TAS Excerpt from the 2011 January Market report

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Tasmania: not out of the woods yet 

Depending on where you look, the outlook for Tasmania is one of either steady consolidation or of a market set for decline. But which is right?

Tasmania’s had a bit of a rocky road of late.

Normally famed for its steady – some would say sleepy – investment opportunities, the island has taken something of an economic battering over the last year, with businesses closing – not least a number of pulp mills, the engine room of the island’s forestry industry – and unemployment rising. The forestry industry has also been at loggerheads with environmental groups in recent months, with five months’ of talks resulting in nothing but stalemate.

As a result, it seems that market watchers are splitting into two camps at the moment: one which believes Tasmania will continue on its steady course, and another which sees it as a market on the edge of decline. Terry Ryder, founder of Hotspotting.com, is in the latter camp.

“Everything’s going pearshaped in Tasmania at the moment,” he comments. “It doesn’t really have the economic drivers to promote growth, and having a hung parliament [at state level] won’t necessarily help. I’m not sure about Tassie for the next little while.”

Ryder’s views are borne out by ANZ’s most recent property outlook report.

‘Tasmania’s economy remains in the doldrums, with private investment levels declining and household consumption remaining stagnant,” it says. “Tasmania’s sputtering economy, along with an underlying surplus of housing supply, means Hobart’s housing market is likely to record negligible growth over the coming year,” says the report.

So, that’s the pessimists’ view: but what’s the reality on the ground? Daryl Timms, WBP Property Group’s state manager for Tasmania, accepts that the market has “well and truly come off the boil”.

“It’s quiet all over,” he reveals. “Activity is much lower, not least due to finance being harder to come by: most finance deals are refinances, fewer properties are going on the market, and those that do go up for sale are staying on the market for a couple of months, rather than a couple of weeks. Development is pretty quiet too, with most activity focused around building spec homes on individual blocks.”

On a bull run

Andrew Peck, director of Herron Todd White Launceston, agrees. “It’s been a bit tough through winter – while pricing has remained steady, days on market have blown out. While there’s been demand in the inner city, the regional centres have been hard hit by problems in the forestry industry,” says Peck. “Remember that we’ve just been through state and federal elections, both of which resulted in hung parliaments, which has added to the quiet conditions.”

Even so, recent statistics suggest Tasmania has been on a bull run: RP Data figures for July suggest that house values in Hobart rose by 1.4% (seasonally-adjusted) – the only city to show capital growth in that month. The September figures from Residex back this up. During the three months ending September, median house values grew the fastest at 4.71%, outperforming all other capital cities.

How do these fit into the picture? Timms says “we did see an increase in activity in the earlier part of the year, which started in April and continued through to June or July. However, that’s died down. It may also be the case that figures are being distorted by the type of activity in the market.”

Timms explains that, as the market is extremely quiet, most of the activity is happening in the higher value ranges where buyers are less impacted by interest rates or financial stress. As those properties are making up a higher proportion of sales, that’s pushing up median house prices.

The future outlook

“Agents are starting to report greater flow through, and we’re starting to see some recovery on the north-west coast,” says Peck. “There are a few more positive indicators coming through. However, in the short-to-medium term, we’re not projecting much capital growth.”

Timms agrees. “It’s going to stay steady – even stagnant – for a while,” he adds. “There’s not really any compelling case for capital growth for the foreseeable future, although rental yields are remaining fairly buoyant.”

Rental yields could well be an investors’ best bet, adds Peck. He points out that there are housing stress pressures in Hobart and Launceston especially, which is likely to continue into the future: this is exerting upward pressure on rents. He argues that gross yields could increase further, especially if capital growth remains flat.

Longer term, the prognosis is looking better economically, too. The forestry industry and environmental groups are moving towards reaching an agreement on sustainable logging, which has also given the green light to the Gunns pulp mill in the Tamar Valley – a development which will be of great benefit to that area if finance for the project can be secured. The development of a new transport hub in Brighton, and surrounding road and rail improvements are also set to revitalise the area north of Hobart.

Even so, Tasmania’s not out of the woods yet.

“Unemployment is still the big issue, and it doesn’t seem to have bottomed out yet,” says Peck. “You should look to the big centres, where there is housing stress and rents are increasing. In terms of capital growth, if you’re in for the long term you won’t go astray; but don’t expect much growth over the next year.”

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