Adelaide offers great value for very selective investors

First, let me give you four reasons why Adelaide is a great place to invest right now.

1. Investors can enter Adelaide at low prices

Adelaide is very affordable: it has the second-lowest median dwelling price ($432,000) of all the capital cities, according to CoreLogic.

Even better, an SQM Research comparison of GDP levels to property prices found that Adelaide is undervalued and currently offering the best value out of all the capital cities.

2. Adelaide is a landlord’s market

The rental picture also looks very favourable in Adelaide.

Average house rents jumped 4.2 per cent to $395.50 per week over the year to 12 June, according to SQM, while unit rents climbed 2.7 per cent to $308.50. SQM expects rents to rise up to 5 per cent during 2019.

Vacancy rates are also tight – and getting tighter. Adelaide has the second-tightest vacancy rate in the country (after Hobart). Vacancy rates have fallen to 1.1 per cent, compared to a national average of 2.2 per cent.

That said, I am only buying in suburbs where the vacancy rate is under 1.0 per cent.

3. The economy is firing

The local economy is benefiting from a series of Defence and infrastructure projects, including:

• BAE Systems frigates program (valued at $35 billion)
• West Commercial & General project ($1 billion)
• Adelaide City Deal ($551 million)
• Osborne South Naval Shipyard redevelopment ($535 million)
• Dock One commercial precinct redevelopment ($280 million)

The South Australian government has also taken a positive approach to property. It eliminated stamp duty on commercial properties on 1 July 2018 and it unveiled a $104.5 million housing stimulus package in the June 2019 budget.

Recent ABS data showed that South Australia’s private new capital expenditure in the March 2019 quarter was a massive 41.9 per cent higher than the March 2018 quarter – again, the best result in the country.

4. South Australia is open for business

South Australia has the highest business confidence in Australia, according to the latest NAB monthly business survey.

South Australia was also the only state to record above-trend growth in the latest ANZ Stateometer, with a rise of 37 per cent in private new capital investment.

Not all locations are created equal

While Adelaide has some great pockets that investors should strongly consider for some of the reasons mentioned above, much of the city is a no-go zone for savvy investors, for three reasons.

First, Adelaide has a relatively small population of 1.3 million, while South Australia has the second-slowest population growth in the country. So it doesn’t take much residential construction for property supply to significantly increase in some suburbs, placing downwards pressure on prices.

Second, in some already affordable suburbs, some councils are happy to allow houses to be built on landholdings of less than 300 square metre. Furthermore, these new builds aren’t much more expensive than the sort of established homes that investors might favour.

As a result, owner-occupiers are shunning the established homes, putting downward pressure on prices in those areas. Especially as their preference for asset-to-land ratios may not be a front of mind of point in comparison to how investors would usually think.

Third, even in “good suburbs” in “near CBD locations”, there can be large supplies of public housing, which can again restrict price growth.

Buy wisely and enjoy impressive long-term growth

To avoid the supply risk, investors need to focus on a limited number of suburbs with high demand – ones that are landlocked and, if price permits, close to the CBD, beach and key amenities. Also, stick to houses, because the unit market can quickly tip into oversupply.

Investors that buy the right property in the right location should enjoy good yields, rising rents, tight vacancies and impressive consistent long-term capital growth.