South Australian economy muted
Prior to COVID-19, as of February 2020, the unemployment rate in South Australia was 5.8 per cent and population growth was tracking at 0.8 per cent, reflective of the steady if unexciting performance of the state's economy.
Overall, the labour market was relatively soft with a reduction in actual employment which meant slow growth for dwelling prices was experienced until 2019.
At the beginning of 2020, however, homebuyer confidence increased, particularly in Adelaide, and this saw an improvement in auction clearance rates and, consequently, it appeared dwelling prices had reached the bottom.
However, bushfires also had a material impact on the demand for residential properties in South Australia's affected areas, and then there was also an impact from the COVID-19 virus.
By July 2020, the unemployment rate for the state had increased to 7.9 per cent, reflecting the deleterious impact of COVID-19 on demand.
Houses in Adelaide: steady as she goes
As mentioned in RiskWise Property Research's Risks & Opportunities reports, despite low building approvals, demand for houses is projected to remain moderate.
However, most houses in Adelaide are owner-occupied with a long holding period, exceeding 10 years.
Detached houses are likely to deliver some modest price reductions in the range of 3 to 6 per cent in the short term.
However, the resilience of the market is projected to vary greatly across the state.
For example, houses in areas close to the Adelaide CBD, such as Adelaide Central and Hills, are likely to show better resilience and moderate price reductions, in comparison to softer markets, such as the Barossa - Yorke - Mid North area.
For houses, some sub-regions have delivered some solid capital growth over the past 3 years.
Over the past 36 months, house prices in some SA4 regions have Adelaide have delivered moderate median price growth, including in Adelaide Central & Hills (6 per cent), Adelaide West (7 per cent), Adelaide South (5 per cent), and Adelaide North (5 per cent).
At the suburb level house prices have performed well over 5 years in Port Adelaide (39 per cent) and some adjacent locations, as well as in a number of well-located suburbs such as Croydon Park (24 per cent), Devon Park (27 per cent), Mansfield Park (33 per cent), Woodville Gardens (29 per cent), and Beverley (23 per cent).
Several suburbs in Adelaide West have also experienced solid median price growth over the past 60 months.
Caution warranted regarding unit supply
The demand for units, despite strong affordability in South Australia, is generally low, and units are not considered a popular dwelling option among families.
Further, as previously reported, there are a small number of areas with unit oversupply, such as Adelaide Central and Hills which has the highest rate of oversupply in South Australia with some 2,696 units in the pipeline.
This equates to a potentially significant uplift in the local stock of more than 8 per cent, which will take time to absorb.
This unit oversupply relative to demand has led to unit price declines of 2 per cent in Adelaide over the year to July 2020, according to CoreLogic's latest figures.
COVID-19 has also had a material impact on the demand for rental properties with increased equity and serviceability risk.
Overall, units in South Australia are likely to experience price reductions in the range of 3 to 8 per cent.
In particular, off-the-plan units in higher-density developments, which are unsuitable for families, carry the highest level of risk.
The bulk of the new unit supply is set to be in the Adelaide Central Business District, with 1,266 units in the pipeline over the coming 24 months, representing a significant potential uplift in the established dwelling stock of 13 per cent.