South Australia Market Update

Quarter 3, 2023

Market Overview

Nationally home values continue to rise. CoreLogic reported in the three months to the end of September that home values rose 2.2%, with Adelaide achieving 4.3% growth. Which was the highest capital gain for the quarter across the capital cities! 

The housing market continues to defy expectations even with rising interest rates and cost of living increases we did not experience a significant drop in housing values. In fact, Adelaide only experienced a mild dip of 1.7% during its short-lived downturn. 

Consumer confidence seems to be increasing as we near the expected peak of interest rates and many economists are predicting interest rates will go down at some point in 2024. At a business level, we have experienced an uptick in enquiry across the board from local and interstate buyers, whether they are seeking a new place to call home or an investment.  In fact, in Quarter 3 we bought more property for our clients than Quarter 1 and Quarter 2 combined. 

This increase in activity can also be demonstrated in data released by the ABS on new borrower-accepted loan commitments. In the 22/23 fiscal year, the ABS reported that new loan commitments fell 14.1% overall, however, in 2023 we have experienced multiple months where the value of new loan commitments has increased, meaning increased activity in the real estate sector.  

Now let’s take a closer look at why Adelaide’s quarterly growth is outpacing the other capital cities. 

 Why is Adelaide performing so well? 
There are several contributing factors to Adelaide’s high performance in the current market and 7 of the leading reasons are below 

1. Affordability – Adelaide’s median dwelling price is $691,591 which is substantially lower than its sister capital cities, Sydney, Canberra, Melbourne and Brisbane. It makes us an attractive location for any investor that is priced out of the more expensive markets, in fact, our average investment purchase price for our clients in 2023 is $621,286, with the lowest being 
2. Low Supply Levels – Now it can’t be denied that one of the key reasons for price growth in the market, is low supply. CoreLogic reported that the 3 capital cities that had the highest quarterly capital gain, each had advertised supply levels around 40% below their previous five-year Average. And whilst there has been an uptick in new supply leading into the busy Spring season, and selling agents have reported locally they are receiving more enquiries to sell, demand for quality homes and A-grade investment properties will continue to outpace supply in Adelaide.

   

3. Low Vacancy Rates – Australia is in the midst of a rental crisis and nowhere is that more evident than in South Australia. According to SQM Research Adelaide has the second lowest vacancy rate across the capital cities at 0.5%. For a time, we held the title of the lowest, and whilst it is a title, we are happy to lose, it wasn’t by much. Whilst low vacancy rates make it a tough time for tenants, it cannot be denied that it is benefitting investment owners.
4. High Rental Yields –The knock-on effect of low vacancy rates is that weekly rents have been on the rise. According to SQM Research Adelaide’s weekly rents have increased by 17.4% in the last 12 months! And CoreLogic reported the average rental yield for houses and units is 3.7% and 5.1% respectively. Our investor clients are enjoying average rental yields of 4.85% for houses. Our high rental yields have the advantage of reducing monthly outgoings for investors and safeguarding them from the impact of interest rate rises.
5. Cash-Rich Buyers – Interstate buyers are still investing heavily in the local Adelaide market, whether they are relocating or investing in our strong but well-priced market. Any relocators that have sold property in the more expensive Sydney or Melbourne market are able to bid aggressively and place high offers which is driving prices up for desirable properties.
6. Properties for every budget – The Adelaide market is bigger than people give it credit for in the 18 months we have purchased properties in over 70 different suburbs. Adelaide and its surrounding suburbs offer genuine opportunities for buyers in most budget ranges. In the last quarter, we have bought investment properties for our clients from $395,000 to $757,500 and for homeowners from $450,000 to $3,025,000! So, whether your budget is small or large there is the perfect property for you in Adelaide.
7. Unbeatable Lifestyle – Adelaide’s reputation as a lifestyle destination is growing rapidly. Whether you want to live near the sea, the hills, or the city there are lifestyle options for everyone. Pristine white beaches and world-class wineries can be reached by car in as little as twenty minutes from the city and we are a city known for its festivals, love of sport and world-class food and wine.  

What’s the outlook for 2023? 

The Reserve Bank has given mortgage holders a reprieve from interest rate rises, holding the cash rate at 4.1% for the fourth successive month in October. We do expect there will be more rate rises to come, but most economists and experts believe we are nearing the top end for 2023. This is providing some buyers comfort around being able to accurately calculate the cost of buying a property for the short to medium term and for investors to understand the holding cost of buying a property.

We expect demand to continue to outpace supply for the remainder of the year and price growth to continue. However, pressures on households due to the rising cost of living should keep the pace steady as opposed to any sudden spikes in housing values.

We expect our rental market to remain very tight for 2023. It is already under significant pressure and overseas migration is ramping up and new arrivals typically rent rather than purchase initially. There is speculation that the rapid growth in rents will slow due to the rising cost of living meaning tenants just cannot afford to pay more.

With local and interstate demand high we expect to see Adelaide riding out 2023 in a strong and secure position.

Suburb to Watch