Moranbah: The classic example of mining town risk v return

Moranbah is a story of risk and return.

In Queensland’s Isaac region, Moranbah is about two hours inland, south-west, from Mackay.

Sitting between Townsville and Rockhampton, Isaac Regional Council describes Moranbah as one of the youngest towns in Queensland.

Source: Isaac Regional Council

This town isn’t just fuelled by mining - it was actually created specifically for mining, built by the Utah Development Company in the 1970s. In fact, it’s the indicative go-to example for property investors trying to explain risk and the fast cycles of atypical mining towns, particularly those reliant on coal.

It now has a hospital, medical centres, dental facilities, day care centres, primary schools, sporting clubs, a high school and shops.

But many residents have now moved out, taking advantage of the rising market and selling their long-time homes for high prices to yield-hungry investors.

The Centre for the Government of Queensland notes that at the 2006 census the population was 7,133.

“Moranbah's population increase reflects the frantic upswing in coal mining. At the 2011 census coal-mining accounted for 39.4% of Moranbah's working population,” their research explains.

The Goonyella and Peak Downs coal mines have been operated by BHP since 2001.

The fast uptick of population, demand for workers and a small localised property market quickly led to rental yields nearing 20% in 2012 - a staggering figure, given that Sydney investors often consider rental yields to be desirable when higher than 6% or 7%.

However, in 2012, Westpac labelled Moranbah as one of a number of ‘unsustainable’ one-industry townships.

Currently, SQM Research puts the gross implied rental yield for houses and units in the area at sub-8%. Their vacancy rate statistic is at 6.4% for Moranbah. In 2011 it was sub-1%.

What happened?

A rental freeze hit the market in 2012, mainly driven by the rise of fly in, fly out (FIFO) workers.

Moranbah airport passenger numbers:

Source: Crawford Property Group

Recently, there has been a call for the working mining population to become 100% FIFO, stopping many tenants from driving in and out from other local mining areas that are also popular for investors.. This would destroy the requirement for high priced rentals in surrounding area, also often owned by investors, altogether. The proposals also included the suggestion of larger worker camps, that would also take the pressure off of rents in the area.

Unsurprisingly, investors came out in force against the concept with petitions against 100% FIFO.

Terry Ryder, founder of hotspotting.com.au, said earlier this year that the use of FIFO workers removes pressure on local rents and prices.

“There are all kinds of negative impacts of this – and this is what a recent federal inquiry looked at – but rising rents and prices is not among them,” he said.

“The BMA (BHP-Mitsubishi Alliance) plan to have 100% FIFO workers on two new mines in the basin has all kinds of impacts on towns like Moranbah, but they don’t include pushing up property prices because none of the FIFO people live in the town.

“Moranbah rents and prices are falling right now, with residential vacancies up around 7%. In nearby Dysart, vacancies are approaching 15% and rental yields, previously above 10%, are now down around 5%.”

The 100% FIFO debate for Moranbah is still playing out, and will be closely watched by investors.

In October, the Daily Mercury reported that opposition Leader Annastacia Palaszczuk said in parliament that 100% FIFO practices are "discriminatory". Mining Australia has also reported claims that a 100% FIFO workforce would “kill” the town.

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Despite the downturn, last year Moranbah was back on the hotspot radar once again. Issue 10 of the Positive Property Report, from Crawford Property Group, was calling it a “new boom” for the "boom town".

The report said that it is “supercharged” by its proximity to the largest number of active coal mines in the country, and “poised for the biggest property boom in its history, with $15 billion in infrastructure projects planned … within a 60 kilometre radius of the township.”

It notes that rents increased 91% over the year to the 2013 report, with values climbing 34%.

Calling it one of the leading FIFO townships in Australia, the report notes that the forecast population is expecting an increase of 47% by 2018 with 265 dwellings needed each and every year over the five years to 2018.

Ryan Crawford told Property Observer in 2013 that once it goes through its low period, it will repeat its historical growth patterns.

Despite the downturn, last year it was back on the hotspot radar once again.

But Ryder, in 2013, said that while he expected it to revive, he thought it would never again reach the dizzying heights seen over the past few years.

It seems there’s potential if some of these issues play out in investors’ favour.

Recently though, pain has most certainly been felt in this market.

Property Observer looked at all 25 sales recorded on RP Data for Moranbah in the six months from May 2014 to October 2014. Eight of these had no pre-purchase records or were development block sales.

Of the remaining 17, 10 made losses.

Here are the losses that were made for 10 individual properties (from highest to lowest), and how long they were held for:

• $528,000 (held for less than two years)
  
  
• $336,200 (held for three years)
  
  
• $320,000 (held for two and a half years)
  
  
• $215,000 (held for six years)
  
  
• $170,000 (held for more than five years)
  
  
• $155,000 (held for 11 years)
  
  
• $154,900 (held for six years)
  
  
• $105,000 (held for six years)
  
  
• $30,000 (held for 10 years)
  
  
• $11,000 (held for almost 10 years)

In total, the losses came to $2,025,100 for these property owners, or an average loss of $202,510 for those that fell on this list of 10.

Two transacted for their same selling price (both just a few months after purchase). Five transactions did record gains.

These were the gains (from highest to lowest):

• $198,979 (held for 18 years)
  
  
• $179,000 (held for 6 months)
  
  
• $120,000 (held for 5 years)
  
  
• $118,500 (held for 10 years)
  
  
• $100,000 (held for three months)

In total, these gains add up to $716,479.

Looking at all 17 transactions on this list, the average loss comes to somewhere around $75,000 with a median loss of $30,000.

In Moranbah, even holding the property for a long period of time doesn’t guarantee a success, although it does seem to reduce some of the effects of a downward spiral.

Below are the changes in RP Data's median house price in Moranbah:

The current median house price is $351,000, at the peak it was $745,000.

When searching through listings portals, property is available anywhere from $900,000 to $95,000 in the town.

Property Observer looked at Moranbah the same time last year revealing that the bust has been felt heavily. It seems the same still applies, with many issues still yet to wash through the market.