The worst is yet to come for investors in mining towns according to a leading economist.
For years I’ve warned of the risks of investing into mining towns which comprise of transient populations that are almost solely reliant on resource project employment and therefore experience large swings in demand and are driven by investors buying properties rather than owner occupiers
Many of Australia’s worst performing property markets over the last few years have mirrored the ups and downs of the mining sector.
And many investors have been burned by following the advice of the “hot spotters” who recommended them.
But there is more hurt to come…
Smart Property Investment quote BIS Shrapnel’s chief economist Frank Gelber as saying:
“Mining is dead for a long time… and no one – whether they be economists, politicians, or investors – should be waiting for the next boom.
Anyone who expects this to be quick is misleading themselves”
Mr Gelber warned that the continued downturn has drastic implications for investors who still own properties in mining-driven regions.
“The technical term is ‘they’re stuffed’ – for a long time – but you always knew they would be, because if you try to build for peak load, you’re going to have oversupply when the peak load comes off.”
“They should have been a lot more careful when they went in. They went in with dollars in their eyes and now they’ve got sand in their eyes.”
He advised investors that fortunes in these regions wouldn’t be turning around any time soon, so their options for utilising their investments are limited.
“They’re stuck. So cut your losses and run – because it’s not going to come back again real quick […] there’s nothing they can do.”
It’s only just beginning.
Mr. Gelber explained:
“We all know the mining investment phase is over and we speak as though [the decline] is finished. It’s only just beginning.
We’re 12 per cent into a 60 per cent decline in investment. It’s going to take a long time for falling mining investment to bottom and we [still] have to absorb the negative shock to growth,”
You may wish to read this related article: Learn from these mining towns where prices boomed then busted.
SO WHAT CAN WE LEARN FROM THIS?
- We only recommend investing in our 4 big capital cities where there are multiple drivers of the economy with lead to jobs growth in many industries and wages growth.
- We avoid investing in regional or mining towns because they lack multiple growth drivers and they’re dominated by investors rather than owner occupiers who bring stability to the markets
Of course we don’t invest just anywhere in these capital cities or in any properties.
If you want to know more about where to invest and where not to invest in the challenging times ahead why not use the team at Metropole to help you find your next home or investment property and level the playing field because we know all the tricks and traps of the real estate industry.
Whether you are a beginner or a seasoned property investor, we would love to help you formulate an investment strategy or do a review of your existing portfolio, and help you take your property investment to the next level.
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