While Sydney and Melbourne have long dominated the other capital cities in terms of house price growth (69% and 49% respectively over the growth cycle to date), it looks like they will soon be toppled by none other than under-the-radar Hobart.

The capital of Tasmania has the tightest vacancy rates in the country, a more controlled housing supply pipeline, as well as increased migration and tourism. With so much going for it, Hobart is on track to becoming Australia’s best-performing capital city property market in 2017.

Over the past 12 months, house prices in Hobart have grown 5%, which is half that of Sydney’s 11% and Melbourne’s 9%, according to CoreLogic data. However, if you take rental returns into consideration as well as the fluctuations in house prices to capture a more holistic picture of total returns from residential property, Hobart isn’t far behind the eastern seaboard capitals. 

Using this analysis, Hobart has achieved growth of 11%, only just trailing behind Sydney’s 14% and Melbourne’s 13%.

Queensland-based buyer agency Propertyology said many of its agents have indeed seen growth on par with that of Sydney and Melbourne.

“We have been actively investing in Hobart for a while and our buyers’ agents have observed first-hand price growth of 8 to 10 per cent over the past 12 months,” said Simon Pressley, head of market research at Propertyology. “We can only see buyer activity further intensifying and forcing stronger growth over the next couple of years.”
 
Cameron Kusher, CoreLogic’s head of research, has even tipped that annual price growth in Hobart will be slightly higher than in Sydney and Melbourne next year. While house price growth is expected to ease in the eastern seaboard capitals, he predicts growth in Hobart will sustain and possibly strengthen over the next year.
 
Robust population growth in Tasmania has been identified as a major driver in the performance of the Hobart housing market. According to CBA’s recent State of the States report, population growth is tracking at close to the fastest annual pace Tasmania has seen in five years, largely due to interstate migration and booming tourism.
 
“The big driver of why people are starting to move to Tasmania is, obviously housing affordability is one factor, but businesses are becoming a lot more flexible about people working remotely. That is probably attracting people to Hobart. Realistically it is less than an hour on a flight and you are in Melbourne,” Kusher said.
 
Just as importantly, booming tourism in Tasmania is giving Hobart a steadier long-term investment outlook, which in turn is incentivising more people to consider buying residential property in the state.
 
“We know that tourism [in] Tasmania is really booming. Chinese tourists especially have really increased their visitation to Tasmania. If you’ve been to Hobart recently, trying to find a hotel room at a reasonable price is becoming increasingly difficult.

“I suspect maybe some of the people buying properties are looking to do things like an Airbnb...[Tasmania] is kind of stacking up a bit better from a pure long term rental opportunity point of view.”
 

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