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.

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.

 

Iron ore boom town burns homeowners

For years the resources boom made Port and South Hedland one of the tightest property markets in Australia.

Now, the cancellation of big projects could leave the remote West Australian city with a property glut and a lot of burned investors.

Hundreds of homes have been placed on the market in neighbouring towns. For the first time in years rental properties are freely available.

The impending fallout is linked to a pullback in major resources-related construction projects that formerly filled the towns’ private housing, delivering landlords yields above 10?per cent.

Greg and Karen Thompson pulled their home off the market in Hedland after just one viewer inspected the house over three months.

“We had to take it off the market,” Mrs Thompson said. “It’s dead.”

The couple, who have lived in the area since 1996, planned to use the proceeds to help fund their retirement.

Mr Thompson said he would now continue to work as a train driver at BHP for another year before testing the market again. “I am hoping things change after the election is out of the way,” the 55-year-old said.

Even though iron ore exports continue to grow, the end of the construction project boom that requires a large work force means there is less interest in housing and equipment, which now lies idle.

In 2010, Port Hedland residents could expect to pay about $1500 a week for a steel-framed and clad house to secure a property near one of the busiest mineral ports in the world.

The high-risk, high-return market now has about 300 properties for sale in Port and South Hedland, according to property searches.

One of the region’s most active employers, BHP Billiton, has pulled many of its workers out of private housing and into existing work camps after it shelved plans to construct a major outer harbour development at Port Hedland.

John Briggs of Port Hedland Real Estate predicts tough times ahead. “Sales are few and far between,” he said. “Anybody who has bought in the last 18 months is in for a torrid time.”

A banking source said lenders would require potential buyers to have about 50 per cent equity to buy into the former mining hot spot, rather than the 10 to 20 per cent required in stable markets.

Marketing brochures for the region have targeted investors seeking a highBoom towns leaves return through rents, such as retirees.

Economic data last week hinted that the economic and jobs engine room of the country was either experiencing subdued growth or even contracting in the December and March quarters.

“Clearly the economy has slowed from a very, almost over-heated level of activity,” he said.

“We are returning to more normal conditions,” said West Australian Premier Colin Barnett. “There are still major resource projects in construction or going into construction and this economy will continue to be strong.”

The severe cycles of a mining state have been felt in other regions, such as the Geraldton suburbs that were expected to cater for workers on the long-delayed Oakajee Rail and Port project. Suburbs like Drummond Cove, located just south of the proposed Oakajee port site, are saturated with properties for sale.

Gavin Hegney, of valuers Hegney Property Group, said the construction phase of the resources boom that drove property prices higher had clearly subsided. “Anyone looking to buy into towns like Port Hedland is buying at the wrong end of the market cycle,” he said.

“There’s also the threat of a collision of new supply coming on the market and falling demand.”

Jonathan Barrett

http://www.afr.com/p/national/iron_ore_boom_town_burns_homeowners_KMU7sHtZineGs5Hn20psjK

 

Planned housing for 5,400 in South Hedland

Landcorp chief executive Ross Holt says a high quality residential development will be crucial to attract workers to South Hedland.

The State Government has announced plans to develop housing for 5,400 people in South Hedland as part of its Pilbara Cities initiative.

The Western Edge project will be developed over 226 hectares and includes the potential for 2,300 residential and commercial dwellings, as well as a primary school, local centre, tertiary education centre and an aged care facility.

In announcing the project today, Landcorp chief executive Ross Holt said developers had until the end of August to lodge expressions of interest, and he expected the entire development to be completed within five to seven years.

The government’s investment in the project was anticipated to be around $100 million, which forms part of its $1 billion Pilbara Cities investment.

The proposed development will double the size of South Hedland’s City Centre and has been compared to Karratha’s Mulataga project. Designs of the first stage of the Mulataga project, with developer Mirvac, have been finalised and are awaiting development approvals.

The Karratha project is planned to ultimately provide 2000 residential homes.

Mr Holt said the Western Edge project will include accommodation for service workers in the initial phases to ease the housing shortages, but would transition into other forms of housing once the resource sector’s demand eased.

He said Landcorp was determined to create a high quality development to entice more people to live in the Pilbara.

“It needs to be of high quality if we are going to turn away from the FIFO model and get families to say ‘I want to move and live in the Pilbara’ rather than saying goodbye to their loved ones every few weeks,” he said.

Landcorp has also announced it’s looking for partners to develop a grouped housing site in Baynton West in Karratha, which has the potential for 38 dwellings.

It’s announced released land for five infill projects in the Perth metropolitan area at Mosman Park, Coogee, North Coogee, Girrawheen and Craigie.

http://www.wabusinessnews.com.au/article/Planned-housing-for-5400-in-South-Hedland