Adelaide’s property market hasn’t been going through a vintage period, but a pick-up is expected as the year draws to a close.

The Adelaide property market’s start to the year hasn’t been anything to write home about by anyone’s standards.

Australian Property Monitors (APM) results for the March quarter, for example, indicate that capital growth for houses hit negative terrain at -0.6%, while units fared even worse at -4.8%.

“Adelaide was a little soft in the first quarter of this year,” explains APM senior economist Andrew Wilson.

“Like other states, South Australia is suffering with the hangover from the First Home Owner Grant boost. Adelaide tends to be a conservative market, but expect it to track upwards towards the middle of the year.”

Price correction 

This is a view shared in Herron Todd White’s Month in Review report, which notes that the Adelaide market has stalled at various levels but that, rather than being symptomatic of long-term woes, its recent poor performance is more of a short-term price correction.

“This is evident in seeing properties staying on the market for extended periods of time, and by some vendors having to reduce their price expectations in order to gain a sale,” says the report.

“It is expected that even though the market is correcting at present time, by mid-year the market levels should essentially be established for each market.”

The report points out that a glut of houses on the market, a historically low turnover rate and the significant reduction in first home owner grants for established houses are all playing their part in keeping the Adelaide market cool.

Vacancy rate is still low 

However, as is the case with many of the state capitals, while capital growth may be disappointing, the rental market in Adelaide is proving to be extremely tight.

APM figures for the March quarter show that Adelaide’s median weekly asking rent for houses increased by 3% during the March quarter, with the figure for units rising by 1.9%, and SQM Research’s March figures put Adelaide’s rental vacancy rate at just 0.9%.

“The rental market is currently experiencing extremely low vacancy rates,” notes the Month in Review. “However, this may be absorbed by sellers – unable to sell their properties – renting them out instead, so we need to keep this option in mind.”

Infrastructure improvements 

Looking to the future, there are some key infrastructure projects that may provide a much needed boost to certain property markets in the South Australian capital.

Areas of note include suburbs along the Noarlunga railway line, which is due for a $340m electrification and station upgrade program, and areas that are set to be put on the map, thanks to the $290m rail extension from Noarlunga to Seaford.

Commercial construction has been on the up of late, notes the Deloitte Access Economics Business Outlook, and these projects could bring with them both increased employment and activity in the housing market in certain areas.

“Current work includes a new $400m science precinct at the University of Adelaide, due to be unveiled in early 2012, and the $200m third stage of the Lyell McEwin hospital redevelopment, not expected to be commissioned until 2015,” says the report.

Other large commercial projects include the second stage of the Adelaide Oval refurbishment and grandstand enlargement, and the $200m redevelopment of the Westfield precinct in Marion.

Demographic changes 

Property Power Partners chief property consultant John Lindeman warns, however, that Adelaide’s ongoing demographic shift could drastically alter the nature of its property market in the years to come.

He notes that, due to the fact that the state’s annual birth rate is matched by the number of young adults making the exodus to larger capital cities in search of greater employment opportunities, SA’s annual population growth of 17,000 people relies almost entirely on overseas migrants who come to Adelaide in search of manufacturing work.

“They’re generally not very skilled – they’re not tertiary-educated people by and large – and they tend to live in the lower socioeconomic areas,” he says.

“That’s changing the nature of the Adelaide market. In the housing commission suburbs like Elizabeth, cheap duplexes are being built where there used to be single houses in order to provide accommodation for these sorts of people.”

Lindeman adds that, as those youngsters that are leaving Adelaide in search of employment elsewhere tend to be leaving the family home for the first time, they’re leaving behind a time bomb of ‘empty nesters’ who sooner or later will start moving away from the city in order to retire, leaving behind a surplus of housing stock.

“There’s a continual practice of building houses and units for the new arrivals, but sooner or later the parents of the people who have left are going to start moving into retirement accommodation and Adelaide will be faced with a huge housing surplus,” he says. “That will emerge over the next year or so, I’d say.”