Australia's hottest property market - and where's next?

Australia's hottest property market - and where's next?
Australia's hottest property market - and where's next?

Entrenched habits die hard and it’s difficult to shake people’s rigid views about certain locations.

This, despite everything that’s happened recently, applies to the hottest market in Australia right now, Hobart.

Hobart has been leading city Australia for some time on a number of parameters, including highest price growth, fastest-selling locations, lowest vacancy rates and highest rental yields, as well as having the lowest prices among the state and territory capitals.

Many remain unconvinced for a host of entrenched but out-of-date reasons: it’s not sustainable, the economy is weak, there’s no population growth, the city is too small, no one wants to live there, etc.

The reality is that much has changed. And it’s because of these fundamental changes that Hobart has a booming property market. It also provides clues as to which city will rise next.

Tasmania previously ranked as the weakest economy in the nation. It consistently ranked last or second last on most of the key parameters. But that’s old news. Tasmania’s economy has improved markedly and it now is entrenched in fourth ranking among the eight state and territory economies, according to CommSec.

Previously Tasmania generated little or no population growth, because of the once weak economy, but that has changed too. Now Tasmania is a net gainer from interstate migration and overseas migration – not with the big numbers of Victoria or Queensland, but now growing again.

Housing affordability is partly the cause. Hobart has been easily the cheapest of the capital cities for houses and apartments, but perhaps not for much longer. Such has been the strength of its price growth that it may soon overtake cities like Adelaide and Darwin in terms of its median house price.

According to one source, Hobart has been the price growth leader for 10 consecutive months. Its median prices now are around $450,000 for houses and $350,000 for units.

Price growth has been underpinned by that strong state economy and an increased level of spending on infrastructure, as well as growing numbers of buyers attracted by the relatively low prices.

Recent research suggested that Hobart is now the most unaffordable capital city for renters – that’s typical rents relative to typical local incomes (May Rental Affordability Index). This is bad news for local tenants but good news for investor owners.

Hobart rents have been rising because vacancies have been well under 1 percent for a long time – the lowest among the capital cities, challenged only by Canberra.

A recent survey found 40 Hobart suburbs with no rentals available at all, while another 31 suburbs had only three or fewer available for rent. It’s been suggested that local councils have been very slow to approve new dwellings, creating a shortage of rental supply.

So should you be rushing off to buy in Hobart? Not necessarily. Two years ago would have been a great time to buy there but there’s already been a lot of growth. There’s a case for building new dwellings there, if you have high levels of patience.

The smartest of investors will look at what’s happened in Hobart, understand why it’s risen and then ask the core question: where next?

Given that Hobart’s run has been driven by affordable prices, low vacancies, a strengthening economy and elevated infrastructure spending, I’d suggest the next place to look for uplift is Adelaide.

But, like Hobart, Adelaide is a hard sell. Many people have entrenched negative views about Adelaide, as they do about Hobart. And no level of change in circumstances will change the unshakeable views.

But I’m increasingly bullish about Adelaide, with its improving economy, strengthening confidence levels, growing status as the national capital for hi-tech innovation and alternative energy - and all that’s coming up in the construction pipeline, including those big contracts to building submarines and other vessels for the Navy.

Terry Ryder is the founder of hotspotting.com.au

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Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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