Sluggish growth in SA, and no boom in sight…
Slow growth in rental and sales in SA may start to change as interest rates drop and people look for more solid investments
With its beautiful character homes, relaxed yet cosmopolitan atmosphere, proximity to world-renowned wine districts and plentiful beaches, the city of churches has a lot going for it.
But unfortunately, Adelaide and the greater state of South Australia have numerous factors working against them, from a property investment point of view.
First up is the significant issue of growth – or the lack thereof. Property values have slumped over the last 12 months, in both country and metropolitan areas, across all dwelling types
Flat property prices do little to entice landlords to the market, which has the impact of slowing investor demand and this in turn then causes a supply/demand imbalance, which further weakens the market.
Throw in slow rental growth, weak overall confidence in the economy, and the deferring of BHP’s Olympic Dam project, and you can see why South Australia fails to top many investing hot spot lists right now.
Not all doom and gloom
The news isn’t all bad, however. BHP may have delayed their intentions to extend their copper, uranium and gold mine in Roxby Downs, 550km from Adelaide – they have until 2016 to progress with their billion-dollar expansion plans, or they’ll be forced to start again with the government approvals process – but they’re not the only mining giants in town.
South Australian oil and gas company, Santos is on track for a stellar production year in 2013, following a 10% rise in production last year, up to 52.1 million barrels of oil equivalent (mmboe) from 47.2 mmboe in 2011. Annual sales revenues also hit a record $3.2 billion in 2012, up 18% on 2011 figures. A recent Santos report stated that, “Santos expects 2013 production to be in the range of 53 to 57 mmboe and capital expenditure, excluding capitalised interest, to be approximately $4bn,”
While it may not pave the way for a property boom right away, it’s a positive sign that the economy in South Australia is moving in the right direction.
Positively geared deals in regional centres
There’s no denying that for current investors in South Australia, the stats for the regional property market aren’t good: residential values have slid 1.5% for houses and 7.4% for units over the past 12 months, and there’s no indication of a swift turnaround any time soon.
Even Greg Moulton, president of the Real Estate Institute of SA (REISA), concedes that the regional market has been “through a tough 12 months”, but he’s optimistic about positive signs for the year ahead.
“The past few years have been really tough in the regional real estate market and while the recovery may be slow, it should start to pick up as people return to the stability of a brick and mortar investment,” he says.
“Regional markets often follow the metropolitan buying patterns and we are starting to see slightly increased activity, which is important, as there is a high level of stock on the market in all areas.”
Now that interest rates have moved a little further down, Moulton adds, he expects to see “...more momentum to buy, which will prompt local markets to recover in 2013.”
Indeed, if you look at the numbers objectively, there is a growing case for investing in SA. With a median price of $166,500 and strong rental returns of $195 per week, units offer an affordable entry into the market. Plus, interest rates are so low that the investment should be positively geared straight off the bat:
This example is based on a 10% deposit; factor in a more conservative 20% deposit, and returns look even better. It might not deliver the staggering rental returns that a mining town investment can currently offer, but investors with limited budgets and strong negotiating skills could do worse.
Slow population growth in SA
Forecasters BIS Shrapnel predict that South Australia will average a net outflow of 4,000 people annually this year and next, in line with long-term trends.
This feeds into the state’s low population growth trend, as the Australian Bureau of Statistics places South Australia as one of the slowest growing states in the country, behind only Tasmania. The estimated resident population of South Australia is presently 1.65 million, an increase of 126,500 people over 10 years, or 8.4%. By contrast, Australia as a whole has welcomed 3.1 million people, an increase of 16% – double the growth rate of SA.
Hawthorn
Home to around 2,200 people, Hawthorn is only 4km from the centre of Adelaide, which translates into a quick 10-minute bus ride.
As one of the most established neighbourhoods in Adelaide – Mitcham Village was one of the earliest settlements in the state, and the modern municipality retains much of the early colonial architecture – Hawthorn is overflowing with charming character homes that offer plenty of opportunity for investors to renovate and add value.
“It’s an expensive, sought after area overall, but you can still buy properties from the 50s and 60s that need work; they’re mainly bungalows and villas, but there are still some good houses available too,” explains Christine Auld from CocksAuld Real Estate, Hawthorn.
“Hawthorn is an ideal place to invest when you consider that the bulk of the suburb has large, character homes. The suburb itself is a wonderful, quiet, leafy suburb with prestigious homes throughout, which sit in the $2 to $4 million price bracket.”
The suburb is also close to facilities, trains and shopping amenities – Mitcham Shopping Centre is nearby, with several major retailers and five cinemas.
Best streets: “Most of the streets in Hawthorn are good…William, Clifton and Kent Street in particular are beautifully wide tree-lined streets that are always sought after,” Auld says.
Best value: While Hawthorn is comprised mainly of houses, there are a few unit blocks spotted in between the large prestigious homes and multi-million dollar
