Hobart’s sleepy market stirs, but for how long?
With the influx of tourism from China and the subsequent growth in the employment market, Hobart is looking at a good short-term run ahead
The city of Hobart is expected to sustain growth for a couple of years at least, says Paul Glossop, founder and director of Pure Property Investment.
Vacancy rates in this capital are tight, and demand is rising.
Moreover, cash flow opportunities are predicted to be good until 2020.
Glossop credits these improvements primarily to tourism, and expects this trend to continue in the next three to five years.
“Hobart has a good employment horizon based on the strengthening tourism sector and agricultural sectors,” Glossop says.
Given that unemployment rates are a significant game changer in the property market, this is very good news for the state.
Glossop highlights the middle- and outer-ring suburbs situated 10–25km from the city as looking particularly ideal for cash flow investors, with properties that consistently generate 7–8% yields.
In addition, suburbs 15–20km from West Hobart provide excellent returns while being affordable.
“Some pockets of the market there are only just now coming out of the flat cycle,” Glossop explains.
In May, Domain chief economist Andrew Wilson reported that Hobart’s vacancy rates were hovering at roughly 1%.
Cameron Kusher, senior research analyst at CoreLogic, also reported in May that Hobart was one of five capital cities to record an increase in rents over the previous 12 months, alongside Sydney, Melbourne, Adelaide and Canberra.
He indicated that rental rates in Hobart were at a “record high”.
Hobart suburbs strengthening
The median rental rate for houses is a solid $300 per week, providing investors with a significant yield of 6% and a good weekly cash flow of $36.
This indicates that properties here are not difficult to maintain.
Clarendon Vale is the suburb with the second-highest price growth in Tasmania at 37% over the past 12 months.
It has managed to balance this with a healthy 7% rental yield and a strong cash flow of $42 per week, reports CoreLogic.
This potential for capital growth while generating positive rental returns confirms the strength of the market in the region.
The house market in Rosebery is among the three most inexpensive in the state, according to CoreLogic.
However, the suburb reports 6% growth over the past 12 months, up from a 1% decline three years ago, likely because buyers favour the affordability.
Yields are very high at 14%, and provide a strong positive cash flow of $79 per week, although the weekly median rent is only $150.
This may illustrate how Hobart suburbs are gaining ground in Australia’s property market.
Long-term prospects: The flip side
However, Kusher reported in May that the number of Hobart property transactions had decreased, although demand remained steady and home values were seeing moderate increases.
He ascribed this to the expense involved in vacating a property (in the form of agent commissions) and buying another (stamp duty).
He expects these factors to contribute to a flattening of prices throughout the year, along with tight mortgage lending conditions.
Yardney also has his reservations about Hobart’s long-term future, although he acknowledges that some experts see the capital as a good investment for “catch-up” purposes.
Specifically, he notes that over a 10-year period Hobart’s home values rose by only 12.7%.
“There are few growth drivers for Hobart property prices,” Yardney states.
“With minimal population growth and slow economic growth, there seems to be little reason for property values in Hobart to grow substantially.
Without a big economic shift to boost employment and sentiment, there is little to suggest that things will change in the long term.”
Glossop also reports that even with the strong tourism industry supported by visitors from China, potential migration out of Hobart in the long term remains a real possibility that investors should keep in mind.
However limited the state finances, the government will need to consider investing in projects that help Tasmania recover from the skills shortage and ‘brain drain’ suffered as a result of the net migration out of the state by residents.
While Hobart looks desirable for now.
It remains to be seen whether Tasmania can use this growth period to take steps towards securing a sustainable future.