Let’s start this blog with a text I received last weekend from an expat living in Melbourne.
“I was hoping to be back in Adelaide by now, but it will be a 50/50 if we can get out by Christmas! Melbourne is stuffed and will be for years to come…… it’s been like living in some Eastern European communist country since July with curfew and only able to travel more than 5km from your home. The Police here have become very aggressive as well during this time.”
If we apply the iceberg principle, there must be thousands of people with similar feelings and why wouldn’t they want to return to the safest State in the safest Country in the world. 2020 may well be remembered as the year when the brain drains stopped, and that generation lost to South Australia finally returns to the nest.
South Australia has had a tough time since the GFC and one of the reasons is emigration. In the same time period Melbourne has enjoyed population growth to the extent that it is the fastest growing Metropolis of the major cities of the world. Our economy is only a quarter of the size of Victoria and any reversal in the population trend is going to have a very significant influence on how we thrive from here on. South Australia used to be known as the ‘backwater’ but that’s where we built submarines. There are many features in SA that will excite our expats and should excite us all as well.
Firstly, the cost of housing in SA is 40% cheaper than NSW & Victoria and Adelaide is the cheapest mainland capital city. Now that the home office for employees is the “new normal” many will look at the option of buying and living in SA whilst working for bosses in other places. Secondly the cost of living in Adelaide is so much cheaper where Sydney is dearer than Manhattan and Melbourne as much as London. Our climate is more moderate, our beaches are cleaner and closer and our major wine districts are less than an hour away, north or south. Sydney and Melbourne can’t match that.
We will never match the mining giant of WA but by the end of next year we will be officially the biggest copper exporting State in Australia at 30%. The Gawler Craton is the largest mineral deposit of copper, gold and uranium in the world. Our agricultural and food exports are booming, and our tourist attractions are beckoning. If education of your children is your priority, then our institutions in SA are world class and if top end jobs are your demand then our Defence and Space sectors are ready and waiting. There is plenty to get excited about but how does this all relate to real estate.
Leaving aside the very buoyant second-time home buyer sector, the residential market has been flatlining for too long. An example. A 2-bedroom unit in Henry Street, Plympton, purchased 7 years ago for $287,000, and today we will accept an offer around $265,000. It is rented at $295 per week and after deducting rates and taxes and allowing for an 80% investment loan at 3.2% you still have $5,460 positive cashflow. You can’t do that in Melbourne. The only sector that is over-supplied in the short term is high-rise student accommodation but that is more of a problem for the Universities, not the general investor. Sure, Air BNB has screamed to a halt due to the pull back in tourism but that will rectify very quickly once our state borders are reopened.
The second-time home buyer sector is buoyant because of a serious under-supply of stock. That scenario is going to get worse when the expats start arriving. But the resultant price rises will encourage retired Baby Boomers to finally sell up and move into the apartment market which will create a boom in that sector and at the same time settle down prices in the other.
I mentioned it briefly in my previous blog and I iterate. The 4th Revolution is creating an underclass of people who are under-employed meaning they are capable of doing more work, but the work is not available to do. In the short term they don’t have the option of home ownership. Build-to-Rent is the answer. The buildings will be large and comprehensive in their service and fit-out and will provide accommodation for people from singles up to mature families with 2 children. The buildings will provide 1, 2 and 3-bedroom accommodation which will allow the tenant to graduate to a larger apartment within the building as their family grows to its ultimate size. The Build-to-Rent concept will offer tenants security of tenure that is currently not available in the private rental market. Investors in Build-to-Rent projects will buy units in a Unit Trust structure rather than owning a Title to a property. This is an outstanding opportunity for Superannuation Funds, large and small. The transition to this new accommodation style will be gradual however if you own old un-upgraded unit then you are advised to reconsider your investment strategy either by upgrading to a higher standard or selling.
In a low interest, no inflation environment, residential property in South Australia is due for a catch up.
-------------------------------------------------------------------------------------------------------------------------------------
NO XMAS DRINKS!
For the first time in 33 years, the traditional Jackman & Treloar Xmas Drinks will not be held.
We respect the fact that many participants feel reluctant to join in such a celebration at this time due to the obvious anxiety associated with the pandemic. Rather than hold an event with the obvious risks associated, we have decided that we will make a big effort for Xmas Drinks 2021 when we celebrate the end of our 120th Year. Invitations will be extended to past employees and old clients for an opportunity for us to celebrate this milestone but also to say thanks to everyone associated with the success of our real estate agency at Jackman & Treloar.