Spring property market a case of extremes in mining areas
Spring is so beautiful in the Hunter Valley, the birds are singing and the flowers blooming, the grape vines have sprung to life and are green and luscious and the hills and bush are green and thriving.
Is it the same for the property market in this region? Well, yes and no. I have found spring – that is September, October and November 2012 – to deliver two extremes in the Hunter Region of NSW.
If we look at the rental market, it was at full bloom by September, however just two months later we have seen the market start to dry up. Traditionally, spring is a strong rental period as tenants look to settle into new homes before Christmas. However, in the towns Property Bloom is developing predominately, Muswellbrook, Maitland and Cessnock, finally the reduction in coal price, coupled with ongoing uncertainty in financial markets, has started to impact employment levels, particularly in Muswellbrook. The availability of capital within the mining industry has put some projects on ice.
However, Adam Harris, manager of mining recruitment ads at Robert Walters, says: "There are signs the industry will recover in early 2013. Although the general media is reporting ‘the death of coal and mining’, the industry is cyclical and will rebound. Project professionals who were made redundant will be rehired, as will many of the contractors who were let go from their site-based roles. Confidence will return, and we expect a good recovery."
I know it’s certainly not “the death of coal and mining”, but there is a general tightening of belts in the mines, which flows through to the community. The general mood is to save and be conservative with spending until the wash-up of European events and China’s demand is really known. Rumour has it the mines are letting contracts expire and will use this as cost-cutting measure, rehiring the contractors at lower rates. As uncertainty prevails, people budget and renters look for less expensive rental properties. So within the period of spring, we have seen a drastic change in rental demand.
Admittedly, we have been riding a massive wave of rents. Only in August we heard the Hunter Valley Research Foundation warn of a rental crisis gripping Upper Hunter mining communities. A Hunter Valley researcher is warning a rental crisis gripping Upper Hunter mining communities will likely worsen over the next year.
"We're starting to see rent increasing by about 15% per annum, and my concern is that they're really going to step up over the next 12 months," says the foundation's director of research, Simon Deeming.
Although I must point out Maitland and Cessnock have a more diverse economy – tourism, wine growing, retail and manufacturing being major employers – and these towns are not so reliant on the mining industry. We have also seen many contractors being employed on the $1.7 billion Hunter Expressway, which is well under construction and due for completion late 2013. This project will continue to be a source of employment for the next 12 months or so.
On the flip side, property values are doing well. During spring, we completed over 12 dwellings and they have all had reasonably strong valuations. I study the median prices each month, and I have seen small incremental rises throughout 2012 and still throughout spring, so I haven’t noticed a drastic change to sales prices.
My take on spring 2012 for the Hunter towns we work in is more a correction of the strong rental demand that we’ve been enjoying. I don’t think it’s a bad thing, really. Like one of my agents said, conditions are simply returning to “normal”. So we can’t complain as we really have had a good run.
I believe confidence will return early next year, the Hunter has consistently demonstrated its ability to adapt and innovate when faced with uncertainty and the mines will continue to employ, perhaps at lower rates. Some large mines have expansion approvals so I hear there will still be plenty of jobs.
Local populations are growing. Cessnock experienced the highest percentage of population growth of any local government area in the Hunter from 2006 to 2011. The city’s population grew 10.2% – from 46,143 at the 2006 census to 50,863 in 2011.
The Maitland municipality was second, with 9.6% growth.
Mayor of Cessnock Bob Pynsent says the figures are a “vote of confidence” for the city. “People want to live in Cessnock, and council needs to be prepared if this trend continues,” he says.
The rate cut we received in October had little impact, and I think the RBA probably lost an opportunity in November, choosing to keep rates steady instead of dropping again. The banks of course don’t pass on the full amounts, so that doesn’t help. We need another few rate cuts to bring back some confidence. People are in de-gearing mode, so there are not as many investors as active as should be at this time in the property life cycle. I also think the tightening of credit to self-employed investors or low-doc lenders has impacted and reduced the number of investors in the market.
If it’s a holiday you are after, there really is no better place to be in spring than the Hunter Valley. Temperatures are in the early 20s, and the good weather lends itself to outdoor events such as the Jazz in the Vines and Opera in the Vineyards. In December you can see Simple Minds and Devo at A Day on the Green.
The Hunter Valley Gardens are holding the Christmas Lights Spectacular, which is now in its sixth year, and they’ve added a quarter of a million lights, making the display over 1,250,000 Christmas lights in total.
The Hunter Valley Rose Garden spans 6,070 square metres, with a centre garden of 50 meters in diameter. There are over 8000 roses, that include 56 different varieties with 35,000 rose plants.
The Hunter Valley has a healthy tourism industry, so as the mining industry settles, the tourism industry builds, and that’s the advantage of a diverse economy.
From our perspective, Property Bloom has had a busy spring as investors are still very interested to take that next step into property developing, and with an undersupply of new dwellings and the NSW New Home Grant encouraging development, it really is a good time to embark on a development project.
Jo Chivers is director of Property Bloom, which manages property development. Property Bloom is holding a small seminar next Tuesday in Brookvale in Sydney. Numbers are strictly limited, but if you think you may be ready to take the next step into a property development and would like to come along, then please email Jo for details