Tasmanian rent yields luring investors even as price growth eases

Hobart’s property market is closely following the path being taken Melbourne and Sydney, with property prices easing from historic highs while rents skyrocket.

But the strangulated rental market is proving a lure for mainland and local investors in Hobart and throughout the state, despite prices coming off the boil.

The Tasmanian capital is ranked 12th in the world for annual price growth but recently recorded its first monthly price decline in several years and quarterly growth has slowed to 0.3 per cent.

The Commonwealth Bank (CBA) has issued its own unflattering predictions for Hobart’s previously hot property market.

CBA has predicted house prices will take a hit with a drop of 4 per cent within this year and 9 per cent next year.

Hobart is currently touting one of the lowest vacancy rates of all Australian capital cities, at 0.9 per cent, with only Adelaide and Canberra renters facing stiffer competition for homes.

Domain research shows there are only 90 rental properties available.

InvestorKit’s founder and head of research, Arjun Paliwal, has touted that with just 2.2 per cent of new house builds approved and a downward trend, paired with Hobart’s rising job availability and low supply levels, rents over the next 12 to 24 months are set to climb even higher.

The lowest vacancy rates can be found in Brighton (0.10 per cent), Hobart north-west (0.12 per cent), and Hobart north-east (0.18 per cent).

“Promising yields from modern apartments in inner urban areas are attracting renewed interest from mainland buyers.”

- Hayden Groves, REIA President

SQM’s Weekly Rents Index shows that rental prices for houses are at $533, which is up 10.4 per cent over the last twelve months. Apartment rental prices have grown more than houses, with prices at $466, up 11.4 per cent.

Tasmanian-based Hayden Groves, President of the Real Estate Institute of Australia, told Australian Property Investor Magazine, that additional rental properties should begin to enter the market.

“As international travel resumes, accommodation demand for short-stay accommodation in tourist destinations in Tasmania should begin to abate, freeing up some much-needed longer-term rental stock for tenants,” he said.

“However, supply, thanks in part to capacity constraints in the building industry and a general lack of housing investment in Tasmania pre-2020, remains low.”

“The demand side is likely to slow as usual interstate movements resume and inflationary pressures amalgamate households.”

Apartment appeal

Tim Lawless, Head of Research with CoreLogic, said Hobart is a standout when it comes to housing capital growth.

“Hobart has stood out over the past five years as recording, by far, the highest rate of growth in housing values of any capital city, so no doubt affordability pressures are adding to the lower housing demand.”

SQM Research shows housing prices are sitting at $766,400 and houses are selling on average within eight days.

Apartments are leading the way with gross rental yields in the capital sitting at 5.3 per cent and houses at 3.6 per cent. Both dwelling percentages are on par with other capital cities, including Sydney and Brisbane.

Aspiring first-home buyers may need to consider apartment living, with prices sitting at a more reasonable $456,000, with research showing apartments are slowly decreasing in value in the capital.

Dr Nicola Powell, Chief of Research and Economics for Domain, said Hobart used to be the perfect spot for first-home buyers but that has quickly become a distant memory.

“Hobart had the quickest time to save for an entry-level house in 2016, however, escalating prices over the past five years now make it the fourth-longest time to save out of all the major cities, at five years and 10 months.”

For those who have the income to purchase their own home, houses are still coming out on top when it comes to buyer preferences, Mr Groves said.

“Quality family homes remain in higher demand from both the owner-occupier and investor sides, although promising yields from modern apartments in inner urban areas are attracting renewed interest from mainland buyers looking to diversify portfolios away from the lower-yielding Melbourne and Sydney markets.”

He added that the Hobart market is beginning to stabilise after rapid growth in the last three years. 

“The FOMO element of the market has slowed since the rate rises as buyers await a return to a settling position on the Reserve Bank’s rate movements,” he said.

“Hobart’s break-out growth has impacted affordability in recent years although, with some solid capital gains built-in, only very recent buyers may feel the pressure of the recent rate rises.” 

“The Hobart market is beginning to show early signs of stabilisation after an impressive run over the past three years.”

Regional market preferred

Over the last twelve months, homeowners have been selling up and enjoying more space by moving further away from the CBD, Mr Groves said.

“The Hobart property market surge began in prime suburbs of the capital, Battery Point, Sandy Bay and the like, fuelled by mainland city lifestyle changers who saw comparative value in Hobart’s undervalued inner urban areas,” he said.

“As prices rose from the increased demand, investors also turned their attention to the southern city, contributing to a 30 per cent-plus price rise there in 12 months.”

“When prices rose and housing became less affordable, the regional areas outside Hobart and other regional areas such as Launceston and Burnie began to benefit from buyers cashing out of the city and moving to the regions.”

“The current perception is quality lifestyle properties outside the central cities offer greater value than the premier suburbs, where buyer demand is now focused on spiking growth in these regions.”