Post to SinFongChanRE.wix on 4/2/2018 at 4:13 PM
Commenting on “Hobart home prices grow 173 percent over the year to December”
https://www.domain.com.au/news/hobarts-house-prices-grow-173-per-cent-over-the-year-to-december-domain-group-20180201-h0ream/
Before I discuss about Hobart real estate market, I would like to tell you something about Western Australia mining boom that led to property boom for almost three quarters of a decade since mid-2005.
In May 2017, an article in The Guardian reported that "Home repossessions and calls to financial counsellors soared in Western Australia as prices crashed.".
A property bought "for $750,000 in 2012, when the market was near its peak, the property was now worth $300,000 and falling." I recall a real estate guru talked about her property investments in Western Australia, and how much she made from her smart investment strategy.
Before 2012, Western Australia was experiencing mining boom. What caused the mining boom? It had been, to a large degree, driven by demand for resources by emerging economies, with China being the most significant. The boom centred on the large expansion in the iron ore, coal and gas industries. Looking back, the boom began in 2005.
Many people from the eastern border, including as far away as Queensland, sought employment there. The boom created a great shortage of housing. The building industry in these areas struggled to build enough houses for those who did want to live there, so large temporary accommodation centres had sprung up to house the workers. Shipping containers were converted and sold as temporary accommodations.
The early adopters did make a good wicket. For those who could afford, they became the fly-in-fly-out (FIFO) workers. With the massive expansion of mining in many remote areas, these workers showed a preference not to live in the areas that the mining was actually happening, but to live in metropolitan areas and flew in for a shift lasting 1-2 weeks, then flew home again at the end. In fact, some even chose to live overseas in Bali.
Between 2013 and 2015, the mining industry shed 46,000 full-time jobs. The property mentioned previously that worth $750,000, which had a rental return of $1,600 a week in 2012, had fallen to $370. It has not only negative capital growth, but also negative monthly return which is not enough to cover repayments.
Few years ago, I visited Launceston and Hobart in Tasmania. Both were too quiet for my liking, more suited as home-away-from-home holiday spots. Hobart was a potential city to expand my investment portfolio, but it would take a fairly long time to give me the desired return. After given some serious consideration, I abandoned the idea in investing in Hobart.
In February 2017, Tasmania's unemployment rate dipped below 6 for the first time in more than five years. Since then the rate fluctuated erratically, but in July 2017 it rose to 6.3%. In December 2017, it rate was recorded as 6.1%. These figures are higher than the Australian average of 5.6%.
According to CoreLogic, the last real estate boom in Hobart was in 2011, but it was short-lived. Prices fell to the lowest $425,000 in 2013 and then resumed on a slow upward climb until 2015. The growth in prices accelerated when property prices in the eastern border cities soared immensely and became unaffordable. This resulted in first-home buyers and investors turning their attention to Tasmania, particularly Hobart.
On the surface, Tasmania is a good target for real estate investment. It must be mindful that real estate investment is for long term, and those trying to have a quick return may get burnt if they follow the Jones's without understanding the underlying trend.
Tasmania is becoming more and more reliant on tourism and hospitality sectors. Hobart serves as the focal point of tourism for Tasmania. During 2017, house prices continued to rise gradually since January, but In November a sudden upswing occurred. It is an unprecedented surge from $685,000 in November 2017 to $806,250 in end of December 2017. Such a jump is likely be attributed to the first-home buyers coming Hobart to seek opportunities, and some downsizers looking for a sea-change.
It is important to recognise that sea change may be a fad, and when the novelty wears off, one is likely to return to where they came from. The trend of moving to Hobart is no difference from Victorians moving t Queensland, the state that was once promoted as "beautiful one day, perfect the next" with sunny days and great surf beaches.
Do people sunbake everyday? Are ordinary mums and dads surfers? Do they eat out everyday, in the same few restaurants close by? Life is more than what I have described. Leaving behind those fond memories, the laughter of close circles of relative and friends, familiar sight and sound, the streets that once travelled on regularly without the use of a GPS, are more than enough to make one "homesick", and in fact, many do return to the home city. Statistically, the net interstate migration of Queensland declines more than other states.
Hobart is a smaller city, has an estimated population of over 220,000 people, which accounts for 0.93% of Australian population. In comparison, Melbourne has over 4.8 million which accounts for 19.05% of national population. For those still in the workforce or in business, Melbourne is without doubt a much better place for networking. In addition, there are more schools, hospitals and sports in Melbourne that one can choose from.
No doubt, Tasmania is closer than Queensland from Melbourne, but it is more troublesome to cross the sea from Hobart than to drive on well sealed road linking Melbourne and Queensland. The other option is to travel by air, but getting in and out of airport is just inconvenient.
At present, Hobart has less than 10% of dwellings are apartments. The skyline will not be the same soon, as many developers have already moved in constructing high rise apartments. An investor must take a page from Melbourne and Sydney, that investing in apartments may not be the best option, although the initial outlay is much smaller.
Besides tourism, Tasmania's major industries are mining, agriculture, aquaculture, fishing, and forestry. However, the greatest employer is the public sector. Lack of private sector providing employment, is this viable and sustainable to keep the unemployment rate down?
Given that the cost of housing in Tasmania is considerably lower than on the mainland, the current surge in median price is not a good sign. It indicates that the newly constructed properties sold in the real estate market are highly inflated in price causing such big distortion. Investors who buy overpriced properties will not be able to achieve the desired rate of return (ROI), especially in a city with lower income and smaller population.
If you have not been to Hobart or other Tasmanian cities, go there to check out these places, and have a feel whether they are your investment targets.
Thank you for reading.
Commenting on “Hobart home prices grow 173 percent over the year to December”
https://www.domain.com.au/news/hobarts-house-prices-grow-173-per-cent-over-the-year-to-december-domain-group-20180201-h0ream/
Before I discuss about Hobart real estate market, I would like to tell you something about Western Australia mining boom that led to property boom for almost three quarters of a decade since mid-2005.
In May 2017, an article in The Guardian reported that "Home repossessions and calls to financial counsellors soared in Western Australia as prices crashed.".
A property bought "for $750,000 in 2012, when the market was near its peak, the property was now worth $300,000 and falling." I recall a real estate guru talked about her property investments in Western Australia, and how much she made from her smart investment strategy.
Before 2012, Western Australia was experiencing mining boom. What caused the mining boom? It had been, to a large degree, driven by demand for resources by emerging economies, with China being the most significant. The boom centred on the large expansion in the iron ore, coal and gas industries. Looking back, the boom began in 2005.
Many people from the eastern border, including as far away as Queensland, sought employment there. The boom created a great shortage of housing. The building industry in these areas struggled to build enough houses for those who did want to live there, so large temporary accommodation centres had sprung up to house the workers. Shipping containers were converted and sold as temporary accommodations.
The early adopters did make a good wicket. For those who could afford, they became the fly-in-fly-out (FIFO) workers. With the massive expansion of mining in many remote areas, these workers showed a preference not to live in the areas that the mining was actually happening, but to live in metropolitan areas and flew in for a shift lasting 1-2 weeks, then flew home again at the end. In fact, some even chose to live overseas in Bali.
Between 2013 and 2015, the mining industry shed 46,000 full-time jobs. The property mentioned previously that worth $750,000, which had a rental return of $1,600 a week in 2012, had fallen to $370. It has not only negative capital growth, but also negative monthly return which is not enough to cover repayments.
Few years ago, I visited Launceston and Hobart in Tasmania. Both were too quiet for my liking, more suited as home-away-from-home holiday spots. Hobart was a potential city to expand my investment portfolio, but it would take a fairly long time to give me the desired return. After given some serious consideration, I abandoned the idea in investing in Hobart.
In February 2017, Tasmania's unemployment rate dipped below 6 for the first time in more than five years. Since then the rate fluctuated erratically, but in July 2017 it rose to 6.3%. In December 2017, it rate was recorded as 6.1%. These figures are higher than the Australian average of 5.6%.
According to CoreLogic, the last real estate boom in Hobart was in 2011, but it was short-lived. Prices fell to the lowest $425,000 in 2013 and then resumed on a slow upward climb until 2015. The growth in prices accelerated when property prices in the eastern border cities soared immensely and became unaffordable. This resulted in first-home buyers and investors turning their attention to Tasmania, particularly Hobart.
On the surface, Tasmania is a good target for real estate investment. It must be mindful that real estate investment is for long term, and those trying to have a quick return may get burnt if they follow the Jones's without understanding the underlying trend.
Tasmania is becoming more and more reliant on tourism and hospitality sectors. Hobart serves as the focal point of tourism for Tasmania. During 2017, house prices continued to rise gradually since January, but In November a sudden upswing occurred. It is an unprecedented surge from $685,000 in November 2017 to $806,250 in end of December 2017. Such a jump is likely be attributed to the first-home buyers coming Hobart to seek opportunities, and some downsizers looking for a sea-change.
It is important to recognise that sea change may be a fad, and when the novelty wears off, one is likely to return to where they came from. The trend of moving to Hobart is no difference from Victorians moving t Queensland, the state that was once promoted as "beautiful one day, perfect the next" with sunny days and great surf beaches.
Do people sunbake everyday? Are ordinary mums and dads surfers? Do they eat out everyday, in the same few restaurants close by? Life is more than what I have described. Leaving behind those fond memories, the laughter of close circles of relative and friends, familiar sight and sound, the streets that once travelled on regularly without the use of a GPS, are more than enough to make one "homesick", and in fact, many do return to the home city. Statistically, the net interstate migration of Queensland declines more than other states.
Hobart is a smaller city, has an estimated population of over 220,000 people, which accounts for 0.93% of Australian population. In comparison, Melbourne has over 4.8 million which accounts for 19.05% of national population. For those still in the workforce or in business, Melbourne is without doubt a much better place for networking. In addition, there are more schools, hospitals and sports in Melbourne that one can choose from.
No doubt, Tasmania is closer than Queensland from Melbourne, but it is more troublesome to cross the sea from Hobart than to drive on well sealed road linking Melbourne and Queensland. The other option is to travel by air, but getting in and out of airport is just inconvenient.
At present, Hobart has less than 10% of dwellings are apartments. The skyline will not be the same soon, as many developers have already moved in constructing high rise apartments. An investor must take a page from Melbourne and Sydney, that investing in apartments may not be the best option, although the initial outlay is much smaller.
Besides tourism, Tasmania's major industries are mining, agriculture, aquaculture, fishing, and forestry. However, the greatest employer is the public sector. Lack of private sector providing employment, is this viable and sustainable to keep the unemployment rate down?
Given that the cost of housing in Tasmania is considerably lower than on the mainland, the current surge in median price is not a good sign. It indicates that the newly constructed properties sold in the real estate market are highly inflated in price causing such big distortion. Investors who buy overpriced properties will not be able to achieve the desired rate of return (ROI), especially in a city with lower income and smaller population.
If you have not been to Hobart or other Tasmanian cities, go there to check out these places, and have a feel whether they are your investment targets.
Thank you for reading.
