Rents down, but yields still high, in Moranbah

It’s been nearly three months since mining giant BMA imposed its controversial ban on signing new rental leases in Moranbah, the central Queensland boom town arguably at odds with its own success.

The BHP-Mitsubishi Alliance put its very large foot down after rents in Moranbah went ballistic over Christmas. January is always busy for rental markets, but prices in Moranbah really were hard to believe: decidedly unglamorous three bedroom shacks jumped up to as much as $2,200 per week. Anything nicer was rented in a heartbeat for over $3,000 per week, and investors everywhere drooled over the thought of returns around 15%.

But by March, BMA had had enough, and refused to sign any new leases for its staff. The company might not be re-entering the rental market in a big way in the short-term either: it’s about to hand over the keys to 100 brand new homes it built itself, for its own employees – and there are another 280 homes underway in Moranbah, Dysart and Blackwater.

So what impact has the action of one big miner had on the Moranbah market?

Nikki Oldfield, the Principal of Vision Real Estate in Moranbah, says the freeze by BMA quite simply drove rents down by a few hundred dollars per week across the board.

Now there’s an ‘oversupply’, with over 150 properties for rent this week, compared to ‘next to nothing’ available over the peak Christmas/New Year period.

“A basic new home was fetching $2,800 per week – now that’s dropped back to around $2,200 or less,” she says.

Older homes – many of which are fibro shacks – have dropped even more substantially to around $1,000 per week, with some as low as $850. Tellingly, many ads on the internet now say ‘negotiable’, so rents may well drop further.

“It has been quiet, but things are picking up again. Other companies are still taking leases, and I think prices have stabilised,” she says.

Oldfield says the action by BMA also affected sales of investment properties, with more houses coming on the market and prices heading south for the first time in quite a while.

“You get a few rentals come on the market, so people get scared and prices come down. Yields are still high though – 10% is a good yield, but we’re not seeing the 13% yields that we had over Christmas,” says Oldfield.

The sudden oversupply has stunned the Principal of Moranbah Real Estate, Bella Exposito.

“I own two houses myself and I haven’t had an empty house for 25 years. The vacancy rate right now is shocking to me, it’s very, very quiet – but I do believe it will bounce back,” says Exposito.

“It went crazy (over Christmas), we didn’t have any properties for rent – so anything that did come on the market was rented for $1,800 or more. Now it’s coming back to reality. Prices went really high, which is great for investors, but $900 per week is still a very good return on an older house here. You wouldn’t get that rent anywhere in the city for the same purchase price,” she says.

In fact, now just might be a better time to buy, if you’re confident rents won’t drop further.

Exposito says property prices have dropped substantially in just a couple of months; older homes that were selling for around $700,000 are now going under contract for $550,000.

“It’s all about supply and demand in Moranbah, and the demand will come back,” she says.

ENDS

Source: http://www.hotspotting.com.au/article/2336-rents-down-but-yields-still-high-in-moranbah

Is it boom or gloom time?

FLY IN, fly out mining contractors have exposed the grim realities of life away from family in “primitive” towns like Moranbah, arguing that depression, loneliness, drinking and gambling go hand-in-hand with camp life.

But would they relocate their families to the community?

The answer was no.

In an ABC Four Corners report aired on Monday night, a Brisbane-based contractor working in Moranbah said the social problems were rife among FIFO workers, who worked long hours away from home in search of a dollar.

“Things that happen behind the scenes for females (in the town) is disgraceful,” the contractor said.

“It’s a male-orientated place. You might say they do the wrong thing to females because they think it’s their god-given right with a bit of (alcohol) behind them. And no one does anything about it in this place.”

Another worker said he was earning upwards of 200% more in Moranbah than he would on the Gold Coast where his family resided. Despite this, he said the town’s social problems, lack of infrastructure and high cost of living meant he would not relocate his family there.

“You’ve got to do what you’ve got to do,” he said.

With half a trillion dollars of resource projects proposed, the full brunt of the mining boom is far from being felt in its host communities, and the debate about how much mining companies and governments should contribute back into the towns rages on.

In the Bowen Basin alone, there are plans for another 37 coal mines.

That’s on top of the 39 currently operating in the region.

The reaction on social media websites from Central Highlands’ locals suggested the issues covered in the episode correlated with other communities in the region.

“Watch the Moranbah story people! This is nearly Blackwater… And Emerald in the not too distant future, especially with rent issues!” Blackwater’s Christie Marschke said.

Lyn Busk is a Moranbah resident of 40 years and she has three children who live in the town with their families.

In her lifetime, she has seen a lot of change in her beloved community and she was sad to admit she feared for its future with the drastic change in demographic taking place.

“There are fewer volunteers and families involved in the community these days,” Mrs Busk said.

“People aren’t committing as much as they used to.

“A lot on (Four Corners) was true, but there are families here that love the place and don’t want to leave.

“We need affordable housing – that’s the key.

“The big companies need to realise they are damaging this town. And it is this town that services their long-term employees.”

The area’s largest miner BMA said it was investing millions into the community through housing initiatives.

But newly elected Isaac Regional Council Mayor Anne Baker questioned the company’s decision to spend $50 million on an upgrade to the local airport.

“If I had $50m to spend I would be investing in family housing,” Cr Baker said.

BMA asset president Steve Dumble said the airport was an important piece of company infrastructure that did not currently reflect the transport needs of a community like Moranbah.

“It’s not one or the other. We are in the process over the next two years of building 383 dwellings across Moranbah and Dysart,” Mr Dumble told the ABC.

Source: http://www.cqnews.com.au/story/2012/05/30/boom-or-gloom-time-residents-fear-for-future/

Miners return to work in central QLD

BMA coal miners will return to the job today after a week of strike action at six mines across the Bowen Basin in central Queensland.

More than 3500 workers have been protesting the company’s latest enterprise bargaining agreement, which more than 80 per cent of members have rejected.

The president of the CFMEU Mining and Energy Division Queensland, Steve Smyth, says the union will continue negotiations with the mining giant early next week.

“Hopefully they’ll come to the table with a little less arrogance and a little bit more wanting to discuss and compromise and work through the outstanding matters and as I say, BHP what they’re selling, members aren’t buying.”

Mr Smyth says the strike action is not yet over.

“There may be some sporadic type action at various pits, there may be some pits that will continue to take day shift stoppages or day long stoppages and that’s up to the pit and their members to determine.”

“But as far as a collective stoppage of all six mines we’ll have that discussion and then we’ll work out our strategies from there.”

To show their support and solidarity to BMA workers, and their families, union officials from BHP mining operations across the country have met in Queensland for the annual BHP National Merger Group conference.

The meeting was due to be held in Perth but was relocated to Mackay giving delegates the chance to travel to Moranbah, visit the BMA mines and speak direct with workers on the picket lines.

The national vice-president of the CFMEU Mining and Energy Division, Wayne McAndrew, says it is an extremely important industrial dispute and the national office fully supports it.

“We will support them and we will do whatever we can to make sure that they have a successful outcome to this dispute. Already we’ve put all our resources at their disposal, we’re assisting them financially, we’re assisting them with media coverage, yes it’s an important dispute.”

Mr McAndrew says BMA’s threat to withdraw its five per cent pay increase to workers if the industrial action didn’t stop is childish and only makes the members angrier, stronger in their resolve and makes the bargaining more difficult.

“It’s a dispute that we’ve consistently said that’s not about money or bonus or wages.”

“It’s about having proper and appropriate conditions of employment that safeguard members working and also safeguards safety roles we currently have here.”

President of the BHP Billiton Mitsubishi Alliance, Stephen Dumble, says the latest enterprise agreement (EA) is not about company management wanting to control safety jobs.

Mr Dumble says the current EA does not allow BMA to provide careers and adequate pay rates to attract employees, rather than contractors, into critical safety roles.

“We want the best possible people working with us as employees in these very important safety roles.”

“It is simply about having an ability to compete with conditions on offer for contractors.”

The company says it will maintain its offer of a five per cent per year wage increase, for all three years of the proposed EA, but has already signalled to the unions that it’s unlikely to be able to retain its current offer indefinitely as a result of the current economic outlook.

BMA says that since it made its offer nearly 12 months ago, coal prices have reduced from more than $300 per tonne to $220 per tonne.

http://www.abc.net.au/rural/news/content/201205/s3514293.htm

Will Blackwater suffer Moranbah’s fate?

As you probably saw on Monday night, Moranbah is in the grip of the mining boom and feeling the strain very much with a lack of services, and a permanent population that feels squeezed out of their own town.

Is Blackwater heading down the same path though? That’s the fear of many in the area with thousands living in mining accommodation at the moment in town and plans for thousands of more rooms in the planning stages.

Peter Maguire is the Mayor of the Central Highlands Regional Council and I put that question to him – is Blackwater the next Moranbah.

Audio at: http://blogs.abc.net.au/queensland/2012/05/will-blackwater-suffer-moranbahs-fate.html

 

Union delegates back miners

MINING union delegates from every BHP operation in the country gathered in Mackay yesterday in a sign of solidarity for striking Bowen Basin workers.

Construction, Forestry, Mining and Energy Union (CFMEU) workers from the Bowen Basin’s six BHP controlled mines are in the middle of a seven-day strike.

The strike follows more than 18 months of conflict between BHP and the CFMEU.

CFMEU district vice president Steve Smyth said the meeting was useful to share information amongst union officials about what was happening at other BHP controlled mines in the country.

“We’re mainly discussing where we’re at with our dispute in the basin and we’re just touching on what is going on across the country with BHP,” Mr Smyth said.

“We’re making general comparisons of what BHP is trying to do, and in our view that is to de-unionise the coal industry and reduce the entitlements a lot of our members have.”

Mr Smyth said an end to the industrial dispute was likely to still be a long way off.

“I think at the end of the day there will be an agreement,” he said.

“And the end comes when BHP wants to actually sit down and negotiate with us.”

Mr Smyth said there had been no effort from BHP to negotiate with the CFMEU since strikes began on Thursday.

Today, the national delegates will address striking workers in Moranbah.

“All the (delegates) are going to have a meeting and talk to members about what’s going on,” Mr Smyth said.

“It’s… so they know they’re not the only ones in the fight and people are supporting them.”

Workers from the various BHP mines in the Bowen Basin are expected to resume work either tomorrow or Thursday.

http://www.dailymercury.com.au/story/2012/05/29/national-union-delegates-back-striking-miners/

CFMEU backs Four Corner’s FIFO report

LAST night’s Four Corners program on the social impacts of Central Queensland’s rapidly expanding mining industry adds urgency to the task of protecting regional communities on the front line of the boom, the CFMEU said this morning.

Four Corners outlined the impacts on Moranbah in the Bowen Basin, including:

  • A dramatic rise in Fly In Fly Out workers
  • Squeezed health and medical services
  • The highest housing prices in Australia
  • Dangerous roads
  • Social problems including alcohol, gambling and sexual assault.

“If you’ve been to the Bowen Basin and seen the scale of the mining boom, you won’t be surprised by the social issues Four Corners has exposed,” said CFMEU National President Tony Maher.

“But places like Moranbah are out of sight and out of mind for most Australians.

“These communities are at the front line of the mining boom, generating enormous profits for companies like BHP.

“The boom is far from over in Central Queensland, with 39 existing coal mines and almost as many again in the pipeline.

“The companies that operate these mines, including BHP, need to take some responsibility for the quality of life available in the towns that are supporting their operations.

“That means providing family housing, family-friendly work rosters, real choice over FIFO and DIDO arrangements and seriously investing in community infrastructure.

“If companies can’t be relied on to step up, governments at all levels have a responsibility to work with communities to find solutions to the kinds of social issues that we see in Moranbah and replicated across the Bowen Basin.”

The Regional Infrastructure Fund to be funded by the Minerals Resource Rent Tax is a good start, but would not meet all the needs of regional communities as the mining boom ramps up, said Mr Maher.

“The Federal Opposition, cheered on by the mining billionaires, plans to dismantle the MRRT. That would be a disaster for regional communities – we need to build on the MRRT, not ditch it.”

http://www.themorningbulletin.com.au/story/2012/05/29/cfmeu-backs-four-corners-fifo-report/

Abbot Point Port Shutdown

As you may know, 6 of the 9 planned coal terminal expansions of Abbot Point Port were recently shut down over fears it was being expanded too quickly.

Let’s be frank.

These cancellations are not a great outcome for the Queensland town of Bowen (situated 30km away). That’s because these coal terminals would have been a super driver over many years for the town’s property market.

Indeed, it would have created one of the world’s largest coal ports.

So, I recently spoke to Flynn about this shutdown. On your behalf I wanted to get his thoughts about what it means for Australian property investors.

Here’s what he had to say:

“The central lesson here is some bad news – in one specific area –  does NOT mean the boom is over. In fact, my analysis reveals that the future is looking brighter than ever for the commodities boom and property markets of resource boom towns across Australia.

But the Abbot Point coal terminal expansion cancellation does underscore the importance of research and pragmatism when investing in resource boom towns.

Some investors bought after the January 2012 announcement, with great fanfare, by the then Labor premier Anna Blight that the planned three coal terminal expansion would be supercharged to nine.

Exciting news until the next (Liberal) premier decided it wasn’t such a good idea. In the government’s words “the project was unrealistic and undeliverable”.

The lesson: not all resource towns are created equal!

HOW TO KEEP OUT OF RISKIER SITUATIONS

Here’s one criteria I use to give the “green light” on a resource boom town – I look out for projects with “approved” status only.

As investors, we get the most certainty when all required State and Federal Government approvals have been granted.

In the case of Bowen, only the first of the three proposed coal terminals were approved.

In March of this year, the Federal Government then announced approval of the second two – and the six newly proposed terminals – would not be made until the END of this year.

These are the situations I am mindful of.

But demanding all State and Federal Government approvals isn’t the ONLY criteria I use.

In fact, there are 3 more.”

To discover what they are just go here:

Flynn’s Criteria For Investing In Resource Boom Towns

So if the recent cancellation of the 6 coal terminals of the Abbot
Point Port has given you the jitters, go ahead and review Flynn’s investment criteria.

Flynn’s Criteria For Investing In Resource Boom Towns

Warmly
Anthony
Positive Cashflow Research Group Pty Ltd, PO Box 136, Croydon, Victoria 3136, AUSTRALIA

Mining strike could affect the price of coal

There’s a chance the price of coal could rise if the industrial dispute at six BHP Billiton Mitsubishi Alliance (BMA) coal mines in Queensland’s Bowen Basin drags on.

Workers are back on strike today, continuing an 18-month dispute between the mining giant and the Construction, Forestry, Mining and Energy Union (CFMEU).

More than 80 per cent of workers rejected BMA’s latest enterprise bargaining agreement offer.

Last minute negotiations between union officials and the company yesterday failed to prevent the latest round of week-long strikes.

But resources analyst Gavin Wendt says if there’s to be industrial action in the coal mining sector, now is probably the best time to have it.

“From BHP’s perspective, the last thing you’d want is industrial action when demand is strong and you’re selling every tonne of coal that you can possibly produce and prices are high,” he said.

“That’s not the situation at the moment. Of course, demand has been weakening off and prices are been somewhat soft compared to where they were in the past.”

BMA says that industrial action continues in spite of the fact that the last 12 months of rolling strikes has achieved nothing other than to cause harm to its employees, communities and the business.

The company says it will in good faith continue to make itself available for further bargaining meetings despite the continuing industrial action.

Mr Wendt says there may be fallout from ongoing industrial action at the BMA mines.

“If there’s a perception amongst consumers of coal in Asia that this really has no light at the end of the tunnel in terms of some sort of resolution, then it’s likely that traders and end consumers will start to get a little bit nervous,” he said.

“They’ve been fortunate in that there’s been plenty of supply around and demand has been easing.

“I think Asian buyers have pulled back from the market, but industrial action could well be the trigger for some of these end consumers starting to come back into the market to start to accumulate, in anticipation of prices potentially going higher if indeed this dispute does drag on.”

The Queensland president of the CFMEU, Steve Smyth, says he’s disappointed with BMA’s attitude at yesterday’s meeting, the first since workers rejected the company’s latest EBA offer.

“We would have thought they would be in a position to actually want to start negotiating, but they come to the table and it appears that the second huge overwhelming no vote has done nothing to actually get them to want to start negotiation in good faith.”

More than 3,000 workers are on strike at BMA’s Saraji, Peak Downs, Broadmeadow, Goonyella Riverside, Gregory Crinum and Blackwater mine sites.

BMA shut down its Norwich Park Mine, south of Dysart, earlier this month.

http://www.abc.net.au/rural/news/content/201205/s3510079.htm

Moranbah Update – An email from Williams Real Estate

Here’s a great email I just received from the Principal of Williams Real Estate, Geoff Williams, that addresses the Moranbah market as well as his predictions on the months ahead.

Subject: Moranbah update.

Dear Investors,

Moranbah has experienced a recent cyclical swing in the pendulum of its fortunes.  Whilst only forty years old, it has nevertheless seen the peaks and troughs that would normally be associated with any investment – be it stock market, precious metals, collectables or real estate.

In about March 2011, the demand for accommodation in Moranbah caused a surge in rentals, followed soon after by a rise in property prices.  As the realisation of this was grasped by the wider market of investors, investment purchases became almost frenzied, reaching a peak around December 2011 through to February this year. At this time, returns on investment of around 18 to 20% were not uncommon and the average for newly leased residences (recently completed, four bedroom, two bathroom, with a shed) was about 17%.

After a short plateau, rents started to fall in about mid March 2012, followed again by a drop in property prices.

Nevertheless, the future for Moranbah’s prosperity – depending on one’s definition of short, mid and long term – is much brighter than anywhere else in Australia. Our largest consumer of coal is Japan, followed by Korea, and there are different grades of coal, from Thermal through to Coking, and several blends of those. Continuing demand for coal to burn in power production, and in the production of steel, appears certain, manifested by the well-publicised intention of several mining companies to expand existing mines or construct new ones.  The long running industrial dispute between the CFMEU and BMA has delayed many of these projects, and when that is eventually resolved, bringing some stability to the employment sector in Moranbah, that stability is expected to be reflected in the property market.

Even amid the present uncertainty, investors who buy prudently and understand and accept that rentals have come down, are achieving an ROI that is between 8.5% and 10%.  When the abovementioned conditions prevail, vacancies are not difficult to fill, property investment is still positively geared, still better than almost anywhere else in Australia, and when the definition of long term is around eight to ten years, the investment would show a likelihood of appreciable capital growth and significant improvement in the rental income.

The security of that future prognosis is only as sound as the coal mining industry and I am not arrogant enough to attempt a prediction of that magnitude.  I do know that the resource supply is well documented for around forty to fifty years; I do know that there are around twenty mines planned for expansion or construction, and I do know that there is good world-wide demand for that resource.

I do not know anything about negotiations on the price of the coal, or about the cost of its extraction or about the profit derived from mining.

One of the reasons for Moranbah property’s high yields is the level of risk.  Another major factor is the scarcity of land for residential development.  I believe those factors will always be there, just as I believe the good ROI will always be there.

An interesting analogy of the present situation could be that of a line of traffic, travelling at say 100kmh, when the lead vehicle is distracted by some external event, and briefly slows to say 50kmh, causing the spaces in the following chain of vehicles to compress and sometimes even pile up on each other.  The normal flow does not resume until the lead vehicle again regains its earlier velocity; the damage caused to some of the vehicles in the line is of little concern to the lead vehicle, or indeed to any in front of the damaged one(s).

To attempt to predict the future, and this is purely my opinion and perception, I believe the “norm” for Moranbah in the next six months more or less, will be along the following lines:-

Property Weekly Rent Est. Sale Price Approx ROI(Gross)
New 4 bed 2 bath townhouse/unit
New 3 bed 2 bath townhouse/unit
New 4 bed 2 bath stand alone dwelling
$1300–1500
$1100–1300
$1600–1800
$675,000-$730,000
$575,000-$710,000
$800,000-$830,000
10%
10%
10 – 11%

My research into general building cost in Moranbah discloses a range, depending on the type of construction and the quality of the finish.  It is possible to find builders who will build high quality well-finished dwellings (houses and units/townhouses) at around $2200 per square metre, and it is also possible to obtain transportable dwellings of up to five bedrooms which take a lot less time to construct on site and attract similar rentals, but cost almost the same as brick on slab.

I trust this gives you the information you are seeking, and I emphasise again, that this is my own opinion, which while gathered from my own experience, could as easily be wrong as correct.

I look forward to the opportunity to discuss this further at some future time, and I am pleased to respond to any further questions you may have.

Regards
Geoff Williams
Williams Real Estate
Principle

Williams Real Estate
Shop 4, 57 Mills Avenue, MORANBAH QLD 4744
Ph: 07 4941 6766  Fax: 07 4941 7526

Williams Real Estate

Property investors need not fear mining companies’ tantrums: Terry Ryder

Property investors worry unduly about the utterances of resources companies.

They get the decision jitters whenever miners spit their dummies at any circumstance that suggests they might not get their own way.

Investors need to understand that the big mining companies of Australia are the masters of scare campaigns. That’s how they negotiate with government, with unions and with landlords: they threaten to scrap planned projects or shut down existing operations or refuse to sign leases for houses to accommodate their staff.

This week there were hints from BHP Billiton that the Olympic Dam expansion in South Australia is in doubt – and media outlets worked themselves into a minor frenzy over it.

I have to wonder: don’t journalists know anything that goes on? BHP Billiton has been casting doubt on the $30 billion expansion plan for a long time.

Meanwhile, the company has continued to advance the project and recently handed out substantial contracts for components of it – in other words, it’s already under way, although the final investment decision is not yet made.

That’s normal for big resources projects. By the time the board of directors gives its formal approval, the project is already being built. The $40 billion Gorgon gas project in Western Australia had handed out contracts worth many billions of dollars long before the formal board decision was taken.

It’s the same with Olympic Dam and numerous other big resources ventures around Australia.

Every time the federal government comes along with a decision that big miners don’t like – like the carbon pricing scheme and the minerals tax – the mining lobby runs a scare campaign, always with the enthusiastic support of the federal opposition.

They “warn” that mines will close, proposals will be scrapped, tens of thousands of jobs will be lost and the boom will be snuffed out.

If they and Tony Abbot had been right, dozens of major resources projects would have been killed off by now. Of course, the opposite has happened: the iron ore magnates of Western Australia are expanding like never before and the coal barons of Queensland and New South Wales are investing unprecedented billions.

Around Australia $80 billion is being spent on building new export facilities.

Yet the mining lobby continues to hint at scrapping projects and shutting down busy operations which deliver product for which there is massive overseas demand.

Xstrata has declared the death of the $6 billion Wandoan coal project in Queensland more than once. Yet it has persisted with advancing the project, continued to buy large chunks of land to facilitate it and fought very hard to win a court case earlier this year to allow it to proceed.

BHP Billiton, through its alliance with Mitsubishi in a venture known as BMA, has announced the closure of the Norwich Park coal mine near Dysart in Queensland, having become fed up with recalcitrant unionists who have hampered operations there for the past 18 months.

Meanwhile, it’s investing $4 billion in creating a new coal mine a short distance down the road at Moranbah.

It’s also refusing to sign new leases on houses in Moranbah, because it’s unhappy with the high rent levels.

This is how big miners negotiate. We’re big, we’re powerful, if you don’t toe the line we’ll take our ball and go home.

We really shouldn’t take these things to heart. It’s not the end of Dysart as a mining town, nor does it mean Moranbah will no longer provide positive cashflow rental returns.

The Olympic Dam expansion will happen, at some point when the proponent is ready, and then Roxby Downs will grow and places like Whyalla and Port Augusta will benefit from their roles in the project.

Xstrata’s big coal mine will go ahead, despite all messages to the contrary, and Wandoan will grow exponentially from its current population of 400 (especially as there are other mining proposals in the area, plus a $1 billion rail project).

Investors should think long term, as the big miners do, and ignore the background static in mainstream media – most of it written by people who don’t really understand what’s going on.

http://www.propertyobserver.com.au/hotspots/property-investors-need-not-fear-mining-companies-tantrums-terry-ryder/2012051754747