Mining frenzy fuels mini-property boom, in patches

By Jon Condon28 Feb 2012

While the breathtaking, mining-fuelled sale of Central Queensland property Moray Downs for $110 million grabbed national media headlines recently, that outcome is just the tip of the iceberg in an emerging two-speed property market in some areas of the state.

It’s a development that carries a variety of implications, a Brisbane audience was told on Friday.

While Moray Downs owner, Acton Land and Cattle Co’s Graeme Acton denied there had been any sale of nearby sister property, Iffley, when interviewed by Beef Central last week, property title records tell a somewhat different story.

A title search clearly shows that in August last year, Macarthur Coal bought 26,000ha of country on Iffley, located southwest of Mackay, for a price of just over $38 million.

Technically, the Actons may still own ‘Iffley’, but title records show its size has now been reduced by almost two-thirds, from 41,000ha to just 15,000ha.

The Iffley deal takes the value of the Acton Land and Cattle Co’s property transactions with miners over the past six months to just short of $150 million. Although unconfirmed, there is still a rumour circulating that the Actons may have negotiated some form of royalty payment in addition to the purchase price, and five-year grazing rights, which would be a first for mining/cattle property transactions.

The recent Acton Land & Cattle Co developments serves to illustrate some of the big impacts being seen in rural property from mining expansion – particularly in Central Queensland, but with repercussions echoing across the state and even into NSW.

This was one of the messages gleaned from a rural property briefing hosted by valuers, Herron Todd White in Brisbane last week.

HTW’s Toowomba-based valuer Stephen Cameron provided an update to bankers, agents, accountants, investors and other rural property stakeholders on Friday.

One of his central themes was the influence on the rural property market from the activities of the mining sector. He suggested there was a growing population of dispossessed landowners who have been bought-out for high prices by miners, who were now looking at re-investing back into the market.

“The fact they have been paid a premium for their property means they are able to pay at least a high-value price for the right replacement,” he said.

Mr Cameron said generally, there had been very limited property activity in Queensland’s grazing/mixed cropping country in the past 12 months.

There had been a sharp decline in values since 2007-08, producing a disjoint between buyer and vendor expectations, lowering sales activity. This continued until the latter stages of 2010, when a little recovery was evident in Queensland grazing property values, but the flooding of early 2011 again took any momentum out of the market.

A little resurgence took place towards the later stages of 2011 (more from a sales turnover point of view, rather than price), due to vendor and purchaser expectations starting to better align.

Looking specifically at Central Queensland, he said prices for property in the ‘less that $2 million category’ were being propped-up in some cases by miners on high remuneration packages.

In the $2m-$8m value bracket, populated mostly by family grazing enterprises, the Central Queensland market remained very flat, with little activity evident.

Beyond $8 million, however, there had been some activity from within the corporate sector beef producers, highlighted by the sale of Central Queensland property Mt Cormley, a 23,000ha holding which sold for $27.5m last year.

Another good example of the continued strength of support at the higher quality, larger-scale end was the $27.5m purchase last June of the Comely/Mapala aggregation by Consolidated Pastoral Co. The property last changed hands in 2008 for $32.5m, with stock, worth about $28.5m bare, or a decline in value of only 4.5pc over the past three years.

The second influence in this market segment discussed by Mr Cameron was coming via buy-outs of grazing properties by the coal mining or gas companies. Many of those original landholders were now looking at re-injecting those funds back into the market – often able and prepared to pay a premium for the right property.

“This is creating something of a two-tiered economy,” he said.

“Generally those producers who have been bought-out by the mines are able to go another step further, either in price or scale when they re-invest.”

“There’s a substantial amount of money floating around in that CQ market space at present, being the proceeds of property sales to miners, and some of those former owners at least are likely to re-enter the market.”

He did not rule out the prospect of quality properties being deliberately placed on the market, being targeted squarely at this buyer group.

Inquiries through other valuer channels suggest there are about 20 such examples just in the Connors River (7) and Capella (9) districts alone. While some acquisitions have been made directly for mining, others have taken place for the development of infrastructure, such as rail freight systems.

In more southern regions of Queensland, there had also been a flurry of activity around Wandoan from mining and CSG acquisitions, Mr Cameron said.

A local property, Allawah, sold in 2008 for $1m ($2000/ha), before turning over again in 2010 for $1.8m, demonstrating the considerable premiums mining companies were willing to pay.

Xtrata and other gas companies operating around the district acquired about 14,000ha of grazing country around Wandoan last year alone, for a combined figure of about $45 million, he said.

Whether those funds were entirely re-injected back into the property market by ‘dispossessed’ landowners remained to be seen.

“But with limited numbers of properties being offered to the market, if a situation emerges where a number of landowners that have been bought-out are competing for one or two sales, it is generally going to lift those values up,” he said.

This phenomenon could also impact on a larger area than the immediate district affected by mining.

“There have been recent examples of producers who have been bought-out by mines around Wandoan relocating to Goondiwindi on the NSW border, for example.”

Mr Cameron pointed out that it was a quite high proportion of the state of Queensland that could be impacted by coal mining or gas, extending from the Galilee and Bowen basins north of Moranbah, west to Alpha, and down to Injune, Roma, Miles, Dalby and onto the doorstep of Toowoomba. Similar impacts were now starting to be seen in NSW.

 

Water provides opportunity

He said there were in fact instances where the two industries (agriculture and mining) were assisting each other.

One example was a water reclamation project being undertaken by Queensland Gas south of Chinchilla.

With new legislation covering how miners must utilise saline water from the coal-seam wells, instead of simply being evaporated, a $350m reverse osmosis water purification plant is being developed, drawing from a 3000mL ring-tank.

Through a joint initiative with SunWater, the fresh water is piped 20km to Chinchilla weir. Landowners along that pipeline will have access to that water when it becomes available in about two months’ time, for stock or irrigation use.

“This is a relatively new development, and could see what was traditional dryland grazing country, at best, being developed with centre-pivots for irrigation and generating a higher cash flow.”

“There are obviously issues around that, from a valuers’ viewpoint, including the certainty and reliability of water, but there is no historic data to go on to draw conclusions about how this potentially changes value,” Mr Cameron said.

 

Carbon offset issues

Adding comment during a later session on carbon offset issues, HTW’s head of rural business, Tim Lane, said the typical impact from a coal mine ‘footprint’ might include clearing 2500ha of brigalow.

“As a consequence of the mine action, that mining company would then have the obligation to go and replace that with approximately 12,500ha of brigalow country. Up to now, a lot of the mining companies/developers have just gone and bought a brigalow property, to solve the problem.

“But as those properties start to disappear out of the market, the miners are going to have to approach landholders and enter into deals where they are paid to regrow brigalow on some of their more marginal country,” Mr Lane said.

“There is certainly potential opportunity for landholders, both larger holdings and potential to rehabilitate or marginalise an area that is less productive. The other side to that, of course, is that it represents an obligation and encumbrance on title, and ongoing costs attached.”

The implication of such schemes meant that landowners should look at them carefully.

“There are opportunities, but with opportunity comes risk,” Mr Lane said. “We’re only now starting to look at how we determine the valuation impacts of such agreements,” he said.

 

http://www.beefcentral.com/p/news/article/1297

Rethink mining towns and don’t invest in yesterday’s hotspot

By Sam Saggers
Friday, 30 September 2011

As we look to what’s ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.

 

Are you searching for your next investment in the mining towns of Mt Isa, Kalgoorlie, Boulder, Cloncurry or Blackwater? Perhaps you should re-think your choice of location. Why?

Towns such as Mt. Isa, Kalgoorlie, Boulder, Cloncurry and Blackwater, as well as Port Hedland, South Hedland, Karratha, Weipa, Moranbah, Dysart, Kambalda and Middlemount were fantastic mining town hotspots. Some markets tripled in value from 2004 to 2007, however now they’ve become either stagnate or they’re on a slight slide, as the homes in these areas have now reached their capacity for capital growth.

The markets referenced above performed very well during the commodities boom from 2003 to 2008. These areas grew rapidly as wages were very high while housing prices were relatively low. Wages averaged about $120,000 a year, or $2000 per week, while home prices started at $100,000 in 2003.

Higher wages caused housing prices to grow exponentially, until the growth was no longer sustainable. For the average miner to afford houses in these areas now, he would have to make $200,000 a year for an $800,000 house in Port Hedland to grow in value.

Rather than buy somebody else’s capital growth, in tired markets, investors should look for certain key indicators when searching for the next mining hotspots.

  1. Infrastructure spending is key to finding good growth markets. An investor should look for towns with more than $1 billion in planned private investment. One thing to note is that although the old boom towns have a lot of planned private investment in the works, investors would be smart to have a growth strategy in mind when choosing where to buy. Rather than buy homes that have reached their potential, thus buying somebody else’s capital growth, investors should sink their funds into markets where house prices are still low.
  1. Look for areas with multiple market economies. Markets that rely solely on one resource, for example, copper, will have economies that rise and fall with commodity prices, whereas areas with a more diverse economy can weather market fluctuations. Diversifying into dual market economies are an investor’s best bet at getting decent rates of return for his portfolio. I’m now a believer, having lived the last market cycle to diversify into dual market economies. I saw house prices in Cobar reverse 30% in 2008, mainly as it’s a single-market economy. Returns in Cobar were 10% and now they are 6%. Homes are worth 25% less because of the global financial crisis.
  1. Choose cities with aggressive councils that will set in place procedures to encourage growth and investment in the area.
  1. Look for areas where large corporations are injecting billions of dollars in the area, expanding existing infrastructure and building new facilities.s
  1. Keep in mind the demographics of the mining market when selecting homes in different areas. Each mining town has different areas that are worth buying in, however it’s important to note that a typical miner may not want to live on certain streets because of lower socio-economic social issues. Also, the local demographic does prefer a reasonable standard of accommodation, so I would suggest relatively new properties rather than older ones, otherwise the miner may as well live in a mining camp!
  1. Practise due diligence when searching out investment opportunities in mining towns to uncover any potential issues that may interfere with profits. The housing or dwelling type is less relevant than some of the idiosyncrasies a township may have. For example, some mining areas are subject to flooding and have environmental issues as a result from the local refinery. Also, some title towns and streets have title issues, mainly as the mines have covenants over the lands, providing a potential problem should the mines have a need for a mine extension underground. Most of Dysart, for example, is leasehold land, so you’re not even buying Torrens or freehold title in some cases.

Mining towns are a fabulous investment for individuals who are looking to invest for retirement. Right now investors can mirror what happened in the last mining boom by seeking out new mining markets that are expected to follow a new commodities boom that is taking place right now. Real estate is an investment that will certainly help you retire comfortably. Bearing this in mind, you need to ask yourself this final question in regards to mining towns: will the mine be yielding and operating the date I retire, or will that be the year they close or slow down production of that commodity and my valuable asset becomes significantly less valuable?

Recently I have read the rebuttals from speculators and many industry “experts” scaring people away from investing in mining towns – claiming towns can simply “disappear” if the mining town goes bust or relocates to other lucrative areas.  I have seen many experts advising people to invest in city locations over mining towns; however based on my investing experience and research there is not just one market in which I would “put all my eggs” so to speak!

I would like to stress that a savvy investor works towards a balanced property portfolio, a portfolio that has both cashflow properties and capital growth properties. So my strategy for profit would be to invest in strong cities and then diversifying to major regional markets that have significant property pressures. I really would not suggest a client goes into a mining town like Gladstone with high rental yields in preference over another investment in a city location with less rental yield unless I knew their particular financial and personal situation.

Sam Saggers is CEO of Positive Real Estate.

Hotspot: High yields and price growth in Moranbah, but best time to buy may have passed

By Larry Schlesinger
Monday, 27 February 2012

Moranbah ranked as the number-one suburb for capital growth over 2011, with house prices rising 29% from a median of $474,000 in 2010 to $612,000, according to RP Data.

Property investors continue to pour funds into the small northern Queensland town close to coal mining activity in the Isaac region with yields still on offer of up to 16%.

Sales activity has soared over the first two months of the year, with 44 houses sold in Moranbah over January and February, according to realestate.com.au figures.

This is more than double the 21 houses sold in the first two months of 2011.

Top Five suburbs for capital growth over 2011

Rank State Suburb Median value in 2010 Median value in 2011 % change
1 QLD Moranbah $474,089 $611,752 29%
2 NSW Moss Vale $297,060 $364,407 22.7%
3 QLD New Auckland $378,833 $459,150 21.2%
4 ACT Red Hill $940,873 $1,129,919 20.1%
5 QLD Clinton $385,118 $452,865 19.7%

Source: RP Data

Hotspotting.com.au director Terry Ryder says there will be further price growth in Moranbah, but believes that the best time to buy was 18 months ago before the growth in prices and rents gathered pace.

“There appears to be long-term sustainable demand from overseas markets for Queensland coal, so towns like Moranbah have a future.

“Investors need to be aware of the risks, however. Mining towns are highly vulnerable to economic cycles and sit at the high-risk end of the investment spectrum. Mining companies are increasingly opting to fly-in-fly-out (FIFO) workforces.

“BHP is seeking to run its new mine near Moranbah on a 100% FIFO workforce, so that does not generate accommodation in the town,” says Ryder.

RP Data’s Cameron Kusher also warns that investors must tread carefully when it comes to mining towns like Moranbah

“‘We’ve seen locations where capital prices collapse as soon as the mine is shut down,” he told the Sun-Herald earlier this month.

Local agents though continue to report record listings, high yields and strong investor demand for properties.

Sharyn Mackay from Vision Real Estate is seeking $1.25 million – a Moranbah record – for this five-bedroom house (below) on Longman Drive. According to principal Vikki Oldfield, the property would rent for more than $3,000 per week – a yield in excess of 12%.  It last sold in August 2010 for $710,000.

This four-bedroom house (below), marketed by Emma Elliott from Ray White Mackay Beaches and Moranbah with swimming pool on Gilbert Court close is currently under offer of $920,000 according to RP Data and renting at $2,800 per week. At this sales price, this equates to a yield of 15.8%. It last sold for just $121,000 in 2002.

Another local real estate agent, Craig Aitcheson from LJ Hooker Moranbah, described the market as the “craziest” he’d ever seen and believers there is still room for further price growth.

“I just can’t see it slowing down with all the activity that’s happening,” he told the Mackay Daily Mercury.

Aitcheson says 95% of inquiries are coming from investors.

The Moranbah region has undergone rapid population growth in recent times, with the population expanding from just over 7,000 according to the 2006 census to over 10,500 in 2009 according to the Isaac Region Council.

The supply of homes has received a small boost in recent months with the launch of a new residential community known as the Bushlark Grove. The project will provide 160 new homes for around 400 people over the next six months at a cost of $20?million, targeted at the more affordable end of the market.

“Bushlark Grove will provide more affordable housing through the improved supply of residential land and a greater range of housing types to cater for the needs of the Moranbah community,” says Urban Land Development Authority director of residential development Peter Smith.

However, the creation of new residential communities around Moranbah appears limited.

Following the recently released Mackay Isaac Whitsunday Regional Plan 2012-2031, aimed at easing the housing squeeze and dependence on fly-in, fly-out workers, Queensland Local Government Minister Paul Lucas says Moranbah’s urban footprint could not be expanded because it is surrounded by mining leases.

In December, Moranbah’s status as a coal exporting hub was enhanced with the opening of the new $1.1 billion rail link Goonyella to Abbot Point rail link north of the town.

The rail link will increase the capacity of coal exports by a further 50 million tonnes each year.

Hotspots: Investors mine for yields of up to 16% in Moranbah

By Larry Schlesinger
Thursday, 29 September 2011

As we look to what’s ahead for 2012, Property Observer is republishing some of our most noteworthy stories of 2011.

 

The small town of Moranbah in northern Queensland is drawing investors from across Queensland and as far as Western Australia with rental yields of 15% as mining activity picks up after the January floods.

Located along the Peak Downs Highway between Mackay and Clermont, in the resources-rich mining region of Isaac, Moranbah has experienced a rapid house price rise in the past year. According to RP Data, the Moranbah median house prices rose 5.2% over the past year to $463,000.

According to RP Data, there have been 131 sales in Moranbah for the year to date, and of these 109 were house sales.

Properties returning high rental yields include this three-bedroom house on Bernborough Avenue (pictured below), which sold in August for $585,000. It has been put in the rental pool asking $1,800 a week, representing a yield of 16%. It was marketed by Julie Williamson Real Estate as having a weekly rental potential of $1,400 per week.  The 900-square-metre block traded at $15,000 in 2004 when it sold by BHP Mitsui Coal.

The most expensive property (below) sold this year was a contemporary four-bedroom house on Bernborough Avenue that was built on an 800-square-metre block of land that last traded for $72,600 in 2006. It had been listed for sale in 2008 at $799,000 and did not sell. In June, it sold for $840,000.

On the same street, a three-bedroom fibro house built in 1982 that sold for $445,000 in 2009 was recently sold, having been listed at $590,000.

According to the REIA, the resource-intensive regions of Isaac ($445,000) and Gladstone ($415,000) have showed the highest median house prices of any council region in the state outside of south-east Queensland and are on an equal footing with Brisbane, where the median price currently stands at $435,000 (a drop of 5.4% for the year).

The major coal mining projects underway are the Goonyella and Peak Downs coal mines, operated by the BHP Billiton Mitsubishi Alliance (BMA) and Anglo Coal’s Moranbah North mines.

Demand for rental accommodation and new residential developments has received a further boost with the Queensland government ruling earlier this month that it will require 80% of BMA employees across all operations live in the region where they work.

BMA will be required to build 400 homes, the first 160 to be built in Moranbah by June 2013, and the remaining 240 across the Bowen Basin over the following four years.

Infrastructure investment continues to pour into Moranbah with Leightons subsidiary John Holland recently selected as the preferred tenderer for the construction of the $400 million proposed Connors River Dam to Moranbah Pipeline.

The project involves the construction of 136 kilometres of large diameter buried pipeline that will carry around 45,000 megalitres of water per annum from the proposed Connors River Dam to the Bowen Basin and surrounding areas and help meet the water supply needs of the resources sector. John Holland is expected to be confirmed as principal contractor in March 2012.

Hotspotting.com.au director Terry Ryder tells Property Observer he does not generally recommend mining towns to property investors, “because they are at the high-risk end of the investment spectrum” but if he had to suggest a good case study it would be Moranbah.

“It has had a remarkable track record of capital growth (averaging 28% per year over the past decade) and providing 9% to 10% rental returns. Moranbah managed to avoid any serious price decline post-GFC and is now trending up again with the new resources boom,” he says.

Generally though, he warns that mining towns have volatile markets and are highly vulnerable to the cycles of the resources sector.

“When the GFC struck, we saw vacancies in some mining towns go from zero to 10% almost overnight, as miners downsized or closed mines completely,” he says.

Realestate.com.au lists 125 houses in Moranbah for sale starting at $520,000 for a three-bedroom house and 30 properties available to rent, with the asking price for a three-bedroom house at $1,500 per week.

According to Bella Exposito from Moranbah Real Estate, who has worked in the area for 34 years, prices have really picked up since June. Her agency has 25 properties under contract, and her most recent sale was a three-bedroom house for $600,000.

“This property would have sold for around $450,000 a year ago,” she says.

Bella says 90% of the properties are rented by mining employees or contracted tradesmen, with mining companies footing the rental bill.

She flies out regularly to meet with investors in Melbourne and Sydney and says demand is very strong.

Another local agent, Roz Robinson, from LJ Hooker reports similar investor interest and “huge demand”.

“We are selling some properties within 24 hours if not quicker. We have an extensive buyers’ list… There are a lot of investors from WA,” she says.

Robinson attributes the demand to the mining activity and says while new land is being released for development, she expects it to be absorbed quickly and to have no impact on pricing.

Earlier in June it was announced that a 104-hectare parcel of land would be fast-tracked to improve the supply of residential land and ease housing affordability in the township. The site is to be jointly developed by the Urban Land Development Authority and BHP with plans for 1,500 houses.

Bill Moss, founder of the Midwood Report, says mining towns like Moranbah and Gladstone are seeing annual rental increases far greater than any other parts of Queensland, as much as 38% in some cases.

“Coal mines have been resurrected after the January floods. Since they have restarted, a lot more people are coming back to mining towns,” he says.

“From March onwards there has been a lot more demand for housing in the Bowen basin” – a 60,000-square-kilometre portion of Central Queensland that includes Moranbah, Clermont and Emerald.

The Bowen Basin region: