Jul 04, 2016
The problem for a long time has been the underlying economy. Tasmania has been the perennial weakest performer among the states and territories. It has been last on population growth and an enduring reputation as the "basket case" among the state and territory economies.
Many people still believe this is the case. But much has changed.
Part of Tasmania's problem in the recent past was a minority government. Now it has a much stronger and more proactive one. Part of the problem was a lack of economic growth. That has changed too. The Tasmanian economy is now performing well. Tourism is strong, helped by the low Australian dollar. Other sectors, including construction and agriculture, are rising.
On some parameters, Tasmania is now leading the nation. After years of recording Tasmania as last or second last on every economic indicator, it's good to report positive changes.
And the property markets of Tasmania are responding to those positive changes.
In some ways, it feels like 2003. Back then, there was a major national property boom. Cities like Melbourne had had three years of massive price growth (much larger than we've seen recently in that city). Eventually the boom rippled across Bass Strait to Tasmania. Mainland investors noticed the cheap prices and the high rental yields - and Tasmania had two years of strong price growth.
Similar conditions exist now. Melbourne has had 2-3 years of strong market activity and solid price growth. As that cycle peaks, investors are looking elsewhere. Hobart is attractive because (1) it has the lowest dwelling prices in capital city Australia; (2) it has the lowest vacancy rate among the capital cities; and (3) it has the highest rental yields among the capital cities.
The median dwelling price for Sydney is $780,000 and Melbourne is $585,000. In Hobart, it's $330,000. The median rental yield for houses in Hobart is 5.6% - the next best is Brisbane's 4.8%, while both Melbourne and Sydney are below 3%.
In those terms, Hobart starts to look attractive.
Elsewhere in Tasmania, investors should also consider Launceston and Devonport in the northern part of the state, where affordable prices and high rental yields are now being underpinned by strengthening local economies.
Here's another way in which thinking to the future makes Hobart and Launceston relevant. Imagine what will happen if Labor wins the Federal Election and implements its policy to scrap negative gearing. Where will investors buy?
I would suggest they will reject expensive markets with low rental yields, like Sydney and Melbourne, and focus on cities with cheaper prices and rental returns sufficient to provide positive cashflow - cities like Hobart and Launceston.
- This in an excerpt from Terry Ryder's (of www.hotspotting.com.au) June Property Report