TAS Excerpt from the 2012 February Market report

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Growth looks set to remain flat, but suburbs in major centres are still in high demand.

The Tasmanian economy hasn’t quite had the cruel summer that many forecast, but there’s been little for investors to be happy about. Unemployment is on the rise, the retail sector is struggling and the forestry industry, one of the state’s largest employers, has faced a number of setbacks.

With fears that European and American financial woes might be marching closer to home, the situation has reached the point that many within the business community have given up hope of seeing any recovery in the year ahead. This was reflected in NAB’s September Business Survey, which found that the state’s business confidence was the lowest in the country.

Echoing such views, APM senior economist Andrew Wilson says the Tasmanian economy has generally exhibited signs of underperforming throughout the last year.

“The state’s local industrial base and economic performance have been constrained over the last year and this is significant considering Tasmania’s position relative to some of the mainland states.

“Unlike Queensland and WA, which have exposure to the resources boom, and NSW and Victoria, which have large commercial sectors with quite reasonable flow-on effects, local industrial performance tends to drive the economy in Tasmania – and there are no clear signs of that improving at the moment.”

Buyers hesitant

My Property Hunter principal agent Rob Zubin believes the dour state of the economy has shown itself in buyer activity. “Buyers are being extremely

cautious and there’s an apprehension about the market and when to buy,” he says, adding that prospective buyers are often inspecting properties two or three times before making a decision on whether to purchase.

RP Data’s September figures show a subdued housing market in Hobart. The median house price has fallen by 2% since September 2010, while median unit prices have fallen 6.5%. With Australian Bureau of Statistics figures showing lacklustre population growth the order of the day in Hobart, Zubin says many prospective buyers are becoming tempted to expect prices to slide 20–30%.

He warns that they may be in for a surprise. “While the state of the Tasmanian economy is nothing to ignore, the market is still very competitive for most properties under $400,000. Not all the local economic issues that have been discussed in the news have had a dramatic effect on property.”

He points to the continuing affordability of Tasmanian property, mixed with strong rental returns in Hobart as a sign of the state’s competitive edge.

“I don’t think a 20–30% reduction is going to realistically happen. For properties that price well we’re seeing 20 or 30 potential buyers turning up to open houses. Ultimately, demand and competition for property are too tight for that kind of drop to happen and I think that’s going to result in property prices being maintained at close to their current level.”

Zubin attributes the 12-month fall in median dwelling prices partly to lacklustre demand at the top end of the market. The $800,000 plus market has struggled, he says, with a fair moderation in vendor expectations and a 10–15% adjustment in price.

Sticking to old favourites

Real Estate Institute of Tasmania president Adrian Kelly believes that in the current economic conditions, the best approach for property investors is to stick to areas that have historically shown good growth.

He says that in these areas it is still possible to pick up returns of 6-7%, thanks largely to a housing shortage and a lack of good quality rentals. These areas, however, are only close to the major cities.

“You really need to stick near the established centres like Hobart or Launceston, and even Devonport and Burnie,” he says.

Zubin agrees, but adds that even within those areas investors will still have to do a fair amount of research and be weary of areas with a high concentration of government housing. The alternative, he believes, is not feasible.

“We have some investors taking a risk outside of popular centres and in those markets it’s just too difficult to gauge what’s going to happen and what a reasonable purchase price will be.”

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