For every negative turn, there is always a silver lining to be found, and in Tasmania it’s the state’s lack of capital growth
It’s not common practice to view a property market’s backwards growth in a positive light, but for Tasmania it has provided something of a pricing floor.
Over the last decade, Tasmania hasn’t boomed alongside its resources-rich neighbours to the north. This means that while Queensland, Western Australia and the Northern Territory have suffered the impacts of the contraction of the mining industry, Tasmania has largely been unaffected by these pressures.
“Tasmania isn’t as exposed to downside risks now that China is slowing and commodity prices have slipped to the floor. If you didn’t have a boom in the first place, it’s hard to have a bust coming from the same direction,” states Deloitte Access Economics in its Business Outlook: Global Challenge – Too much supply, too little demand.
“Equally, the economic levers moving at the national level in response to China’s slowdown and the commodity crunch of the moment are actually big news for Tasmania – lower interest rates have helped housing construction and retail, while the lower exchange rate has helped manufacturing in the state hold its own and tourism see some better outcomes.”
Furthermore, a range of economic indicators are showing some signs of life in Tasmania, the report says, including increased retail spending by locals and an upsurge in the number of holidaymakers travelling to Tassie.
“The housing market too has been a happy beneficiary of Australia’s low interest rate environment,” Deloitte adds.
“There’s still enough good news in the pipeline to indicate some pretty solid levels of housing construction activity as being likely to extend through the course of 2016.”
None of this has yet translated to any property price growth in the Apple Isle. However, it hasn’t stopped investors from flooding into the market.
Growth in lending for residential investment during 2014/15 was strong in Tasmania, increasing by 30% on the previous year, confirms Phil White, CEO of QBE LMI.
In its Australian Housing Outlook 2015–2018
report, prepared by BIS Shrapnel, QBE says Tasmania’s sluggish value growth has been impacted on by “excess dwelling stock and weak local economic conditions”.
Despite this, dwelling construction in Tasmania is “rising strongly”, it adds.
“Buoyed by a $20,000 grant to first home buyers of new dwellings, which was extended through to the end of calendar 2015, the increased activity is expected to push the market further into oversupply, keeping pressure on rents,” White says.
He believes price growth in 2016 and beyond is “likely to be modest and mainly underpinned by low interest rates”.
“The median house price is forecast to rise by 1–2 per cent per annum, or a total 5 per cent, by June 2018 … although there could be further growth in house prices if net interstate migration strengthens more than expected.”
SUBURB TO WATCH
West Moonah: Buyer interest raises demand
A suburb with magnificent views, an expanding business centre and a progressive dining district, West Moonah is a breath of fresh air for buyers looking for proximity to the Hobart CBD combined with affordability.
“Owner-occupiers are realising the value for money on offer, with only an extra five to 10 minutes’ travel time,” says John McGregor, property consultant at First National Real Estate McGregor.
With houses in the city averaging half a million dollars, West Moonah’s median house price of just over $300,000 is an attractive option for investors, who are benefiting from increased demand.
“The value proposition for houses can save you, on average, 25% to 50% on your capital investment and still deliver higher rental yield of an extra 1–2%,” McGregor says.
“What they’re searching for is the potential for cash flow, more than the expectation of fast capital growth.”
With families featuring strongly on the list of buyers and renters, John says the highest demand is for homes with three or more bedrooms, good storage and garage space.
Can you afford to buy in this suburb? Find out how much you can borrow