After slashing the price of three planned townhouses by a third in the coal-mining town of Moranbah in remote northeastern Australia, agent Ricardo Baggio still can’t find buyers.
“No one’s got confidence,” said Baggio from broker Ray White Group’s Townsville franchise, about 550 kilometers (341 miles) north of Moranbah in Queensland state. “There are a few mines around the town but they’re not hiring or they’re downsizing.”
Home prices in Australia’s isolated mining towns, which outpaced increases in the rest of the nation over the past decade, are falling as companies such as Glencore Xstrata PLC (GLEN) and Peabody Energy Corp. delay projects and lay off workers amid a slowing resources boom. The percentage of homeowners more than 30 days behind on their mortgage payments in Gladstone, a Queensland coastal town near more than $60 billion of gas projects, was 0.94 percent in March, according to Fitch Ratings, a 71 percent increase in six months.
The Moranbah townhouses, which will be built on a flat, sparsely landscaped street about 1 kilometer from the center of town, are on the market for A$525,000 ($478,485) each, down from an initial price of A$750,000, said Baggio. The median price of a home in Brisbane, the state capital, is A$425,000.
Prices in mining regions could fall as much as 30 percent from a first-quarter peak, real estate-data company SQM Research Pty forecasts.
Demand for housing in central Queensland and Western Australia state’s arid Pilbara region, the nation’s two biggest mining areas, is waning as record investment in resources peaks even as property developers keep building more homes. About A$150 billion of mining and energy projects have been canceled in the past year as commodity prices declined, according to government figures.
“We expect we’ll see an abrupt dropoff in population flows in mining towns,” Sydney-based Matthew Hassan, senior economist at Westpac Banking Corp. (WBC), said in a telephone interview. “How that plays back to housing is extremely complex. But we know the direction: down.”
In Western Australia, while only 1.6 percent of borrowers were late on their home-loan payments in March, “vulnerability in the mining sector and associated projects could result in an increase in arrears during the year,” ratings company Standard& Poor’s said in a March 31 report.
In Queensland’s Isaac region, which includes Moranbah, home prices tumbled 43 percent in the year to April, and rents slumped 69 percent, according to Sydney-based Australian Property Monitors.
Moranbah, about 1,000 kilometers inland northwest of Brisbane and home to more than 8,000 people, is near coal projects owned by BHP Billiton Ltd. (BHP), Anglo American Plc (AAL) and Rio Tinto Ltd. (RIO) BHP last year closed part of its Gregory coal mine, south of the town, and in February said it wants to sell the mine. Anglo American Chief Executive Officer Mark Cutifani said June 26 that the outlook for coal mining is “grim.” An index of hard-coking coal has more than halved since January 2011, when it peaked at $365.83 a metric ton, according to data from Energy Publishing Inc. compiled by Bloomberg.
Mining towns “are prone to significant fluctuations in property valuations, often driven by a combination of changes in the resource market and the shifting need for accommodation for mining workers,” Michael Savery, chief risk officer at QBE Insurance Group Ltd.’s Lenders Mortgage Insurance unit, said in an e-mail. They “require monitoring at either end of the property market cycle.”
In Gladstone, about 500 kilometers north of Brisbane, property prices are falling as buyers find better value elsewhere. The median home price has fallen 4.6 percent in the year through April to A$450,500, while in Rockhampton, 116 kilometers further north in a region that is dominated by livestock grazing, it has risen 5.4 percent over the past year to A$350,000, APM said.
Housing markets in mining towns “have gotten ahead of themselves in terms of fundamentals and we’ve had a speculative market,” said Andrew Wilson, senior economist at APM. “A lot of potential buyers, especially those employed in the region, are looking at less expensive markets, like Rockhampton.”
House and apartment prices across Australia’s major cities rose 3.8 percent in June from a year earlier, according to the RP Data-Rismark home value index, after the Reserve Bank of Australia lowered its key interest rate by 2 percentage points between late 2011 and May to a record low 2.75 percent.
Australia had 73 committed mining projects under development in April, 14 less than in October, according to a May report by the Bureau of Research and Energy Economics. The number of people employed in Australia’s mining industry was 6 percent lower in May from a year earlier, government data shows.
Glencore Xstrata, the world’s biggest shipper of coal, halted work on the Balaclava Island export terminal, about 40 kilometers north of Gladstone, in May and cut 450 coal mining jobs in June. It said this month it will suspend production at its magnetite iron ore operation near Cloncurry, about 1,300 kilometers west of Gladstone in inland Queensland.
Across the country, more than 5,000 kilometers west by road from Gladstone, in the Western Australian shire of Roebourne, rents have plunged 22 percent in the 12 months to April, while the median house price has slipped 3.5 percent to A$796,000, APM figures showed.
Roebourne includes Karratha, the biggest town in the Pilbara, a 193,000-square-mile area in Australia’s northwest that is the world’s largest iron ore exporting region.
The recent home price declines in the Pilbara follow average annual gains of almost 20 percent for the past 10 years in the two coastal towns of Karratha and Port Hedland, according to data from the Real Estate Institute of Western Australia.
Aspen Group Ltd. (APZ), a Perth-based property investment company, said July 5 in a regulatory filing that it reduced by 13 percent the valuation of its 180-unit Karratha Village accommodation facility to A$50 million in December, reflecting“a reduced demand for workforce participation.”
Shares in Aspen are 22 percent lower this year and closed at 17.5 Australian cents on July 19.
The price of iron ore fell 31 percent from a 16-month high in February to a low of A$110.40 on May 31.
The Western Australian government introduced the Pilbara Cities initiative in November 2009 to boost supply of land, housing and infrastructure in the region. It seeks to build Karratha and Port Hedland into cities of 50,000 people by 2035. That compares with the 2011 census that recorded 16,475 people in Karratha and 13,772 in Port Hedland.
As part of the initiative, Mirvac Group (MGR), Australia’s third-largest diversified property trust, is proposing to build the Mulataga community in Karratha, containing 2,000 homes.
“We look at Karratha as a sustainable city and the growth of that city over time as a permanent city,” said John Carfi, head of residential at Sydney-based Mirvac, which is working with the state’s land developer Landcorp on Mulataga.
The Mulataga plan received approval from the Shire of Roebourne in May and is awaiting state planning commission approval.
The number of homes for sale in Karratha rose to 265 in May from 219 a year earlier, SQM said.
“We haven’t hit the bottom of the market yet,” said David Hipworth, principal of broker LJ Hooker Corp. in Karratha. “If we keep going the same way we have so far, in 12 months, I expect another 25 percent drop in rents and 10 percent in prices.”
The April median home price in Port Hedland was A$1.1 million, APM data show. That compares with 448,443 pounds ($677,508) in the greater London area in April, according to LSL Property Services Plc and $346,300 in New York City in May, figures from real estate data provider Zillow Inc. show.
“We like to see these prices fall,” said Ken King, chief executive officer of the Pilbara Development Commission, which is responsible for implementing the Pilbara Cities plan. “And we’d like to see the trend continue, even though this doesn’t sit well with a lot of recent investors.”
About 240 kilometers north along the coast from Karratha, rental vacancies in Port Hedland jumped to 4.6 percent in May from 0.9 percent a year earlier, compared with a national vacancy rate that rose to 2.1 percent from 1.8 percent a year ago, according to SQM.
BHP shelved a A$22 billion harbor expansion plan for Port Hedland in August in favor of a low capital-cost program of improving port and rail operations. CEO Andrew Mackenzie in May said the company plans to cut capital spending 18 percent to $18 billion in fiscal year 2014 and said about 80 percent of construction on its major projects will be completed in the same time frame.
Australia’s resources industry directly employed 261,000 people in May, 2.2 percent of the nation’s total workforce, compared with 12 percent in health care and 11 percent in retail services — the two largest industries by employment, government figures showed.
Outstanding loans in Australia’s mining areas represent about 1.5 percent of all mortgages underlying residential mortgage-backed securities, S&P said in a report in September.
Perth-based developer Finbar Group Ltd. (FRI) is building Karratha’s first high-rise apartment development, Pelago, in the center of town. All but 15 units in the 114-apartment first phase, which was finished about a year ago, have been sold, Robin Schneider of McGees Property, the exclusive selling agent for the project, said in a telephone interview. In the second phase, 81 of the 174 units that are expected to be completed next year were pre-sold as of June 2, he said.
“Obviously the resources sector is getting a lot of attention, which will no doubt have a flow-on effect to confidence and market sentiment,” Darren Pateman, managing director of Finbar, said in an e-mail.
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