Investors in South Australia's housing market should be confident despite the unfolding downturn in the state, according to the latest analysis from Herron Todd White.
Investor activity in the state has been on a broad decline this year, said Jarrod Harper, local expert at HTW.
"The level of uncertainty surrounding COVID-19 has been a major deterrent to investors entering the market," he said.
Harper believes the South Australian market could be entering the initial stages of a downward cycle, especially if the latest market data are considered.
In fact, figures from CoreLogic show that while values in the state capital, Adelaide, remained higher than last year, they are already declining on a month-on-month basis.
"Historically, the South Australian market has lagged behind the east coast markets, which have shown signs of decline since late March. At this stage the decline has only been slight and will be monitored closely in the short to medium term," Harper said.
This, however, would mean that the South Australian market would remain as a more affordable option than 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," Harper said.
SA's investor market snapshot
Harper said investors looking to invest in South Australia and Adelaide should know that the market has historically been driven by rental returns within the outer ring and capital growth within the middle and inner rings.
In established outer rings, gross yields of up to 9% are common, with advertised rents hitting as much as $350 per week.
On the other hand, rental returns within the inner and middle rings are eroded as values increase and achievable rentals reach a ceiling. Advertised rents are capped at $1,200 in these regions, while the median price could reach up to $1m. This means that gross yields in the inner-and middle-ring suburbs only reach as high as 5%. Investors in these regions often seek out capital growth, with holding income only as an added bonus, according to HTW.
Two market segments are popular for two different types of investors in South Australia. For the more sophisticated investors, higher-density flat dwellings are the popular option. Young investors, on the other hand, often target strata units, which provide an affordable entry price point.
