West is best for residential investors with Hobart Market running out of steam

We’re all tired of hearing it (unless you live in Tasmania), but over the past 12 months, Hobart has been the strongest performing capital city in Australia by a long way. So much so that the median price is about to overtake Adelaide, meaning it will no longer be our cheapest capital city.

Many people have speculated that the boom in Hobart has been driven by opportunity-hungry investors, but the reality is the run up in prices was backed by strong rental demand - a leading indicator of jobs creation.

The Tasmanian economy has changed, with tourism and education now the major drivers. The jobs growth has attracted people to Hobart, supporting rental demand and prices.

Hobart is still a popular location for buyers. Prices have increased by more than 11 per cent over the past 12 months and the number of people looking to buy continues to surge. Hobart suburbs feature strongly as having the highest numbers of views per listing on realestate.com.au. And this popularity has flowed on to other parts of Tasmania which are now also doing well - Launceston’s price increases have even beaten Hobart at 15.4 per cent for the year.

Interest has come from local, interstate and even overseas. When Victorians search outside their stat for property, Sandy Bay is their number one suburb. Overseas investors have also been very interested, primarily due to the education sector, the state’s many natural attractions and a growing arts culture.

For over three years, there has been nothing to suggest that the boom in process won’t continue. But things have changed and, surprisingly, it isn’t the factors causing a slowdown in other parts of Australia - the royal commission, rising mortgage rates or the fact prices have become too expensive. Hobart’s boom looks to be over due to a drop in demand for rentals.

In the same way we measure buyer demand by assessing the number of people looking to buy compared to the number of properties for sale on the website, we undertake the same analysis for rentals. On this measure, since 2014 Hobart has seen the strongest increases of any capital city. It is the main reason why the run up in prices has been so sustainable.

While buyer demand can be influenced by speculators, growing rental demand is a leading indicator of population and jobs growth. It is why rental demand in Hobart spiked before house prices really moved.

The end of the boom is not to say that prices are going to fall. Many suburbs in Hobart continue to feature in our most in-demand rental suburbs. Glenorchy see the most views per rental listing in Australia, followed by Kingston.

However, we have witnessed a big change over the past six months. Following four years of strong growth, rental demand has fallen sharply. Short term, this will make it harder for landlords to find tenants; longer term, it points to slowing jobs growth. It is looking alike for house price growth, Hobart is no longer a sure bet.

With everything we’ve learnt from watching Hobart over the past four years - strong rental demand leading into strong buyer demand and in turn, house price growth - it is very interesting to see which city is seeing the strongest increases. Although it is coming off a low base, Perth is now outperforming every capital city in rental demand increases over the past 12 months.

This is now the third positive sign that Perth is on the way back; buyer demand started to pick up at the end of last year and many of Perth’s premium suburbs are already seeing strong price increases. If you are an investor, now might be the time to consider the west once again.

Source: The Australian

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