Adelaide provides balance opportunity
By Victor Kumar
South Australia’s capital is becoming more attractive to investors as other major markets around the country reach their peaks.
But if you’re considering investing in Adelaide, it’s important to remember that it is not Sydney, Melbourne or Brisbane. It has a much lower population and therefore its market behaves differently.
When investing, I usually always stick to the old rule of buying within one hour’s commute from the CBD. In Adelaide, though, that strategy goes out the window.
Instead, I believe you should limit the distance to within 25 minutes of the CBD, unless you’re buying in pockets such a Salisbury which have subdivision potential.
By buying closer to the city in Adelaide you are close enough to attract the bulk of the working community as potential tenants.
I would describe the Adelaide market as a consistent one. Even during the GFC, it didn’t change much. In fact, it consistently records a few clicks above inflation in price growth every year.
Adelaide is increasingly on the radar of investors because of the reducing yields in Sydney, Melbourne and Brisbane.
In Adelaide, if you look hard enough, you can find properties with yields above six per cent. I recently bought a property for one of our clients, as well as another one for myself, in a suburb that’s the equivalent of Manly in New South Wales. It’s absolute waterfront, but you can buy older units there for sub $320,000.
If buying into Adelaide, however, you must do your research because the market is not as robust as other capital cities. And as it has lower population, rental properties can also take longer to rent.
One of the major advantages of buying in Adelaide at this point in time is that it is not burdened by the oversupply issues of our other major capital cities. You can buy a unit with confidence in the inner-city because you do not have to worry about oversupply.
When buying units in Adelaide it’s important to stick to the 25-minute rule but there are a number of opportunities available such as three-bedroom units within 10 minutes of the city that you can purchase for about $235,000 but which are rented for $300 per week.
The Adelaide market is a stable one so that means you will have to wait longer to achieve capital growth. You will likely need to wait for one property cycle – or at least three to five years – to extract equity from your property. In the meantime, however, you will be also be benefitting from those high rental yields to help with your cash flow.
The sales process is different to other states and territories, however, so make sure you understand any of its vagaries. For example, it is not usual to complete a building and pest inspection after the contract has been signed so you must negotiate this condition beforehand or risk buying the property without these important checks and balances.
The Adelaide market is certainly one to consider adding to your portfolio as it can provide good balance via its strong cash flow prospects.
You must always remember, however, that it is likely to perform at a slower, more sustainable, pace compared to Sydney or Melbourne so a little bit of patience is also required.