Pilbara rental market starts to lose some of its sparkle
The shine appears to be wearing off the Pilbara region as a property investment hotspot with rents falling around 20% on average over the past year and with rental vacancies rising steadily.
This, however, needs to be put into context.
Rents in Pilbara – principally the towns of Port Hedland and Karratha plus smaller surrounding towns like Dampier, Newman, Tom Price – remain very high by national standards with some landlords still seeking in excess of $3,000 per week for three, four and five bedroom houses.
And investment in the region continues with Leighton Contractors this week awarded a $1.3 billion contract variation to mine the Kings deposit at the Solomon Hub for Andrew Forrest's Fortescue Metals Group, taking the total value of work under the Solomon Hub agreement to $2.8 billion, the largest single contract award in the history of Leighton Contractors.However, evidence is emerging of a broader correction and the seemingly unthinkable: some Pilbara landlords reducing rents by up to 40% to secure tenants.
These figures (below) prepared by the Real Estate Institute of Western Australia show that the Karratha unit market in particular has been hard hit with rents almost halving in the past two years from $1,600 per week to $850 per week.
In Port Hedland, the rental market appears to have peaked in the June quarter of last year.
Karratha | Overall median rent $ p/week | Houses only | Units, apartments, villas only |
June Q 2010 | 1,500 | 1,550 | 1,050 |
June Q 2011 | 1,600 | 1,650 | 1,600 |
June Q 2012 | 1,500 | 1,550 | 1,250 |
Current | 1,200 | 1,200 | 850 |
Port Hedland |
| ||
June Q 2010 | 1,350 | 1,400 | 1,100 |
June Q 2011 | 1,500 | 1,600 | 1,425 |
June Q 2012 | 1,800 | 1,900 | 1,575 |
Current | 1,675 | 1,800 | 1,400 |
Source: REIWA
Property Observer has found a number of examples of properties in Port Hedland where asking rents have been reduced substantially.
Most notable is a 2012-built six bedroom house at 79 Dowding Way (pictured below), which, according to RP Data was advertised for rent at $5,500 per week in June last year, and which is now on the market for $2,500 – a 54% reduction – through Shayne Macaulay-Smith of Crawford Realty – South Hedland.
Macaulay-Smith is also seeking tenants for an elevated three-bedroom house at 8 Trembath Street (pictured below), “a short stroll from Cemetery Beach” with an advertised weekly rent of $1,500 down from $2,500 per week in May last year (when the listing was held by Jan Ford Real Estate- Port Headland).
Jane Aspey from Hedland First National - Port Hedland is seeking tenants for a centrally-located three-bedroom house at 113 Anderson Street (pictured below) with an asking rent of $1,200.
This rental provides a good proxy of the recent performance of Port Hedland rental market – the property was first listed for rent at $1,000 per week in 2009, peaking at $1,550 per week in mid-2011 with asking rent reduced to $1,500 per week in November 2012 and now down to $1.200.
This reduction in rents is being driven by greater choice with the REIWA reporting that at the end of February 2013 there were 164 rental listings in Karratha, up 4% on December and up a significant 56% from a year earlier.
In Port Hedland, the REIWA records 144 listings at the end of February. Currently there are 215 properties listed for rent on realestate.com.au, suggesting a rise comparable with Karratha.
On the forum propertyinvesting.com discussions about the Pilbara market focus on a correction and on the monthly rises in properties available for rent.
One participant warns that investors who paid between $600,000 and $800,000 for one-bedroom apartments off the plan, paid “crazy money for them”.
“There were heaps of them…they're now trying to get around $1300 - $1,500 per week. Good luck with that.”
One forum participant, writing from personal experience, attributes the rise in vacancies and the reduction in asking rents to a number of factors including seasonality (the extreme heat from October to February), BHP laying off contracting groups in September and October (partly in response to “spiralling rents) and a large number of new dwellings coming on to the market at the same time.
This writer says it will take another bull run for one-bedroom apartments asking $1,850 per week to be taken up and says investors should "avoid them with a barge pole”.
“I was caught in this perfect storm. I bought a property and the reno wrapped late October 2012 - and it lay empty until January 1 and is on a one year lease. The rent last year would have been $3,800 per week - the rent is now $2,800 per week.”
Another contributor warns that investors “have to be careful to stay away from any off-the-plan properties or transportable homes posing as new builds”.
The writer adds that there is “definitely a lot of trepidation in the market at the moment which makes it a buyers’ market” – she is currently negotiating on a less than 12 month old four-bedroom, two bathroom unit in a new subdivision returning $2,700 per week.
The most recent figures from BIS Shrapnel forecast a 36% reduction in new dwelling commencements over the next 12 months with 984 starts expected compared with 1,531 a year ago.
This slowdown in supply appears welcome given the rise in rental vacancies and fallen rents.
However, according to the REIWA’s Pilbara branch chair, Jan Ford, while there has been a 20% correction in rents, she still expects some properties to top $5,000 per week by 2014.
“We already have a few $3,000 to $4,000 per week houses in top locations. They are rare, large, new, modern, spacious, multi bedrooms and bathrooms, multi-keyed and designed to appeal to mature professional singles who are sharing and prefer the privacy and comfort of a residential house.
“These are not average rents as we don’t have enough of them.
“Average rents have dropped around 20% after rising 30%.
“Houses are always in higher demand than single units but price often dictates what people take,” she says.
Looking ahead Ford suggests investors and developers consider adaptable living by building large houses that can be separated, with dual or multi keyed for several tenancies during construction and single families in the long term.