The SA capital is the urban property market that investors are probably the least excited about right now, but that belies the affordability of Adelaide property prices, which shouldn’t be underestimated as a market driver
If a market starts booming, but no one notices, does it make a sound?
That’s something Adelaide investors will have to consider as the city, while far from ‘booming’, shows considerable strength that has been downplayed so much over the years that it is almost forgotten. Amid frequent talk of a flat, uninspiring SA property market, it has been easy to lose sight of the fact that Adelaide has the most affordable mainland property prices, and by a long shot.
With a current median house price of $394,000, city prices are galaxies away from the likes of Sydney and Perth where $390,000 -odd will scarcely give you more than a toehold in the market – a shoebox apartment in the inner city or a house in a far-flung or lower-income locale.
But it’s not just the actual numbers that make Adelaide prices affordable (affordability does depend on several factors); it’s that residents are well within their means to pay them.
A study by Demographia shows that Adelaide prices enjoy one of the largest margins of affordability among capital cities in terms of the gap between average income and house prices.
Using a methodology called “median multiple”, Demographia divided median house prices by average household income (before tax) to determine which cities had the best and worst relative affordability. The result was an Adelaide affordability score that was markedly better than that of Sydney and Melbourne, Australia’s two least affordable markets.
Demographia also revealed that Adelaide property is more affordable than properties in many regional areas, such as Coffs Harbour and the Sunshine Coast.
Interest rates step in
The benefit of Adelaide’s strong affordability is not simply that investors can purchase property at reasonable prices – it’s that the buying market as a whole lacks the same ceiling on price growth that is evident in Sydney or Darwin. Prices are more within reach of local residents’ income and offer better encouragement for people to get into the property market.
Provided local economic conditions are good, potentially higher market activity leaves more room for price increases because prices can climb a lot higher before they are considered unaffordable.
Trends forecaster BIS Shrapnel reveals in its Outlook for Residential Land, 2013–2018 report that improved housing affordability fuelled by low interest rates is likely to result in a “moderate” increase in demand for housing in Adelaide.
The report’s author, BIS Shrapnel senior residential manager Angie Zigomanis, explains that increased buying activity brought about by interest rate cuts could have a stronger impact on price growth if it weren’t for the excess supply of Adelaide properties already on the market. Since the GFC, development has slowed down, paving the way for “subdued, although growing” demand for housing.
“The weaker market [in] Adelaide reflects activity falling from unsustainable record levels,” Zigomanis says. Zigomanis adds that Sydney and Perth should lead the nation in demand for residential land over the next five years, but Adelaide (along with Melbourne) should follow in their footsteps, and see more modest activity.
Spotlight on: Adelaide’s fastest-growing suburbs
Talk about an exaggeration. The way economists talk about it, the bleeps have all gone and we should expect to hear the alert on Adelaide’s ECG monitor pronounce that growth in this property market is dead.
And while it’s true that property values in this city – as a whole – have failed to grow significantly in years, it’s hard to deny there have been areas of strong growth.
Just look at Richmond. Sandwiched between the airport and the CBD, units here have climbed 49% – a considerable feat for any market, let alone one in a city defined by flat growth in property prices.
Buyers have rallied equally strongly behind the popular beach neighbourhood of Grange. Across 50 unit purchases, values climbed 41% over the 12 months to August 2013. This follows three years of lacklustre growth, with prices hovering at 2010 levels.
Perhaps most surprising, parts of Adelaide’s prestige market appear to be taking off. Toorak Gardens, Tusmore and Gilberton saw fantastic price growth over the 12 months to August, suggesting other prestige areas could also have the potential to return to growth.
Suburb To Watch
Salisbury
Paul Sheppard of Professionals Salisbury reveals how excellent transport links make Salisbury an evergreen investor suburb.
Selling points
The Salisbury region offers many parks suitable for relaxing and recreational activities, unique wetland areas to explore, recreation centres and the arts, an aquatic centre, libraries and adult learning centres. There is a large choice of schools as well as major shopping infrastructure.
Types of properties
The area is defined by large detached homes. This has resulted in many subdivisions, and older homes being demolished to make way for blocks of units. The most sought-after properties are three-bedroom homes – anything under $300,000 generally moves fast.
Local industry and businesses
Nearby employment hubs include a Holden plant, a technology park and Australian Defence industries, as well as many small businesses.
Best streets
These are in the area close to Mawson Lakes. Properties located close to the school, shopping and transport hubs suit not only first home buyers and investors but also are in demand from retirees.
Public transport
Salisbury is a major hub within Adelaide’s public transport system. The bus and train interchange provides services to the city, the Gawler region and the northeastern suburbs. For drivers, it’s just under 20 minutes to the western suburbs and beaches on the Salisbury highway extension.
