Towns treated like mushrooms

THE Central Highlands have been left in the dark by mining companies.

After BMA announced that 700 positions would be cut from its seven Bowen Basin mines, Moranbah families and businesses are clambering to recover and adjust to the devastating news.

Moranbah Traders Association president Trehan Stenton said mining companies were happy to be well served by the region in the boom times but the lack of transparency made recovering for job cuts difficult.

“BMA are not giving any information about the nature of the workforce that will be cut,” Mr Stenton said.

“Mining companies need to engage with the community to at least work on a plan for the future.”

Mr Stenton said the state and federal governments needed to unlock funding to help local businesses transition from a reliance on the mining sector to industries such as service and agriculture. “We need short-term help for the wider community,” he said.

Isaac Regional Council Mayor Anne Baker said the job cuts would devastate the region

“The majority of these job losses are coming from BMA’s residential mines in our region, which directly impacts our communities,” she said.

“With six BMA mines is Isaac, many of these job cuts will affect Isaac residents.”

Ms Baker said the cuts would significantly affect every aspect of the communities.

Moranbah, Clermont and Dysart are expected to the most economic damage, with the majority of mine workers under threat living in those towns.

Union representatives used the announcement to launch an attack on BHP Billiton.

Construction, Forestry, Mining and Energy Union general secretary Andrew Vickers said the union was also seeking information about the jobs targeted in the cuts.

“BHP is demonstrating a horrifying disregard for jobs and for the future of central Queensland,” Mr Vickers said.

“BHP has profited enormously from central Queensland resources over many years, but they are showing their true colours as a ruthless multinational corporation.”

On Tuesday, BMA Asset President Lucas Dow said the “stubbornly” high Australian dollar and low coal price were drivers behind the review.

BHP-Mitsubishi mine closure threatens town’s future

Coal communities in central Queensland are reeling after the big job cuts announced by BHP Billiton and Mitsubishi yesterday.

It is the latest blow to the once booming industry and businesses throughout the region are facing an uncertain future.

At shift change on the coal fields some miners are wondering if it will be their last.

Many of these miners live in Moranbah, which is reeling in the wake of BMA’s (BHP Billiton-Mitsubishi Alliance) decision to cut 700 jobs.

At the workers’ club, the news is still sinking in for coal miner Brenton Fry and his wife, Anja Har.

“Obviously it’s bad news for the community, the whole Bowen Basin. It’ll strike a lot of people in the heart,” Mr Fry said.

The mining giant is blaming global cost pressures, but the decision will have a huge local effect and small businesses are bracing.

“We are going to lose a lot of people out of Moranbah, which is going to be quite sad,” said business owner Jo-Anne Foley.

This family-run business says the current downturn is the worst yet.

“It’s a bit like a cancer, I suppose, it’s just chopping you off at the legs slowly and we’ve just got to keep going. Suck it up,” added Shane Foley.

The widespread job cuts have also reignited the debate about fly-in, fly-out (FIFO) workforces. It has been a contentious issue during the boom times and now even more so during the downturn.

The Mayor of Isaac Regional Council Anne Baker says a sense of community will be lost if too many FIFOs stay on.

“There needs to be a review of this work practice. I’m very concerned about our education, our health, our small business,” she said.

Brenton Fry is hoping he can continue to call Moranbah home.

“This is probably the best job I’ve ever come across. So, I hope I get to keep it.”

Dear Reserve Bank: Australians don’t need to be reminded that prices fall

When the head boffins at the Reserve Bank deliver their sermons, saying “prices don’t always rise, sometimes they fall”, many Australians who don’t need reminding must wonder what planet they’re from.

People living in many parts of Queensland, for example.

If you’re an apartment owner in Cairns or Townsville, you don’t need a lecture about the reality that prices don’t always rise. The latest edition of Market Monitor from the Real Estate Institute of Queensland shows that median apartment price in Townsville today is 11% lower than it was five years ago. In Cairns, average values remain 15% lower than in 2009.

There are stories like this throughout the state (and throughout the nation). Large parts of Queensland are undoubtedly on an upward trajectory now, but many markets still have price levels lower than five years ago.

The median unit price for the Whitsundays has risen 9% in the past 12 months, but it remains 6% lower than in 2009.

In Noosa, Queensland’s most over-rated market, the median unit price dropped 6% in the past 12 months and remains lower than it was five years ago. The housing market in Noosa tells a better story, with moderate growth in both the past 12 months and the past five years.

Despite a little growth in the median unit price in the past year, Gold Coast values are still lower than in 2009.

Ipswich City, in the south-west of the Brisbane metropolitan area, is back on a growth path, but its median house price is still below former levels.

Owners in locations like these aren’t talking about whether prices sometimes fall. They’re talking about whether they ever rise.

The good news for most of the locations mentioned above is that they are now moving into growth phases. Cairns, the Sunshine Coast, Ipswich and the Gold Coast can all look forward to significant price gains, after five bad years. No doubt commentators will soon be warning us about bubbles.

The people who least need a reality check about the possibility of property values falling are those who live (or own rental properties) in Moranbah, the coal mining town in Central Queensland which has become the quintessential boom-to-bust story of modern times.

Moranbah’s median house price is down 28% in 12 months, according to REIQ figures, and is now 15% lower than it was five years ago.

There are some more positive stories in the same combination of numbers from the Queensland Market Monitor report.

There is some comfort for landlords in Gladstone. While the median house price has dropped about 10% in the past 12 months, it remains 12% higher than in 2009. So anyone who bought five years ago remains ahead on value, despite the current decline in that market.

There are similar stories for owners in Emerald and Mackay. If you bought five or more years ago, you’re still in front, despite the recent downturn.

The Market Monitor report reveals Toowoomba to be the state’s success story. Its median house price is up 10% in the past year and is now 24% higher than five years ago. There are almost identical numbers for the Toowoomba unit market.

It also shows the gathering momentum in South East Queensland, where every municipality in the conurbation covering the Gold Coast, Brisbane and the Sunshine Coast has delivered price growth in the past 12 months – still quite moderate, ranging from 2% in Redland City to 8% in Brisbane City, but there is considerable momentum in these markets.

You can reach Terry via email This email address is being protected from spambots. You need JavaScript enabled to view it. or twitter.



Beware The Greater Fool

Early in my investing career I was told a story that illustrated the concept of ‘the greater fool‘. It’s remained front and centre in my mind ever since and given the irrational behaviour of the Aussie property market, I feel it’s prudent to tell you about it as forewarned is forearmed.

The story told to me is an account of how, in the midst of the roaring (19) 20?s, a stockbroker left his desk in a stockbroking firm on Wall Street and caught the lift to the ground floor, possibly to make a lunch appointment with a colleague.

As he got into the lift he overheard two busboys, lower paid young men whose job it was to operate the lift, talking about how they had invested in stocks and made quick profits.

After hearing the tales of easy money and gossip of hot stocks, he immediately went back to his desk and sold down his share portfolio.

For many months later his peers scoffed at him for selling too early and missing out on higher profits as the market went higher and higher still.

But then the crash came, and with it much wealth evaporated.

When asked later how he managed to exit before the crash that sparked the Great Depression unfolded, the broker said that when he heard the busboys talking he realised that instead of operating on the back of solid economic fundamentals, the stock market was being bid up by irrational speculators.

Without understanding what they were doing, or exactly how the company they were investing in was going to make money, fool investors relied on another (greater) fool to come along and bid up the stock in order to drive the price higher.

The market peaks when the greatest fool buys. That is, there is no greater fool willing to pay a higher price than the fool who had just bought. Once that happens a crash is imminent.

(If you want to learn more about this concept then Google ‘greater fool theory’.)

The reason I’m retelling this story now is that I’m becoming more and more concerned with what I’m reading in the papers about record property prices and irrational behaviour at auctions.

Bluntly, how many greater fools can there be?

These record prices are not supported by the current or expected performance of our economy, job prospects, or rental yields. Surely we are in fool territory where values are being bid up on the belief that prices cannot, and will not, fall. This is simply wrong.

Consider Moranbah in Queensland. Rents for a 3 bedroom home in March 2012 were a whopping $2,000 a week. Attracted by high returns, median house prices rocketed up to $710,000 as investors outbid each other to get a slice of the positive cash flow action (median house prices in March 2009 were $176,435). It was happy days indeed.

Then the mining boom ended, and as jobs were shed, rents fell as housing supply exceeded demand. Prices followed and today a 4 bedroom home rents for $340 a week and the median house price is $372,000.

The principle here is that any housing market characterised by more investors than home owners runs the risk of a sudden price collapse when the reason for investors being attracted to that property ends causing them to need to exit quickly.

That is, if investors cannot afford to hold the property then supply can suddenly increase as properties are offloaded, and if there are not a sufficient number of buyers (which there won’t be if the majority of buyers were investors in the first place), then price can fall, fast as sellers compete to exit by slashing prices.

In respect to Moranbah it was the high rents that ended as the job market softened and vacancies increased, but the same holds true in respect to the removal of tax incentives (beware NRAS investors), or the removal of tax concessions (beware heavily negatively geared investors)..

Rarely do you see the reason for the change in conditions coming, but you will certainly feel the nasty effects of being caught up in a whirlwind downturn.

(As a side note I have to note that several prominent hot spotting sprinklers advocated buying in towns like Moranbah and have quickly moved on to other areas and have hushed up their failed projections, whereas investors who followed their advice are left with the nasty consequences.)

So the message is simple…

Don’t be fooled by the record prices being reported in the papers. Without the required economic strength to back it up, it’s shaping up to be more mania than genuine money making opportunity.

As I have said before, it is always a great time to buy a great property, but it’s fast becoming an awful time to buy a dud. Let the buyer beware.

So, enough from me… what do you think will happen to property prices over the next 12 months? Share your thoughts by leaving a comment below. I’d also love to hear the good, bad, and the ugly if you went to a seminar and were advised to purchase in mining areas.

And now for something a little more lighthearted…

A central banker walks into an Italian restaurant to order a pizza.

When the pizza is done, he goes up to the counter to get it. There the shop owner asks him: “Should I cut it into six or eight pieces?”

The central banker replies: “I’m feeling rather hungry right now. You’d better cut it into eight pieces.

I’m off on a short vacation in Tassie. Until we speak again, stay safe and remember that success comes from doing things differently.

Steve McKnight


SMSF assets swept up in housing boom

DIY super Duncan Hughes Self-managed superannuation funds are increasing the amount of debt they use to buy properties by nearly 80 per cent ayear, a sign of how the investment boom in housing is being driven in part by personal super funds.

The debt growth figures, published by the Australian Taxation Office, are five times the rate for listed shares and seven times that for cash and deposits.

Industry experts say continued growth at this rate, from a low base, has the potential to “threaten the stability” of self-managed super funds.

“Many in the industry bury their head in the sand and ignore any concerns around this growth in leverage,” said Claire Mackay, a principal of Quantum Financial Services, whose company was winner of this year’s SMSF Adviser of the Year. Ms Mackay is a member of the ATO’s Superannuation Industry Relationship Network, an industry consultative committee.

Revised figures from the Tax Office show there are estimated to be more than 534,000 self-managed funds with assets totalling about $557 billion.

Estimates for assets held by SMSFs using limited-recourse borrowing arrangements were revised threefold from $2.6 billion to $8.3 billion.

Based on the original Tax Office figures, that means an earlier fivefold increase in the value of limited-recourse borrowing arrangements for SMSFs between 2009 and 2014 has been revised to an increase of 17.5 times.

SMSFs can only use limited-recourse borrowing arrangements when purchasing property. If something goes wrong and the fund defaults, its other assets are not at risk. But lenders insist on personal guarantees outside the fund, such as the family home.

“If there was reason for concern before, there’s even more now,” Ms Mackay said.

Industry specialists are calling for a crackdown on property spruikers as well as advisers who encourage investors to leverage their super assets to buy properties, often concentrating all their retirement savings in a single asset If the past trend continues, limitedrecourse lending will increase over the next five years by more than 1600 per cent compared with 92 per cent for listed shares and 68 per cent for cash.

Even if the rate of increase falls by half, the growth in limited-recourse lending is likely to be significant Tax officials say less than 3 per cent of self-managed funds have limited-recourse borrowing arrangements.

Residential assets account for about $19.5 billion while non-residential assets – or commercial accounts used by business owners to buy their premises – account for $65 billion.

“Yes, this growth is from a low base, but a continual growth rate of this size has the potential to threaten the stability of the SMSF sector in the nottoo-distant future,” Ms Mackay said.

“We should not wait until it’s too late.”

The Financial System Inquiry raises the idea of restoring a ban on gearing with super because, even though current levels are low, they have the potential to rise rapidly and create problems in the system.

Cavendish Super, a major SMSF provider with more than $5 billion funds under administration, recommends the borrowing criteria be tightened, claiming that properly used leverage is beneficial, particularly for those needing to “fast-track” savings as they near retirement age.

Others, such as SMSF Owners’ Alliance executive director Duncan Fairweather, urge regulators to crack down on funds being used to buy a single, highly leveraged asset that is “vulnerable to changes in property values and rental markets”.

Key points ATOfiguresshow personal super funds are increasing debt for property at five times the rate for shares.

Industry wants crackdown on property spruikers.

Australian Financial Review, Australia, 13th Sep 2014


Brisbane City Plan 2014 fact sheets

Are you confused about the new 2014 Brisbane City Plan? What does it all mean to us as developers?

Here’s a great link on the Brisbane City’s website with some easy to read fact sheets.

Notice to remove illegal dongas issued in Pilbara mining town Paraburdoo, WA

Illegal accommodation is to be removed from the mining town of Paraburdoo, in WA’s Pilbara, and other towns – including Onslow and Tom Price – have been given notice they will also be audited.

The workers’ dwellings, called dongas, were developed on some industrial sites in recent years due to a lack of accommodation and residential land, according to the Shire of Ashburton.

A recent council inspection showed that 11 out of the 22 lots in Paraburdoo’s light industrial area had unauthorised accommodation, ranging from two to 12 rooms per lot, with rooms containing various combinations of bed and bunk provisions.

Paraburdoo was set up by miner Rio Tinto, which still provides some of the town’s main infrastructure, such as power and water.

Ashburton Shire chief executive Neil Hartley said the council would liaise with land owners and lessees to remove illegal dongas and other accommodation.

He said they would be given until the end of March next year.

“When there was no accommodation available, there was a real dilemma as to how to address it,” he said.

“This has been something that has been occurring for a number of years, and particularly during the boom times of mining where construction or production is key and staff are critical.”

Illegal accommodation widespread in Pilbara

Mr Hartley said Paraburdoo was not the only town affected.

“This occurs in every industrial area across the Pilbara as far as I am aware,” he said.

Mr Hartley said the council had been in contact with Rio Tinto.

“The unusual situation for us in regard to Tom Price and Paraburdoo is that the vast majority of the land in those towns is owned by Rio Tinto, and the water and sewerage supplies and electricity supplies are also provided by Rio Tinto, so it’s not normal when you consider it against many other towns in WA,” he said.

“Rio Tinto have said they are happy to endeavour to offer vacant blocks they have in Paraburdoo, and they have about 40-odd, I understand.

“So they have said we are happy to make available some of those blocks for either businesses or investors to build residential accommodation on for these people, and that will allow them to move out of the industrial area.”

Mr Hartley said the offer could be a solution.

“When there was no accommodation available there was a real dilemma as to how to address it, now there appears to be a solution, in that land is there and we just need to now link the industrial land owners to the land and/or investors, and we should be able to address this problem over the next several months,” he said.

“In Paraburdoo there were virtually no other options left for the industrial people to take, other than to not engage in the business of a contract with whomever they were contracting to, to provide that service.”

Land offer may resolve issue, but time lag involved

Mr Hartley said any change to the housing situation would take time.

“It doesn’t make it right that this has ever happened but we have now got a solution to the problem and there will be obvious repercussions here; somebody has to build a house, somebody has to rent a house, time has to be taken, costs will be incurred, but it’s simply not appropriate for people to live on an industrial piece of land,” he said.

“There was a risk taken by the council of the day to try and find that solution, because you know if an accident did occur there would be some liability perhaps sheeted home to the shire and the council.

“But they were keen to try and work with all of the various parties to find a workable solution and, in Paraburdoo’s case, hopefully we have found it in that Rio Tinto has offered some of its land.”

A Rio Tinto spokeswoman has confirmed the company has had preliminary discussions with the shire regarding the matter, but says the talks are at an early stage.

Coal miners confident on recovery

For two years, the world’s coal miners have been plagued by a glut of the fuel that has battered prices and led to the closure of mines, straining tiny towns from Australia to South Africa reliant on their operations.

Now, some of the largest shippers are signaling the worst may be over as prices stabilise.

Coal mining executives say a string of pit shutdowns should finally kick-start the market by curbing supply, while demand from buyers such as China and India appears to be picking up. The optimism is a reversal from past months when companies warned of a sustained market surplus, although they are stopping short of tipping a sharp rebound and see any recovery as gradual.

Coal is one of the world’s most important energy products and is the biggest source of electricity generation, supplying about 40 per cent of global needs, the International Energy Agency says. For a country like Australia, which counts coal as its second largest export after iron ore, coal is an important source of jobs and revenue.

Paul Flynn, chief executive of Whitehaven Coal, says he has turned more upbeat on the market’s prospects in recent months. The company, which sells coal to countries such as Japan, China and India, reported a second annual loss last week as low prices hurt revenue, but Mr Flynn says he sees the potential for a return to profitability in the year ahead.

“We certainly feel better about the prospects for coal,” Mr Flynn told The Wall Street Journal. “It’s been a very, very difficult environment, but I see signs that the oversupply situation is tightening up now, which is good.”

While spot prices are yet to enjoy much of a lift, having largely flattened over the past month, miners are benefiting from the renewed enthusiasm. Whitehaven shares have rallied 37 per cent since the start of July, while Indonesian producer PT Adaro Energy is up 12 per cent.

Supply rose more quickly than demand over the past couple of years, as mines that were planned when the market was booming moved into production. Glencore says thermal coal shipped by sea rose 22 per cent between 2011 and 2013, outpacing demand, which rose 18 per cent.

As a result, the price of thermal coal, which is used to generate electricity, has been trading near its lowest level in five years. Metallurgical coal, a steelmaking ingredient, is near its lowest in seven.

This has hit the balance sheets, even of diversified miners. BHP Billiton, the world’s largest miner, said weaker coal prices wiped $US1.5 billion ($1.6bn) off its underlying earnings last fiscal year.

Some miners have closed their most expensive pits, contributing to more than 10,000 jobs cut in Australia’s coal sector. Towns that rely on coal mining for employment and spending, such as remote Moranbah in Queensland, have seen their populations shrink and housing markets crash as workers were laid off.

But the world’s biggest shipper of thermal coal, Glencore, expects demand for that fuel to start outpacing supply again from 2015, shoring up prices. “They seem to have bottomed, stabilised, [and] improved a little bit in recent periods,” Glencore Chief Financial Officer Steven Kalmin said in a presentation to investors in August.

Analysts expect a rise in Indian thermal coal imports — after lower-than-usual monsoon rains led to weaker hydropower generation — to send prices higher. Citi analyst Ivan Szpakowski also forecasts a lift in Chinese industrial activity toward the end of the year, which he thinks will drive up demand.

Buyers in China and elsewhere are also looking to switch to higher-quality coal that generates lower emissions and meets environmental targets. This is a plus for Australia with its abundant reserves of high grade coal. In contrast, miners with low quality reserves or high costs could face continued challenges and be forced to cut output further, analysts say.

Production cutbacks could spark a recovery in metallurgical coal. Whitehaven estimates 20 million tonnes of output has been cut in the past few months alone.

Another jolt for the market has been a decision by India’s Supreme Court in August to rule all coal-mining licenses distributed since 1993 illegal, raising uncertainty over supplies that could prove a positive catalyst for prices, Mr Flynn said.

Even with all its mines in operation, India is a big buyer of foreign coal because of rising power-generation demands.

“There is an urgent need in India to add significant capacity generation in a short time frame. This generation will largely be coal-based,” Anil Sardana, managing director of Tata Power, one of India’s largest integrated power companies, said.

Citi’s Mr Szpakowski said he recently told clients to buy Australian thermal coal futures as Indian imports were poised to increase, Chinese demand was going to rise and supply would fall in the coming months.