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

Is Port Hedland on the move again?

Musings on the Pilbara. Now that the election is out of the way it would seem that the battered and bruised Resource Sector is set for a recovery in sentiment and confidence.

The lower confidence levels and the element of negativity surrounding Iron Ore of late seems completely at odds with the reality of whats happening in the Ore market. This is the case for both price and export volumes. Iron Ore prices have held up well and have in fact been steadily increasing in price over the last 12months and market price is now ranging in the $130-140 per tonne. Up from $87/ t a little over 12 months ago.

At the same time the major Ore exporters have all been increasing their volumes of export through the Port, setting new tonnage records month on month it would seem.

With the Roy Hill mine developmental stage underway, Rio Tinto reviewing their expansion plans, FMG is increasing their export tonnage and now focussing on new projects. Combined with BHP’s outer harbour expansion plans looking likely to continue, (with an announcement due before year end ) things are looking up for property owners and investors in the Pilbara and other resource driven mining areas.

We are seeing an uptick in investor interest now since the election result with the phone starting to ring again. On the leasing front there now appears to be a lot of movement as existing tenants look to upgrade their accommodation going forward, and many looking to reduce their rent as their leases lapse.

What this means to you as an investor or potential investor is that there will be some opportunities for both entry level at the lower end or for existing investors already in that market looking to increase their portfolio.

One such opportunity exists that I’m aware of is where a developer is prepared to profit share with the first group of investors in a development where they stand to make circa $150k instant equity on completion – now who wouldn’t be interested in that. There are deals out there – but one has to look and be prepared to act.
http://www.yourinvestmentpropertymag.com.au/article/is-port-hedland-on-the-move-again-180

Australia’s biggest investor myth

On paper, mining towns offer a high return on investment, but investors who purchase in one could end up with an asset that performs a lot differently from big city properties – and not for the reasons they’d think .

Prospective Mount Isa investor Dale Collins was checking a well-defined crack in the walls of an old miner’s cottage when the real estate agent spoke of domination.

They were in the house’s kitchen, a closed off room with dusty brown walls and vinyl flooring, and Collins had just remarked that the setup reminded him of the inside of a 1970s caravan. The agent, draped in a black suit and tie in the outback heat, didn’t take kindly to the comment and decided he’d set Collins in his place.

“He told me it didn’t matter,” says Collins. “He said that the kitchen didn’t need to be pretty because the house would get high rents anyway. He said that once people came into Mount Isa they had to submit to their landlords. There was such a need for rental accommodation they’d rent anything and pay a high price for it.”

While the agent failed to persuade Collins, he touched on a growing theory among Australian investors. This line of thinking proposes that the best way to ensure a stream of high rental income and own a property that will quickly double in value is to invest in a mining town such as Mount Isa.

The theory isn’t backed up simply by hearsay. The facts speak for themselves. Of the 50 best performing markets across the country last year, 10 were in mining towns. Look further back and their case is even stronger. The fastest growing market in Australia over the last 10 years was a mining town – Wandoan in Queensland’s coal rich Darling Downs region – and most of the markets that follow close behind are also mining areas.

Then there are the now legendary towns. Coal community Moranbah has had roughly $650,000 added to its median house price since 2003, while Port Hedland, the gateway to the iron-rich Pilbara region in Western Australia, has done even better. Its median house price has increased by more than $1m. In fact, Port Hedland now has the distinction of having the highest median rent in the country, a cool $2,600 a week, according to RP Data.

Astonishing as these increases have been, mining towns have had no shortage of bad press. “I had heard that you could get some good returns in Mount Isa, but yes, you do get worried that you could be making a mistake by investing there,” says Collins. “One of the things I had to check when I was researching Mount Isa was that the place would do ok even if the resources market went a little crooked. That’s what you hear goes wrong in these places. They close a mine and all the people that would have been your tenants split town.”

The list of things that could seemingly go wrong with a mining town investment is long. Mines close, workers get retrenched, developers build too much rental accommodation – any and all of which could happen at one time.

NSW’s Broken Hill is a perfect example of such fears coming to life. Over the first half of the 20th century, the desert community was not just the third largest settlement in the state but one of Australia’s biggest cities. By the 1970s a lot of the mines that had nurtured the city’s growth began to close and this sent the local employment market into free fall. The population, which at that stage had been 30,000, quickly dwindled to 10,000. Property prices plummeted. What had once been a boisterous real estate market had a hole blown from under it and investors had no escape. In the forty years since, the population has slowly increased to about 17,000 and mining activity continues, but the city has never returned to its prior heights.

For some investors, like Dale Collins, such risks have proved too great. “I was interested in Mount Isa, but to be honest, with my budget I wouldn’t have got the right property for that kind of market. I thought I could sniff out a good deal on an older property and renovate it, but it’s hard and I’ve learnt that you can’t half-chance it. You have to spend a lot of money in a mining town.”

For other investors, like Your Investment Property Investor of the Year 2013 winners Kate and Matt Moloney, such risks are part and parcel of the mining town deal. The young couple continue to invest in big projects in Queensland’s Mackay region – particularly Moranbah – which they believe offers great opportunities.

“There is a severe shortage of all types of rental accommodation in Mackay, so it’s helped us to organise some great deals,” says Kate, who adds that thanks largely to mining town investments, she and Matt have built a portfolio of roughly $8m in just a few years.

Kate is quick to admit, however, that she and her husband plan to start diversifying away from mining towns. It’s a viewpoint that hardly reassures new investors. What else can they conclude when even the best investors have doubts about mining towns?

Property in mining towns

Mining towns are not so risky if you know how to play the game, says Next Hot Spot director Andrew Peterson, but he adds this is part of the problem.

“When we’re talking towns that don’t have anything going for them besides mining activity, they are usually markets that you need to get into while they are going good and then get out of quickly, before they start to decline. Considering how long it takes to find a property, settle on it, develop it – if that’s what you’re planning – and then tenant it, not to mention one day sell it, that’s really hard to do,” he says.

Peterson believes understanding the reality of mining towns is to understand the reality of property investing itself. “There’s a clear difference between investing and speculating,” he says. “A speculator is looking for money to make now. Speculators take risks. Investors are in it for the long haul. If you think about it that way, there really is no way to ‘invest’ in a mining town. You can make money if you’re a professional developer, but, if you’re just a mum and dad investor looking for something to support your retirement, a mining town probably won’t work.”

Another problem with mining towns, according to Peterson, is they are usually far from ideal places to live. People are reluctant to settle in them permanently and the local property market suffers as a result.

“Most property markets in mining towns never fully mature. There might be high salaries in the area and that might grab a lot of investors’ attention, but there’s more to the picture,” claims Peterson.

“Most mining workers are very reluctant to spend their money in the mining town they work in. They’d much rather sit on their money and spend it somewhere else. That actually means that it is not the mining towns that benefit, it’s the areas like Perth or Gladstone where the workers fly back to.”

Peterson believes it’s worth making a distinction between ‘source’ areas and ‘catchment’ areas. The source areas are right next to the mines – the one trick pony towns that only exist because of mining. The catchment areas are the places that already have good infrastructure and offer a good lifestyle component, but have the added benefit of receiving a boost from the resources sector in some way – either being close to a major mining area or being a transport hub for one.

The catchment areas are the places that cashed-up mining workers will want to live in permanently, according to Peterson. They are unlikely to have the same incredible rate of rental and capital growth over the short term, but looking ahead to the next 20 years, they will be the areas that end up with the strongest property markets.

Global resource markets

If Peterson is right and it’s the catchment areas that will benefit the most from the resources boom over the long term – Perth, Toowoomba, Gladstone, Rockhampton, Brisbane – the next, and obvious, question is whether the resources boom is something sane investors would want to hedge their bets on in the first place.

According to leading economist, Shane Oliver from APM, there is still no definitive answer. Owing to the unpredictable nature of the international market and its effect on the demand for resources, Oliver says that there will always be an element of uncertainty in the resources market. However, he sees the key being Asia.

“A truly nightmare scenario you tend to see on blogs written in the US and Europe is that China would stop growing. I don’t see that happening and expect China to continue to see good economic growth, so I think the real worst case scenario would come about if there was no pick up in global growth this year. In reality, I think a lot of the worries about Europe will probably start to recede and I see growth in the US economy picking up a notch. Amongst this, China growth will probably stablise at around 7% this year.”

China’s influence on Australia may seem obvious, but Oliver says the Asian giant’s importance cannot be underestimated. “China is our biggest export market. It accounts for 5% of our exports, and that’s up from about 1% a few years ago,” he says.

The soon to arrive ‘mining peak’

While it is difficult to predict when the resources boom might start to falter, a far easier event to forecast is when Australia’s mining project pipeline will peak. According to the QBE LMI Housing Outlook 2012-2015 report, this is likely to occur by late 2014. In between then, the report forecasts mining-related investment to continue to grow, despite some recent falls in commodity prices.

In fact, the report says that commodity prices should have little impact on mining activity over the next two years. This is largely due to many projects being past the stage to “turn back” – mining companies have pumped so much of their capital into these projects that cancelling or scaling back production in the short-term would be near impossible.

A report by Deloitte Access Economics is not as optimistic. Their January Business Outlook report forecasts late 2013 as being the peak point for mega-mining construction projects, but the report also warns that a little perspective is required. Resource related construction will start to wane, it says, but will still remain huge relative to times past.

BIS Shrapnel senior residential manager Angie Zigomanis agrees. “From a domestic perspective, there is still a lot of mining investment activity in the pipeline. If you’re a mining company and you spend $4bn of a $10bn project, you’re going to finish it. The next couple of years of spending are pretty much locked in,” he says.

Zigomanis says that a lot of the projects currently underway are two, three and four year projects and while they are still being built Australia’s resource-affected states – Queensland, WA and Northern Territory – will benefit strongly.

“The question mark is beyond that period,” he adds. “If there is a slowdown or a fall-off from reducing mining investment, there might also be other parts of the economy picking up some of that fall-off so the property market might only start to be affected by 2015 or after.”

Looking at a more regional level, the January Business Outlook report notes that as resource-related building work peaks and passes, the economies of resource-rich Queensland, WA and Northern Territory will still be well supported by the mining sector. “Despite cost cutting from miners, these states still look set for a solid short term growth outlook,” it says, adding that a lot will depend on the strength of the Australian dollar.

 

Fortescue Metals Group – Pilbara mining jobs revealed

Keeping a watchful eye over the activities of the biggest mining companies in Australia is important if you want to know where the mining jobs are in the Pilbara. For people looking to get into the mines, the financial reports produced by the big mining companies reveal clues and insights into their current and future mining activities. This information is very handy for people looking to get into the mines, because reading between the lines can uncover some real mining job opportunities.

Here are the highlights from Fortescue Metals Group for the period ending September 2012…

  • Quarterly shipments of 16.1 million tonnes (mt) slightly above guidance;
  • Liquidity and maturity profile enhanced with a US$5.0 billion (bn) Senior Secured Credit
  • Average realised CFR sales price of US$98 per dry tonne (dt), reflecting the decrease in global iron ore prices
  • Average C1 cost of US$49.44 per wet tonne (wt), up 7% from the prior quarter
  • Commissioning of the second train unloader, increasing overall port capacity to 115mt
  • First ore processed through the second ore processing facility (OPF) at Christmas Creek, marking the ramp up to more than 50mtpa from Christmas Creek and the expansion of the Chichester operations to 95mtpa by the end of the December 2012 quarter
  • Approval received to develop the fifth berth at Anderson Point; and
  • Total expansion expenditure as at end September 2012 of US$6.1bn for infrastructure and US$0.7bn for mine fleet with cash on hand as at end September 2012 of US$2.4bn.

Pilbara Iron Ore Mining Developments

Christmas Creek phase 2 expansion
The September 2012 quarter also saw the completion of much of the infrastructure associated with the expansion including the new Christmas Creek Airstrip, expanded Christmas Creek power station, key stockyard upgrades and power distribution. Early mining works for the expansion have progressed well and stocks are ready to ramp up production in line with the OPF. Delivery of heavy mobile equipment to support the ramp up continues with additional Cloudbreak resources reallocated to support this activity.

  • US$1 billion project budget
  • Committed contracts US$0.8bn

Solomon 60mtpa

  • US$3.2 billion project budget
  • Committed contracts US$2.9bn

A key feature of the Solomon development is the extensive use of modules and all modules for the crushing hubs have been received and installed. In addition, half the modules for the Firetail OPF have arrived in Port Hedland, with 269 of them now delivered to site. Modules are being successfully installed, conveyors are being completed and the train loading system has been installed in the stockyard.

In September, Fortescue awarded Leighton Contractors the mining and operations contract for the Firetail deposit. The US$1.5 billion five-year contract will deliver whole-of-mine management at Firetail, including operating and maintaining the mining fleet, ore handling plants and associated infrastructure.

View a list of Leighton mining jobs on SEEK.com.au

This includes a commitment by Leighton’s to engage graduates of Fortescue’s Indigenous training and employment program VTEC, and to support Fortescue’s commitment to provide opportunities for Aboriginal contractors and joint ventures to further expand Indigenous employment opportunities.

Fortescue has also committed US$2.1 billion to its port expansion project at Port Hedland in Western Australia, as well as committed contracts worth US$1.9 billion for its rail expansion project.  The Rail project remains on schedule to deliver the two key components of the track duplication along the existing mainline track and the rail spur to the new Solomon iron ore mine.

BHP ditches another three coal projects

BHP Billiton (ASX, LON, NYSE:BHP) has added three new names to its growing list of shelved coal mine projects as defers its Red Hill and Saraji East coal projects, reports Mining Australia.

The miner has also stopped research into its underground coking coal mine near Moranbah, where it had planned to mine 14 million tonnes of coal annually.

The project was expected to cost the company more than $3 billion, given average industry project costs.

BHP blamed falling coal prices and weaker Chinese growth expectations for this decision, which follows the cancellation of plans to expand its Olympic Dam copper and gold mine in South Australia, as well as its Port Hedland iron ore harbour expansion in Western Australia.

On Monday, fellow miner Rio Tinto (ASX, LON:RIO) also announced more job cuts across its coal mines in Queensland as the state has raised its royalty rates and the commodity’s price continues to fall.

BHP Billiton shelves Red Hill coking coal project

BHP Billiton Ltd has deferred its Red Hill coking coal project in Queensland, as falling commodity prices and weaker Chinese growth expectations weigh on the mining giant’s operations, according to The Australian.

According to the newspaper, BHP has stopped research into its underground coking coal mine near Moranbah, where it had planned to mine 14 million tonnes of coal a year.

The project was expected to cost the company more than $3 billion, given average industry project costs.

BHP said in May that pre-approval work on the Red Hill site could have started as soon as next year.

A separate The Australian report suggests work on BHP’s Saraji East mine near Dysart, Queensland has also stopped.

The decision follows BHP’s deferral of plans to expand its Olympic Dam copper and gold mine in South Australia and its Port Hedland iron ore harbour expansion in Western Australia.

http://www.businessspectator.com.au/bs.nsf/Article/BHP-Billiton-shelves-Red-Hill-coking-coal-project-pd20120920-YASBL?OpenDocument

BHP Billiton to continue with $20b expansion of Port Hedland

The resources revolution continues…

BHP Billiton has announced its commitment to the $20b expansion of Port Hedland despite the reported fall in profits for FY2012 ended 30 June 2012, a first for the last three years.

Following the announcement of its 2012 numbers last week, the company suggested possible delays to all capital projects underway and a delay in approval of new ones until 2013, however has now clarified that it will go ahead with the expansion of Port Hedland.

BHP’s head of iron ore Jimmy Wilson spelt out that the outer harbour continues to be an important part of the company’s long-term strategy.

“Development of the Outer Harbour remains attractive,” said Wilson.

“Its initial development would require dredging a shipping channel and turning basin, as well as constructing a four kilometre jetty with associated stockyards and car dumpers at Boodarie.”

BHP also secured an approval from the Western Australia Minister for Transport and Port Hedland Port Authority to develop two additional berths in the Inner Harbour.

The right to develop the berths combined with efforts to ease congestion in the inner harbour is expected to boost the port’s capacity at a lower cost, Wilson added.

The resources revolution continues…

http://www.mining-technology.com/news/newsbhp-billiton-to-continue-with-20b-expansion-of-port-hedland/