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Boom and Bust

Boom and Bust

Housing values in mining towns have been on a precarious rise and fall trajectory in recent years after the commodities boom bottomed out. Now, the upward cycle has begun. 

AusBiz. - June/July 2018

Words by: Kirsten Craze | Illustration by: Anna Farrell


Australia’s mining towns have ridden a rollercoaster ride of real-estate prices over the past decade. During that time some investors made a pile of cash as home values soared, while others dug themselves into a financial ditch when the market bottomed out. 

Today, however, the dust is settling after the rise and fall of the commodities boom, and many mining towns are bouncing back.

Louis Christopher, founder of property data firm SQM Research, crunched the numbers on several resource-rich towns and, while he admits prices are on the mend, he says buyers should still enter the mining market at their own risk.

“If they buy at the right time, then great, but for those who bought at the wrong time, they might as well have just gone down to the casino,” says Christopher.

“You get extreme volatility, so people should keep that in mind. The good times are going to be fantastic and the bad times could be a nightmare,” he says.

According to Ray White Western Australia CEO Mark Whiteman, the bad dream is over for prices in the golden state. 

“There are definitely signs of improvement in the mining towns of Western Australia — that is evident by increased numbers of inquiries and better auction clearance rates in the Pilbara and Kimberley regions,” he says.

“It appears that supply is being soaked up by additional demand, which should see things improve from what was certainly a very big correction. The market is certainly not back at boom proportions, but it is way better than the dire situation that it was,” Whiteman says.

“My view on any market is that, provided people don’t get carried away at the peak and overcommit in any part of the market, then mining towns represent excellent buying opportunities right now.” 

  Illustration by:   Anna Farrell

Illustration by: Anna Farrell

Whiteman adds that, with property data showing a “flattening out” of the North West Shelf, prices are close to, or even at the bottom, of the cycle. “And that
is universally known as the best time to buy,” he says.

“We’ll see an improvement over the next 12 to 36 months as a number of mining companies are going through upgrade phases and are developing their facilities in some of these towns. I think the markets in the Kimberley, Karratha, Broome and Port Hedland are going to see significantly good times ahead,” he predicts. 

Sophia Keily of Jays Real Estate Mount Isa says the market in North Western Queensland also looks promising.

“Mining is picking up, there’s no doubt about it. We’ve got more people back in town and the rentals are steadily picking up. We’re just coming out of a down cycle and it appears as if commodity prices are coming back up. The town’s prices are lagging, but the potential is looming again. It’s a good time for investors to get back in,” says Keily.

Keily adds that, with limited accommodation in Mount Isa, landlords with well-presented property will always find tenants while the local copper and zinc mines are hiring.

“We had about 10 years of zero to maybe one or two per cent vacancy. We even had those extreme situations where people were renting out their backyards as makeshift camp sites and any caravan was being used. It was so bad that people were homeless, but they were working homeless,” she says of the boom times.

The market is certainly not back at boom proportions, but it is way better than the dire situation that it was.
— Mark Whiteman, Ray White Western Australian CEO.

While property cycles in mining towns might be extreme, Keily says what goes up does come down, and vice versa.

“People picked up places really cheaply in the low of 2004, and they caught that wave. I remember by 2012 a lot of those landlords wanted to capitalise, so sold up and made huge capital gains,” she says.

“At that time, people who came to town for work were being forced to pay a lot for property that wasn’t being maintained, so they ended up buying very high, which was still better than paying high rents for something that was falling apart. 

“Where it all came unstuck is when those same people got put off as the mines retrenched in 2014 and 2015, and then had to sell. They’re the ones who got into trouble. But there were a lot who fixed up their homes, rented them out when they could, and waited. If they can wait they will get their money back, because every time we’ve had this cycle it’s always come back. It’s all about timing.” 

Karratha

Population: 15,828 (Census 2016)
Current gross rental yield: 12.5 per cent (houses) and 8.95 per cent (units)

At the height of the inflated market between 2011 and 2012, the main caravan park in Karratha was charging up to $2,400 a week — but today a van is as little as $85 a night.

At the peak of the mining boom, Karratha had a vacancy rate of about 0.4 per cent according to SQM Research. Those rates then rose during the downturn to 7.5 per cent in April 2015. Between late 2015 and now, vacancies have been trending down, and by early 2018 were sitting at 2.5 per cent.

The median weekly rent peaked in July 2012 at $1,700 a week for houses and $1,100 a week for units. By January 2017, rents finally bottomed out at $450 a week for houses and $300 a week for units. Today, rents are now climbing again, with the median house rent sitting at $495 a week, while units have picked up to $333 a week as at April 2018.

Sales in the town saw a huge rise and fall during the same timeframe. At its peak, the median house price in Karratha reached $870,000 — with some homes selling for more than $1 million — and units hit a median of $600,000.

The market began falling in 2012 through to 2017, finally bottoming out at a median house price of $300,000 and a median unit price of $127,000. By the first half of 2018, the median house price got to $390,000, with units yet to move. 

Port Hedland

Population: 13,828 (Census 2016)
Current gross rental yield: 8.25 per cent (dwellings)

In the height of the boom, there was 0.2 per cent vacancy in Port Hedland according to SQM numbers. That then skyrocketed in the downturn to a high point of 7.5 per cent. Now on a downturn since late 2016, the local vacancy is sitting at about 2.6 per cent.

Weekly rents for a house in Port Hedland soared to $2,800, with units at $1,400. But then by the bottom they were sitting at $600 a week for houses and $350 a week for units. Port Hedland rents are on an upward swing in 2018 and are sitting at $800 a week for houses and $400 a week for units.

When the market was booming in WA, Port Hedland prices were skyrocketing. In 2012, the median house price reached a whopping $1.6 million, but by 2017 it bottomed out at $525,000. At the same time units hit their peak at $810,000, but then began to fall. Units in Port Hedland were at $264,000 by early 2018.

Mount Isa

Population: 32,588 (Census 2016)
Current gross rental yield: 6 per cent (dwellings)

Similar to Port Hedland and Karratha, vacancy rates were tight during the mining boom, getting as low as 0.3 per cent in October 2012. They peaked at 6 per cent by December 2014 and have slowly fallen since to 2.5 per cent this year.

House rents in Mount Isa reached $600 a week in the boom, while units were at $480 a week. The bottom finally came in late 2016 when rents for houses fell to $350 and units were $200 a week.

SQM data shows that the median house price hit a high of $495,000 in December 2012, then gradually fell to $325,000 by mid-2017. They climbed to $330,000 in early 2018. Meanwhile units peaked in mid-2013 at $410,000, then bottomed out in October 2017 at $250,000, and have inched back up this year to $295,000.

Roxby Downs

Population: 3,884 (Census 2016)
Current gross rental yield: 6 per cent (dwellings)

Resource-rich towns in South Australia have also been along for the ride. Roxby Downs, a purpose-built town that services the Olympic Dam uranium and copper mine site, has been on one of those property price waves.

Vacancy rates sat at around zero in March 2012, then hit a dramatic peak in June 2016 of 17 per cent. Since then vacancies have fallen, and, by September 2017, were back down to 0.8 per cent. They are now slightly up 2.5 per cent.

At their height weekly rents for a house reached $520 in August 2012, then dramatically dropped to $190 a week in January 2017. Now they are on the rise again to $377 a week.

The few units in Roxby Downs did peak at the same time as houses at $350 a week, then bottomed in April 2016 at $160 a week. Now, local units have climbed to $310 a week. 

In October 2012 the median house price in Roxby Downs was $470,000, but fell to $310,000 by June 2017. That was up by early 2018 to $339,000. Similary, units peaked at $377,000, then slumped to $192,000 and have increased to $220,000.  

 

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