Mining towns crash | Pete Wargent

Deloitte may have been somewhat premature to warn of the mining investment boom peaking in 2003, 2004, 2005, 2006…2012, but this quarter we should finally get confirmation that we are in for some dramatic declines.

In the March quarter, engineering construction finally looked set to start in earnest and recorded a seasonally adjusted decline of 1.6 percent, denoted by the red line in the chart below.

Though it was pleasing to see a big 6.8 uptick in residential building (and a 3.3 percent increase for all building), the net result was always likely to be messy for a number of mining towns as engineering construction is now set to collapse nationally.

The deflation of commodity prices is only set to accelerate investment declines.

We noted on this blog to watch out for mining towns in two states in particular, being those which had benefited so greatly from the mining over-investment in the first instance, namely Western Australia and Queensland.

The March quarter showed engineering construction activity declining in those two states and future declines could be very dramatic.

Port Hedland woes – rents collapsing

 

The latest quarterly housing market snapshot from the Pilbara shows that rents in the once supremely expensive region have plummeted across each of the main suburbs for the 7th consecutive quarter.

Rents in Port Hedland have collapsed by 43 percent from $2544 per week in 2012 to $1441 in June 2014 and are continuing to fall fast.

Rents in South Hedland are also 31 percent below their 2012 peaks.

…and prices collapsing

Dwelling prices are getting crucified too.

Port Hedland advertised dwelling prices have dived by more than 25 percent from above $1.2 million to $900,000, while prices in Newmand have dived by a quarter too.

More worryingly for property owners in that region the downward trend appears to have gathered pace in the June quarter with the true force of the capex cliff still in the future.

This is a good example of why we have always recommended capital city properties in landlocked suburbs, and particularly look for assets for which demand will continue to increase in perpetuity.

Remote regional centres and mining towns can be far more fragile as industry fortunes change.



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Pete Wargent

About

Pete Wargent is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. He’s achieved financial freedom at the age of 33 - as detailed in his book ‘Get a Financial Grip – A Simple Plan for Financial Freedom’. Pete now manages his investment portfolio, travels and works as a consultant in the finance industry from time to time. Visit his blog


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