Growing signs resources-heavy regional property markets on the improve

Growing signs resources-heavy regional property markets on the improve
Growing signs resources-heavy regional property markets on the improve

There are growing signs that some regional markets impacted by the resources sector have passed the worst and are starting to improve.

These are locations where increased dwelling supply coincided with a downturn in demand as the mining investment boom subsided (or miners built workers camps), causing sales and prices to fall.

Places where demand appears to be rising again include NSW towns impacted by the coal industry (Muswellbrook, Singleton and Mudgee), WA centres for the iron ore and gas sectors (Port Hedland and Karratha), and Queensland towns impacted by coal (Emerald, Mackay and Moranbah).

But that’s not a signal for investors to start buying in these places again. I would hope the many boom-bust scenarios that occurred over the past 4-5 years has left a lasting impression on investors across Australia.

Before the end of the resources investment boom, far too many investors jumped into these markets without understanding the extreme volatility of them and/or their own risk profiles.

The extent of the slump in some of these locations is demonstrated by these figures: at the pinnacle of the resources investment boom, the median house price for Port Hedland in WA was well above $1 million. The latest figures shows a median price around $400,000, following a further 33 percent decline in the past year.

In the coal-mining town of Moranbah in Central Queensland, the median house price has fallen from above $700,000 at the peak of the boom to around $160,000 today.

These are some of the most extreme examples of decline but there are many others, including Queensland centres like Gladstone, Mackay, Emerald and Surat Basin towns such as Chinchilla.

In many cases the downturn in local markets was not caused by any decline in the key resources industry (in many cases it was the CSG/LNG sector which continued to create jobs and economic activity in the affected locations) but by a fundamental switch in the approach of the mining companies to accommodating personnel in workers camps.

Developers who built lots of new product in these places found out, too late, that there was not the expected demand for local dwellings. Places like Gladstone in Queensland and Newman in WA had a boom economy but a doom property market.

Now there is evidence that sales activity is rising in some of these places, after slumping significantly in the past three years. In 2015, each quarter had fewer than 45 sales for Port Hedland and South Hedland combined. But the past three quarters have each had more than 60 sales, with a pattern of rising sales numbers.

In Karratha, residential sales numbered fewer than 55 in most quarters throughout the three years covering 2013 to 2015. But sales activity rose noticeably in 2016, with the past three quarters each delivering more than 75 sales. The general trend is up and we await evidence that 2017 will continue the pattern.

In the meantime, I urge extreme caution for investors considering dipping a toe in these dangerous waters. Resources-related markets are at the high-risk end of the spectrum - there are periods of sharp rises, often followed by catastrophic decline.

I would never buy in these places, because the risks are too high. And the modern trend of workers camps mean that the dwelling demand generated by major mining projects is considerably lower than in the past.

A warning is timely because there is renewed confidence in the resources sector. New projects are being planned and mothballed ventures are being reactivated, particularly in Queensland and WA. As sales activity rises in resources centres, the industry will be pumping out press releases suggesting the boom days are returning.

Hopefully the massive price and rental decline of recent years will live long in the memories of investors.

Terry Ryder is the founder of hotspotting.com.au. You can  email him or follow him on Twitter.

Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

Tags: 
Regional Markets Mining Boom

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