Adelaide 2023: A Property Investment outlook

How times have changed for the Adelaide property market!

For decades Adelaide was regarded as a backwater – a former industrial powerhouse that had lost its major industries to globalisation: car manufacturing and ship building to name just two.

Adelaide even had one of its biggest annual tourism draw cards – the Formula 1 Grand Prix – pinched by Melbourne in 1996.

In the mid 80’s, one of the city’s greatest exports, singer-songwriter Paul Kelly, sang songs with lyrics like:

“All the king’s horses all the king’s men

Wouldn’t drag me back again to Adelaide” 

But now the South Australian capital is back with a vengeance, with Premier Peter Malinauskas set to unveil a major campaign aimed at luring businesses and investment away from Sydney and Melbourne.

“We’ll take anyone,” he told journalists recently, “We’ve got a good story to tell. And having a competitive (state) tax regime is something that we want to highlight.”

(National Nine News, Melbourne, 16th June 2023)

It’s no accident that in CommSec’s most recent “State of the States” report, which ranks all the state and territory economies based on seven key metrics, South Australia was ranked equal second.

And that’s having important flow-on effects.

“Overall Adelaide provides an attractive equation for property investors,” says veteran property analyst Terry Ryder, “Affordable prices, low vacancy rates and rising rents underpinned by one of the nation’s strongest economies.”

The Nitty-gritty

The latest CoreLogic figures show the median home price in Adelaide is around $655,000.

That’s an extremely attractive proposition to investors when you compare that to prices in Sydney ($1.05 million), Canberra ($825,000), Melbourne ($755,000) and Brisbane ($714,000).

What’s more, the relentless campaign of interest rate rises by the Reserve Bank since May last year has not had the impact in Adelaide’s buoyant property market that it has in other cities.

It’s merely slowed price growth.

Over the past year, while median prices in Sydney (-8.2 percent), Melbourne (-7.4 percent) and Brisbane (-9.3 percent) have all fallen from their pandemic boom highs, Adelaide has actually grown on average by 0.4 percent.

That’s despite a dozen interest rate rises by the RBA.

The only other capital city to have grown over the past year is Perth (+2.0 percent).

But what really sets Adelaide apart is when you look at home prices over the last three years. 

According to CoreLogic, prices in Adelaide are now a whopping 42 percent above where they were before the onset of the Covid pandemic.

Compare that to 10.7 percent in Sydney, 30.8 percent in Brisbane, 23.4 percent in Perth and just 1.1 percent in Melbourne.

Historic low vacancy rates:

A chronic housing shortage means Adelaide also continues to have the lowest vacancy rate of any of the state and territory capitals at just 0.6 percent.

Those kinds of vacancy rates are unheard of in Australia, where 3 percent is considered a “healthy” market balanced between tenants and owners.

Yet, according to SQM Research,  the current vacancy rate in Adelaide is actually an improvement on the historic low of just 0.3 percent the City of Churches recorded in March this year.

That rental shortage has seen residential rents increase 12 percent in the past year.

And all that adds up to attractive rental yields for investors, which range from 3.9 percent for houses to 5.2 percent for units.

And all this comes despite Adelaide’s population growing at a lower annual rate (1.4 percent) than every capital city except Sydney (1.2 percent).

The bargains are running out the door

Adelaide’s affordability in comparison to other state capitals has made it a very attractive destination for entry-level investors, but property prices in the SA capital may not remain relative bargains for long.

Investors looking at the affordable end of the Adelaide market would be well-advised to move quickly, with the state government announcing a range of measures in its recent 2023/24 budget to assist first home buyers, who will no doubt be targeting similar affordable suburbs.

This includes the removal of stamp duty for first home buyers who purchase a new home with a value of up to $650,000 or vacant land with a value of up to $400,000 to build a new home.

Existing measures including a First Home Owner Grant scheme will also remain, with eligibility now cutting out at $650,000, up from $575,000. 

Unveiling the changes, Premier Peter Malinauskas said the “reforms will slash almost $45,000 off the cost of an average new home for a first homebuyer, making it easier for them to enter the market, and cheaper for them to pay their mortgage.”

The Future’s so bright

And going forward, Adelaide’s economic prospects look bright, with most of the Australian jobs in the $368 Billion AUKUS submarine project set to be based in the South Australian capital, reinforcing the city as the centre of Australia’s defence industry.

There’s also major infrastructure projects underway with the building of the North-South Corridor roadway.

While the city has always had a lively arts scene, boasting the annual Adelaide Festival, the Fringe and Writer’s Week, the relatively new state Labor government has managed to lure more big ticket sporting events to South Australia, including Liv Golf and the AFL’s “Gather Round”.

Victorians used to joke that the best thing out of Adelaide was “the road to Melbourne”.

But given the strong fundamentals of the city’s property market, savvy investors are now hitting the road to “affordable” Adelaide.