Investors should steer clear as Port Hedland's star fades: Terry Ryder

I’ve had more questions about Port Hedland than any other Australian location in the past week or so. Combined with questions about Gladstone, they probably comprise 75% of location-specific queries I’ve had lately.  

Australian investors seem constantly on the prowl for boom locations with runaway growth and double-digit rental returns. Sadly for most, they act too late in the cycle to get the gains they’re chasing.  

Some people have been puzzled that Port Hedland doesn’t feature on the Hotspotting website and have phoned or emailed to ask why that is.  

The answer is that Port Hedland has featured in the past, as one of the most remarkable growth markets that Australia has ever seen. At one point the average annual growth rate in its median house price was above 30% - which means values doubling every 2-3 years, fuelled by strong demand from the mining industry amid limited supply.  

But it features no longer. About nine months ago we started warning investors to be wary of the Port Hedland market and other mega-priced markets in the north of Western Australia, including Karratha.  

The median house price for Port Hedland was well above $1 million - which was ludicrous and, I thought, unsustainable.  

State Government efforts to increase dwelling supply, with an emphasis on affordable housing, were a warning signal that those very high values might be deflated.  

Now, all signs point south for this market. A year ago vacancies were near zero but today they’re approaching 5%. Price growth has stopped and, according to Australian Property Monitors’ price graph, has started to dip below the red line.  

Typical rents are still high – probably the highest anywhere in Australia – but they are gradually dropping and the median rental yield is now 9% for Port Hedland and 8.9% for South Hedland. That’s still attractive for some, but not the 10%-plus returns that previously compensated investors for the risks of a high-priced mining-dependent town.  

The current stumble by the iron ore industry – and I believe it’s a temporary hiccup while the big miners reassess the cost structures of their major projects – has taken some of the heat from the Port Hedland and South Hedland markets.  

So too have the ongoing government efforts to introduce affordably dwellings into a market that few have been able to afford. Last week the State Government launched an apartment project at South Hedland, in which the first stage will have 44 units. The full development will add 112 homes to the market.  

It’s part of a larger plan to make housing more attainable in the Port Hedland area, and other Pilbara centres with astronomical prices.  

Investors should steer clear until the situation settles down.

Terry Ryder is the founder of hotspotting.com.au