While Brisbane is seen by many as the next Australian capital city to invest in, there may be another market that people are overlooking at their own peril.


According to the September quarter Domain Rental Report, Hobart has the highest rental yields for both houses and units out of any Australian capital city, and those returns coupled with the city’s affordability have resulted in it becoming a popular destination for investors.


“Over the last 12 months we’re really starting to see more investors from outside of Tasmania come down to Hobart,” My Property Hunter buyer’s agent managing director Rob Zubin said.


“It’s a mix of things that are bringing them down. People are attracted to by the higher yields and capital growth available, and then affordability is obviously a big drawcard as well,” Zubin said.


According to the Domain report, Hobart’s houses are providing rental yields of 5.36%, while units in the Tasmanian capital are returning 5.54%.


While those numbers are the highest on offer in any capital city, Zubin said better returns can be found if people know where to look.


“If you average it out across the city those numbers are what we’re seeing here,” he said.


“If you’re right in Hobart, around five or six minutes from the CBD, you’re probably looking at yields of between 4% and 5%.


“But as you head out into the more residential suburbs we’re starting to see yields get up to 6% or 6.5% and maybe even a bit more on units.”


Investors with a higher appetite for risk could find some locations returning yields of between 7% and 8%.


Domain Group senior economist Andrew Wilson is also optimistic of the prospects of Hobart’s rental market.


“While rents have remained flat over the last quarter, the short term affordability barrier is unlikely to continue. We suspect that rents will resume their growth track, sooner rather than later,” Dr Wilson said.


If investors are seeking capital growth, Zubin said Hobart, and the wider Tasmanian market, is starting to break out of its rut.


“We had a bit of a lull from 2009 – 2013 when it was lucky if prices stayed stagnant and didn’t go backwards.


“But since about October last year we’ve started to see growth pick up in a number of suburbs in Hobart and now we just have to see if that will filter through to the rest of the state.


“One good sign is that the economy seems to be picking up. In Hobart we’re starting to see a number of major hotels and other projects go ahead, and there seems to be some significant economic activity.”


Zubin said investors are taking note of that as well, as they have an increasingly positive opinion of the state.


“The people we’re dealing with aren’t coming in with any mindset or perception that Hobart or Tasmania is a risky place to invest.


“We’re getting calls from people who have been looking at places like Sydney and Melbourne and then are looking here and realising they can diversify a bit and get three properties yielding 6%, rather than one property yielding 3%.”