Adelaide's property price slide appears to have bottomed out as buyer confidence and auction clearance rates rise across the state, according to research.
The latest RiskWise Property Research Risks & Opportunities Report shows housing finance in South Australia is showing signs of improvement with an increase of 8.6% since February 2019 after a reduction of 6.6% relative to August 2018.
RiskWise CEO Doron Peleg said despite monetary policy changes and relaxed lending restrictions, South Australia's low population growth and unemployment well above the national rate of 5.2% meant the property market was suffering.
“While the labour market has improved in the past couple of years, the effective unemployment rate in South Australia is still above 9% and the employment market is still soft,” Mr Peleg said.
“This has a strong connection with low population growth (only 0.8% p.a) and, therefore, low demand for dwellings.
“While serviceability measures have improved due to the RBA’s interest rate cuts (with another expected sometime in the new year), the relatively high unemployment rate increases the risk of credit defaults.
“That, combined with some properties that suffer from low demand, require special attention in relation to credit provisioning.”
Adelaide dwelling values have experienced a soft rebound of 1.4% in the quarter up to the end of December, but are still down 0.2% for the year.
The South Australian capital hasn't experienced the strong rebound most capitals have, with Sydney and Melbourne values up 6.2% and 6.1% respectively for the quarter.
Mr Peleg said that although dwelling values have reached their bottom, any sort of economic growth will take a considerable amount of time to eventuate.
“However, while South Australia enjoys high levels of public and private expenditure, in the short term, the economic growth is projected to remain relatively low, around the 2% mark.
“Long-term economic growth will be a slow process and with a soft labour market no significant changes to demand are expected in the short to medium term, with less popular areas experiencing modest growth only.”
Strong growth hard to come by across South Australia
Mr Peleg said despite low building approvals, demand for houses was projected to remain subdued due to moderate capital growth forecast.
However, this growth rate was projected to vary greatly across the state with houses in areas close to the Adelaide CBD, such as Adelaide Central and Hills, likely to deliver better growth.
Houses in areas that don't enjoy good growth drivers still carry a risk of delivering poor or negative capital growth.
For example, according to CoreLogic, the median house price in the Barossa-Yorke-Mid North area declined by 0.2% in the past 12 months.
Mr Peleg said while South Australia offered healthy rental returns for both houses and units, demand for units among owner-occupiers, despite good affordability, was low.
“In addition, units in some suburbs are subject to voluntary lending restrictions by the major lenders, such as lower loan-to-value ratio (i.e. higher deposit) due to oversupply.
“Units are not considered a popular dwelling option among families especially off-the-plan units in high rises, and these carry the highest level of risk.
"Overall, units in South Australia are likely to deliver poor capital growth.”
Adelaide Central and Hills has the highest rate of oversupply in South Australia with 2696 units in the pipeline, an 8.2% increase to the current stock.
As a result, there has been a price decline of 0.3% in the past year.
The table below displays some of the lowest-interest variable rate home loans currently available in Australia for owner-occupiers making principal and interest repayments.
Smart Booster Home Loan
- Discount variable for 1 year <=80% LVR
- No ongoing fees
- Unlimited redraw facility
Monthly repayments: $1,476
- Discount variable for 1 year
- No ongoing fees
- Unlimited redraw facility
Base criteria of: a $400,000 loan amount, variable, principal and interest (P&I) home loans with an LVR (loan-to-value) ratio of at least 80%. If products listed have an LVR <80%, they will be clearly identified in the product name along with the specific LVR. The product and rate must be clearly published on the Product Provider’s web site. Monthly repayments were calculated based on the selected products’ advertised rates, applied to a $400,000 loan with a 30-year loan term.
The entire market was not considered in selecting the above products. Rather, a cut-down portion of the market has been considered which includes retail products from at least the big four banks, the top 10 customer-owned institutions and Australia’s larger non-banks:
- The big four banks are: ANZ, CBA, NAB and Westpac
- The top 10 customer-owned Institutions are the ten largest mutual banks, credit unions and building societies in Australia, ranked by assets under management in November 2020. They are (in descending order): Credit Union Australia, Newcastle Permanent, Heritage Bank, Peoples’ Choice Credit Union, Teachers Mutual Bank, Greater Bank, IMB Bank, Beyond Bank, Bank Australia and P&N Bank.
- The larger non-bank lenders are those who (in 2020) has more than $9 billion in Australian funded loans and advances. These groups are: Resimac, Pepper, Liberty and Firstmac.
Some providers' products may not be available in all states. To be considered, the product and rate must be clearly published on the product provider's web site.
In the interests of full disclosure, Savings.com.au, Performance Drive and Loans.com.au are part of the Firstmac Group. To read about how Savings.com.au manages potential conflicts of interest, along with how we get paid, please click through onto the web site links.
*Comparison rate is based on a loan of $150,000 over a term of 25 years. Please note the comparison rate only applies to the examples given. Different loan amounts and terms will result in different comparison rates. Costs such as redraw fees and costs savings, such as fee waivers, are not included in the comparison rate but may inﬂuence the cost of the loan.
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