No supply in sight as prices continue to soar in Hobart
It was another strong showing from Hobart property prices in February in a trend that we are becoming very familiar with.
According to the latest data from CoreLogic, Hobart property prices jumped another 0.8% in February taking the quarterly gains to 1.9%.
Hobart continues to be one of the strongest performers in the country and only trails Sydney and Melbourne over the last quarter. We also have to note that Hobart is the strongest capital city market in the country over the last five years, as values have increased by 45.4%. To put that in a context that is more than double what we’ve seen in Sydney, which many would consider the hottest property market in the country.
As it stands, a tight rental market continues to put upward pressure on houses, highlighted by the fact the rental vacancy rate continues to sit at an incredibly low 0.6%. Over the last three years, the vacancy rate has not surpassed 0.7%, indicating that rental stock is very tight and there is little new supply coming on board.
This has bled into property prices and the most recent CoreLogic data shows the median value of houses is currently at $520,201 while units are $398,394.
Purely supply and demand
Mandy Welling, President of the REIT, feels that the current strength is caused by undersupply and that won’t be changing anytime soon.
“It’s purely just supply and demand. Across the board, every price range, every facet including vacant land, units, villas or houses - we have a shortage across the state.”
“From the figures, we’re not seeing supply catching up any time soon. As an example, a real estate agent operating in the Northern Suburbs was telling me about a recent listing.
“Within 48 hours of the property being on the market, they had been bombarded with 40 visitors and 7-8 offers on the property and we’re still seeing a lot of that.”
Given the large impact both tourism and education have on the Tasmanian economy, there have been fears that the coronavirus will impact house prices and vacancy rates. But as yet, Ms. Welling isn’t seeing this in Hobart.
“Despite China closing is borders, we’re still seeing the need for rental properties remaining just as high as it was."
Investors have been making the most of the price surge in Hobart in recent years, but Mandy Welling feels they are starting to take their foot off the pedal a touch.
“We’re seeing a bit of a reprieve in terms of investors. The number of interstate investors has declined. Not by a massive number but there has been a steady decline.”
“There are a few reasons for that with one being affordability. The rate of return is now starting to fall below the expectation of some investors. And of course, as property prices improve in areas like Melbourne and Sydney, investors are reverting back to their own areas as they are seeing some growth there as well.”
Looking forward, the REIT President thinks that there is still some growth ahead despite the big run prices have seen.
“I would predict that, while we have this supply and demand issue we’ll see more of the same. But we’re not seeing that massive growth that we’ve seen 12 months ago.”
Demand driving growth
Maria Yanotti, Economics Lecturer at the University of Tasmania, is seeing certain segments of the Tasmanian market continue to outperform.
“The South East of Tasmanian and Launceston and the North East have been in the top ten sub-regions with highest annual change in dwelling values. Demand has been the main driver for the increase in prices.“
“Tasmania is experiencing a positive net migration from interstate and overseas, accompanied by big city redevelopment and regional activation and some infrastructure spending. The island is also experiencing tourism growth which also puts pressure on accommodation and property prices.”
“There are however concerns on how more global and national issues will impact the local economy and the housing market.”
Maria Yanotti believes that people looking to purchase homes to live in are the current driver of prices in Hobart.
“The main segment purchasing in Tasmania is the OO, but investment has been rising considerably both from interstate and overseas. The current Government is also committed to extending the support to FHBs for a longer period.”
“Although younger people tend to leave the island, young families and retired people are moving in and they tend to be OO and/or investors.”
Maria feels investors should remain confident about the state of the Hobart market, despite the global worries.
“Investors have been experiencing good returns in the Tasmanian housing markets in recent years, both in terms of capital gains or rental income return. Anecdotally, many interstate investors are planning to become owner-occupiers eventually when relocating to Tasmania.”
“Even if current national and global issues have a strong effect on the Tasmanian economy, it will probably not affect the housing market in the same manner, although there may be some slow-down in house price growth.”
Growth to slow down
Despite the record run we’ve seen in Hobart of recent years, housing market researcher, John Lindeman of Property Power Partners believes the current growth cycle will likely slow down.
“Hobart has experienced moderate but consistent price growth over the last decade and has a rising population growth rate reflecting the city’s increasing popularity for young couples moving from the mainland in search of an attractive lifestyle and affordable housing," he said.
“This attractiveness diminishes as Hobart’s housing prices continue to rise, and prices are now reaching a point where significant further growth is unlikely.”
Quality matters in Hobart
Leading Sales Agent in Hobart, Harry Coomer from Charlotte Peterswald for Property, is seeing strong demand on the ground thanks to the current supply shortages.
“It’s still a case of supply and demand in Hobart and at the moment, there still isn’t the influx of property, that we need.”
“It’s all based on population growth. There are some small 20-30 lot developments that are happening, but still nothing significant in the short-term.”
Mr. Coomer expects more of the same in the coming months as sentiment remains strong since the Federal election and on the back of the recent interest rate cuts.
“If the property is priced correctly, my average days on market is only 8 days. So I expect a similar pattern over the next few months.”
“Without new supply, there is still an excess of buyers and they are looking for well-priced quality properties across Hobart," he said.
“But it’s not well-priced and of quality, the buyers will quickly realise that so that’s very important.”