A time for yield
Tasmania has been hit hard by global economic uncertainty and will probably take the longest to recover, but rising rents and softening prices may reward you with yield growth.
Early 2012 prospects are not good for Tasmania, according to Andrew Wilson, senior economist at APM.
“[Median house prices] have fallen by around 4% again in this correction phase over the past 18 months, but there is no real sign that there will be an increase in buyer activity,” he says.
“The unemployment rate in Hobart is the highest now for a couple of years at the 5.7% mark and has been heading upwards quite rapidly over the past few months. This reflects a lot of pessimism about the current prospects of the Tasmanian economy.”
Wilson believes that like the rest of the country, Tasmania suffers when confidence is down in the broader economy, but it does not have the exposure to the resources sector or large commercial interests that soften the blow for some of the other states.
“It is a very small economy and relies on a mixed bag of economic activities to generate its output,” Wilson says. “It is struggling at the moment and we expect very low buyer activity for 2012 and not much improvement in house price growth.”
Wilson anticipates growth of 0–3% in the Hobart market for the year, but much closer to 0% than 3%. “The prospects of it going backwards during 2012 are probably becoming more realistic, so I am bearish about Hobart in that 0–3% range,” he says.
Wilson says monthly approval of housing loans is down to its lowest in quite some time, indicating a lot of downsizing, which puts downward pressure on median price growth. He believes such trends are unlikely to change in the near future.
“Australia’s prospects are still strong and the US is showing signs of recovery,” he says. “East Asia is still pretty good and there is some sense that the Eurozone issues are being resolved. The global economy should recover by the end of this year and eventually growth will filter through to Tasmania, but I can’t see that happening in 2012.”
Andrew Peck, president of the Tasmanian division of the Australian Property Institute, is pessimistic about the next 12 months and expects a softening of prices, but believes there are investment opportunities for those interested in rental yield.
“It’s not a bad time to invest if you’ve got the capital,” he says. “The vacancy rates are still tight at roughly 2% across the state and rents are still rising. You will get a positive growth on your yield, considering negative interest rates and price softening. You may just have to sit for a while to get any capital growth.”
Peck believes that while unemployment is a large concern, recent interest rate drops have been well received and established areas should stabilise relatively soon.
“We are expecting the north-west region to bounce back first, purely because it went into [negative growth] first. Hobart has been the last to go in, but as the main population centre it should bounce back quicker than others,” he says.
“In the north-west, Burnie is showing signs of stabilising on the back of the west coast mines, which are currently doing OK.
“A $400m spend on a wind farm for the state’s north-east tip has been announced, which should have a good effect.
“Hobart has just had its first quarter of negative growth, but now has the Myer redevelopment, featuring a retail centre and boutique hotel, so there are some positives in there,” Peck says.
