Mining towns outperform capital city - but timing is critical: Simon Pressley

GUEST OBSERVATION

Depending on the time of the purchase, an investor would have experienced capital growth three times that of capital cities or lost over $300,000. It’s all in the timing!

While the property market of Queensland’s capital city is currently performing strongly, falling commodity prices has been the primary cause for property markets in traditional mining towns to experience double digit declines in value. The biggest pain has been felt in the central Queensland shire of Isaac, which consists of Moranbah and Dysart.

A typical house was worth $580,000 in December 2012 and has since declined in value to $237,500 over the next two years (a decline of 36% per annum). At the peak of the market in 2012, houses were rented for $1,350 per week. Today that same property would be rented for $320 per week.

Emerald median values have declined by an average of 15.3% per annum over the last two years. Rental vacancy rates in Emerald are currently over 8% so rents have fallen from $700 per week (2012) to $270 per week.

The regional hub of Mackay provides a majority of goods and services to the coal face. In addition to a 33% reduction in coal prices over the last two years, Mackay has built more properties than demand required. Median property values have declined by an average of 3.0% per annum over the last two years. Rents have fallen from $500 per week to $380 per week.

In the far north west of the state, Mount Isa median values have remained unchanged. Mount Isa has a diverse range of minerals which it mines whereas central Queensland is predominantly coal. Meanwhile, Brisbane median property values have increased by an average of 6.6% per annum over the last two years.

In spite of Queensland’s recent mining town doldrums, the fact of the matter is that these markets have (significantly) outperformed Brisbane over the long-term. Astute investors would be aware that property is a long-term asset class.

Over the fourteen years since the turn of the century, which includes the recent downturn, Moranbah’s median property value has grown by an average of 14.8% per annum compared to Brisbane’s 7.8%. Emerald (10.9% per annum), Mount Isa (8.5%) and Mackay (8.5%) have also performed better than the state’s capital city.

It wasn’t that long ago when the likes of Brisbane, Gold Coast, and Sunshine Coast were having downturns of their own and the mining towns were setting record highs.

Investing in these locations is not for the faint-hearted. ‘Timing’ is significantly more important when investing in locations where specific industries have such a significant impact on demand for housing. Often, the smart decision is to do the opposite to what the masses are doing. In the words of the world’s most famous investor, Warren Buffet: “The time to be fearful is when everyone else is greedy. The time to be greedy is when everyone else is fearful."

A sophisticated property investor who purchased in Moranbah in late 2004 would have paid $150,000 for a 3-bedroom house. Even with the recent downturn, the current value of $237,500 still represents 4.7% average annual growth over the last ten years, which is only slightly below Brisbane’s 5%.

An investor who did purchase in Moranbah in 2004 and sold at the market peak of $580,000 in late 2012 would have made a massive 18.4% average annual growth over those eight years. That’s roughly three times better than what anyone could have achieved in any capital city. Let me spell it out for you. A $15,000 deposit (10%) paid on a Moranbah property in 2004 would have become $430,000 equity over eight years. Extraordinary!

On sheer numbers alone, one could argue a very good case that now is a good time to buy in Moranbah. An investor could pick the best property of the litter with no real competition, pay only $240,000, and rent it out for $320 per week. That 7.2% rental yield is far superior to anything that any capital will offer.

Our research suggests that an upswing in coal-related locations is on the horizon. Lower labour costs and the Australian dollar has improved the viability for mining giants such as BHP and Rio Tinto.

There are multiple new mining projects in the approval pipeline throughout Queensland and the Hunter Valley. The untapped Galilee Basin is the biggest coal province in the world. Our research has calculated five large mines with combined project values of $53 billion having potential for up to 31,500 new jobs if they all proceed. Emerald, Mackay and Brisbane will be the biggest beneficiaries.

At the peak of the mining construction boom two years ago, for every one job at the coal face in central Queensland there were nine management and administration jobs in Brisbane’s CBD.

Emerald

• Median value increased by 10.9% per annum over the last 14 years, significantly more than Greater-Brisbane’s 7.8% per annum
• 22% decline during 2014 calendar year
• Median rents have declined from $700 per week in September 2012 to $270 per week now
• Vacancy rates currently 8.2%
• Median value of a 3-bedroom house today is $319,500 and it would rent for $320 per week (5.2%)

Mackay

• Median house value declined 5.8% during 2014
• Median value increased by 8.5% per annum over the last 14 years, significantly more than Greater-Brisbane’s 7.8% per annum
• 50% fewer properties sold last year compared to its 2012 peak
• Median rents have declined from $500 per week to $380 per week over last two years
• An overzealous construction industry has contributed as much to the current subdued market as the falling coal prices

Mount Isa

• Median value increased by 8.5% per annum over the last 14 years, significantly more than Greater-Brisbane’s 7.8% per annum
• Median rents have declined from $540 per week in September 2012 to $500 per week now
• Vacancy rates currently 3.5%
• Diverse range of commodities in the region, whereas central Queensland is predominantly coal and gas
• Median value of a 3-bedroom house today is $319,500 and it would rent for $320 per week (5.2%)

Moranbah

• Median value increased by 14.8% per annum over the last 14 years, significantly more than Greater-Brisbane’s 7.8% per annum
• Someone who purchased at the peak in late 2012 would have paid $580,000 for a house and received $1,350 per week rent. That property today would be worth $237,500 and be rented for $320 per week

Brisbane

• Greater-Brisbane’s median property value has increased 7.8% per annum over the last 15 years
• Median house rents have increased from $430 per week in September 2012 to $450 per week now

Simon Pressley is managing director of Propertyology, a REIA Hall Of fame Inductee, property market analyst, accredited property investment adviser, and Buyer’s Agent.

Propertyology works exclusively with property investors to purchase properties in strategically chosen locations all over Australia.

Photo of Mount Isa CC BY-SA 2.5.