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Adelaide property could face tough times

27 Jun 14

The next few years could prove a testing time for the Adelaide property market, especially if the construction of new homes outstrips demand.

This is a situation that arose in South Australia following the surge in construction activity after the global financial crisis, although housing stock was largely absorbed in 2012-13 and 2013-14, said BIS Shrapnel.

While this led to some improvement in prices, it was not a sustainable means of keeping the property market on an even keel, the Residential Property Prospects 2014 to 2017 report shows.

BIS Shrapnel senior manager and study author Angie Zigomanis revealed how South Australia is now in the middle of another rise in construction activity.

This is largely in response to the incentives currently on offer to first home buyers, which are encouraging them to seek real estate advice before getting onto the property ladder.

"The rise in construction will coincide with slowing underlying demand as net overseas migration inflows ease, causing the excess dwelling supply to increase and vacancy rates to rise," said Mr Zigomanis.

"With the state continuing to face economic headwinds, there will be little to place upward pressure on prices apart from low interest rates."

BIS Shrapnel figures show the median house price in Adelaide currently stands at $415,000, marking a 4 per cent rise from June last year.

However, the group forecasts that prices will experience limited growth of just 5 per cent over the next three years. In real terms this will represent a decline of 4 per cent.

At the moment, buyers are benefiting from a low interest rate environment, but BIS Shrapnel believes the Reserve Bank of Australia may implement rises as early as next year.

Data shows the current standard variable rate product stands at 5.95 per cent, which is the lowest it has been in 40 years bar the low interest rates brought in following the global financial crisis.