Mining Areas

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<div>Total construction work done declined by 0.7 percent in seasonally adjusted terms to $46.4 billion over the first quarter of the calendar year to be 7.2 percent lower over the year to March 2017. </div>
<div> </div>
<div>After weaker trade and retail figures, all of the signs appear to be pointing to a weak result for GDP growth in the first quarter. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/05/26/A1.jpg" target="_blank">Click to enlarge</a></p>
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<p> </p>
<div>First, here's the good news: having peaked all the way back in 2012, engineering construction activity is now rising again. </div>
<div> </div>
<div>There were still moderate ongoing declines in Western Australia and the Northern Territory as resources construction activity continues to wind down, but the rates of these declines is now tapering off.</div>
<div> </div>
<div>And indeed, at the national level engineering construction activity is rising again, partly driven by infrastructure projects in the three most populous states. </div>
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<p> </p>
<div><strong><span style="text-decoration: underline;">Dodgy weather...or peak resi?</span></strong></div>
<div> </div>
<div>Residential building work done dropped by 4.7 per cent in the quarter, which was the worst quarterly result for the sector since the introduction of the Goods and Sales Tax (GST) more than a decade and a half ago. </div>
<div> </div>
<div>Building activity slowed across new house building, apartments, and major renovations, suggesting that at least part of the reason for the decline was Cyclone Debbie towards the end of the quarter, while Sydney also had some shocking weather during the period. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/05/26/A3.jpg" target="_blank">Click to enlarge</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2017/05/26/A3.jpg" alt=""></p>
<p> </p>
<div>And looking at the building work done figures by state confirms as much, with a very sharp 10 per cent quarterly drop in Queensland, and a somewhat lesser 4 per cent decline in New South Wales. </div>
<div> </div>
<div>In Victoria building activity powered to a new record high in chain volume measures terms, with the industry going like the clappers in Melbourne and operating at close to full capacity. </div>
<p><a href="https://www.propertyobserver.com.au/images/2017/05/26/A4.jpg" target="_blank">Click to enlarge</a></p>
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<p> </p>
<div>New detached house construction has been broadly flat since the end of 2014, with the growth in residential construction since that time driven by record activity levels in the apartments sector.</div>
<div> </div>
<div>Here too there was a sharp weather-related 22 per cent fall in Queensland, plus a relatively small decline in New South Wales.<br><br>But there was also a slowdown in evidence in Western Australia, South Australia, the Northern Territory, and Canberra. </div>
<div> </div>
<div>On this evidence, then, it's possible that the peak for apartment construction activity might have passed, although there is of course still a huge pipeline of work to be completed.  <br><br>
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<p><br><strong><span style="text-decoration: underline;">The wrap</span></strong></p>
<div> </div>
<div>Firstly, growth in the economy in the first quarter is going to be weak, and perhaps very weak. </div>
<div> </div>
<div>On the positive side there is light at the end of the tunnel for the resources states, as engineering construction activity finally looks to be bottoming out, after years of contraction. </div>
<div> </div>
<div>Strip out the impact of Cyclone Debbie and heavy rain in Sydney and the apparently sharp drop in residential construction in the first quarter of the year may prove to be less than dramatic. </div>
<div> </div>
<div>However, it's hard to escape the conclusion that building activity in the residential sector is about to fade away as the record pipeline of apartments is delivered to the market. </div>
<div> </div>
<div>It might reasonably be expected that dwelling starts fall by about a quarter over the next couple of years. </div>
<div> </div>
<div>Given the huge level of employment in the construction industry, this could prove to be a very significant drag on the economy going forward. </div>
<p> </p>
<p><em>PETE WARGENT is the co-founder of <a href="https://allenwargent.com/" target="_blank" rel="nofollow">AllenWargent</a> property buyers (London, Sydney) and a best-selling author and <a href="https://petewargent.blogspot.com/" target="_blank" rel="nofollow">blogger</a>.</em></p>
<p><em>His latest book is <a href="https://www.bigskypublishing.com.au/Books/General-Interest/Four-Green-Houses--and-a-Red-Hotel/1015/productview.aspx" target="_blank" rel="nofollow">Four Green Houses and a Red Hotel</a>.</em></p>
<p><em> </em></p>
<div> </div>
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Mining cliff over, what next for the residential market? Pete Wargent

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<p>New research has found that property prices halved in many mining regions over the past decade.</p>
<p>Property Investment Professionals of Australia (PIPA) chairman Peter Koulizos is currently reviewing research he undertook for a book that was published in 2008.</p>
<p>As part of the new research, however, Koulizos used CoreLogic data to calculate the best and worst performing areas over the past 10 years and found a clear front – runner for bottom of the pile – mining locations.</p>
<p><em><a href="https://www.propertyobserver.com.au/images/2018/9/11/mining%20property.jpg" target="_blank">Click here</a> to enlarge:</em></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/9/11/mining%20property.jpg" alt=""></p>
<p><em>Souce: PIPA</em></p>
<p>“What this data shows us is that if you had bought property in one of these towns, not only did your property not increase in value over this 10-year period, but it is actually worth less,” Koulizos said.</p>
<p>“West Australia – which benefited the most from the mining boom – has also suffered the most from the mining bust.</p>
<p>“There is a very long list of underperforming mining towns in WA, but the worst is South Hedland, a suburb in Port Hedland, where house prices fell a whopping 74.8%.</p>
<p>“Newman came in a close second to South Hedland, where the median house price was $501,000 in 2008 and now it is only $147,000.”</p>
<p>Queensland mining towns and suburbs within those towns have also suffered, according to the data.</p>
<p>Gladstone was promoted by many property spruikers and it’s clear they have seriously come unstuck, Koulizos said.</p>
<p>“South Gladstone house prices fell by 31.7% and West Gladstone house prices fell by 47.6% over that time period,” he said.</p>
<p>“However, these two suburbs are not the worst performers. Property prices in the mining town of Dysart fell a whopping 77.4%, while at the same time Brisbane house prices increased by 24%.”</p>
<p>House prices in the mining town of Roxby Downs in South Australia fell by 36%, according to the data, plus sales have fallen from 140 in 2008 to just 51 in 2018.</p>
<p>“It’s important to understand that buying property outside of capital cities still makes financial sense. In fact, there are many regional and country areas that are deserving of your investment dollars,” Koulizos said.</p>
<p>“The moral of the story is that successful property investment is about long-term economic fundamentals, not supposed short-term financial gains.</p>
<p>“And that usually means investing in locations with diverse, multi-faceted economies, not areas that financially ebb and flow depending on the strength – or weakness – of a single industry.”</p>
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Mining property prices have dramatically dropped over past decade: PIPA

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<p>EXPERT OBSERVATION</p>
<p>The prelude to the mining boom in the years leading up to 2012 saw several Australian regions record spectacular capital gains.</p>
<p>Fueled by a surge in investment, bigger pay packets and generous corporate subsidies for housing costs; housing was scarce and demand from cashed-up workers and investors was strong. Then came the downside of the mining-related property boom in 2012/13 which was even more spectacular than the upswing.</p>
<p>However, recent analysis shows that values have now steadied and rents are rising, providing some of the highest rental yields across the country.</p>
<p>The Pilbara region of Western Australia was booming on the back of iron ore and the Bowen Basin of Queensland was thriving thanks to coal prices.</p>
<p>The Karratha council area (called Roebourne until 2014), which is a good benchmark for the Pilbara mining region, saw housing values rocket 87% higher over the five years preceding the market peak in 2012, while the Isaac Regional Council, which covers a broad swathe of Queensland’s Bowen Basin, saw house values climb 72% higher over the five years preceding the 2012 peak.</p>
<p>Since conditions peaked in line with commodity prices and a wind down in infrastructure spending, dwelling values in these regions have moved through a long and deep downturn. Some suburbs have seen the median value of a house fall by more than 80% (WA’s Newman is down 84.2% since peaking and Queensland’s Dysart is down 83.0% since peaking).</p>
<p>Although the recent trends can show some volatility due to low transaction numbers, many of the these mining regions have started to see housing conditions bottom out and commence what is likely to be a drawn out period of recovery.</p>
<p>Most regions are showing housing values that are well below levels recorded 10 years ago, which may be attractive to home buyers and investors. Rental vacancies have tightened substantially which is driving up rents, in fact some of the Bowen Basin towns have seen asking rents rise by more than 20% over the past 12 months.</p>
<p><a href="https://www.propertyobserver.com.au/images/2018/10/12/mining%20town%201.jpg" target="_blank">Click here to enlarge:</a></p>
<p><img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/12/mining%20town%201.jpg" alt=""></p>
<p>Higher rents against low housing values is driving rental yields higher, with most of the towns likely to be providing a positive cash flow from the outset. Gross yields are typically above 6% in these regions.</p>
<p>Of course, a note of caution always needs to accompany anyone considering a property purchase in these regions. The economies of a mining region are inherently shallow; asset values are highly dependent on the price of the commodity that lies under the dirt and the willingness of the private sector to invest capital in extracting it.</p>
<p>Government policies can disrupt conditions, as can company policies around worker accommodation, fluctuations in the Australian dollar and appetite for trade with key trading partners.</p>
<p>Investing in these areas is high risk and investors should expect a high rental return to compensate for that risk.</p>
<p>The RBA, based on spot prices, reported bulk commodity prices are 16.5% higher over the year in Australian dollar terms. If coal and iron ore prices remain elevated against a lower Australian dollar, we could see mining infrastructure investment gather some pace.</p>
<p>Investment in minerals exploration has been consistently rising since mid-2016, rising to the highest level since December 2013, which bodes well for further infrastructure investment across the mining sector. If that does eventuate, there should be positive flow on effects for these mining regions.</p>
<p><a href="https://www.propertyobserver.com.au/images/2018/10/12/mining%20town%202.jpg" target="_blank">Click here to enlarge:</a></p>
<p> <img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/10/12/mining%20town%202.jpg" alt=""></p>
<p><em><strong>Tim Lawless</strong> is CoreLogic's head of research.</em></p>
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Mining town rents are delivering some of country's highest rental yields: CoreLogic's Tim Lawless

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<p>Non-performing housing loans for lenders have edged up over recent years, though they are still low as a share of all housing loans, says the RBA.</p>
<p>The central bank’s Assistant Governor Christopher Kent made these remarks during a speech at Moody's Analytics Australia Conference 2017.</p>
<p>However, at around ¾ of one per cent as a share of all housing loans, non-performing loans remain low and below the levels reached following the global financial crisis, he said.</p>
<p><img src="https://www.urban.com.au/images/2017/08/15/RBAfig1.png" alt=""></p>
<p>The RBA official said that the Securitisation Dataset helps the central bank to assess how loans are performing across different parts of the country by examining arrears rates. </p>
<p>Like non-performing loans, the arrears rates have increased a little but remain low, he observed.</p>
<p>The rise has been more in regions experiencing weak economic conditions over recent years, in particular, Western Australia, South Australia and Queensland since late 2015.</p>
<p class="p1">Earlier this year, the central bank noted that conditions had generally <a href="https://www.urban.com.au/expert-insights/68985-conditions-have-improved-mining-businesses-rba" target="_blank">improved for businesses</a> in the resource-related sector.</p>
<p><img src="https://www.urban.com.au/images/2017/08/15/RBAfig2.png" alt=""></p>
<p>Using the Securitisation Dataset, the bank also found other relationships between arrears and other factors. </p>
<p>A key factor contributing to a borrower entering into arrears is a reduction in income, most obviously via a period of unemployment. </p>
<p>“We find that there is a positive relationship between arrears rates and the unemployment rate across regions (Graph 9).</p>
<p><img src="https://www.urban.com.au/images/2017/08/15/RBAfig3.png" alt=""></p>
<p>“However, the relationship is not especially strong, which suggests that other factors are at play.” </p>
<p>For example, arrears rates are higher in mining-exposed regions, which have generally experienced a sharp fall in demand in the wake of the end of the mining investment boom. This was indicated by the “pronounced fall in the demand for housing” in those parts of the country as indicated by a decline in housing prices (Graph 10).</p>
<p><img src="https://www.urban.com.au/images/2017/08/15/RBAfig4.png" alt=""></p>
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RBA warns arrears rate still rising in mining exposed regions

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<p>Bowen Basin, after several years of property price reductions, appear to have finally turned the corner.</p>
<p>Just two years ago Bowen Basin landlords were struggling with millions of dollars' worth of unpaid rates amid the mining downturn, forcing local councils to consider repossessing homes.</p>
<p>The Central Highlands Regional Council based at Emerald, west of Rockhampton, was looking to repossess more than a dozen homes to pay down debts.</p>
<p>But this year CoreLogic found that Bowen Basin dwelling values have grown the most of any mainland district - some 14% over the past 12 months.</p>
<p>This ranked the best property price growth of any SA3 mainland region.</p>
<p>Sales this year kicked off when $95,000 was paid for 23 Acacia Street, Blackwater.</p>
<p>It had previously sold for $90,000 in 2009, suggesting prices above their last sale price were possible.</p>
<p><img src="https://www.urban.com.au/images/2018/12/14/Bowen%201.JPG" alt=""></p>
<p>A clear example of Bowen Basin's changing fortune is 7 Luck Place, Emerald (pictured above).</p>
<p>The three bedroom one bathroom home sold earlier this month for $180,000.</p>
<p>It was a $70,000 increase on it's December 2017 mortgagee sale price of $110,000.</p>
<p>Set on a 751 sqm block, the house has yet to be reach it's 2005 sale price of $215,000.</p>
<p><img src="https://www.urban.com.au/images/2018/12/14/Bowen%202.JPG" alt=""></p>
<p>Also indicative of the dwelling price growth in Bowen Basin is 1/28 Saville Street, Emerald (pictured above).</p>
<p>The three bedroom two bathroom apartment saw a price increase of $77,000 from it's 2016 mortgagee sale when it sold for $190,000.</p>
<p>Sold most recently for $267,000, the property is still short of it's 2008 sale of <span>$342,500.</span></p>
<p><img src="https://www.urban.com.au/images/2018/12/13/Top%2050%20growers.JPG" alt=""></p>
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