Tasmanian investors are eating humble pie again as many come to terms with a scary proposition – their properties could stay empty

There seem to be only two certainties when it comes to Tasmanian property of late – bad news and even more bad news.

The state’s shrinking property values, unemployment and economic woes have all made headlines, but now another slap in the face has come – and this time it has left a mark.

After years of depopulation and something of an oversupply of housing, the state’s rental market is in serious trouble. Real Estate Investar August figures show that out of the state’s 38,000 odd rental properties, 4.5% are vacant.

A vacancy rate of 3% is normally a sign that a market remains balanced. Anything higher indicates a rental market where landlords are struggling to tenant their properties.

Real Estate Institute of Tasmania president Adrian Kelly says the high rate of vacancies has emerged within the past 12 months. He says for many years, the statewide vacancy rate hovered around the mark of 1% to 2%, but the fact it has doubled over the past year is alarming.

“The Tasmanian rental market continues to be a concern after many years of there being a shortage of properties in the public and private sector,” he says.

Kelly adds this is being made worse by tenant complaints that they cannot afford their rent or that it is over-priced. “Property owners have an expectation for the return on their investment. But if property owners have a vacancy, they may have to, in some cases, decrease the rent, otherwise they risk not having any tenants for a time with no income at all,” he says.

That this situation is emerging should be no surprise to investors, Kelly says, pointing out the state’s economic struggles would inevitably affect the rental market.

“Many investors are buying and selling residential properties for 5% to 10% less than the previous market price. Why wouldn’t investors also accept that unfortunate reality with their rental property?”

Confidence lost

In a more bittersweet development for Tasmania, the latest Property Council- ANZ Property Industry Confidence survey shows confidence in the state’s property industry has improved.

The survey polled more than 3,100 professionals from the property and construction sector in all states and territories for their views. The survey placed Tasmania at 86 points on its current measure, an improvement from 73 in its last survey. This figure put the state among Australian markets where property confidence levels are the lowest and, although an improvement, its score was only one point away from the country’s lowest score.

The Property Council’s executive director for Tasmania, Mary Massina, says it was the fourth consecutive quarter of negative sentiment for the state’s property and construction industry and says it shows a lot about where investors’ heads are at.

“Despite the statistical bounce in sentiment upwards this quarter, there is no joy here for the industry,” she says.

The knock on

ANZ head of property research Paul Braddick agrees low confidence levels are a reflection of the wider problems the state is experiencing.

“The pessimistic view reflects weak economic activity in the state with a negative trend in state final demand, the unemployment rate increasing to 7.3% in May 2012 and house prices [falling],” he said.

Braddick adds a subdued outlook for the Tasmanian economy over the next year and weak construction activity expectations present further risks for Tasmania’s property industry through the remainder of 2012.

Least favourites

As perhaps another sign of low confidence levels in Tasmania, Your Investment Property recently ran an online poll asking investors to detail which areas they were most likely to invest in over the next six to 12 months. Less than 1% of respondents chose Tasmania – lower than the percentage who said they would invest overseas.

Other results of the poll showed New South Wales remains the most popular state for investing, with 27% of respondents noting they planned to invest there in the next six to 12 months. This was marginally ahead of second favourite Queensland, where 24% of respondents said they wanted to invest.

Victoria and Western Australia each received a respective 10% of votes.