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Mining the boom

Reported by Terry Ryder
Friday, June 30, 2006
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Macquarie

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From Money Magazine, July 2006

Perth, Darwin and regional Queensland towns are the new boom areas thanks to the resources explosion, writes Terry Ryder.

The biggest single influence on Australian real estate right now is the resources boom. The only property markets really firing are those affected by overseas demand for commodities. While markets such as Sydney and Melbourne struggle, prices soar in Western Australia, the Northern Territory and regional Queensland.

Property investors who buy in the right place can make big short-term capital gains. The question is: where is the right place? The answer is probably not the one most would expect. Most property investors seeking to exploit the commodities boom think in terms of buying a house in a mining town – such as Moura in Queensland or Karratha in WA.

That’s not surprising. The No.1 area in Queensland for price growth in 2005 was Moura, where the median house price rose 87%, and eight of Queensland’s top 10 were towns in the state’s coal mining belt. In Western Australia the outstanding performers in price growth in 2005 were all coastal centres buoyed by the resources boom: Bunbury recorded a 38% increase, Geraldton 36% and Karratha 27%.

Buying in such towns is one way to benefit from the boom but it’s not necessarily the best way – not for the longer term.

Mining wealth flows back to the cities. If you’re going to invest in a mining town itself, you would need to really know the market in those areas. The resources boom won’t last forever, but real estate is a long-term hold.

Most commentators expect the growth in commodities prices to slow down next year.

It’s not going to slump by any measure, but the extent of the growth will be slowing,” says Rod Cornish, head of property research at Macquarie Bank. “If you went into a mining town you would need to be confident that in four years, when the resources boom is slower, there will still be opportunities to rent out your property.”

Louis Christopher, of Australian Property Monitors, says he generally agrees that investors are better buying in cities such as Perth and Darwin than in the mining towns.

“The only caveat I would give to that is that you generally find these types of towns have very good rental returns,” says Christopher. “If you want to buy a cash-flow property, you can pick one up in those kinds of towns. But remember, the returns are so high because they’re so transient.”

Investors also need to keep in mind that many of the personnel working in mining operations are on fly-in fly-out schedules – they don’t live in the mining town. “Often it’s more affordable for the mining company to fly staff up to Karratha or Port Hedland and fly them back after their stint, rather than pay for their accommodation up there,” director of buyers agents Hegney Property Advisers Kestel says.

Long-term solidity

Recently the best way to exploit the resources boom has been to buy a house in Perth. Perth is a long way from the mining centres like Port Hedland or Karratha, but its economy and property market are beneficiaries of events in such places. It also offers property owners greater long-term solidity for the period after the resources boom has run its course.

It makes little sense to buy a house in a WA mining town when for the same money investors could buy a house not far from the beach in a prime Perth location. The latter investment would be supported by the overall long-term economy, not just the short-term mining boom.

Fly in and fly out

Mark Sanderson, president of the Real Estate Institute of South Australia, says there’s a similar though perhaps less powerful impact in Adelaide. The major boom mining town in SA is Roxby Downs, but Sanderson says many of the mining personnel are fly-in-fly-out people based in Adelaide.

Another opportunity is the Hope Downs iron ore mine in WA’s Pilbara region. First production is expected early in 2008.

In Queensland, the Bowen Basin coal mining region has become the state’s economic powerhouse. Towns such as Moranbah offer possibilities for investors, but property values have already grown steeply. The nearest major regional centre, Mackay, has also had big growth in property values for several years, but the nearby “sea change” town of Sarina remains a possibility.



For the complete story see Money Magazine's August 2005 issue. Subscribe now.

31/10/2014 19:23Sydney, Australia. 31 October,2014
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