After early signs of a recovery last autumn, the Tasmanian market has fallen back into a lull. Could positive cash flow suburbs jump-start the island’s market?
Tasmania’s property market has rarely been one characterised by booms and busts, instead being one that quietly chugs along. However, it is also one of the most difficult to read, due to its small market size.
Even so, the latest CoreLogic RP Data figures seem fairly conclusive about the state of Tasmania’s biggest city, Hobart. The research firm’s August figures reveal that property prices in the Tasmanian capital are holding firm despite a sluggish economy and an unemployment rate of 6.7%.
Average dwelling prices increased by 1.7% in the three months leading up to 31 August this year, with growth from September 2014 to August 2015 at 1.4%. There’s no risk of the island losing its crown as Australia’s most affordable state though – the average dwelling price still hovers around $300,000.
Even so, the general forecast for the Tassie market is little or no value growth for the foreseeable future. The only markets showing any meaningful activity are the urban centres of Hobart and Launceston: Property Power Partners founder John Lindeman says there are “zero prospects” for any locations outside of Hobart.
“Rural Tasmania is fantastic if you’re looking for solitude,” he says, “but it’s not a realistic investment prospect in any way.”
Domain chief economist Andrew Wilson says a turnaround in the state’s economic fortunes will be key to any improvement in the picture.
“An economic revival will be key to sustained price growth, and that’s a problematic outcome given that it’s been an underperforming economy for some time now,” he says.
Wilson adds that a lower dollar could help the state’s fortunes.
“There is a lot of niche industry in Tasmania that hopefully a lower dollar will activate in terms of exports,” he says. “It looked like tourism would be a strong element of that market, but that industry seems to have drifted sideways following some promising growth.”
Yielding to the pressure
Capital growth may be a pipe dream for many Tasmanian property owners, but there is a flip side that may be welcomed by investors.
Hobart and Launceston are home to some of the lowest vacancy rates in Australia.
SQM Research reports the average vacancy rate in Hobart as 1.2%, with several suburbs seeing vacancy rates of less than 1%.
In addition, rental yields in Hobart are among the highest seen in urban areas across the country – second only to Darwin, according to the latest CoreLogic RP Data figures.
Indeed, Lindeman says positive cash flow properties can be found in some of Hobart’s outer northern suburbs – places like Chigwell and Claremont – although he cautions that investors looking for capital growth will be disappointed.
That may not matter to investors looking to build a portfolio in the current market, however. It has been widely reported that many banks are tightening lending and serviceability requirements for investors.
The ability to produce cash flow could be critical for investors seeking to build and maintain a portfolio: Tasmania could therefore provide a useful source of affordable, high-yield and easily rentable properties for interstate investors looking to prop up the rest of their portfolios.
Spring outlook
- Market conditions: Flat for growth; healthy rental markets in urban centres
- Segments to watch: Outer-ring suburbs with extremely low vacancy rates, high yields and affordable properties
- Segments to avoid: Anything outside Hobart or Launceston
- Potential hotspots: Chigwell, Claremont
SUBURB TO WATCH
South Hobart: Desirable suburb close to the CBD
South Hobart has plenty of tranquil parks, gardens, as well as the beauty of Mt Wellington. It’s hard to believe this suburb is just a few kilometres from Hobart CBD.
This year $1.65m was approved by the government for the South Hobart Community Hub – Stage Two project. Moreover, the conversion of the former South Hobart Primary School into a $2.3m innovative arts and culture centre is set to create more jobs for the area and better services for residents.
DSRdata.com.au reports 0.56% of house stock on the market and a vacancy rate of just 1.33%. OnTheHouse.com.au is also predicting healthy 5% growth over the next eight years.
There are plenty of charming cottages and brick character homes in this suburb. Houses on Huon Road have stunning city and river views. While three-bedroom multilevel houses might cost over $500,000, the spectacular scenery coupled with proximity to excellent amenities suggests that’s a good deal.
