Landlords yield ore-inspiring returns from WA mining boom

Half a decade has passed since headlines screamed about the property crisis in the Pilbara: rent a fully furnished container for $1,000 a week. Many said it could not last but Karratha, Port Hedland, Newman and Dampier are at boiling point.

Rental investments in the Pilbara have consistently brought in double-digit yields and there is little evidence to suggest a slow-down.

This week Morgan Crawford of Crawford Realty listed a house for sale in South Hedland for $799,000. The 30-year-old fibro bungalow is rented to a mining company for $93,800 a year – reflecting a yield of 11.9%.

According to Simon Lane, managing director of Australian Valuation Service, Port Hedland is unlikely to cool off anytime soon.

“The mining companies are capable of paying high rents and to bring builders in to create new stock, they have to compete with BHP and other big players renting,” he said.

“Houses are expensive to build because we are in cyclone area and they require very specific standards of construction. Then there is the issue of identifying suitable land that can handle the mass of water that is dumped by a cyclone.”

These combine to create one of the tightest rental markets in the nation.

“All of these issues have created this extraordinary market. The WA government, through LandCorp, has found about 6,000 lots for housing here on high ground but this is not a fraction of what is required if the town is to have a population, as projected by the government, of 58,000,” Lane said.

“I don’t have a crystal ball but it looks like undersupply is with us for another five to 10 years.

Towns are known for their largest employer. Dampier is considered Woodside’s and Wickham is Rio Tinto’s. Karratha seems to belong to them all.

Karratha, 1500km north of Perth, is the supply and administration centre for the entire Pilbara region. Its rental market refuses to wind down.

The median house price for urban Karratha, according to REIWA figures, is $795,000 and the weekly rent bill is $1,600, reflecting a yield of 10.5 per cent.

According to RP Data, the median house price in Karratha has crept up from a tad over $160,000 in 2001, to slightly under $800,000 now, with the prices now plateauing.

But supply and demand still rules and rents are extraordinarily high at about $1,500 a week for a three-bedroom house and $2,000 a week for something with a pool. The situation is mirrored in Dampier.

“About 90 per cent of my rent roll is with resource companies and the properties are on one- to three-year leases,” says Ray White Karratha’s Richard Naulls.

While there is a zero vacancy rate, he says supply is at unusually high levels and buyers are coming back to the market.

“This week I have five offers on my desk for different houses. Four from investors and one from a corporate client. This time month ago I had no offers on anything. I have 250 properties listed, which is almost double what I had last year,” he says.

So difficult has the market been that the WA government had to weigh in with its $300 million Pilbara Cities program, which release sites through LandCorp.

Already development company Finbar Group is behind the $225 million Pelago project in the centre of Karratha. Already 60 of the 114 units are under contract for between $600,000 and nearly $1 million. A completion date for tower one is scheduled for early 2012.