Central Queensland remains powerhouse of state mining sector

CENTRAL Queensland has proven it is the state’s economic powerhouse in mining.

At least that’s what the figures say in the Federal Government’s books.

New October figures from the Bureau of Resources and Energy Economics show Queensland had more “committed” projects than almost any other state, with 19 projects worth $77 billion in their advanced stages.

Of those 19 projects, 14 were in Central Queensland, including areas near Moranbah, Glenden, south Mackay, Capricornia, the Central Highlands and Gladstone.

CQ mining projects in advanced stages included Grosvenor Underground Coal, Eagle Downs Coal, Hay Point Coal Infrastructure, Middlemount Coal, Queensland Curtis Island Project LNG, Wiggins Island rail project and Goonyella System Expansion Coal infrastructure.

The combined value of the advanced CQ mining projects was believed to be a large chunk of the state’s $77 ?billion projected worth in mining.

Eight of CQ’s “committed” mining projects were believed to be worth more than $1?billion each.

The remaining mining projects were estimated to be worth between $100-900?million each.

Capricorn Enterprise chief executive Mary Carroll said the figures reflected the enterprise’s annual major project status report, which revealed $159?billion worth of mining projects planned or underway in CQ over the next decade.

“This proves that CQ is the economic powerhouse of the state and the nation,” Ms Carroll said.

“Mining is one of many economic sectors in the greater CQ region, which reflects the economic diversity of Rockhampton and the greater region.”


Banks restrict loans in risky mining towns

Banks are reining in home lending to investors in resource sector hot spots, as lower spending by miners hits regional property markets and prompts banks to reassess their exposure.

Two of the country’s biggest banks, Commonwealth and ANZ, have in recent weeks curbed riskier lending in areas that rely on resource industries.

The moves follow sharp falls in rents in mining hubs, at a time when regulators have urged banks to maintain prudent credit standards in the $1.2 trillion mortgage market.

In changes that took effect on Monday, Commonwealth Bank will cap at 8 per cent the rental yield it factors in for new property investment loans in mining towns.

Explaining the policy to mortgage brokers, the bank said rental yields in some mining areas were ”not sustainable” and it was minimising the risk of borrowers defaulting.

It comes after ANZ added Queensland resources hub Gladstone and mining-exposed towns Chinchilla and Blackwater to a list of higher-risk postcodes.

Areas on the list – all in Queensland and Western Australia – face an 80 per cent cap on loan-to-valuation ratios for new loans to property investors, while rental yields are capped at 10 per cent when the bank is assessing eligibility for credit.

An ANZ spokesman, Stephen Ries, confirmed ANZ was applying ”an extra level of caution” to lending in some mining areas under a policy introduced earlier this year.

Towns that may be affected by the policy were heavily reliant on one mine, or had experienced strong growth in housing, he said.

”We are continuing to lend in these towns and since this policy was introduced in January the majority of applications have been approved,” he said.

ANZ and Commonwealth Bank’s moves to tighten credit criteria come as banks face pressure to limit higher-risk lending at a time of record-low borrowing costs.

Managing director of mortgage broker Homeloanexperts.com.au Otto Dargan said banks had become more conservative in mining areas after realising high rental yields received during the peak of the construction boom were not sustainable.

”During the construction phase, there’s a huge influx of workers so the yields go through the roof, but they can come back down sharply as construction spending declines,” Mr Dargan said. ”I think [the banks] have more exposure to mining towns than they would have liked.”

Among other big lenders, Westpac also has a policy of limiting low-deposit loans in ”single-industry towns”, including those that are dependent on mining.

National Australia Bank does not have a formal policy on the issue, applying the same scrutiny to borrowers in other areas.

While mining towns make up a small share of banks’ outstanding loans, Australian Bureau of Statistics’ figures published last week show the resources boom has caused mortgage lending to skyrocket in several resources hubs.

The area with the fastest-growing mortgage costs between 2006 and 2011 was the Shire of Ashburton, in the Pilbara region of Western Australia, where typical monthly repayments leapt by 278.6 per cent, to $954.

The next biggest increase was in Port Hedland, where repayments shot up by 140 per cent to $2600 a month over the same period.

Surging house prices and rents helped drive the rise in lending, but in recent months returns in many mining towns fell due to weaker demand for accommodation.

In the September quarter, rents in Port Hedland fell 10 per cent to $1300 a week and had plunged 35 per cent in annual terms, figures from the Real Estate Institute of Western Australia show.

In Gladstone – where several multibillion-dollar liquefied natural gas plants are being built – vacancy rates jumped from 0.9 per cent to 5.8 per cent in the year to September, Real Estate Institute of Queensland figures show.

Bloom or Gloom? A Market Outlook by Michael Matusik

There is a lot of speculation about Brisbane being the next investment hot spot, but wading through the information can be overwhelming.

In this edition of Property Insight we have asked property commentator Michael Matusik to shed some light on what’s in store for Australia’s property market with a spotlight on Brisbane’s market fundamentals.

Michael is the Director of an independent property advisory, and is renowned for his perceptive and to the point property commentary. So let’s have a look at what Michael thinks. Enjoy!

Just the beginning…

Well, the ‘bloom’ is starting to outshine the ‘gloom’ – especially in Queensland, Western Australia, Northern Territory and New South Wales. The Australian Bureau of Statistics (ABS) price growth figures confirm what we and a select group of others have been saying for some time – the housing market is recovering (and has been strong in many regional areas for some time) and 2013 looks set to be a much stronger year – property business-wise – than 2011 and 2012.

First home buyers have very little momentum. They represent just 15% of the money in the Australian housing market. There is no first home buyer upturn on the horizon for years to come. Those who have to do any of the heavy lifting are more experienced owner-residents and investors. Both segments show signs of improvement. For mine, unless stamp duties are reduced, many owner-residents will wait until a recovery is well and truly underway before they buy and sell, and that probably isn’t on the cards for 2013.

So it is up to the investor to bear down and show some grunt. And I think they will. Their money is wasting away in cash, the share market is all over the shop and residential property returns are starting to look good; often positive.

The cycle continues

The astute investor, and contrary to what the mass media says, knows that the property market cycles and that it turned the corner around the middle of 2012. Table 1.0 outlines the past ten residential cycles in Australia. Things might be slow, but they are looking up.

When we examine the official records – which started in 1887 in Australia, but with a gap of no records between 1899 and 1920 – we find that since the late 1800s there have been ten cycles in Australia, which have averaged eight years in length from trough to trough or peak to peak. There have usually been five years of improving market conditions – historically end values rose 11% per annum. There are also periods of decline, averaging three years in duration, where values – in the past – have fallen, on average, by 5% for each of the three downturn years. Overall, Australian residential property owners have – again in the past – enjoyed annual capital gains of 8.5% per annum when property is held for a whole cycle.

Table 1.0

Five market phases

There are five phases of the property cycle as represented in Image 1.0 – trough, upswing, peak, downturn and recovery. Many residential markets across Australia are in the recovery phase of the property cycle. Four capitals are in the recovery position including Brisbane, Sydney, Perth and Darwin, represented in Image 1.1. The recovery phase is characterised by rising sales, a return to price growth (albeit usually quite mild), improving yields, more building activity and a more equal market (i.e. not a buyer’s or seller’s market).

Image 1.0 and Image 1.1

Sun in the Sunshine State?

So let’s now focus our attention on the Sunshine State. It has been some time since the sun has shined on much of the State but the weather looks brighter for Queensland this year.

New dwelling starts have been slow, reflecting weaker population growth, but now population growth has improved and with it the potential for a supply versus demand imbalance. If the investor’s appetite for Queensland property improves, and if Queenslander’s can get out of their current funk, then the ingredients are here for a recovery in 2013.

End prices are expected to rise by between 5% and 8% per annum over the next three years across many Queensland markets. Sydney, Perth and Darwin are expected to show similar gains. The laggards are Melbourne, Adelaide, Hobart and Canberra. A change in the Federal party could see property prices actually fall in Canberra, if the past is any guide.


So what are the market fundamentals revealing for 2013?

    1. Queensland’s annual population growth is now over 91,000 per annum; almost double that of just two and a bit years ago. The system gives the option of claiming back tax regularly, rather than in one lump sum at the end of the financial year.
    2. Based on last year’s statistics, Queensland looks to be heading towards a massive undersupply, with 33,000 new dwellings needed during 2012, yet just 26,000 supplied – an undersupply to the tune of about 20%. The inner Brisbane apartment market is also undersupplied and in this case by as much as 40%. There is a need to build 2,650 new apartments across inner Brisbane every year, but just 1,600 new properties have been delivered (each year) since 2006.
    3. The state-wide rental vacancy rate remains tight and median weekly rents have risen, up $15 on average, for detached houses across Queensland last year.
    4. Economic forecasters, BIS Shrapnel, predict that Queensland dwelling values should start to grow in earnest in late 2013, accelerating in 2014 as the economic upturn gains momentum and the underlying dwelling deficiency becomes more pronounced.
    5. Official statistics show that new property prices across Brisbane have already risen by 4.9% during 2012, which was strong against the national average increase of just 1.4%.
    6. There has been a 7% drop in the number of properties listed for sale across Brisbane during 2012. Resale supply is starting to tighten.
    7. In addition, there has been a 17% increase in the number of settled sales across the South East corner of Queensland over the last twelve months. Overall properties are now selling faster than new ones are being listed.
    8. Whilst Brisbane isn’t an auction city, but when comparing Brisbane auction results so far this year, against those from early 2012, there has been a 56% increase in the number of properties sold at auction. There are increasingly bigger crowds at auctions and better results on the day.

There is always talk about “how it will be different” this time around. But history shows that there is a set of certain variables which, when combined in the right way (like ingredients in a recipe), drive the property cycle. The residential market is set to improve; and in some locations and for certain product types, quite substantially.

For all articles by Michael Matusik and to sign up to his continued property commentary visit: matusikmissive.com.au.