Out of all Australian states, Tasmania is the one that is suffering most from the current gloomy economic outlook. With little exposure to the mining boom, the state’s reliant on tourism, retail and forestry – and all three are suffering at present. The slow economy is also forcing the state government to make swingeing cuts to public services in an attempt to bring its finances back into line.
Things certainly don’t look great for the state of Tasmania, comments the director of Herron Todd White’s Launceston office, Andrew Peck.
“The market’s slow across the board, for a number of reasons: chiefly last year’s interest rate rises, unemployment, and the contraction in the forestry industry,” he comments. “Government reducing public service is adding to the doom and gloom: we’re expecting 2,300 job losses, as well as a knock-on effect on contractors and the retail sector.”
Peck estimates that the forestry industry’s woes has decimated values in the rural townships in the north of the state, with values down 20% by his reckoning. He adds that he expects further value falls to come.
The south of the island isn’t doing much better, adds APM chief economist Andrew Wilson.
“Hobart’s suffering, and we continue to have low levels of activity,” he says. “The economy’s off the boil, and people are waiting and watching.”
Wilson suggests that the sentiment is approaching Perth’s levels of negativity.
“In Perth, people have taken a decision to stay out of the market,” he says. “In Hobart, they haven’t quite come to that conclusion yet, but they’re certainly thinking about it. However, the difference is that the economic circumstances in Hobart are worse than Perth, and it certainly doesn’t have the upside that Perth does.”
It’s not all doom and gloom, though. Wilson highlights that price movements in the south of the state have avoided a significant downwards slide. Other data providers agree: RP Data records negative growth in Hobart in the three months leading up to April 2011 of -1.9%; Residex figures for June, meanwhile, record a three-month drop in the Hobart median house price of 0.91% and 0.09% for units.
Activity levels have slowed to a crawl instead, highlights Wilson.
“Being a small market, you don’t see the same price movements – activity just grinds to a halt,” he says. “There’s not a lot of forced sales type of movement, although we’ll continue to see some softening and low buyer activity in terms of numbers.”
There are a few bright spots amidst the gloom, however. The rebuilding of the Royal Hobart Hospital – funding for which was a key pledge from the Prime Minister in return for support from independent MP for Hobart Andrew Wilkie – is still likely to go ahead, despite the hospital having to find $38m in savings over the next year.
Also being redeveloped is the Liverpool Street site of the Hobart Myers store, which was gutted by fire in 2007. Myers has announced that it will be rebuilding a five-level complex, on the site at a cost of around $100m. The project will not only feature a new flagship store, set to open in 2013, but also a hotel and restaurants. A boutique arcade development is also being planned for the Les Lees property opposite the new Myers development.
Further moves on the Gunns pulp mill project in the north of the state are also being widely anticipated. The company is currently in the process of seeking funding for the project, and is even seeking to dispose of mainland assets in order to finance the mill.
“If Gunns could commence work on the pulp mill tomorrow, that would really help the north of the state,” says Peck. “As it is, the outlook for recovery is very much in the realms of ‘how long is a piece of string’?”
It’s not all bad news for investors, either: while capital growth is nothing to write home about, rental yields remain solid, at least partly due to affordability constraints. RP Data charts median rental yields in Hobart at 5.1% for houses and 5.6% for units.
“The rental market is good for investors,” comments Peck. “There is rental stress and vacancy rates are low: rental yields are also improving, although partly because of prices going the other way.”
Peck highlights the population centres of Hobart and Launceston as the safest bets for investors – although he warns that this is more because properties are holding values, rather than appreciating.
“The situation right now is that those locations are treading water, rather than forging ahead,” he concludes.
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