South Australia continues to offer stability to investors

“Throughout the month of July, South Australia remained community transmission-free of COVID-19. At the time of writing, one new case has been recorded since 29 June, which has been linked to a resident returning from quarantine in Victoria,” the report said.

“Even as restrictions ease, the labour market has remained subdued, with the South Australian unemployment rate increasing from 7.9 per cent in May to 8.8 per cent in June, which is now the highest in the country. 

“As at 30 June, CoreLogic’s Home Value Index indicated the metropolitan market remained 2.04 per cent up on the same period 12 months ago, [but] has seen a 0.19 per cent contraction month-on-month.

“Historically, the South Australian market has lagged behind the east coast markets, which have shown signs of decline since late March. Considering the most recent market data and east coast market direction, it appears that the South Australian market could be entering the initial stages of a downward cycle. At this stage, the decline has only been slight and will be monitored closely in the short to medium term.”

Investor activity

Obviously, the level of uncertainty surrounding COVID-19 has been a major deterrent to investors entering the market, with the report finding that a change in behaviour has impacted Adelaide’s market, with activity varying across the board.

“Depending on proximity to the CBD, the investor market has historically been driven by rental returns within the outer ring and capital growth within the middle and inner rings,” the report explained.

“Gross yields of 6 to 9 per cent are common within the established suburbs in the outer ring.

“Advertised rents range from $250 to $350 per week, with median house prices ranging from high $100,000s to high $300,000s. Representative of typical investor stock is the June sale of 140 Elizabeth Road, Morphett Vale for $240,000. Post-settlement this property was immediately let at $350 per week, generating a gross yield of 7.58 per cent.”

Rental returns

According to the research by Herron Todd White, rental returns within the inner and middle rings are “eroded as values increase and achievable rentals reach a ceiling”.

“Advertised rents range from $400 per week and cap out at $1,200. Median price levels vary through the inner and middle rings ranging from the mid $400,000s to $1 million plus,” it said.

“The high value to low rental ratio produces gross yields of 3 to 5 per cent. Investors are typically seeking out capital growth with holding income being an added bonus.”

Top suburbs in terms of capital growth year-on-year (March quarter):

1. West Lakes Shores (25.41 per cent)

2. Colonel Light Gardens (15.41 per cent)

3. Athelstone (13.89 per cent)

4. Flinders Park (5.34 per cent)

Looking ahead

Going forward, the report said investors in the South Australian market should rest assured.

“The South Australian market has historically provided purchasers a more stable option to the larger metropolitan markets around Australia,” it said.

“Investors should have confidence in the South Australian market in the medium to long term, being cushioned from the COVID-19 fallout.”