TAS Excerpt from the 2016 March Market report

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High-yield prospects, but oversupply worries drag confidence down
 
Tasmania’s strong yields may not be enough to attract investors who fear oversupply and patchy economic performance
 
Broadly speaking, Tasmania, and specifically Hobart, had a terrible year in 2015. Median dwelling values fell by 0.7%, according to the latest CoreLogic RP Data report. In fact, values are now 4% lower than they were five years ago.
 
Robert Mellor, managing director at BIS Shrapnel, blames the ongoing economic weakness of the state economy for the poor performance.
 
“Tasmania has enormous potential on the tourism side, but Australians like the beach more than mountains and lakes. While it’s picking up a lot more international tourists than it has done in the past, they need something else to stimulate the economy,” says Mellor.
 
Population growth has been quite stagnant at just 0.2%, and Mellor says this is not likely to change any time soon. He also blames the government’s effort to stimulate the economy by giving money to first home buyers.
 
“The government’s way of stimulating the economy has been giving too much money to first home buyers. They were giving away $30k [to FHBs] to build their first home. Sure, it stimulated construction, but they don’t need any more construction. The FHB stimulus didn’t do anything to lift the market,” he says.
 
“They basically added too much supply, so they’re now experiencing an oversupply of housing. We estimate that the underlying demand is probably no more than 2,000 dwellings a year. Last year, they built 2,900; that’s nearly 50% more. They were already building well over underlying demand for two years before the government stimulated construction via first home buyers. Now supply has gone through the roof.”
 
Seeing positives behind the negatives
Despite the seemingly poor performance, Andrew Wilson, senior economist at Domain, thinks Hobart in fact had a remarkable year in 2015.
 
“Being one of the smallest markets in the country, Hobart has had a tremendous year,” says Wilson. “This market responded to the improvement in the local economic conditions. Unemployment has fallen sharply in Hobart, and unemployment is now tracking upwards. The market has been a bit up and down during the past two years, but is now stabilising.
 
“Just like Adelaide, Hobart has a very tight rental market. Hobart has the lowest vacancy rate in the country at just under 1%, and has the highest yield. But some reasons it doesn’t attract a lot of mainland investors may be because of the uncertainty of capital growth and the perceived fragility of the local economy. It had a very good year.”
 
Top-performing Hobart suburbs over 2015
While there were uncertainties about the local economy, some suburbs defied the downturn and recorded impressive results last year.
 
Buyers targeted suburbs in the mid- to upper-end areas, pushing prices up between 15% and 35% over 2015. Among the best-selling suburbs included Opossum Bay, Huonville and Mount Stuart.
 
 
SUBURB TO WATCH
Primrose Sands: Seaside suburb set to surge
 
Sitting on a gorgeous strip of Tasmanian coastline, Primrose Sands is a quiet seaside retreat 27km east of Hobart and around 15km southeast of the Hobart Airport. A 40-minute drive around the bay from Hobart, Primrose Sands links to Arthur Highway via Primrose Sands Road and Sugarloaf Road. Residents enjoy a range of recreational amenities and water activities such as fishing, swimming and boating.
 
With such an impressive location, Primrose Sands has been a sought-after destination for holidaymakers for some time. Budget-conscious investors may find the median house value of just $190,500 an attractive proposition, especially when you consider that the rental yield is a healthy 5.6% for houses and 10.5% for units.
 

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