Tasmania – Sustainable investment or high-risk?

Simon Pressley, head of research at Propertyology, said that right now it is definitely not a bad decision to invest into Hobart.

“If you're comparing buying in Hobart today to, probably the two most common examples, Sydney and Melbourne; I wouldn't touch Sydney or Melbourne with a 10-foot barge pole right now,” Mr Pressley said to Smart Property Investment.

“Hobart is still growing, and Sydney and Melbourne, their prices are retreating …, and we also know that their growth cycles in those two big cities is finished, which means, history repeats itself, we are several years before their growth cycles start again.”

The vacancy rate in Hobart currently sits under one per cent, which Mr Pressley said results in very sustainable rental returns.

“You’d be guaranteed to having a tenant because property managers in Hobart have applications lining out the door, but they just can't fill them,” he said.

“I suggest that in terms of sustainability, it would be one of the most sustainable markets in all of Australia.”

Currently, Mr Pressley claimed Hobart is facing a housing crisis with people living in tents or in a caravan park because there are simply not enough dwellings to go around. While that will change in the future, it will be at least two to three years before developers and builders catch up.

Tasmania also over the last two years has had job growth double the national average and surpassed that of Sydney and Melbourne and is the state with the second-highest level of interstate migration, which are both positive signs for its economy, he claimed.

“People are going there for a reason, they’re not going there because they want to sit on a dole queue, they’re going there because there’s lots of jobs, because housing’s affordable,” Mr Pressley said.

A misconception that Mr Pressley sees regularly is about Tasmania’s smaller size and the belief that it is currently facing levels of economic distress similar to that of about eight years ago.

“Unfortunately, there’s a lot of people out there ... that haven't caught up with the times. There was a period of time, for three or four years leading up to 2014, when the state of Tasmania was officially in recession and I think a lot of people on the mainland still have that perception in their mind,” he said.

“Something that often gets quoted ... ‘It's a small place, that's concerning’. Here’s the official definition of it: Hobart is Australia’s 11th biggest city. It’s a capital city and it's the same size as Geelong and Wollongong. So, if Hobart is too small or apparently risky because of its population size, then there’s lots of other locations that probably the same people would say have good fundamentals but are the same size.

However, according to RiskWise Property Research and its CEO Doron Peleg, Tasmania and Hobart are risky ventures.

“Significant improvement to employment conditions, low supply of dwellings, low median prices, a tighter rental market and strong rental returns have seen Tasmania deliver solid capital growth, particularly for houses with good access to the CBD and especially in 2017,” Mr Peleg said.

“Things have certainly been good, however, the market has started to show some decelerated price growth and there has been a marked reduction in enquiries.

“It must be noted too that investors can amplify or weaken market activity. This was evidenced in Sydney when activity increased to 55.4 per cent in March 2015 and we saw price growth of 14.5 per cent. However, in September 2012 when investor activity decreased to 42.5 per cent, the slowdown in the market led to only 1.5 per cent price growth.”

Despite a relatively low median house price of $425,000, Mr Peleg claimed that when looking at the price-to-income ratio, property in Tasmania becomes the fourth least-affordable when compared with other states and territories.

"A significant increase in dwelling prices in recent years, less affordable housing, decelerated price growth, fewer people turning up to open home inspections and fewer inquiries on listings, indicate that housing affordability has an impact on dwelling prices and that the current growth rate is unsustainable,” he said.

RiskWise also claimed unemployment is currently at 6.3 per cent, the second highest across Australia.

“In addition, the annual median income is only $57,200 per household, the lowest in Australia,” Mr Peleg said.

“This means, that a large proportion of the jobs are low salary ones. The annual salary growth is also the lowest in the country.”

There is also the possibility of the Tasmanian government addressing housing affordability concerns, which could flood the property market with supply with measures such as removing stamp duty for first-home buyers, a $20,000 first home owner grant, tax relief for retires to downsize and land tax breaks for rental properties.

“Any major government policy to increase housing supply to address the issue of housing prices, could have a strong adverse impact on the property market, in the medium to long-term, particularly on units,” Mr Peleg said.

“Houses enjoy far stronger demand from owner-occupiers and are held for a longer period of time, particularly in Hobart, where the average is 10.1 years, as opposed to units that are held for an average of 9.0 years.

“The unit market is mainly driven by investors, of which intra-state buyers make up a relatively high proportion, and if there are better opportunities in, say, Melbourne, Sydney or Brisbane, there could be a huge shift, and this could have a significant impact on the market.”

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