Qld housing prices fall as mining slows

Red-hot property prices in Queensland mining towns are rapidly ­cooling as the global commodities boom slows.

Falling employment, a slowdown in mining construction and a weak outlook for export markets, particularly coal, are taking a big toll on local property markets.

A surge in building during the recent boom has also created an oversupply in markets struggling to fill existing housing stock.

Cameron Kusher, senior research analyst for RP Data, the housing research group, said: “This is purely a story of the mining sector. There has been a lot of expansion in the past five or 10 years and that has tapered off.”

Rents in Moranbah, a mining town between Mackay and Clermont on the Peak Down Highway in northern Queensland, have dropped by half in the past 12 months; the median price is down 13 per cent and it is ­taking about four months to sell the average property.

Last year there were 46 houses sold in the town of 8000 people, down more than 70 per cent down from the previous year. The fall in median prices compare to a small rise in nearby Mackay.

In Gladstone, a town 550 kilometres north of Brisbane with a population of 32,000, the number of property sales were down 16 per cent. And in Mackay, 970 kilometres north of ­Brisbane, sales slipped more than 10 per cent.

Local estate agents claimed that the market had bottomed and that demand and prices might recover over coming months.Coal prices down

Falling coal prices have forced mining companies, including BHP Billiton and Anglo American, to review their operations, resulting in staff cutbacks, shelved expansion plans and asset sales.

David Fisher, principal of Vision Real Estate in Mackay, said: “Clearly the local market is very dependent on the resources sector, particularly coal. A drop in demand for commodities has an impact on the local housing market. Mackay has more industry than mining and prices have not been smashed. Houses are still selling for those willing to negotiate.”

Mr Kusher said the weak outlook for commodities, and the dip in demand with the surge in supply, meant it would remain a buyers’ market for the forseeable future for most mining towns in the sector.

He believes prices could slip another 5 per cent or 10 per cent.

The value of coking coal, used in steelmaking, has been falling since 2011 as new mines planned during the boom times move into production.

There are also high stockpiles overseas, for example in Asia.

Local builders and other trade specialists, who were last year under pressure to quit Queensland for the mining boom in Western Australia, are heading to Brisbane, or south to Melbourne and Sydney, as local jobs dry up because of the downturn in housing starts.

Mr Kusher predicts that the market will remain sluggish unless a ­significant pick-up in prices leads to mining companies committing to more investment and jobs.

Dodgy marketing tactics luring unwary investors into regional and mining town no-go zones

Property investors need to be ever vigilant. Many feral creatures prowl the real estate domain looking for ways to devour consumers, often using deception to lure buyers. A significant part of my 30-plus years as a researcher and writer have been spent investigating real estate scams and I know property to be a dangerous place for the unwary.

Many developers are using marketing companies to shift stock at the moment. These specialist marketers can earn massive fees, way beyond the commissions paid to mainstream real estate agencies who sell properties on behalf of vendors.

Why would developers pay 6% or 10% commissions to marketers when agencies will do the job for 2% or 3%? Because the stock in question is proving difficult to move, usually because the local market is oversupplied or otherwise in serious decline. They need an outfit which is happy to use dodgy methods to flog this unwanted stock to distant investors, often at above-market prices.

Right now developers are struggling in oversupplied regional centres like Gladstone and Mackay or in mining towns with falling markets such as Moranbah in Queensland and Port Hedland, Karratha and Newman in Western Australia.

No informed investor would buy in any of these places at the moment because they are all in serious decline and the bottom has not been reached. All are locations that will recover in time, but that time has not yet arrived.

The glossy promos pumped out by the marketers make no reference to the parlous state of these markets. They speak of vibrant local economies, strong markets and the prospects of double-digit rental returns – all claims that are blatantly false.

Sometimes real estate media will publish the propaganda from these organisations, without providing any journalistic filter to the “information”. One property magazine last week published verbatim a press release from a marketing company which claimed Moranbah was “on the cusp of another property boom”. This was written by the team marketing a unit development in Moranbah so there was an obvious vested interest in talking up Moranbah’s prospects.

When a magazine publishes this kind of rubbish it’s dangerous for consumers because it’s presented as genuine editorial and credible information.

I have no doubt Moranbah, which has been a real estate growth star in the past, will recover in the future. But right now it’s the nation’s  number one no-go zone. Rents are about one-third of their previous levels and the median house price declined 42% in the past 12 months. The coal sector, which is Moranbah’s only industry, is still in downsizing mode with commodity prices low and costs still way too high. The biggest miner in this region, the BHP-Mitusubishi joint venture, has just announced further job sheding to trim costs.

Another alarming example of marketing hyperbole which casts the truth to one side was a promo from marketers seeking to peddle high-priced townhouses in Wandoan in Queensland.

The promo said the new townhouses were in “the heart of the Wandoan CBD”. Anyone who knows Wandoan will laugh at the notion of it having a “CBD”. Wandoan is the quintessential one-horse town, with a population around 350.

The project was proclaimed “Wandoan Central, The Property Investors Dream”. The marketers claimed investors would “easily earn up to an amazing 14.4% return”. The townhouses had asking prices around $450,000, in a town where you can buy houses on land for $100,000 to $150,000 less than that.

Let’s be clear about Wandoan. The only reason anyone would build a unit development here is because international mining company Xstrata (now Glencore Xstrata) was planning a $6 billion coal mine and there were also plans for $1 billion rail link to the coast from this region. We have alerted our clients to this because, if those projects go ahead, Wandoan will become a much larger town.

But, as I’m sure the marketers of Wandoan Central know, both those big projects have been deferred. The new Glencore Xstrata is scrapping projects to trim costs and the Wandoan mine is one that’s been chopped. And without projects like this, the rail line is not feasible.

There are also companies pumping out propaganda on Karratha and Port Hedland, oblivious to rising vacancies and falling prices and rentals. The claims made about the yields that can be achieved in the current market are patently untrue.

Karratha prices are on a serious downward path. Locations which previously had median houses prices in the $800,000s are now down in the $600,000s and vacancy rates have hit 7-8%. Sales volumes are dropped and prices have followed.

These locations will recover in time, but the time to re-consider their prospects for investors is a considerable way off.

Terry Ryder is the founder of hotspotting.com.au.

http://www.propertyobserver.com.au/hotspots/dodgy-marketing-tactics-luring-unwary-investors-into-regional-and-mining-town-no-go-zones/2014021067683

Australia’s Waning Boom Saps Mining Area Home Demand: Mortgages

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.

Population Drops

“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.

Significant Fluctuations

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.”

Rockhampton Value

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.

Pilbara Weakness

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

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.

Pilbara Cities

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.

Further Declines

“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.

Apartment Buildings

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.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net; Rob Urban at robprag@bloomberg.net

http://www.businessweek.com/news/2013-07-21/australia-s-waning-boom-saps-mining-area-home-demand-mortgages

Mackay, Rockhampton and Gladstone median house prices

MACKAY, Rockhampton and Gladstone median house prices from the Real Estate Institute of Queensland.

 

Region Median Sale 12mths Mar13 Median Sale 12mths Mar12 1yr change
MACKAY
MACKAY (LGA)  $ 424,750  $ 418,000 1.6%
MACKAY (LGA) ^  $ 512,500  $ 485,000 5.7%
ANDERGROVE $415,000 $410,000 1.2%
BEACONSFIELD $431,000 $410,000 5.1%
BLACKS BEACH $464,000 $477,500 -2.8%
BUCASIA $455,000 $442,500 2.8%
EAST MACKAY $422,000 $410,000 2.9%
EIMEO $472,600 $450,000 5.0%
GLENELLA $530,000 $530,000 0.0%
MACKAY $399,000 $380,000 5.0%
MARIAN $465,000 $453,500 2.5%
NORTH MACKAY $379,000 $350,000 8.3%
OORALEA $482,000 $490,000 -1.6%
RURAL VIEW $497,000 $490,000 1.4%
SARINA $335,000 $339,000 -1.2%
SARINA ^ $479,000 $477,500 0.3%
SLADE POINT $373,250 $379,000 -1.5%
SOUTH MACKAY $386,000 $365,000 5.8%
WALKERSTON $435,000 $434,000 0.2%
WEST MACKAY $391,000 $366,000 6.8%
ISAAC (LGA)  $ 463,000  $ 545,000 -15.1%
CLERMONT $345,000 $257,500 34.0%
DYSART $530,000 $500,000 6.0%
MORANBAH $677,000 $675,250 0.3%
WHITSUNDAY (LGA)  $ 360,275  $ 325,000 10.9%
WHITSUNDAY (LGA) ^  $ 486,000  $ 475,000 2.3%
BOWEN $345,000 $345,000 0.0%
COLLINSVILLE $250,000 $200,000 25.0%
JUBILEE POCKET $420,000 $420,000 0.0%
PROSERPINE $307,500 $290,500 5.9%
Region Median Sale 12mths Mar13 Median Sale 12mths Mar12 1yr change
ROCKHAMPTON
ROCKHAMPTON (LGA)  $ 320,000  $ 317,700 0.7%
ROCKHAMPTON (LGA) ^  $ 460,000  $ 465,000 -1.1%
ALLENSTOWN $286,750 $279,500 2.6%
BARMARYEE ^ N/A $635,000 N/A
BERSERKER $246,000 $238,000 3.4%
COOEE BAY $384,000 $323,000 18.9%
EMU PARK $325,000 $355,000 -8.5%
FRENCHVILLE $338,750 $338,000 0.2%
GRACEMERE $338,600 $340,000 -0.4%
GRACEMERE ^ $479,000 $527,500 -9.2%
KAWANA $311,000 $310,000 0.3%
KOONGAL $282,000 $250,000 12.8%
LAMMERMOOR $456,000 $410,000 11.2%
MOUNT MORGAN $148,000 $121,750 21.6%
NORMAN GARDENS $400,000 $420,000 -4.8%
PARK AVENUE $267,500 $260,000 2.9%
ROCKHAMPTON CITY $200,000 $205,000 -2.4%
TARANGANBA $377,500 $377,500 0.0%
THE RANGE $370,500 $327,500 13.1%
WANDAL $295,000 $290,000 1.7%
WEST ROCKHAMPTON $263,500 $260,000 1.4%
YEPPOON $386,500 $385,000 0.4%
ZILZIE $380,000 $371,250 2.4%
CENTRAL HIGHLANDS (LGA)  $ 445,000  $ 390,000 14.1%
CENTRAL HIGHLANDS (LGA) ^  $ 555,000  $ 615,000 -9.8%
BLACKWATER $473,000 $372,500 27.0%
EMERALD $455,000 $425,000 7.1%
EMERALD ^ $660,000 $640,000 3.1%
Region Median Sale 12mths Mar13 Median Sale 12mths Mar12 1yr change
GLADSTONE
GLADSTONE (LGA)  $ 459,000  $ 455,750 0.7%
GLADSTONE (LGA) ^  $ 511,250  $ 500,000 2.3%
AGNES WATER ^ $363,000 $348,500 4.2%
BOYNE ISLAND $482,500 $482,000 0.1%
CALLIOPE $450,000 $450,000 0.0%
CLINTON $448,750 $472,500 -5.0%
GLEN EDEN $540,000 $473,000 14.2%
KIN KORA $429,500 $455,750 -5.8%
NEW AUCKLAND $475,000 $472,500 0.5%
SOUTH GLADSTONE $435,000 $431,250 0.9%
SUN VALLEY $430,000 $422,500 1.8%
TANNUM SANDS $517,500 $505,000 2.5%
TELINA $467,000 $479,500 -2.6%
WEST GLADSTONE $432,500 $420,000 3.0%
BANANA SHIRE (LGA)  $ 260,000  $ 265,000 -1.9%
BANANA SHIRE (LGA) ^  $ 400,000  $ 290,000 37.9%
BILOELA $280,000 $282,000 -0.7%

 

 

REIQ EXPLANATORY NOTES
Median Price: The middle sale price when arranged in ascending order, ie where half of the sales recorded were less and half were higher than the median
All figures are preliminary and are subject to further revision. Only suburbs to record sufficient sales numbers have been included.
N/A No preliminary estimate available due to insufficient sales numbers
^ Denotes acreage sales – on land size greater than 2,400m2. All other house and land sale statistics are based on land size under 2,400m2
(LGA) Local Government Area
Brisbane (SD)- Brisbane Statistical Division which includes the LGA’s of Brisbane City, Ipswich City, Logan City, Moreton Bay Regional and Redland City.

Gladstone defies doomsayers with 24% gain in annual median house prices with Moranbah also strong

Talk of the mining boom effect petering out in perennial property hotspot favourites Gladstone and Moranbah in northern Queensland appears premature with both bucking the trend of property markets that soar one year only to fizz out the next.

Property Observer analysis of the 15 best performing detaching housing markets across five house price brackets published last May by Smart Property Investment magazine now one year on, shows that nine markets went from boom to bust in the space of a year, two tread water and three grew strongly, albeit at slower rates in the prior year.

The biggest boom to bust occurred in Quindalup, a small town in the South West region of Western Australia in the shire Busselton and about 250 kilometres west of Perth, most famous as the hub of a thriving timber industry from the mid to late 1800s.

Just a few original buildings remain, including Harwoods Cottage, now a local tourist attraction.

Based on annual sales data, RP Data figures show that Quindalup median house prices rose 47% to Feb 2012 but then fell 38% in the twelve months to February 2013.

Double-digit corrections also occurred in Netherby, a suburb of Adelaide, Sydney’s prestige McMahons Point on the lower north shore (though from a small number of prestige sales), Dicky Beach, a suburb on the Sunshine Coast, East Launceston in Tasmania, Alton Downs near Rockhampton and Shorewell Park on the north coast of Tasmania near Burnie.

However, Gladstone City median house prices (the greater Gladstone area) have risen 24% over the 12 months to February 2013 following a rise of 32% in the previous months to a median of $600,000, albeit off just 17 recorded sales.

And in Moranbah, house prices rose 17% over the 12 months to February 2013 following a 33% in the previous 12 months to rise to $740,000 from 159 sales.

The third location to register two consecutive years of strong price growth was Millthorpe in NSW, a tiny hamlet between Orange and Blayney with 1,100 people, with price gains of 31% in 2012 and 13%.

State Suburb Annual sales to Feb 13 Median price Feb 2012 Median price Feb 2013 Median 12mth growth to Feb 2012 Median 12mth growth to Feb 2013

BEST PERFORMING SUBURBS $700,001 plus

WA

Quindalup

12

$970,000

$565,000

47%

-38%

SA

Netherby

19

$970,000

$800,000

39%

-18%

NSW

McMahons Point

16

$1.92m

$1.6m

33%

-17%

BEST PERFORMING SUBURBS $500,001 – $700,000

WA

Derby

42

$555,000

$542,500

40%

0%

QLD

Moranbah

159

$610,000

$740,000

33%

+17%

QLD

Dicky Beach

20

$660,000

$562,500

28%

-15%

BEST PERFORMING SUBURBS $400,001 – $500,000

QLD

Alton Downs

13

$480,000

$430,000

38%

-10%

TAS

East Launceston

44

$478,000

$385,000

33%

-19%

QLD

Gladstone City

17

$482,500

$600,000

32%

+24%

BEST PERFORMING SUBURBS $300,001 – $400,000

SA

Munno Para

92

$322,827

$307,500

42%

+1%

NSW

Millthorpe

12

$330,000

$372,500

31%

+13%

NSW

Wyee Point

17

$380,000

$377,500

31%

-1%

BEST PERFORMING SUBURBS UNDER $300,000

TAS

Shorewell Park

18

$246,000

$207,500

47%

-21%

NSW

Boggabri

21

$157,500

$153,000

45

-6%

TAS

Trevallyn

98

$290,000

$279,500

26%

-7%

Source: RP Data/Smart Property Investment magazine 

The most up-to-date price growth for these suburbs and all others can be found on our RP Data suburb data property map.

Regional centres a less risky way to capitalise on mining boom: Countdown to regional centres webinar

Mining towns present the ultimate risk-return conundrum for property investors, as I wrote in my Property Observer column in August.

They’re so hard for property investors to resist. They have the highest capital growth rates in Australia, and they have the highest rental returns.

They also are the riskiest options for property investors. Mining towns are single-industry economies – sometimes single-employer economies – and are vulnerable to downturns in the lone industry.

Over the past 10 years a typical suburb in an Australian city has averaged capital growth around 10% a year (thought certainly not in the past two years). The best suburbs in cities like Brisbane, Melbourne and Perth have averaged 14% or 15% – which is pretty good, because at those growth rates values are doubling every five years.

But the best of the mining towns have capital growth averages double those growth rates. Both Moranbah and Dysart, coal-mining towns in Queensland, have recorded growth in their median house prices averaging more than 30% a year. So too has Newman, deep in the Pilbara region of Western Australia. The median price for Cloncurry in western Queensland rose 60% in the past 12 months.

But the lure of the mining towns doesn’t end there. They also offer the highest rental yields in the nation. Many of them have double-digit rental returns. With the current surge in resources projects, particularly in Western Australia and Queensland, some mining towns can provide initial returns above 15%.

But it’s never plain sailing with mining towns. They lack diversity, so their economic life is a roller coaster. Some also service the surrounding farming economy, but the high levels of prices and rents are based on demand created by the resources sector.

This makes these locations highly vulnerable to downturns in the mining economy. When the global financial crisis struck in 2008, global demand for Australian resources fell. Miners downsized and in some cases shut down mining operations.

In coal-dependent towns like Dysart and Moura in Queensland, residential vacancies rapidly rose from near-zero to double digits. Gladstone, which has had four years of strong growth in house prices, had a 10% decrease in prices in 2009.

The small WA communities of Ravensthorpe and Hopetoun were devastated when BHP Billiton shut down a $2 billion nickel mine that had been completed only months earlier – 1,800 people lost their jobs and property values fell. Hopetoun’s price performance since then has been a decline averaging 6% per year.

More recently, we have seen mining companies refusing to rent properties in Moranbah over concerns about the high levels of house rents and upheaval in nearby Dysart followed the closure of the Norwich Park mine. Neither of these events is terminal to the towns’ investment prospects, but they demonstrate how uncertain property ownership can be in mining towns.

Ultimately, an individual’s attitude to investing in mining towns, or not, depends on their objectives, risk profile and experience as an investor.

It’s important for investors to understand their goals and to have a strategy for achieving them (it’s surprising how many don’t). Equally important is understanding their attitude to risk. If they prioritise safety and low risk, mining towns are not for them.

For anyone starting out as an investor, mining towns are not a good option. They may provide big gains short term, but ultimately values may decrease sharply if a downturn occurs, such as the one that followed the onset of the GFC in 2008.

On the other hand, experienced investors with substantial property portfolios may be happy to accept those risks within the context of a portfolio that has assets in safer locations.

Generally, investors wishing to safely exploit the rise of the resources sector should look at buying in regional centres that benefit from the mining upturn but are not dependent on it.

Regional cities and towns such as Toowoomba and Mackay in Queensland, Geraldton in Western Australia, and Muswellbrook in New South Wales have diverse economies but also prosper when the mining sector is rising. These are safer options than mining towns.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.

Mine town property still stars

MINING towns still dominate property values with staggering growth of up to 4000 per cent within 10 years.

Queensland’s dusty mining towns of Dysart and Moranbah are among the nation’s top performers for growth in house prices, with medians rising a monster 3992 per cent and 1919 per cent between 2002 and 2012.

Ten years ago, savvy home buyers who bought a house in Dysart for the $11,119 median would now have a property worth $455,000, according to RP Data figures.

Similarly units in towns close to the mining action also recorded phenomenal growth, with Gladstone, Woree and Gladstone City topping the list.

In Gladstone City, the median unit price has jumped a whopping 490 per cent from $73,000 to $430,000.

Western Australia has also recorded stunning property growth in its resources regions. Median house prices have climbed 900 per cent in Baynton in the 10 years, 500 per cent in Port Hedland and 250 per cent in Dampier.

 The nation’s more salubrious digs have chalked up less impressive results. Vaucluse in Sydney, where the median house price is $3.3 million, recorded 55 per cent growth over the same period.

Despite Queensland’s stellar performance in mining regions, RP Data research director Tim Lawless told a real estate masterclass last week that the Brisbane market was underperforming but starting to head in the right direction.

“Transaction volumes remain well below average,” he said.

In other real estate news, property prices across the nation are proving a boon to renters wanting to own their own homes with it now cheaper to buy than lease in a record 388 suburbs across the country.

The RP Data Buy vs Rent report analyses the difference between monthly mortgage payments and monthly rental payments based on the median value of houses and units.

The data shows that there has been a 63 per cent increase in the number of suburbs where it is now cheaper to pay a mortgage than pay a landlord – only 238 suburbs fit the criteria back in August.

For renters wanting to take the plunge, it is great news. For those prepared to pay an extra $50 a month more than their current rents and take a variable home loan, the number of suburbs on offer jumps even further to 1419 suburbs.

Unsurprisingly, across the capital cities, it is typically apartment-style housing where it is more affordable to purchase than commit to the dead money or a rental due to lower property prices.

Queensland offers the majority of suburbs and towns with 147 locations where it is cheaper to buy than rent, although most are located in regional areas including Mackay, the Darling Downs, Gold Coast and Sunshine Coast. Brisbane accounts for 42 suburbs, most of which are located in Logan and Ipswich.

New South Wales has the second highest number of options with 88 suburbs across the state where a mortgage is cheaper than renting. Units in Enmore and Rushcutters Bay are among the surprises.

Mr Lawless said the combination of soft property prices and discounted mortgage rates had combined with high rents and low rental vacancies to cause many renters to make the switch.

“In some suburbs buying may actually be cheaper than renting, especially where we are seeing evidence of tight rental markets resulting in rental increases,” Mr Lawless said.

“For many renters, now may be a good time to either re-enter the market or buy their first home.”

Victoria supported just 17 suburbs where it is now cheaper to buy than rent, although only three of these were close to the Melbourne CBD. The rest were in country towns including Mildura, Bendigo and around the Wimmera.

In South Australia and Western Australia, there were 48 and 44 suburbs and towns respectively, while in Tasmania and the Northern Territory there were 30 and 11.

Rent rises today mean capital growth tomorrow for next property hotspots:Terry Ryder

Rents rise first and prices follow.

That simple formula provides a clue to investors in choosing where to buy property for future growth.

Anyone following that recipe a year or so ago would have had solid capital gains in Gladstone and Mackay in Queensland.

We’ve seen it start to happen in Darwin as well.

The locations now poised to follow suit include Perth and Townsville.

Some 18 months ago I was scratching my head wondering why there had been little in the way of price growth in the nation’s number-one boom town, Gladstone.

Gas projects and other enterprises were bringing thousands of new workers into the place, and everything that mattered was in short supply – but the only reaction from the property market had been a massive hike in residential rents.

Then, almost belatedly, prices followed the rental trend. In the past 12 months, the median price in most Gladstone suburbs rose 17-18%. Mackay is a little behind Gladstone in the cycle but is now exhibiting similar patterns.

Darwin has been leading the state and territory capital cities on price movements, by a considerable margin. It, too, experienced big lifts in rental levels before prices started to follow.

Australian Property Monitors records a 27% lift in Darwin’s median house rent in the year to June, with the median weekly asking rent for apartments rising 15%. In the September quarter, Darwin recorded the biggest increase in home values among the capital cities.

Perth is set to follow this trend. It’s had a 15% rise in its median house rent in the past 12 months, according to Australian Property Monitors. The median rent for apartments has climbed 11%.

Perth prices so far have moved little, but that is soon to change. Strong demand for accommodation has led to a 0.5% vacancy rate, according to the latest figures from SQM Research, and WA housing finance commitments by owner-occupiers are up 18% in the 12 months to the end of August (the biggest jump in the nation). Loans to investors have risen solidly, as well.

WA has the nation’s strongest economy and leads on population and employment growth. The projects that really matter in the WA resources sector – the mega gas projects, not the iron ore ones – are now starting to crank up their construction phases.

Against that background, price growth is inevitable in Perth, particularly with rents strongly leading the way.

Townsville is another significant market where rents have been pressured by high demand, but prices remain in the doldrums.

That will change. Townsville gets my vote as the strongest regional economy in Australia, with not only diversity but considerable muscle in all its multi-faceted economic sectors. It’s a city that doesn’t need the resources sector, but gets considerable oomph from it anyway.

Queensland is Australia’s most decentralised state, with numerous strong regional centres, but Townsville is undoubtedly king of the regions. Despite being impacted by the state government’s manic cost-cutting, job-shedding and plot-losing, Townsville is experiencing expansion in many other key sectors, particularly its already-substantial military economy.

Its spinoffs from the resources sector include an expanding port, processing facilities and lots of fly-in fly-out workers who reside in Townsville.

People want rentals in Townsville but can’t get them. Prices will react sooner or later.

Terry Ryder is the founder of hotspotting.com.au and can be followed on Twitter.

Gerry Harvey shows faith in Gladstone with $100m boost

BILLIONAIRE retailer and property owner Gerry Harvey has show his fatih in Gladstone by committing an extra $100 million for mining accommodation, despite warnings the resources boom was waning.

The Harvey Norman co-founder and executive chairman told The Australian that owners walked away too quickly in tough times, when money could be made from holding real estate over the long term.

After an initial outlay of up to $60 million building transportable accommodation units, or “dongas”, Harvey Norman is looking at joint-venture mining accommodation investments of up to $100m in Gladstone and Chinchilla.

“It (mining accommodation) is a specialised area,” Mr Harvey said.

“There’s heaps of demand, but there’s a lot of people out there doing it too, so it’s a matter of the level of expertise you’ve got.”

The dongas are built for large mining companies through the listed Harvey Norman, which is at least 35 per cent family-owned.

Mr Harvey declined to name the partner in the joint venture.

http://www.gladstoneobserver.com.au/news/mining-boom-gladstone-accommodation/1578510/