Australian Property Market 2016 Mid-Year Forecast: South Australia

State of the South Australian property market

Despite the weak economy, South Australia's property market managed to grow during the past year. However, the future is looking less certain from here on
Key points
  • Slow population growth excess housing supply to limit price growth
  • Economy remains weak but holding up
  • Property prices unlikely to grow strongly despite further rate cut
  • Low-interest rates fuelling spending and home buying
  • Low exchange rates to support tourism and international education
  • Affordable housing
  • Falling unemployment
  • No fallout from the mining boom
  • No affordability risks emerging such as those in Sydney and Melbourne
  • Car manufacturing set to exit
  • Growing apartment oversupply
  • Slowing population growth
  • Highest unemployment rate in the country at 7.5%
  • Median house price is expected to fall by 2% from June 2016 to June 2019 or a drop of 9-10% in real terms
  • Median unit price is forecast to fall by the same amount during the same period.
Key infrastructure projects to watch
  • $8.5 billion worth of infrastructure developments spread across 18 road projects
  • $1.5 billion Ceres project
  • $900 million Hornsdale wind farm
  • $354 million Adelaide Convention Centre expansion,
  • $350 million Westfield Marion expansion
  • $230 million University of South Australia’s Health Innovation Centre
  • $206 million Adelaide University Medical and Nursing School a
Sources: BIS Shrapnel, Deloitte Access Economics, CoreLogic RP Data, Domain

What's in store for investors in South Australia and Adelaide?

Prices soared to a record in Adelaide during the June quarter thanks to low-interest rates according to a Domain report. Median house price rose to $498,927, a 0.9% increase over the quarter and a solid 4.4% year on year. However, growing apartment supply continued to weigh on Adelaide’s unit market, triggering further falls in the median price. Domain recorded a drop of 1.7% to $294,165 during the three months ending June. Over the year, it was flat at just 0.1% growth. “Adelaide is a split market, with house prices on the rise and unit prices lagging,” says Andrew Wilson, chief economist with Domain. “The recent surge of new apartment construction has left the local market sluggish, surpassing the demand from buyers.”
Rental market
While Adelaide’s vacancy rates remain tight at 1.8% for houses and 2.3% for units, median rent dropped during the June quarter according to Domain. Median rents for units fell by $5 to $285 per week while house rental prices are also $5 lower to $355. This is the first fall in house rents for Adelaide in over two years according to Wilson.While this is good news for tenants, investors are facing the prospect of reduced returns.
Supply and demand
To be clear, Adelaide doesn’t have the same degree of oversupply issues facing the bigger mainland states. However, it also doesn’t have the big population growth numbers that will support demand according to Zigomanis. “With only a moderate oversupply estimated to have been in place in 2015/16, the Adelaide market appears to be responding to low-interest rates,” says Zigomanis. “However, as population growth continues to weaken and the excess supply expands, a greater downward pressure will be applied to prices.”
The biggest risk facing South Australia is its weak economy according to Zigomanis. Already, it has the highest unemployment rate of the states and continues to face headwinds in some industry sectors. “Jobs in the steel sector at risk and jobs in the automotive sector are set to decline, and the net interstate migration outflows continue to rise,” he says. As such Zigomanis is predicting investors in Adelaide are facing challenging times ahead. The median house price is forecast to be flat over the next 12 months before falling between 2017 and 2018. The market is likely to bottom out sometime in 2018 and 2019. Zigomanis is forecasting prices for both houses and units will drop by 2% by June 2019 from the June 2016 levels. In real terms, median house and unit prices are forecast to decline by around 9-10%.

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