Housing affordability and ultra-low interest rates drive strong results for detached houses.
As projected, the SA housing market and particularly Adelaide, has improved noticeably, with good demand for houses that delivered capital growth of 3.7 per cent in the past quarter. Units experience softer demand, with unit prices delivering modest capital growth of 0.8 per cent during the quarter, with some areas experiencing a high supply of rental apartments.
Housing affordability in SA is substantially better than in other states, and combined with ultra-low mortgage rates that makes it cheaper to buy than to rent, delivering further strong demand for houses.
In the short-term house prices are projected to deliver solid capital growth, with 5-8 per cent price increases expected over the next 12 months.
While price growth is also highly likely in 2022, it should be noted that unless there are structural changes in the SA economy, medium to long-term employment and population growth, and consequently capital growth, are likely to be modest.
It should be noted that the strength of the market is projected to vary greatly across SA. For example, houses in areas close to the Adelaide CBD, such as Adelaide Central and Hills, are likely to perform better, in comparison to softer markets, such as the Barossa - Yorke - Mid North area, and particularly over the long term.
As previously mentioned, despite good affordability, the demand for units in SA is generally low and units are not considered a popular dwelling option among families. Furthermore, there are a small number of areas with unit oversupply, such as Adelaide Central and Hills which has the highest rate of oversupply in SA with 3,063 units in the pipeline (8.8 per cent increase to the current stock).
For the foreseeable future, rental apartments carry a relatively higher level of risk. There have been large increases in rental listings and also large drops in rent in the Adelaide Central and Hills area, increasing the serviceability risk, particularly for highly leveraged inventors relying on rental income and taxation planning to service their mortgage payments. Mortgage arrears in those high-supply areas should be closely monitored.
Overall, units in SA are likely to experience price reductions in the range of 3 to 8 per cent. Off-the-plan units in high rises, which are unsuitable for families, carry the highest level of risk.