A Deep Look Into South Australia’s Economy: December 2017

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A deep look into South Australia’s economy: December 2017 

South Australia’s economy has been in a state of constant transformation. The 2000’s experienced a China boom, which increased interest and exchange rates. Yet, our state didn’t leverage this shift, being vulnerable to high currency and credit costs. Today, though, Australia’s economy has an entirely new landscape. Interest rates are at record lows and our dollar sits closer to the long run average.

Economy & population.

As young people start to favour liveability, professionals are paving their careers in South Australia, as opposed to Sydney and Melbourne. This is driving optimism in our economy. That said, our economy does face challenges. The loss of manufacturing in our state has changed what has long been our shrinking share of Australia’s economy and population. In 1986, the economy accounted for just under 8% and now it’s at 6%. The late 80’s also recorded an 8.5% population share, which is now 7%.

Economic growth & unemployment.

Chart 4.pngWhile Australia’s economic movement has been relatively steady. It’s fluctuated no more than 2% in 15 years, between 2001-2016 – from just under 2% to 4%. Whereas South Australia’s GSP growth is much more extreme. In 2001, it was just below 5% and increased to 5.5% in 2007, then plummeted to less than 0.5% in 2016.

South Australia has experienced unemployment issues in the past 15 years. Between 2005 and 2011, it sat at around 4.5-6%, then progressively grew beyond 8%. This year, it sits at below 6%, for the first time since 2013 and well below the intervening high of over 8% according to BankSA Trends Report.

With optimism around the global economy improving, the outlook for our state is brightening accordingly. The gap between the state’s unemployment rate and that nationally has eased a little of late.

South Australia has experienced unemployment issues in the past 15 years. Between 2005 and 2011, it sat at around 4.5-6%, then progressively grew beyond 8%. This year, it sits at between 6%, for the first time since 2013 and well below the intervening high of over 8%.

A changing hallmark of the state: From manufacturing to wine.

Manufacturing used to set the economic benchmark of South Australia. But, this has changed. As car making is shrinking, other sectors such as food and beverages are doing better. Our state’s strong farming industry allows for world-class wine production, for example. We have almost 80% of Australia’s premium wine production, with just under half of Australia’s vineyards situated in South Australia.

Food and beverage product manufacturing has been increasing as a share of total jobs, to around one in three workers, compared to one in four (in manufacturing). This ties into an increasing affluent Asian consumer demand, combined with additional trade access.

Since the entry of the South Australia Free Trade Agreement (ChAFTA), wine exports to our Asian neighbour have increased by over 50% in 2016 – according to the Winemakers’ Federation of Australia. Before the agreement, Australian wine exporters paid a 14-20% tariff, which will be eliminated by the start of 2019. This will further increase collaborations with China and boost our economy.

What does this all mean for real estate?  

Let’s look at some statistics.

Housing finance commitments & building approvals.

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These have levelled this year, since the peak increase in mid-2016. Nationally though, there’s been a second wind, reaching nearly 21,600. This could be due to the slow population growth in SA which continues to provide weak data. Yet, the value of residential building approvals has skyrocketed, along with commercial construction. This is thanks to the $400 million budget allocation towards hospitals, schools and learning centres.

The local housing market has potential to stall as housing finance committments continue to fall. 

Medium price of house sales & renters.

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While house prices continue to rise Australia-wide, Adelaide (and Perth) are the exceptions. Adelaide recorded a 2% drop to $451,000 in July 2017. The number of loans to first home buyers was above what was recorded a year ago from this same quarter. However Adelaide remains very affordable compared to Sydney and Melbourne as it has not experienced the same price surge. 

As APRA has tightened lending to temper the growth in Melbourne and Sydney, this national policy also affects the real estate prices in Adelaide. Hence Adelaide remains in a micro economic climate of never experienceing booms and being tempered by national policy which also saves it from experiencing any busts. This gives Adelaide a reputation as a save haven for real estate investing. 

A low inflation and weak income growth has resulted in a slowed rental market across the nation. However, Adelaide’s rate grew slower. Room occupancies have increased since 2013. South Australia has welcomed more international visitors, recording a stronger rate than other states. This is also in line with our state’s 5% tourism share.

Weekly earnings & investments.

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Local wages are growing steadily, faster than the national average. The gap between SA’s wages and Australia’s is now the smallest seen for almost a decade. Currently, South Australians earn an average of $1,500 per week, while other states pocket $1,600.

Housing construction fell recently, on the back of a period of strong growth. Weak population has led to constrained housing demand and less construction.

The real estate market in South Australia is looking towards a positive future. While many factors influence the industry, things have never looked better for housing in our state. It’s a good time to enter the market, as house prices with the drop in house prices and the increase in loans being offered to first home owners.

Download BankSA's full Trends Report. 

 

 

 

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KingsCoin are a leading boutique property development business based in Adelaide, South Australia. KingsCoin create investment opportunities, as well as offering investment strategy, project and property management services tailored to your needs. KingsCoin seek to maximise your returns at every possible opportunity.