Adelaide can quite often be the unsung hero for property investment. We don't make headlines on major booms, and we don't see record breaking market leaps in short time frames such as Melbourne and Sydney.
Whilst rockstar suburbs will always look great in a chart, and can be incredibly enticing, there is something to be said for the more stable regions of Australia.
Whilst there are similarities and differences between property investment and the share market, some of the strategy and tactics will remain much the same.
A balanced portfolio will include speculative investments that stand to make a large amount of return, but also carry a higher degree of risk, but it will also contain some 'blue chip' investments carrying smaller potential reward, but also smaller risk.
We like to think of Adelaide as a blue chip investment when it comes to property, and here are 6 reasons why we think you should definitely consider expanding your portfolio here.
When we look at stats such as the median price for 2 bedroom units across Sydney, Melbourne, Brisbane and Adelaide, we can immediately see that the initial cost of entry into the Adelaide market is considerably lower.
Keeping in mind that the above figures are only a representation of the CBD of each city.
When you start moving into metropolitan suburbs of Adelaide, the entry price point becomes even more significant.
Adelaide has many suburbs that can see entry level established properties (including 3 bedroom houses) much closer to the $250,000 mark than prices we see in the CBD or inner metropolitan areas.
When you are leveraging an existing portfolio and using equity to secure your investment finance, that one hundred thousand dollar saving can make a huge difference on the viability of your next purchase.
We recently helped an investor with a strategy to pick up two established Adelaide houses for their available $500,000 as opposed to buying one apartment in the eastern states.
With our lower cost of entry this quite frequently comes with some great rental yield opportunities. It is not uncommon for some suburbs within the Adelaide metropolitan area to be yielding around the 6 or 7% mark, sometimes even higher.
Like any investment property, it comes down to carefully selecting the property to meet the goals of the investment strategy.
It can also be observed quite consistently that the more expensive one property is, the lower the yield is likely to be.
This chart is just a quick snapshot of randomly selected suburbs from within the Adelaide metro area, but there is a clear indicator that as the median property value goes up, the median rental yield starts to go down.
This can be observed consistently across practically all regions, and we encourage you to check this for yourself.
Whilst it is not constituting a direct inverse relationship between value and yield, we can see that there is certainly a relationship between the two.
With Adelaide's lower cost of entry to the market, it can be a great opportunity to pick up two properties with great yields, as opposed to one property with an average yield!
There is the age old adage that you don't want to keep all your eggs in one basket, and this certainly is as true for property investment as it is for securing any asset.
We find that we speak with quite a few investors who are just more comfortable with investing in their own back yard, knowing that at any point in time they could drive past and see their investment. This may be a fine approach when you have a small portfolio, or a single property portfolio, but as your listings grow you will not even have time to drive past and check them, even if they are all in the same city. At the end of the day, this is what your property manager is for anyway.
It always pays to keep your portfolio diverse, spreading it across many different regions and property types.
You don't want to only invest in suburban homes, or just units and apartments, or just townhouses for example.
Perhaps more importantly, since we know that property investing is all about location location location, you don't want to keep all of your property eggs in the one location basket.
Spreading your investments over multiple geographical areas allows you to mitigate any geographical down turns, whilst also being present for any other location specific upswings that you may have other wise missed.
Regions will not always grow proportionately to one another, some will grow fast, and others will remain stable and consistent. You are better off having both in your portfolio!
Whilst it is certainly true that Adelaide is not generally making national headlines for smashing property records, and growing faster than anyone can make sense of, but we certainly are still growing.
There are certainly similarities between property investment and gambling, however investment has the benefits of being able to research and predict odds in a much less random fashion than the average roulette wheel.
When you see a surging market such as the recent Sydney boom, you can be sure that this will attract a certain kind of investor that sees the opportunity as more of a gamble than a calculated and strategic decision.
Whilst Adelaide may not rise as rapidly as Sydney or Melbourne, this also means that there is considerably less need to worry about a sharp and sudden correction wiping out any of the short term equity gains.
We don't maintain the position that there is a housing bubble per se, but if there was a bubble forming, we see Adelaide as being more resilient to a burst in housing prices, due to the more direct relation between housing cost and resident income. Property prices in Adelaide are much closer aligned with the incomes of the residents than in many other regions, making a much closer connection between the utility function of the asset and the perceived value, resulting in less chance of the Adelaide property market following the same fate as that of a dutch tulip.
Each state government sets its own land tax thresholds and payment structures. These are taxes regulated by the state governments, not the federal government.
The benefit of the land tax being regulated by state governments is that you can spread out your assets across multiple states in order to remain in the lower land tax brackets.
For example, each state has a minimum threshold before they start charging land tax, as seen below:
Tax Free Threshold
Next Bracket Costs
New South Wales
$500 + 1%
$100 + 1.6%
$275 + 00.2%
Each state has their own intervals and charges depending on value of land.
If you are already holding land in NSW, QLD or Victoria, then there is a good chance that any additions to your portfolio in those areas will incur additional land taxes.
Buying your next investment property in Adelaide could be a great way of avoiding some additional taxes.
For example: if you are already holding $482,000 worth of land in New South Wales, and decide to purchase a $500,000 addition to your investment portfolio, and the land component of this is valued at $250,000, then this addition will come with a further $3,000 in land tax every year. If however you chose to spend that $500,000 in South Australia, and your land was once again valued at $250,000, then your land tax increase would be $0 per year, as you would be under the threshold. That is a significant difference! That breaks down to a weekly cost of $57.69 for another NSW property, compared to $0 per week for an SA property. This could be the deciding point between if your property ends up being cash flow positive or negative!
There has been some economic insecurity in South Australia lately, with the closure of Holden's looming in the minds of many. This has not been favourable for consumer confidence in the region, or market confidence in general. However, with the advent of the new Defence Projects that are being rolled through, the South Australian Economy has never been in a more secure position.
South Australia now has an impressive line up of defence projects that are to be built here.
There was some nervous times around this city as we awaited the final word on whether South Australia would secure the new submarine contract to be built here, and the 1700 direct jobs (not including the flow on effect employment created) that would come with it.
However, it is now confirmed that the future of the Australian Submarine program will be constructed here in Adelaide.
The construction does not commence until the mid 2020's, which leaves some potentially great opportunities for the wise investors amidst our great nation.
Our most recent ship building contract for the Air Warfare Destroyers is winding down currently, which is not having a particularly great effect on unemployment, the economy or the housing prices in the region. However, we also know that this is now definitely about to change.
There are a string of defence projects that are scheduled to start, which will inject quite a lot of money into the local economy, but they are not started quite yet. This leaves a golden gap of opportunity for investors to enter the market before we start trending up.
We have the almost immediate upgrade of the Osborne Ship Building Yard so that it can accommodate the increased needs for the submarine builds to come, we have a new fleet of offshore patrol vessels commencing in 2018, and then in 2020 we commence building 9 new frigates, followed up in the mid 2020's with the 12 submarines to be built, spanning right into the 2060's.
These defence projects have just secured the South Australian economy for the next half a century or more, and they have not commenced yet.
There has never been a better time to start thinking about expanding your property portfolio into Adelaide and South Australia!