Regional gems shine again

Boom town facts: Workers are moving back to mining areas, pushing up demand for housing

Resolution of the headline-grabbing resource super profits tax issue has once again turned attention towards mining towns, as high rental yields set investors salivating.

Commodity prices have taken off again after a substantial slump in 2009, as investment and perhaps more importantly, people, are returning to mining boom towns en masse. 

“There is likely to be a higher level of demand for Australian mines to pull resources out of the ground at a more rapid pace,” RP Data research analyst Cameron Kusher says.

“This means more workers and more demand for housing in what are generally chronically under-supplied markets.”

According to Kusher, a number of regions now stand out based on current demand for Australian minerals.

Kusher says the Roebourne local government area, in the north-west of Western Australia, which includes the townships of Karratha and Dampier, is likely to present great opportunities for buyers.

Karratha and Dampier are in the heart of the lucrative Pilbara iron ore mining region. The towns are also home to a big shipping port.

Median house prices are now just 3.3 per cent below their peak of $910,000 in October 2008; prices fell by as much as 9.3 per cent in 2009.

Although the median house price is high, this region is experiencing huge demand for iron ore and the scope to extend the existing townships is limited.

“It isn’t just the prospect of growth in house prices that may make investment in this region so attractive, median weekly advertised rents are recorded at $1575,” Kusher says. 

“This suggests an indicative gross rental yield of 9.3 per cent.”

Another stand-out performer, according to RP Data, is likely to be the coal-rich Isaac local government area in Queensland’s Bowen Basin, which includes the towns of Moranbah, Dysart and Clermont.

Across the region, median house prices are recorded at $405,000, their highest-ever level despite a slight easing recorded last year, RP Data figures show.

Demand for coal is also high and the scope to extend many of these townships is limited due to mining leases surrounding the townships.

According to Kusher’s calculations, Isaac has had impressive indicative rental yields of about 9 per cent thanks to median rents of about $700 a week.

Although not well established, the Western Downs region of Queensland is likely to experience strong growth in the future, Kusher says.

Located on the Surat Basin, there is substantial mining investigation in the region, specifically for the extraction of coal-seam gas.

The area is also home to several coalmines.

While there are strong returns on offer, it’s vital to consider the risks, Kusher says. These include the commodity being extracted; demand for the resource; existing and future housing supply, and the worst-case scenario if mines are closed.

“Mining and resource-rich towns are by no means a licence to print money,” he says. “It’s important for buyers to understand that these regions can hold inherent risks due to their dependence on what is often a single commodity.”

Property investment portal NextHotSpot.com.au director Luke Berry says the wider the variety of industries a town supports, the greater the protection to the investor if a mining project fails to proceed.

“Investors should avoid single-mine towns,” Berry says, “or areas that have a small economic footprint in terms of industries.”

He says mining towns that are likely to be positively affected by the upturn in commodity prices and investment include: Port Headland in Western Australia; Roxby Downs, Port Augusta and Whyalla in South Australia; Gladstone in Queensland; and Orange and Gunnedah in NSW. 

Berry says each of these regions is supported by investment from multiple multinational companies, various industries and strong employment. But he hastens to add that success is dependent on timing.

“Supply can be a variable in these regions and it’s often about the timing of your entry to these markets,” he says. 

Investors should also be wary of the level of development approved in these regions to avoid towns that could be headed for oversupply.

“In some regional centres where a boom has occurred, councils can be inexperienced with channelling this growth and be overzealous in approving developments,” he says. 

“All investors should review the local council’s strategic plan or obtain an understanding of what applications are in council before proceeding.”

BRW

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