What you need to consider when property investing in Tasmania

Eight years ago, Hobart offered the cheapest rents of all Australian capital cities. Today, the Tasmanian capital has the fourth most expensive.

That makes it an enticing city for investors looking to buy houses or units, but it also comes with a caveat: don’t buy the kind of expensive property the locals can’t afford to rent.

Agent Nick Bond of Harcourts Huon Valley warns there’s a rental sweet spot from $300 to $400 a week.

“If the rent is more than that, or is too much over, say, $500, then a tenant might as well buy [a property] themselves for the same weekly payment,” he says.

“We don’t have a lot of people on higher incomes. We have a lot on the minimum wage or on government benefits who can’t afford to pay too much.”

Many of those are hurting after house rents rose by a steep 8.3 per cent over the past year to a record high of $520 a week, and units increased by 7.1 per cent to another record-shattering $450, according to the latest Domain Rent Report.

The vacancy rate is now an extremely tight 0.4 per cent, although it’s up from its recent rock bottom of 0.3 per cent, meaning there’s also a stark undersupply of accommodation.

And there’s not much relief in sight, Bond believes.

“There aren’t many large subdivisions being rolled out at as fast a rate as is needed,” he says.

“With building costs going up so much, too, there are not so many new builds either, and some builders are going broke.”

But with the peak of house price growth now having passed, buyers appear to be mostly interested in Hobart property that they can rent out for the next few years while they prepare to relocate and work from home or retire to the Apple Isle.

“We’ve had a huge uptake post-COVID of people investing here, before planning to live here and work remotely,” says Barry Wheeler of PRD Hobart.

“I think Tasmania has been pushing the cost-of-living benefits of retiring here, too.

“You can buy a good property for under $500,000 in some places and, in some suburbs, you can still get a 4.5 per cent gross return on a rental investment, which is amazing.”

While Wheeler believes Tasmanian property prices show a historic tendency to flatline after a boom – as other states’ prices decline – the prospect of little capital growth in the future doesn’t worry those investors too much.

“I find it difficult to predict that prices will go up much more into the future,” says Empower Wealth buyer’s agent Bryce Holdaway.

“Prices in Tasmania have had a good run and I think that was probably a real purple patch. So, investors won’t be chasing much capital growth there now.

“But certainly lifestyle is still an attraction. COVID made it possible for people to move and work from home in ways they weren’t able to before. So, people may well be interested in investing in areas they would like to live themselves one day, and certainly, even blue-chip areas of Hobart are still very affordable.”