13 February 2019 Capital spotlight: Adelaide

Interstate investors have historically overlooked unassuming Adelaide, but recent political and economic developments in South Australia are focusing a great deal of attention on the picturesque City of Churches. For those with a stake in the local property market, this surge in interest bodes well for 2019 and beyond.

Experts reckon the outcome of the state election in March 2018 gave Adelaide a major boost. The incumbent Labor government, which held power for a record 16 years, lost to the Liberals, and Steven Marshall became premier.

“After 16 years under the same reign, the state recently voted for a change, and it already appears to have improved local sentiment,” says Simon Pressley, Propertyology’s head of property market research and three-time Real Estate Institute of Australia Buyer’s Agent of the Year.

According to Pressley, Marshall’s pro-business platform, coupled with the “halo effect” that usually occurs with a change in government (regardless of its political stripe), has created optimism in both the property market and the city as a whole.

Data from Domain bears him out: median house prices grew a respectable 3.8 per cent in 2018, in contrast to the falls in Sydney and Melbourne. Unit prices have essentially held steady (decreasing a statistically insignificant 0.2 per cent) while rental yields for apartments are sitting at a pleasing 5.19 per cent (investors generally consider apartment yields above 5 per cent to be first rate).

Of course, the new Liberal government cannot take all the credit for the strength of the property market: Adelaide has been developing and diversifying its economy for several years, which has in turn helped strengthen the real-estate sector. Pressley points to an increase in tourist numbers as one major economic driver.

“Rising tourist spending is definitely a significant part of Adelaide’s improving economy,” he says. “The recent transformation of the inner city mixes a modern entertainment and sports precinct with historic buildings and the riverbank.” This gives visitors plenty of reasons to stay – and spend – in town.

Money is also pouring in to Adelaide’s education, research and innovation sectors. The pioneering Tonsley Innovation District south of the CBD has so far attracted dozens of established businesses, start-ups and research institutions, from multinational industrial manufacturer Siemens to Flinders University. Meanwhile, the University of Adelaide has more than 21,000 students enrolled.

More broadly, South Australia seems to have adjusted to the manufacturing downturn that affected it in the early years of this decade. In October, unemployment dropped to 5.5 per cent, its lowest point since November 2012. The Australian Bureau of Statistics says underemployment – that is, not having as much work has you’d like – has also declined.

Analysts think the best may be yet to come. Two massive defence initiatives are set to create a substantial number of jobs in the months and years ahead: the $50 billion Naval Group submarine-building contract; and the $35 billion federal government ship-building program. That’s almost $100 billion in new economic activity for a region already demonstrating strong fundamentals.

“Government spending can have an outsized impact in a relatively small market like Adelaide,” says Domain economist Trent Wiltshire. “The same cash investment will have a bigger effect on median prices in a smaller market, such as Adelaide, than it will in a bigger market, such as metropolitan Sydney.”

Wiltshire believes the city’s economic growth, and the associated growth in population, make Adelaide a good bet for conservative property investors. “It’s safe to assume we’ll see 2 per cent to 3 per cent growth in medians per year in Adelaide in the years ahead,” he says.

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