TAS Excerpt from the 2011 June Market report

By
All Gunnsablazing?
 
The island state’s biggest project in years gets the green light – but will it see the light of day?

Property investors with an eye on the Tasmanian scene will be pretty familiar with the wrangling surrounding Gunns proposed $2.5bn pulp mill project in Bell Bay on the island’s north coast. And, following the recent news that the government has finally given the long-delayed mill the go ahead, the speculation surrounding how the biggest industrial project to hit Tassie’s shores in years will affect the island state’s property market will be rife.

If Gunns’ media campaign is anything to go by, the island could be set to benefit from massive economic stimulus on the back of the pulp mill’s opening. Having hired Insight Economics to write a report on the economic impact of the Tamar Valley pulp mill – which found that the project will boost the Tasmanian economy by $10bn over the next 20 years, whilst creating 150 direct and 3,000 indirect jobs – Gunns chief executive Greg L’Estrange was quick to label the pulp mill as the greatest shot in the arm that the Tasmanian economy will have seen for a long, long time.

While George Town lies right next to Bell Bay, the larger centres of Devonport and Launceston are also within a 50km radius of the pulp mill site. But before property investors start looking at hot spots whose real estate markets could be set to boom on the back of the state’s newest economic driver, it’s worth noting that Insight’s economic forecasts are based on construction beginning this year – an assumption that may not match up to the reality of the situation.

Along with government approval of the project came some tough environmental conditions, which could serve to delay the pulp mill’s completion. Plus, explains Herron Todd White Launceston director Andrew Peck, Gunns has several other major issues to contend with in getting the project off the ground.

“The Gunns pulp mill – which was approved – is still an uncertainty, as they don’t have funding for it,” he says. “The permit also runs out in a few months, so you’ve got to say that’s its looking unlikely that it will go ahead.”

But, should the mill go ahead as planned, Property Power Partners founder John Lindeman isn’t convinced that it will provide the economic stimulus – and boost to the Tasmanian property market – that the optimists are predicting.
 

“I don’t see a long-term impact apart from on the environment,” he says. “Admittedly, one more mill isn’t going to ruin the area, but it’s also probably not going to have a major effect on population growth and investment,” he says.

Migration still an issue

Lindeman notes that interstate migration is still one of the key issues facing the island state’s economic future and, while this hasn’t picked up much recently, he believes that retirees who have been priced out of Melbourne’s traditional retirement spots (the Mornington and Bellarine peninsulas) will increasingly look to decamp to Tasmania’s more affordable property market as an alternative.

In the meantime, however, Peck notes that a variety of factors are conspiring to keep Tasmania’s property market cool.

“January sales volumes were low, but February picked up and the market has stabilised,” says Peck. “However, a lot of the regional markets are really struggling – especially in the north-east, due to a contraction in the forestry industry.”

He adds that the state government’s recent decision to shed the equivalent of 2,300 jobs to get the budget back into line won’t do the market any favours.

“I would imagine that will mostly come from the south of the island, and possibly also from the teaching and police force sectors,” he says.

A competitive rental market

The good news, however, is that the rental market remains tight. Peck believes that this is thanks, in part, to potential first homebuyers lingering on in the rental market (Tasmania’s First Home Owner Grant scheme ended in late 2009), as well as Tasmania’s ongoing structural undersupply issue, “so there is good scope for investors to perhaps pull out some rental yield, as the returns are rising”.

Looking at the RP Data figures for central Hobart for example, the average rent for houses rose by just under 3% in one month to reach $390 in January.

In terms of capital growth hot spots, Peck admits that there’s nowhere to shout about at the moment, but nominates his stomping ground of Launceston as an area whose performance is on the up.

“I’d say it’s steadily improving,” says Peck. “Prices have recovered to late-2007/early-2008 levels. If you’re looking to buy, go for inner-city, well-established suburbs.” He adds that Summerhill is well worth looking at for its solid 1970s and 1980s brick homes and good amenities.

“However, for now it’s ‘steady as she goes’,” adds Peck, of Tasmania’s overall outlook.

“First homebuyers are pretty thin on the ground, and upgraders really have the pick of the market. The November interest rate rise really hit us hard.”

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