Moranbah current listings offer yields nearing 20%, but future returns less certain

Current Moranbah residential listings offer investors the potential to earn rental returns approaching 20%, but the Queensland mining town remains at the mercy of mining companies when it comes to signing new leases.

Moranbah topped the latest list of 40 localities with the highest rental yields for houses, according to information provided by RP Data, with a gross rental yield of 12.9%.

Rents are still be advertised as high as $3,500 per week for a four-bedroom house but also as low as $400 per week for a three-bedroom house with local agent John Wood of Moranbah Real Estate telling Property Observer "Moranbah has changed over to last few months with now a lot of rental stock on the market".

In June it was reported that mining giant BHP Billiton Mitsubishi Alliance (BMA) was refusing to sign new leases in Moranbah, with controversial plans for a mining camp to cheaply house 3,200 workers.

The dependence of Moranbah on mining companies paying big rents was revealed in the official census 2011 data, which shows that households (mining employees) are paying just $80 per week to rent in Moranbah, with the bulk of the rental bill picked up by their employers.

Even if mining companies do not build cheap housing, they can also reduce demand for housing by increasing fly-in-fly-out (FIFO) arrangements for their employees.

Indeed, in a recent Property Observer webinar, Hotspotting.com.au’s Terry Ryder named the Whitsundays as a fly-in-fly-out (FIFO) hotspot servicing mining towns like Moranbah. Terry Ryder did not include Moranbah on his list of investment hotspots despite returning average annual capital growth of 25% over the past 10 years.

All of this highlights what investors in single-industry mining towns should already know – that they are very high-risk investments in locations where prices and rents can be transitory and most probably have been artificially inflated.

Current listings show very high yield potential but many listings have leases expiring within the next few months.

Whether new leases can be renegotiated at similar weekly rental rates remains uncertain.

Current listings include this new four-bedroom house (pictured below) listed at $759,000 by Vikki Oldfield of Vision Real Estate and rented at $2,900 per week until February.

This equates to a gross rental yield of 19.8%.

Another property offering these sorts of returns is this three-bedroom house situated in a cul-de-sac on Bowen Court which is listed at $590,000 and is currently rented at $2,000 per week – a gross yield of nearly 18%.

RP Data records show the property last sold for $445,000 in May last year, indicating capital growth of over 30% (should it sell at the advertised price), but more staggering are the rental increases.

Three years ago, the property was listed for rent at just $650 per week.

Not all properties are offering such generous returns, with yields ranging from around 7% including this three-bedroom house on Ney Street (pictured below) being offered at $515,000 through Julie Williamson Real Estate. The property is rented at $750 per week until February. It last sold for Last sold for $335,000 in 2005.

Another listing (pictured below) by Vikki Oldfield is asking $710,000 with a current weekly rental of $1,600 per week.

However, RP Data records show the property was available for rent in April 2010 and June 2011 at the same weekly rate – suggesting anecdotally that rents may have reached their upper limit.