Tough times eased by affordability spectre
Economic conditions in Tasmania remain difficult, but they result in affordable prices that could work favourably for investors
Coverage of the economic trials and tribulations of Tasmania, and its property market, has not been encouraging for some time and recent data shows the island state continues to struggle.
BIS Shrapnel Business Research and Forecasting senior manager Angie Zigomanis says his organisation’s latest research indicates the Hobart market is suffering from a period of overbuilding, combined with weakened population growth and, in response, less demand for new dwellings.
“This means the current excess supply will continue to persist over the next three years,” he says. “Low interest rates will be the only positive for house prices in this period, with growth in Hobart’s median house price forecast to be limited to a total of 4%, and reflecting a decline of 5% in real terms.”
On a slightly more positive note, ANZ Head of Property Research Paul Braddick says the latest Property Council of Australia-ANZ Property Industry Confidence Survey, reveals a less pessimistic outlook for the Tasmanian property sector. It shows the Tasmanian confidence index increasing 13 points to an index value of 96 in the June quarter.
“While this result does reflect expectations of continued weak economic activity in Tasmania, the slight improvement in expectations was probably buoyed by the combined positive impact of recent major property redevelopment initiatives [Parliament Square and Macquarie Point redevelopment] and house price gains in recent months,” he says.
Tasmanian-based My Property Hunter principal agent Rob Zubin says the market will continue to hover around the mark it is currently at now for some time. “The economy is stabilising and there will be opportunities for investment and growth in time, but right now we are still in a holding pattern.”
The result of the economic battering Tasmania has taken over the past few years has been low levels of investor confidence and property prices, which have adjusted accordingly, he says.
“There is still not enough growth and companies have fallen by the wayside. But the market is going to improve - slowly. It will probably take at least 12-18 months, but it will happen.”
Once confidence increases, investors should start reconsidering Tasmania as an area to undertake major infrastructure work, and projects, in, he continues. “Unfortunately, in the past, red tape has acted to hamper such development. It was just too hard for them. Now there needs to be governmental understanding that it is necessary to be more accommodating. But I believe that will happen.”
The silver lining of affordability
Not surprisingly, in the latest RP Data-Rismark eight capital city aggregate index, Hobart is found to be Australia’s most affordable capital city.
RP Data senior analyst Cameron Kusher says this does reflect the state of the Tasmanian economy and the fact there are not a lot of drivers for the economy there.
“So, yes, it is affordable – but unemployment is high, employment participation is low, there is virtually no big business in Tasmania and the rate of population growth is tiny.”
However, Zubin believes the affordability of Tasmania should make it attractive to investors. “Investors need to take the emotion out of buying and look at the fundamentals. Property is a medium to long term investment, so… Tasmania gives you the opportunity to buy in a low market and then capitalise later on market improvements.”
The Tasmanian market offers excellent affordability for properties in a major capital city, he says. “There are good vacancy rates (4.5%) and excellent returns on properties just minutes away from the CBD.”
According to Zubin, the one thing it is possible to guarantee is when the market starts to look up, investors will say “if only I had brought property six months ago, when the prices were really low and it was possible to get a good deal”.
He says when the economy eventually picks up, canny investors will not need to do anything and will benefit from having brought at a low time in the market.
Mortgage performance decline
Meanwhile, in the latest Fitch Ratings mortgage delinquency report, Tasmania’s Montrose was ranked as the worst-performing postcode by number of mortgages in arrears, with 33 borrowers out of 1,000 in delinquency. The report notes Tasmania’s unemployment rate increase was refl ected in the slight increase in 30+ days delinquency rates, despite decreasing mortgage rates.
Fitch Ratings primary analyst James Zanesi says it is the first time the postcode has made the top 20 worst performing postcode list.
“In 2008, Tasmania was one of the best performers so, in comparison to historic levels, this represents a significant deterioration.” The change in Tasmania’s performance ultimately came down to the state’s economic situation – with unemployment sitting at higher than the national average and a stagnating economy, Zanesi adds.
Suburb to watch
South Hobart
Close to the CBD and bordered by some of Hobart’s most desirable suburbs, South Hobart features a number of the most beautiful homes in the city. It also boasts a world heritage listed site [the Cascades Female Factory], Australia’s oldest brewery, and the architecturally notable All Saints Anglican Church.
Known for its high green vote – which is reflected in the existence of a prominent community sustainability network – the suburb is also next door to the affluent and sought-after suburbs of Battery Point and Sandy Bay. Zubin says this location makes South Hobart highly attractive to investors.
“It benefits from the same services and infrastructure as those higher end suburbs but is much more reasonably priced,” he says. “Long term it holds a lot of potential… It is great you can buy something for a pretty moderate price in South Hobart and it is right next to the far more expensive Battery Point.”
Zubin emphasises South Hobart being just a few minutes’ drive from the CBD and high end suburbs should be a significant price consideration for bargain hunters.
However, he says investors should be careful where they buy in relation to the hills and the sun. “Weather and light considerations are important in this area. Do make sure you consider the environment of the property you invest in as well as buying a nice house.”
