Hobart: A Lesson In Why We Invest Long Term

Posted by Jack Guthrie

Property is a long-term investment, that’s the bottom line. You should be working out your numbers with a hold period of at least 10-15 years, if you are considering investing. A long-term hold gives your property the maximum opportunity to go through as many growth phases as possible, allowing you to leverage off the natural cycle of a property market.

Our research and recommendations are based around this fact. Rather than just looking at which suburb is the new “property hotspot”, we take a holistic approach in analysing each market on the merit of its long-term growth drivers. These economic drivers regularly transfer into the demand for property over the long term and create sustained capital growth, they include:

Economics and Employment
Infrastructure Spending
Supply and Demand
Population and Demographics

Hobart is a perfect example of how investors can jump straight into a market and invest on media hype rather than research. The capital was named as Australia’s fastest growing market over 2017. Median house prices rose by 12.2% in just 24 months – leading to droves of investors turning to Tasmania in chase of capital growth. On face value is seems like a market that everyone should be in; it’s outgrowing all of our capital cities and buying property is cheap in the state.

In reality, Hobart fails to pass the test as a long-term investment. The market is heavily dependent on the agricultural trade and/or tourism as a means of GDP production, indicating an economy with weak long-term employment growth. The little amount of infrastructure investment that has been injected into the economy, is centralised around already established sectors (fishing and agriculture).

So, without employment or infrastructural investment driving the Hobart property market, capital growth is reliant on population growth and low levels of housing supply. Seen below, the growth in the housing market correlates closely with population growth. Within a market that takes such a small uplift to create a boom, in our view it can take just as little downfall to create a bust. Meaning as the population growth slows, so too will much of the growth of the housing market.

This has proved true for the market over the last 6 months. The capital has recently had its weakest quarter of growth since July 2016, the consequence of slowing population growth over 2018. It is expected that the market will now naturally stagnate in reaction to the recent growth, leaving many Australians sucked in by property FOMO kicking themselves. Until the Hobart market show less volatility and stronger economic activity, it will remain off our radar.

Hobart median (Source: ABS – Residential Property Index)

Hobart migration levels (Source: ABS-3101.0 Australian Demographic Statistics)

We follow research, rather than sentiment, to understand property markets. At Blue Wealth we understand that each capital market is segmented and driven by separate economic forces. Our research highlights Melbourne and Brisbane as the strongest opportunities in today’s market. Both capital’s hold population growth levels above the national average, healthy infrastructure pipelines and robust economies. It is our goal to help clients create wealth through these markets over a long-term plan.

Posted by Jack Guthrie, on 9th Oct 2018