State of the Tasmanian property market
After years of slow to negative price growth, Hobart's property market is finally rebounding. In fact, it's now the third fastest growing market in Australia, just behind Sydney and Melbourne. But can this strong performance continue?
- Property market continues to strengthen, albeit from a low base
- Affordability fuels demand
- Higher returns attract investors
- Median rents are growing the fastest across all other capital cities
- Population is growing at the fastest rate since 2011
- Unemployment rate is dropping
- Vacancy rates are falling
- Export earnings are growing at double-digit rates
- Oversupply on a national level has been a concern for some time
- Limited property price growth over the medium term
- Median house price to rise by a total of 7% over the next years, a 1% fall in real terms
- Unit prices to remain flat over the same period
Key infrastructures to watch for
- $2.3 billion wind farm on the old Gunn’s pulp mill site
- $500 million Midlands Highway upgrade
- $657 million Royal Hobart Hospital redevelopment
- $185 million ecotourism resort at Little Musselroe Bay
- $250 million Devonport ‘Living City’ Urban redevelopment
Sources: BIS Shrapnel, Deloitte Access Economics, CoreLogic RP Data, Domain
What's in store for investors in Tasmania and Hobart?
The growth momentum in Hobart’s property market appears to be gaining traction with the July 2016 stats from CoreLogic RP Data showing dwelling values climbing by 5.2% during the quarter. Median house price rose by an impressive 9.7% over the year while median unit price surged by 10.7%. Granted that the market is smaller and more volatile, this is still an impressive showing. “The strength in the Hobart market comes after a long period of underperformance, where home values in the city increased by only 1.4% per annum over the past ten years,” says Tim Lawless, research director with CoreLogic RP Data. “Potentially, the Hobart housing market is being fuelled by the sheer affordability of housing and a renewed trend towards Melbourne and Sydney buyers unlocking their equity to make lifestyle housing purchases.” With lower interest rates stimulating investor activity, prices are expected to continue to climb even higher.
While rents remained unchanged at $285 for units and $350 for houses over the June quarter, Hobart has recorded the fastest rate of rental growth out of all the capital cities, according to the Domain June Quarter Rental Report. Median rent for units grew by 5.6% and a 6.1% rise for houses, over the past year. Vacancy rates fell to 1.6% for units and 0.6% for houses. “After a strong year of growth, Hobart rents remain steady but at record levels. While the city still lays claim to the most affordable prices, it also has the lowest vacancy rates for an Australian capital city, suggesting tenants may see increasing price pressure,” says Andrew Wilson, chief economist with Domain.
Demand and supply
Angie Zigomanis, senior analyst with BIS Shrapnel points out that the Tasmanian residential market has been in oversupply for some time due to a substantial supply response to significant first home buyer grants for new dwellings that were as high as $30,000. However, he notes that dwelling commencements are declining and are on track to fall below underlying demand in 2016/17. “Tasmania is also experiencing an improving net interstate migration outflow, which is expected to move into a net inflow in 2016/17,” says Zigomanis. “The growth in interstate arrivals will largely be tree change migrants from the mainland (mainly New South Wales and Victoria) who are expected to increasingly take advantage of recent price gains to sell their homes to downshift to Tasmania. There are also returnees from the mining states as resource sector investment dries up.”
With Hobart benefiting from the improving interstate migration, as well as for migrants from the rest of the state and together with low-interest rates, this should help to support modest price rises in the city, despite the oversupply at the state level according to Zigomanis. As such, Zigomanis is expecting Hobart’s median house price to rise by a total of 7% over the next three years, although this still reflects a decline of 1% in real terms. However, units are expected to suffer as investors respond to limited rent and price outlook. Unit prices are expected to remain flat through to 2019.