Local optimism grows on the back of lower interest rates and infrastructure projects

Though interest rate cuts are expected to firm up South Australia’s struggling property market, large and small scale investors appear to be holding off on throwing their money into the state before key economic indicators take a turn for the better.

One of the biggest signals is clearly whether BHP Billiton will go ahead with its $20bn expansion at Olympic Dam. Though the mining outpost is more than 500km north of Adelaide, the project could be a major coup for the area, signalled recently by a major city developer who said retailers were holding off on investing more than $500m in the Adelaide economy until BHP gives the project the formal green light.

Angie Zigomanis, of forecasting firm BIS Shrapnel, warns against hitching such high hopes on the project, saying that softening commodity prices may put a dent in how much and how fast BHP throws money behind the project.

That decision is set to come down sometime after the middle of the year, and he says he does not expect a clear picture as to how that investment will affect the state economy and property markets until well into next year.

Adelaide could definitely get a lift if BHP goes ahead, but he says regional markets tied directly to the project like Roxby Downs and Port Augusta might be better left to the punters for a while.

“You’ll expect it to benefit because people want to be located close to the projects,” he says. “The question mark is whether people will in fact stay and live there versus fly in fly out, you know how much is permanent and how much is temporary?”

Andrew Wilson, economist at Australian Property Monitors, warns that South Australia may have yet to have hit bottom, saying he sees far too many question marks ahead for South Australia’s market even with some promising resource-related developments. Like Victoria, he says, the state’s more traditional manufacturing sector has been hit hard by the high Aussie dollar.

“It’s really still all about Adelaide,” he says. “There is potential there for it to move on, but that would rely upon an improvement in the local economy and other usual drivers.”

He says he expects the effects of this year’s interest rate dips to start to have an impact on the local economy by spurring investment, but not enough for the market to take a turn this year.

Local optimism

Despite this cautious sentiment, a local investor and Chief Executive of Optimizer Capital, Graham Bibby, says South Australia, on a risk adjusted basis, represents one of the best property investments of the next 10 years.

“The mining industry will fuel a resurgence in Brisbane, Gladstone, Perth, Port Headland and Karratha but most growth will be seen in South Australia, in particular, Adelaide, North Adelaide, Whyalla, Port Augusta and Port Lincoln,” he says. “South Australia is about to explode onto the world’s natural resource stage, and is rapidly evolving into the third biggest resource state, after Queensland and Western Australia. The state has become the national leader in major defence projects, including the Air Warfare Destroyer project and the future submarine fleet project. In addition, it is already leading the country in alternative energy generation, an industry of growing importance.”

Bibby points out that the defence industry in South Australia is scheduled to double in size in the next couple of years, with $71bn worth of projects already underway.

“In an effort to keep up with the rapidly expanding industry, the government is spending over $2.5bn on transportation infrastructure alone. Food production is expected to hit $20bn by the year 2020,” he explains.

On top of this, Bibby adds that South Australia’s property remains relatively cheap compared to the rest of the country. “There is huge upside, and a long boom on its way,” he says. “South Australia can expect the same kind of growth Perth saw from 2002–2012 when prices tripled, and in Port Headland [prices] went up five times.”