Pilbara Residential Housing & Land Snapshot – Ending Dec 2014

Here’s the latest report (ending December 2014) by the Government of West Australia showing the Pilbara Residential Housing & Land Snapshot.

Here’s a quick summary:

Observations from this edition of the Pilbara Housing & Land Snapshot are:

The Pilbara:

  • In all three major towns the average advertised residential rental price dropped for the fifth consecutive quarter.

Port and South Hedland:

  • Port Hedland’s average advertised rental price dropped for a ninth consecutive quarter from an all-time high of $2,544 per week during the September 2012 quarter to a seven year low of $1,153 per week in the latest quarter.
  • South Hedland’s average advertised rental price decreased by $194 to $965 per week, which is the lowest average weekly rental price since the June 2008 quarter.
  • For the ninth consecutive quarter the average advertised ‘for sale’ price of properties in Port and South Hedland dropped.
  • Port Hedland’s average advertised ‘for sale’ price of $775,238 in the latest quarter is at its lowest since the March 2007 figures.
  • South Hedland’s December 2014 average advertised ‘for sale’ price of $660,005 is the lowest it’s been since the September 2009 quarter.

Karratha:

  • Karratha’s average advertised weekly rental has dropped for the 13th consecutive quarter, down from $1,784 in the September 2011 quarter to $820 in the latest quarter. Karratha’s average rental price remains the cheapest across the major Pilbara towns since the beginning of 2012.
  • The average advertised ‘for sale’ price of $593,803 in Karratha, showed an increase of $3,802 for the 213 properties listed during the quarter, the first such increase in average advertised ‘for sale’ price for six quarters.
  • The 13 residential lots were advertised in the last quarter in Karratha, with an average advertised price of $278,400, represents the lowest average ‘for sale’ price since 103 residential lots were advertised in December 2010 at an average price of $220,365.

Newman:

  • The average advertised rental price of $892 per week is the lowest since record keeping commenced in Newman in 2008, and the first time below the $1,000 per week mark.
  • The average residential ‘for sale’ price of $626,036 is at its lowest since the March 2010 quarter.
  • Newman continues to have the highest number of advertised residential lots ‘for sale’ in the Pilbara, with 34 lots advertised in the last quarter with an average ‘for sale’ price of $271,088.

You can also download the full report – Pilbara Residential Housing & Land Snapshot – Ending Dec 2014.

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

Mining town vacancy rates mean that it’s wise to wait and watch

The publication this week by SQM Research of vacancy rate trends in mining-related cities and towns is a timely reminder to investors to check out supply-demand issues before buying.

The figures show that, in many important regional locations around Australia, oversupply is the issue, rather than the much touted “chronic housing shortage crisis” – just as it is for inner city unit markets in several capital cities.

Many investors consider demand factors, such as population growth, but forget to check out the level of supply in the market.

It’s difficult to imagine a place with more compelling demand factors than Gladstone, with massive levels of infrastructure development under way. Yet the Central Queensland city has a vacancy rate of 11%, according to Louis Christopher’s figures. Developers seeking to profit from the LNG boom went overboard and the Gladstone market has been sinking for the past 12-18 months.

Nearby Mackay has also suffered from an upsurge in new developer product and now has a vacancy rate around 7%.

Some markets have had a double whammy, with an increase in supply coinciding with a drop in demand. There is particularly true of Queensland coal mining towns, such as Dysart, Moranbah, Blackwater, Clermont and Capella.

Moranbah once ranked as the growth star of Australian real estate. In early 2012, its long-term capital growth rate (average annual growth in its median house price over the previous 10 years) was above 33% and its median weekly rent was $1,200. Before the end of 2012 its median house price would reach $750,000 – but, by then, rents were already falling and prices were soon to follow.

The demise of the Moranbah market was as spectacular as its rise. In the past 12 months its median price has dropped 42% to $435,000 and the median rent is now $520 per week. Median yields, which were 12% not so long ago, are now around 5%.

All manner of woes hit Moranbah. BHP and its partners refused to pay the astronomical rents being asked by investor landlords. Existing projects were downsized and new projects were deferred or progressed with 100% fly-in, fly-out workforces. And new dwelling supply hit the market.

Similar events have happened in other mining-related markets across Australia. In Roxby Downs in South Australia, where many investors bought in anticipation of a $30 billion expansion of the Olympic Dam mine, the vacancy rate has risen to 10% in the wake of BHP’s decision to defer the project.

Investors need to be aware of these issues because marketing companies continue to pump out promotional material for new developer product at high prices in mining-related markets that are in sharp decline.

One I received this week was touting two-bedroom units in Port Hedland for $715,000, claiming they would rent for $1,400 per week, provide a 10.2% return and earn up to $22,000 per year in profit – thereby providing the “perfect investment opportunity” for first-time investors.

The promo failed to mention that Port Hedland’s vacancy rate is now above 6%, that prices have dropped by up to 10% in the past 12 months and typical yields are now around 7% (and falling).

Similar propaganda comes in every week for highly-priced new product in Karratha and Newman (where the median price dropped from $850,000 to $450,000 in six months).

This is life in mining-impacted property markets. Many of the locations I’ve mentioned will recover, once the resources sector has finished the current phase of cost-cutting.

One tactic commonly being used is to shut down a mining project, sack all staff – and then, perhaps six months later, re-hire at lower pay rates and re-start the mining project. One town impacted by that is Collinsville in Queensland where, according to SQM Research data, the vacancy rate is currently 36%.

Moranbah, Newman and others will recover as there are big projects in advanced stages of planning. But in the short-term they are dangerous places to buy. Even investors who are happy to have some risk in their portfolio would be wise to wait and watch until the current phase is done and dusted.

By Terry Ryder
Thursday, 30 January 2014

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

Property investors without an appetite for risk should consider major regional centres rather than mining towns: PRDnationwide’s Aaron Maskrey

By Aaron Maskrey
Monday, 09 July 2012

PRDnationwide has selected five townships in order to investigate property investment in Australia’s mining towns – with each town defined by diverse regional environments, population sizes, mining activities, level of infrastructure and services, proximity to regional service centres and community establishment.

Perhaps the only commonality shared between these mining towns is the shortfall of housing and the inadequate provision of infrastructure and planning mechanisms to accommodate an ever increasing workforce. The table below provides the list of townships that have been selected for the purpose of this investigation together with a snapshot of the individual housing markets performance during the six months to April 2011 and 2012.

 

 

Township

 

 

State

Apr-11 HY

Apr-12 HY

Median Price

Total Sales

Median Price

Total Sales

Moranbah QLD

$459,500

84

$730,000

129

Dysart QLD

$450,000

42

$545,000

38

Port Hedland WA

$1,100,000

31

$1,235,000

23

Singleton NSW

$345,000

82

$377,000

111

Karratha WA

$767,000

45

$802,500

54

 

 

 

Township

Annual Change

Avg. Annual Growth Rate
 

Median Price

Total Sales

5yr Growth

10yr

Growth

Moranbah, QLD

58.9%

53.6%

15.2%

38.1%

Dysart, QLD

21.1%

-9.5%

11.4%

32.8%

Port Hedland, WA

12.3%

-25.8%

17.1%

20.1%

Singleton, NSW

9.3%

35.4%

5.3%

10.3%

Karratha, WA

4.6%

20.0%

7.4%

15.6%

 

Prepared by PRDnationwide Research: Source: PDS Live

Of the five mining towns, Moranbah achieved the highest median price growth during the April 2012 half-year period, recording an unprecedented 58.8% increase compared with the corresponding period in 2011. The town also led the way is sales activity, registering a total of 129 transactions during the April 2012 half-year period, representing an exceptional 53.6% uplift from the corresponding period in 2011.

Dysart failed to achieve this level of exponential growth, despite having a proximate median price to Moranbah in the April 2011 half-year period. Somewhat overshadowed, Dysart in fact performed extremely well, recording a median price of $545,000 to achieve 21.1% growth during the April 2012 half-year period. Sales volumes however, diluted 9.5% during the six months to April 2012, registering a total 38 transactions.

Port Hedland recorded a median house price of $1,235,000 in the six months to April 2012, undoubtedly the highest median price of all regional mining towns across Australia. With a median price of $1.1 million in the April 2011 half-year period, it is hard to believe that there was any scope in the market to inflate prices further, making the 12.3% increase all the more remarkable.

Singleton recorded a median house price of $345,000 in the April half-year period, making it the most affordable of the five mining towns. As a result the town is gaining momentum, with a 9.3% increase in median price and uplift of 35.4% in sales recorded during the six months to April 2012.

Karratha (including adjoining Nickol and Bulgarra) recorded a median price of $802,500 in the April 2012 half-year period, representing a 4.6% increase from the corresponding period in 2011. Again, while this rate is well below that achieved from the Queensland towns, Karratha is a more established township, and in relative terms, this level of growth from a median price of $767,000 in the April 2011 half-year period is nonetheless very impressive.

There is no doubt that regional mining towns across Australia are producing extraordinary investment opportunities for investors, particularly those with the financial capacity and risk appetite to enter the market. As with any property purchase or investment vehicle, lucrative returns from investing in these mining towns are directly proportionate to the overwhelming level of inherent risk.

The most prominent risk is the sensitivity of rental prices to change drastically over extremely short periods of time. Moranbah provides a perfect case in point, with anecdotal evidence suggesting weekly rental prices as at April 2012 have revised down as much as $800 since the late 2011/ early 2012 and possibly much more since then. Rental evidence provided by the Residential Tenancy Authority (RTA) states the median weekly rent for a three-bedroom house in the March 2012 quarter to be $2,000, compared with $550 recorded over the same period in 2010. This scenario has and continues to occur within the other mining towns, with the constant disequilibrium between housing supply and demand transpiring to excessive volatility in the rental market.

There are many factors that contribute to demand for housing, with the most obvious and most detrimental being the performance of the mine/mines that the town services. This is very much the case for Moranbah, with BHP Billiton-Mitsubishi Alliance (BMA) issuing statements to overseas dependants that it will will fail to meet requirements as the mines experience limited production during what has been a bad wet season (November to April). This has been further exacerbated by rolling weekly strikes by miners as BMA goes hard on its enterprise agreement with the unions. BMA has taken advantage of the situation and has refused to sign any lease agreements since earlier in the year. Vacancies have thus increased and rents corrected accordingly, with only the fortunate investors with unexpired lease agreements unaffected at this point in time.

Another example, possibly more severe, was the closure of an underperforming mine (BMA’s Norwich Park) in April 2012 near Dysart, which sent shock waves throughout the local community, with 1,400 jobs threatened and the flow-on effects to the property market yet to be fully realised. Approximately 400 of these workers are residents of the Dysart community, and some will be redeployed to the Saraji mine, while others will likely relocate to other towns or centres in the region.

As an immediate result, it is anticipated that vacancy levels will increase, therefore correcting rental prices and subsequent capital values. Some investors will wear their losses and maintain their prospects for further growth while others will consolidate their earnings and opt to exit the market. Once again, as prices soften, opportunities will arise for investors to take advantage of high rental yields and enter a market they perhaps couldn’t afford previously. However, as has been the case for Moranbah, the influx of investors looking capitalise on such an opportunity will flood the market with more rental properties, putting further pressure on rental prices and ultimately diluting these supercharged yields.

Despite the sensationalist predictions of some media proponents, the size of pipeline expansions for existing mines in the Dysart area is likely to navigate the property market from an imminent bust. In fact, the number and size of mines planned to open or expand in the Isaac Region of Queensland in the future will surely prevent towns like Moranbah and Dysart experiencing a collapse in the market any time soon.

Perhaps the most significant problem facing mining towns in the future is the expansion of campsites to accommodate a growing fly-in fly-out (FIFO) workforce in order for mining companies to reduce their cost base. Basically, the benefit of this strategy to the resident community of the town is that it will effectively drive rents and subsequent capital values in the housing market down to more affordable levels, preventing non-mining workers who perhaps are renting from being priced out of the market and forced to relocate. However, on the other hand, the added strain on essential services caused by the lack of direct investment from mining companies and local governments into adequate community infrastructure and businesses, demonstrates a more cynical consequence.

The lure of higher pay packages offered by the mines is aggravating the problem as many business struggle to maintain enough staff to operate efficiently, if not at all. The implications of a growing FIFO workforce have been debated among industry, politicians, lobbyists and community for quite some time now. There are advocates both for and against increasing the proportion of FIFO workers in and around town, with the decision likely to be resolved with government intervention. Either way, this is yet another factor which must be closely monitored by would-be and existing investors of mining towns.

For investors with short-term investment horizons and an appetite for risk beyond the norm, then this may be the ideal time and asset class to invest. However, for a majority of would-be investors, perhaps the next best thing would be to consider the major regional centres that service these remote mining towns. Gains may not be as lucrative or as quick to come by, but the long-term sustainable growth prospects afforded by these multi-industry centres (most of which are independent of the mining boom though indirectly benefit from its growth and success) are perhaps the better weighted investment. Many spectators will be paying special attention to the towns of Moranbah and Dysart during 2012; using the benefit of hindsight to measure and validate the repercussions and extent certain events have on their property markets.

http://www.propertyobserver.com.au/hotspots/property-investors-without-an-appetite-for-risk-should-consider-major-regional-centres-rather-than-mining-towns-prdnationwides-aaron-maskrey/2012070855456