It has been a robust 12 months for the South Australian capital city of Adelaide as housing prices have increased 19.77% on the back of the relatively affordable entry price point for both potential owner-occupiers and investors alike [1].
This was reflected in August figures, where Adelaide house prices outperformed both Sydney and Melbourne realising an increase of 2.09% for the month.
Adelaide total dwelling prices also increased 5.3% over the last three months expressing the growing strength of the market that is experiencing an upturn and looks well past the recovery phase of its property cycle [1].
Adelaide’s residential property market realised sustained property growth across the house and unit sectors from 2012 to 2020, experiencing modest gains of almost 25% over the eight years. This slow but steady growth accompanied by stable population growth has assisted in creating demand for the Adelaide property market and affordability in 2021 is now at some of the best levels since 2002 [2].
The last time the Adelaide market had levels of affordability this healthy in place, the market experienced extremely strong capital growth, seeing house prices increase 125.71% between 2002 to 2011 [3].
Whilst property prices were slow and steady up to the beginning of 2020, pent-up demand was building on the back of Adelaide’s relatively affordable price point and steady migration.
Demand was kicked into overdrive the last two quarters of 2020 when the government introduced the home builder stimulus, accompanied with ongoing record low-interest rates [4].
The CoreLogic Daily Home Value Index - 31 August 2021 reveals a large 20.29% increase in house prices across a ‘5 city aggregate’ this previous 12 months [1].
Investors should always be looking at the big picture and not only seek a short term return on their investment but also returns over the medium to long term.
When it comes to the Adelaide property market, there are key fundamentals in place expressing a strong potential for capital growth over the medium to long term.
Vacancy rates play a crucial role in holding an investment property and the potential for a solid rental return. The below graph reveals that vacancy rates historically across Adelaide are extremely tight and the rental market has remained in an undersupplied state for the last 16 years never reaching the balanced mark of 3% placing potential upward pressure on rental prices [5].
The rental yields in Adelaide are also much higher than both Melbourne and Sydney due to tight vacancies, strong affordability and the overall position within the cities property cycle.
Currently, the gross rental yield for houses is 3.9% and units is 5.5% [5].
Both owner-occupier and investor demand are also reflected in recent auction clearance rates and the average selling time on the market.
The below CoreLogic Auction Results from this past weekend reveals Adelaide to be the strongest performing city under the hammer recording a clearance rate of 87.72%. The results provided below are preliminary and current at the time of publication [6].
The average selling time on the market has also improved in the last 12 months seeing homes sell much more quickly with only taking an average of 35 days compared to 55 days last August [7].
Key Takeaways.
As the fundamentals continue to align for Adelaide on the back of strong affordability, tight vacancies, solid rental yields in a climate of record-low interest rates, the market will continue to attract demand from potential owners-occupiers and investors from all across the nation.
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Jarryd Gauci – Property Investment Consultant
P: (02) 9939 3249
Disclaimer: When considering purchasing a property, it's always prudent to seek the advice of an appropriately qualified professional to determine which strategy is most appropriate for your circumstance.
References:
[2] BIS Oxford Economics, REIA, RBA and ABS - March 2021 Report
[4] Sky News
[5] SQM Research