates are in Adelaide North (0.49%), the residential zone situated north of the River Torrens and within the Adelaide Park Lands, followed by the CBD and inner-north suburbs (0.79%).
The withdrawal of the booted first home owner grant has contributed to drop in demand for houses under $500,000.
Limited price growth is expected for properties priced between $500,000 and $1 million due to affordability and interest rate sensitivities in the price range.
Homes above $1 million are undergoing a more significant price correction with lower demand and longer selling periods.
In the prestige market above $2 million there has been a general slow-down in buying activity. According to CBRE, homes in this price range need to be reasonably priced to attract buyer interest.