TAS excerpt from the Septmeber 2010 market report

Strong rental returns are compensating for sluggish capital growth across the island state.
House prices in Hobart grew just 5.73% in the 12 months to May 2010, according to Residex. Only Perth and Brisbane performed worse. On the other hand, Hobart’s yields outperformed most other markets, with median rents rising 9.7% year-on-year.
“Gross yields have maintained around 5–6%,” says Andrew Peck, director of independent property advisor Herron Todd White in Tasmania. “Despite higher borrowing costs, there is housing pressure, and rent growth is continuing. The vacancy rate is around 2% – virtually full.”
This is good news for investors in the inner city. Outer suburban and regional markets, however, tell a different story.
Daryll Timms, state manager for WBP Property Group in Tasmania, says that while most markets in the state have remained stable, the lower end, that is, first homebuyer territory, “has all but ceased”. “Established buyers, representing Tasmania’s middle market, are also cautious at present, choosing to purchase budget properties and reduce debt rather than over-extend themselves by upgrading,” he adds.
Timms points to the northern Hobart suburb of Glenorchy as being an attractive and affordable option for investors. Strong affordability and healthy demand from renters has kept yields high. “Outlying suburbs are likely to continue to suffer hardship resulting from low levels of demand, with affordable inner-city areas with good access to Hobart continuing to perform best,” Timms says.
Employers shut up shop
Regional Tasmania has taken a number of hits in recent months as major employers shut down or relocate. PaperlinX is about to complete its exit from the state with the closure of its Burnie paper mill; the McCain vegetable processing factory in Smithton will shut down; shipbuilder Austal will close and leave Tasmania; and another shipbuilder, in fact, has slashed its workforce due to softening global demand. “To top it off, FEA [Forest Enterprises Australia, a managed fund]
has gone into administration,” notes Peck.
This has all had a serious impact on property markets outside Hobart and Launceston. “We’re certainly seeing in the regional areas – especially those reliant on forestry – that the market is slowing significantly,” says Peck. “We’re seeing slower conditions through the northwest coast. There’s a bit of downward pressure on pricing.”
In order to combat the downturn, regional towns like Burnie have spent large sums on making themselves more attractive places to live or visit. “When the mining industry shrank a bit on the west coast, that affected [Burnie] as well,” Peck says. “Now Burnie has reinvented its CBD.” Waterfront residential and commercial development is continuing, while the recently completed Makers’ Workshop, Burnie’s state-of-the-art visitors centre, just won the Alan C Walker Award for Public Architecture at the Tasmanian Architecture Awards.
Despite rising unemployment, Hobart and Launceston are yet to see a flood of migration from regional Tasmania. Peck draws a strong correlation between the price of fuel and
intra-state movement. “A couple of years ago we did see a definite drift when fuel was up around $1.80,” he says. “It hasn’t got anywhere near that level, although it’s steadily creeping up.” High fuel prices, Peck claims, are the last straw for regional communities suffering from the effects of lower wages and increased costs of living. At the upper end, demand from both renters and buyers remains strong for prestige apartments in Hobart and surrounds.
The median value of $282,000 – the lowest for units in Australia – has shot up over 11% in 12 months. Residex predicts there is still room to grow, although yields will probably be more attractive than capital growth in coming years. For a cash-flow positive, affordable investment property, Hobart may be your best bet.

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