It has been sometime since we wrote an update on the mining town property crash that has taken place around Australia, most notably in Western Australia.
We last wrote a special in our 2013 Housing Boom and Bust Report. At the time we made note the “hard commodity towns” had well and truly entered their downturn but the “soft commodity”, agricultural towns were recording more positive results
So, what has happened since then?
I’ll let the charts speak for themselves.
Here is our first one on Port Hedland, a town exposed to iron ore and gas.
Livestock are also exported out of the port facilities:
Essentially, asking prices for houses have fallen from $1,500,000 down to $900,000. That is a 40% plummet.
Naturally, that has been an appalling result for existing property investors.
The rental situation has also been just as bad. Rents for houses briefly peaked at $3200 a week. They are now down to $1550 a week.
I would only say that vacancy rates in Port Hedland appear to have finally stabilised at 6%.
And overall listings have actually fallen in recent months
So, there has been bloodshed in Port Hedland, but perhaps some signals from our leading indicators that the worst of it might be over.
On the other side of the country, Muswellbrook a coal town that had the rather unpleasant news of earlier last year of cancelled expansion projects still appears to be taking a beating on the listings side as shown on this chart.
However on the vacancies front the market appear to be improving.
After peaking at 14%, vacancy rates have been falling and are back down to 9%.
That still is a very, very high number but it is the relative movement that is just as important as the absolute number.
Rents of course, have been pulverised but there is a hint at the very end of the chart of a possible bottoming out.
Down in South Australia, Olympic Dam is also showing some strong signs that the worse is over.
Consider this vacancy rates chart.
After peaking at over 10%, vacancies are falling very quickly. The town is now down to 3% vacancies.
Correspondingly, rents have bottomed out and showing signs of an imminent recovery.
I still wouldn’t be a buyer here yet though. The yields on acquisition are way too low at just 4%.
Sorry but that yield in no way reflects the risk of buying in a mining town.
Over on the soft commodities side, the town of Orange was also suffering when we last reported on it.
Rents had fallen by 8% for the 12 months to September 2013. Now at least, rents appear to have stopped falling and vacancy rates have been trending down again, suggesting a tighter rental market:
Regional towns risky
Overall, when it comes to regional towns, SQM Research maintains its long held view that these localities contain significant risks for the average property investor.
These risks are as a result of having economies that have a single or two pronged economic base.
The highs can be fantastic but the lows can be disastrous for the property owner.
While our charts might be pointing to a possible bottoming in the market for some of these townships I believe it is very early days indeed and it could be just as likely there is another leg down before the real bottom finally arrives.
I don’t know about you but I find the thought of renting a standard house in Karratha at $900 a week (as a tenant), very unappealing even while the same house was once renting at $2,100 a week.
And quite frankly, the yields need to be higher to offset the risks. Once upon a time the rental yields on offer were in well excess of 7%.
But to see yields on offer in the fours is a big negative. Buying on a yield that now only equates to what you can get in the capital cities is not an acceptable risk adjusted return on offer.
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