An announcement this week gave hope to all those investors who own properties in mining centres.
Indian mining company Adani started advertising the thousands of jobs that will come with its $16 billion Carmichael coal mine in Central Queensland.
It’s a further indication that Adani is keen to move ahead quickly with its project, which will include the mine, plus rail links and export port facilities.
Every day I receive emails from people who own investment properties in places like Moranbah, Emerald, Blackwater, Mudgee and the towns of the Hunter Valley.
These places have lots in common. They’re all towns where property markets boomed when coal mining was thriving, with rents and property values rising strongly. Then two things happened: the coal sector turned south just as developers were heading north. Demand fell just as supply was rising.
Big vacancies caused rents to fall and property values followed. If you bought in any of these places two years ago, you will be feeling lots of financial pain.
Moranbah’s median price has dropped 40% in the past 12 months and rents are about one-third of their peak levels.
The common dilemma expressed in so many of those emails is this: should I cut my losses and sell, or should I hold on and hope it improves? One correspondent this week suggested things might be turning around in Moranbah but asked: “Is it just wishful thinking?”
The Adani announcement that expressions of interest are open for jobs on its Carmichael mine suggests that hope is not unreasonable.
Adani, which has state and federal approvals for its Galilee Basin mine, is planning to employ up to 5,000 people during the construction phase and 4,000 more during the mine’s operation.
A key beneficiary will be Emerald, a regional centre which sits amid the Galilee Basin to the west and the Bowen Basin to the east. Lots of coal, lots of big plans, but not much action at present.
I’ve often said to people: it will only require one of the half dozen proposed mega projects in the Galilee Basin to go ahead, for Emerald’s market to come storming back. I’ve always thought the Carmichael mine was the most likely to go first, because Adani wants the coal to provide for its own needs (its Indian power stations) rather than to supply the depressed global market.
The problem for investors sitting on empty rental properties is that these huge projects are slow-moving events. You need lots of patience and nerves of steel.
But this is life in mining towns. It’s not a new phenomenon. This is not the first time Moranbah has fallen into a trough (althought this one is deeper than any of the previous). It’s not the first time a boom in Gladstone has been followed by a bust.
Gladstone’s market experienced a major peak in 2008, followed by a couple of years of declining values, before rising to another peak in 2012, followed the another period of decline.
Mudgee in New South Wales had a peak in 2007, falling prices in 2008 and 2009, another peak in 2010, decline in 2001, another peak in 2013 and now another decline. The price graph for Mudgee looks like a mountain range.
Ditto Muswellbrook: since 2006 it’s been minor peak, minor trough, minor peak, mknor trough, major peak (2012), major trough (now).
When prices rise strongly in markets like this, the market always “give some back” before moving into the next up-cycle. Usually the market gives back less than it gained earlier, so the overall trend is upwards.
If you don’t have the temperament to deal with this kind of volatility, it’s best to stay out of resources-related markets.