Don’t be fooled: mining towns can make great investments

I feel quite strongly that mining towns get an unfair rap in the media at times – people make flippant comments with irresponsible disregard of evidence.

During commodity price downturns like now, the uneducated often throw out the old “mining towns are bad investments” line. However, the evidence suggests that over the longer term some Queensland mining towns have performed significantly better than Brisbane.

While the property market of Queensland’s capital city is currently performing strongly, falling commodity prices have been the primary cause of property markets in traditional mining towns experiencing double-digit declines in value. The biggest pain has been felt in the central Queensland shire of Isaac, which consists of Moranbah and Dysart.

A typical house was worth $580,000 in December 2012 and has since declined in value to $237,500 over the two years (a decline of 36 per cent per annum). At the peak of the market in 2012, houses were rented for $1,350 per week. Today that same property would be rented for $320 per week.

Emerald median values have declined by an average of 15.3 per cent per annum over the last two years. Rental vacancy rates in Emerald are currently over eight per cent so rents have fallen from $700 per week (2012) to $270 per week.

The regional hub of Mackay provides a majority of goods and services to the coal face. In addition to a 33 per cent reduction in coal prices over the last two years, Mackay has built more properties than demand required. Median property values have declined by an average of three per cent per annum over the last two years. Rents have fallen from $500 per week to $380 per week.

In the far north west of the state, Mount Isa median values have remained unchanged. Mount Isa has a diverse range of minerals which it mines, whereas central Queensland is predominantly coal. Meanwhile, Brisbane median property values have increased by an average of 6.6 per cent per annum over the last two years.

In spite of Queensland’s recent mining town doldrums, the fact of the matter is that these markets have significantly outperformed Brisbane over the long term. Astute investors would be aware that property is a long-term asset class.

Over the 14 years since the turn of the century, which includes the recent downturn, Moranbah’s median property value has grown by an average of 14.8 per cent per annum compared to Brisbane’s 7.8 per cent. Emerald (10.9 per cent per annum), Mount Isa (8.5 per cent) and Mackay (8.5 per cent) have also performed better than the state’s capital city.

It wasn’t that long ago when the likes of Brisbane, Gold Coast and Sunshine Coast were having downturns of their own and the mining towns were setting record highs.

Investing in these locations is not for the faint-hearted. Timing is significantly more important when investing in locations where specific industries have such a significant impact on demand for housing. Often, the smart decision is to do the opposite to what the masses are doing. In the words of the world’s most famous investor, Warren Buffet: “The time to be fearful is when everyone else is greedy. The time to be greedy is when everyone else is fearful.”

A sophisticated property investor who purchased in Moranbah in late 2004 would have paid $150,000 for a three-bedroom house. Even with the recent downturn, the current value of $237,500 still represents 4.7 per cent average annual growth over the last 10 years, which is only slightly below Brisbane’s 5.0 per cent.

An investor who did purchase in Moranbah in 2004 and sold at the market peak of $580,000 in late 2012 would have made a massive 18.4 per cent average annual growth over those eight years. That’s roughly three times better than what anyone could have achieved in any capital city. Let me spell it out for you. A $15,000 deposit (10 per cent) paid on a Moranbah property in 2004 would have become $430,000 equity over eight years. Extraordinary!

On sheer numbers alone, one could argue a very good case that now is a good time to buy in Moranbah. An investor could pick the best property of the litter with no real competition, pay only $240,000, and rent it out for $320 per week. That 7.2 per cent rental yield is far superior to anything that any capital will offer.

Propertyology’s research suggests that an upswing in coal-related locations is on the horizon. Lower labour costs and the lower Australian dollar have improved the viability for mining giants such as BHP and Rio Tinto.

There are multiple new mining projects in the approval pipeline throughout Queensland and the Hunter Valley. The untapped Galilee Basin is the biggest coal province in the world. Propertyology’s research has calculated five large mines with combined project values of $53 billion having potential for up to 31,500 new jobs if they all proceed. Emerald, Mackay and Brisbane will be the biggest beneficiaries.

By Simon Pressley

http://www.rebonline.com.au/blog/9083-don-t-be-fooled-mining-towns-can-make-great-investments

Capital Gains Tax (CGT) Upon Death

Here’s a great question and answer from Margaret Lomas (Destiny) email thread regarding CGT and PPRs.

Question:

Hello Margaret,

I was reading about CGT on principal residences and I was wondering if CGT is applicable on an elderly parent’s home after they have moved to a nursing home. If the home is rented out to pay for the ongoing expenses of nursing care, is CGT applicable after she has passed and the home sold. Alternatively, if a family member lives in the home until such time as she passes is capital gains also applicable.

Regards,

Katherine

Answer:

Hi Katherine,

Capital gains tax is a complicated issue, and I wanted to be sure I got this right for you, so I called my Property Success resident tax expert, Ian Rodrigues, and checked that my understanding around this was correct. Here is what he had to say:

  • If you own a Principal Place of Residence (PPOR) from which you are absent and you rent it out, you have a 6 year period where you can have an exemption from CGT, as long as you don’t claim another PPOR exemption.
  • If you don’t rent it out, the amount of time that you can claim that exemption is unlimited. This would mean that, as long as the period did not exceed 6 years, renting it out in order to help pay those expenses would be OK.
  • Once she passes the status of your mother’s CGT position shifts to those who inherit – if it is still considered her PPOR then the CGT status transfers, and the beneficiaries have 2 years to sell before they incur CGT.

If a family member lived there, and it was to simply take care of the place for your mother, and not a market based arrangement on the same terms as a third party tenant, then this would likely be considered to be the same as if no one lived there.

Of course, if your mother bought the property prior to 19 September, 1985, then all of the above is moot – it’s a pre CGT asset anyway and no CGT applies in any circumstance.

Always check with a good accountant or even the tax office itself though, to ensure that your own situation is covered by these rules. It’s quite easy to get a private ruling in the event that no one seems sure and that way, you have it all in writing!

Kind regards,

Margaret

Mining towns make rich list, Tieri on top

THE PEOPLE in Moranbah and Tieri are the most cashed up in Queensland.

That’s according to data released recently by the Australian Taxation Office which showed during the 2012-13 financial year the average Tieri resident earned $100,833 a year, the highest in the state.

Moranbah came in third on the list, with the average person getting $89,211.

Although the data was taken at the mining boom’s peak, Central Highlands Regional Councillor Peter Maundrell believed the data would be similar today because of Tieri’s uniquely uniform demographic.

“I’m sure the data would be similar this financial year,” he said.

“But most people in Tieri are young people with high paying jobs, you don’t have that cross section (of different demographics) you get in a normal town.

“It is owned by a mining company, it’s not your typical country town.”

Central Highlands Mayor Peter Maguire said Tieri had been on the rich list for the last 10-15 years.

“It’s a small town that doesn’t have many facilities,” he said.

“So I’m sure with so many people there earning such a high disposable income, the other surrounding towns in the region would benefit.”

Isaac Regional Council Mayor Anne Baker said while Moranbah might have one of the highest disposable incomes it was an affordable place to live.

And despite the money reported to be in town, the council was starting up a program designed to support local business owners.

May Downs and Middlemount came in sixth with people getting $86,674 while the rest of the top 10 were made of Brisbane’s richest suburbs.

Barney View area, south of Beaudesert, had the poorest residents who on average earned only $30,296 annually.

The top five richest suburbs (2012-2013 financial year)

Tieri: $100,833 average income

Ascot, Hamilton, Hamilton Central (Brisbane): $96,404

Moranbah: $88,829

Balmoral, Bulimba, Hawthorne: $88,829

Bardon: $87,920

Source: The Australia Taxation Office