TAS excerpt from the October 2010 Market report

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The Tasmanian property market at the moment seems to encapsulate the famous quote from Charles Dickens’ A Tale of Two Cities: “It was the best of times, it was the worst of times”.
 
The Apple Isle’s property market – the smallest and most affordable in the country, but also the most volatile – is experiencing something of a two-speed property market. While the major cities, Hobart and Launceston, have experienced a slowdown of late, prices have rebounded from the negative growth seen earlier this year. The picture in regional Tasmania, however, is much less rosy, suffering as it is from rapidly contracting employment opportunities.
 
As a result, the data for Tasmania gives us a mixed picture. While Residex figures showed a 1.65% increase in Hobart’s median house price and unit price growth of 1.53% for the June quarter, the regional picture sees negative growth of -0.57% for houses and a modest increase of 0.74% for units. Even so, rental yields are holding up at more than 4.7% for houses and units across Tasmania.
 
Residex’s head of research, John Lindeman, is positive about the state’s prospects despite its troubles. “Yes, Tasmania does have problems. Like South Australia, it suffers from low population growth, typically due to young Tasmanians moving to the mainland. Unlike South Australia, though, its population inflow is not primarily overseas migrants – instead, it’s mainlander retirees.”
 
This isn’t as disastrous as it might sound, suggests Lindeman. While young Tasmanians don’t usually leave empty houses behind them, as they typically live with parents, new arrivals do need dwellings – thus driving demand for property. Lindeman suggests this is something of a ‘saving grace’ for the Tasmanian market.
 
Indeed, this migration could well increase in the years to come, says Lindeman, in an exodus similar to that from Sydney to Brisbane a number of years ago.
“I think we’ll see an increase in demand in the next few years, both in Hobart and in coastal towns like Devonport, Wynyard and Penguin. There’s a whole tranche of people who were planning to retire to the coast around the time the GFC hit, and who didn’t – at least partly due to their super funds taking a hit. Those people are still going to retire; they’ve just put it off for a few years.”
 
Tasmania is likely to be a feasible destination, not only due to its affordability – you can buy a house in Hobart with “incredible mountain or harbour views for around $300,000” – but also due to its convenience for Melbourne, which is only 40 minutes away by plane.
There are questions over the timing of those retirements, acknowledges Lindeman, especially as we’re not out of the economic woods yet. Even so, it’s a migration that he’s confident will happen, and which investors can take advantage of – it’s just a question of when.
 
Investors shouldn’t expect significant short-term capital growth for houses, even in the cities. Heron Todd White (HTW)’s most recent Month in Review newsletter does not anticipate much short-term capital growth in areas other than inner and near-city Hobart, and neither does Australian Property Monitors’ economist Matthew Bell.
“Tasmania doesn’t have quite the economic drivers to fuel capital growth,” Bell comments. “If this is your priority, then there are better markets on the mainland. However, the big advantage of Tasmania is affordability – it’s a very easy market to get into, with reasonable long-term potential.”
 
Rental yields are a different proposition, though. HTW says gross yields have maintained a ‘steady as it goes’ course despite the GFC, rising unemployment and interest rate movement, and even goes as far as to say that an expectation of yields of between 5% and 6% in Launceston is reasonable. It also anticipates rents will continue to increase in the short term, due to housing stress pressures.

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