Hobart has long been the most affordable capital city in Australia for buying property. Its median house price was $341,000 as of October, according to CoreLogic RP Data – close to a third of Sydney’s median.
And the Hobart unit median was just $275,000 for the same month – almost 20% less than the next most affordable capital, Adelaide.
Hobart on the up?
Until recently, Hobart real estate was struggling to show value growth. CoreLogic RP Data singled it out as the only capital where dwelling prices remain lower than they were in 2009 as “tough economic conditions across the state and an absence of population growth resulted in limited housing demand”.
That's despite the fact that, as of October, Hobart’s year-on-year dwelling price growth of 3.8% (by CoreLogic numbers) was bettered only by Sydney, Melbourne and Canberra, and equalled by Brisbane.
And solid performance from the Tasmanian capital is predicted to continue next year. SQM Research tips Hobart dwelling prices to increase by between 3% and 10% (depending on certain projected economic scenarios), which, in percentage terms, is better than expectations for Perth, Darwin, Adelaide and Canberra, and on par with Sydney and Brisbane.
It’s also predicted to record the fastest rental growth of all capital cities at 5-8%.
“We believe that Melbourne will be the outperformer of the year followed by the Gold Coast and Hobart,” says Louis Christopher, SQM Research’s managing director. “Each of these respective cities are benefiting from the lower Australian dollar.”
Reasons for optimism
“Things are as good here now as they’ve been in 7-8 years,” says Rob Zubin, managing director of Tasmanian buyer’s agency My Property Hunter. “There are even a couple of big cranes on the skyline – not much by Sydney or Melbourne standards but definitely a sign of busy times for us!”
Major infrastructure projects currently underway in Hobart include:
- a $657m redevelopment of the Royal Hobart Hospital on Liverpool Street, due at the end of 2018
- three new city hotels
- a redeveloped $100m Myer shopping complex, “Myer Icon”, slated to be ready in time for Christmas
- a $38m extension of Hobart Airport’s runway to accommodate the increasing number of visiting tourists (up 8% in FY15). Tourism is a key driver of the Tasmanian economy.
“All this activity bodes well for Hobart – and Hobart property – for the next 2-3 years at least,” says Zubin.
Of course, an unavoidable corollary of Hobart’s affordable housing market is a comparatively weak state economy. Tasmania frequently finishes last in CommSec’s quarterly State of the States economic performance report, as it did most recently in October.
But even then, the report cites notable improvements in employment, wage growth, dwelling starts and population growth figures in the state.
The October report noted that “Tasmania [has] drawn closer to both the Queensland and ACT economies in the economic performance rankings over the past quarter ... [and] has the most potential to improve further”.
Inner city growth suburbs
Zubin identifies eight inner Hobart suburbs – those within a six to seven minute drive from the CBD, including North Hobart, West Hobart, New Town and Sandy Bay – as likely to offer better long-term capital growth than the outer-ring areas.
“Right now there’s a thirst that cannot be quenched for 2-3 bedroom character cottages in these suburbs,” he says. “Auctions rarely happen here, but in the past 12 months we’ve seen more auctions for these kind of properties than ever before.
“University of Tasmania students like to be within walking distance of the main Hobart campus at Sandy Bay, while office workers and public servants also like to be able to walk or ride to work. So there’s always strong rental demand for the suburbs that fit these bills.”
Median house prices were up by more than 8% in West Hobart over the calendar year to October, according to CoreLogic RP Data, but only up around 3% in Sandy Bay. Both suburbs had a relatively high volume of sales.
Solid yield prospects further out
Hobart has long offered some of the highest gross unit rental yields of all the capital cities. And CoreLogic RP Data reported that in the 12 months to September, Hobart and North Hobart were third and fourth for the biggest percentage increases in national unit rental medians, up 18.3% and 17.9% respectively – performing better than any Sydney suburb.
In October, the city took the mantle from Darwin as the capital with the highest gross house rental yields too, with a median of 5.3% (the same as its unit median yield).
“You could spend $500,000 on an inner-city house or unit and expect to charge up to $460 a week in rent,” says Zubin.
“But head out into the outer-ring suburbs – those 10-20 minutes’ drive from the CBD – and you might be able to charge, say, $360-$380/week for a $330,000 investment, which is a higher percentage return.
“The majority of Hobartians can afford to rent at this price. So while you may not expect the same kind of capital growth in these suburbs, you can certainly expect a decent rental return.”
The bottom line
Tim Lawless, CoreLogic RP Data’s head of research, recently argued that “the relative affordability of the Hobart housing market, coupled with its lifestyle appeal and higher rental returns should help to revitalise Australia’s southernmost capital city housing market”.
As with Tasmania’s economy itself, Hobart’s housing market may be moving from a low base. But several signs suggest the momentum is in the right direction – onwards and upwards.
“Hobart may not have the same growth opportunities as Sydney, Melbourne or Brisbane, but it presents a great opportunity to buy into an affordable capital city market with lower risk,” says Zubin.
Where to next?