We’re used to seeing Sydney and Melbourne in the list of the top 50 cities whose property prices have risen the most in the world, but the latest Australian newcomer has shocked many.

Humble Hobart, which was languishing at number 77 in the Knight Frank Global Residential Cities Index last year, has suddenly leapt this year to the 34th spot, only 11 places behind Sydney and 10 behind Melbourne, with price growth of 11.3 per cent.

“That is a surprise,” says AMP Capital chief economist Dr Shane Oliver. “But we have been seeing stronger price growth in Hobart in recent times, starting to catch up but still with a long way to go.

“With high prices in Sydney and Melbourne, people have started looking around for better value elsewhere to live or buy an investment property and Hobart is well-priced and rental yields on, say, three-bedroom houses, are a lot higher – 5.1 per cent compared to Sydney’s 2.8 per cent and Melbourne’s 2.6 per cent.”

The latest report from the independent global property consultancy Knight Frank tracked the performance of mainstream house prices across 150 cities worldwide up to the end of the first quarter of 2017. Its average increase for the year was 6.9 per cent.

It found the top rankings to be still dominated by Chinese cities, with Toronto and Hamilton in Canada coming in at numbers four and seven. The best performing city in Australasia was Wellington in New Zealand, at number 11, with a rise of 20.6 per cent over the year to March 2017.

Sydney came 23rd with rises of 14.4 per cent, Melbourne 24th with 13.4 per cent, and the Tasmanian capital only ten rungs behind.

Knight Frank’s head of residential research for Australia, Michelle Ciesielski, says Hobart prices improved partly as a result of people from Sydney and Melbourne looking for more affordable alternatives in the property market.

“As buyers have become priced out of Sydney and Melbourne, as investors or owner-occupiers, they’re looking towards markets with lower entry prices and better-returning yields,” she says. “Hobart houses and apartments both fall into these categories when compared to other cities across Australia.”

Hobart’s median house price is still below $400,000, according to Domain Group chief economist Dr Andrew Wilson, as against Melbourne’s approaching $900,000 and Sydney’s at just below $1.2 million.

“Hobart has been a very good performer over the past year as there’s been a strong movement of people from Melbourne and Sydney down to Hobart,” he says. “The affordability of Hobart has been a key driver of that and, while Tasmanian previously had the worst unemployment of all the capital cities, which has kept price growth subdued, that’s recently improved too.”

In Hobart itself, most real estate agents are delighted at how highly they’re now ranking, but say they’re not surprised at all.

“The market is going exceptionally well at the moment,” says Gary Cooley of LJ Hooker Hobart. “There’s a lot of confidence in the state now which is boosting activity and there are a lot of people coming down here to buy, and there’s a real shortage of properties and high rental returns.”

He’s currently selling a good-quality three-bedroom home at 9 Walana Street in Hobart’s Geilston Bay for offers over $425,000. Similarly, Ray White Hobart agent Conor Canning is selling a three-bedroom wilderness retreat at South Hobart’s 10 Old Farm Road, seven minutes from the CBD, for mid-$300,000.

“We’re flat out,” he says. “We’ve got quite a lot of people from Melbourne and Sydney relocating here as for a standard three-bedroom house there, you can buy something incredible here – either a lifestyle property or one in a trendy suburb – with great views and close to great schools.

“For investment property, we have the lowest vacancy rates in Australia too, and a lot of buyers are renting out on Stayz or Airbnb and making a lot of money. We offer fantastic value and there’s a real cultural buzz about the place now.”

Baby Boomers retiring to the Apple Isle are also creating a strong demand for property, believes Hans Waldhoff of Elders Brown and Banks. “We have a very good climate down here and there’s a lot of demand from Sydney and Melbourne, and from overseas now,” he says.

“People now realise it’s a great place to live.”