Hi, great info on this forum and appreciate all the knowledgeably people who make informed comments,
I am new to this type of investing as have been in equities for a long time and as you would all know ,,that is not so good at the moment!!Anyway
Questions,
I have been invited into an investment group that has access to land plots in South Headland 530m2 for $250k ,(there is apparently a scheme there where residents can apply for a ballot to buy a lot for $1000.)Has anyone done this and if so are there any issues such as getting title or arranging finance to build an investment property?
Has anyone had recent building experience in this area of West Australia as I live in QLD and will have to run this from a long way away!
could be a problem for on site inspections.
And what would be the best type of home to put there?
I am sure that the 3 or 4 bed+2 bath +2 garages are good but to maximise the return on the investment are there any other configurations that would work better?
and what are the approximate building cost rates up there?Look forward to comments ,have a 1000 more questions but these are the main ones,,thx
The smart money to be made in these locations is about being creative with the asset selection and overall structure of the deal. Meaning yes entry costs are high, as wage growth is correlated in the value growth.
Hi Ft,
The WA Government has major plans for Port/South Hedland through their Pilbara Cities project. The PC project aims to improve the quality of life for Pilbara residents through the additiona of extra services such as health, education, recreation and so on.
Part of the Pilbara Cities project is to triple the current population in the Pilbara which includes Port/South Hedland by 2035.
Link to PIlbara Development Commission Website http://www.pdc.wa.gov.au/
Link to Dept of Regional Development Website http://rdl.wa.gov.au/royalties/r4rpilbara/Pages/default.aspx
Link to Planning Commission WA Website http://www.planning.wa.gov.au/publications/1135.aspThere are a couple of powerpoint presentations on the pdc site which detail the amount of money being invested in the PIlbara which includes minerals beyond iron ore. It is a commonly held misconception held bymany that the Pilbara is only Iron Ore.
Port/South Hedland are anchored by BHP, Rio Tinto and FMG. All are big companies and major players in world mineral markets.
The land you are referring to is part of a release resulting from the projects mention above and preference is going to owner occupiers over investors. My spies on the ground in Hedland tell me the blocks are creating interest amongst the locals so I am not sure what will be left over.
The same spies also tell me BHP has a preference for Fly In Fly Out workers and there is strong demand for 1 bedroom units in both localities. BHP has already stated in the press that it requires 34,000 extra employees in the PIlbara (Ie not all in Hedland) next year alone.
On top of this BHP require 6000 beds in Hedland over each of the next three years to house their workers with major expansion projects planned to the Hedland port facilities and a commensurate increase in rail operation into the town of Hedland. At the same time there are plans for only 200 additional beds in Hedland at the moment. (when I last checked)
On the basis of this research we are currently doing small scale developments in Port/South Hedland. Entry costs are around $360K and rent returns in the vicinity of $1100/week.
By way of comparison – At the moment small 1 X 1 X 1 apartments are selling in South Hedland for $525K http://www.realestate.com.au/property-apartment-wa-south+hedland-107459196 You'll see the rent is expected to be $1050/week.
Similar property in Port Hedland sells for $700K+ and rents are in the $1300/week range.
Happy to chat if you need additional information.
Hi Derek
On top of this BHP require 6000 beds in Hedland over each of the next three years to house their workers with major expansion projects planned to the Hedland port facilities and a commensurate increase in rail operation into the town of Hedland. At the same time there are plans for only 200 additional beds in Hedland at the moment. (when I last checked
BHP are currently building a 5000 man camp 20k up their access line to accommodate these workers which are at best temporary. beware of Press reports they’re highly inaccurate and misleading.
The so called tripling of the population may come but the current investment is focused on infrastructure (water, sewerage power) to support any future growth. It’ll take several years to get this infrastructure in place if at all. Much of this stuff has been promised by various governments since the 60’s. Given there is global recession if not depression coming expect to see State funding shrink considerably as their income sources take a hit.
Most of the major mine infrastructure projects are well into their life cycle already and demand is being met. The bulk of these projects will finish within the next 2 years. You could see a vacuum up here as they complete coupled with a global slowdown.
My bet is that within 5 years property could loose half its value here. I think the pressure on housing will stay on for another 2 years at most then come off over the next 3.
Jack
Jack
I will bet you what ever amount you want that within 5 years property will NOT loose half its value. The pilbara is a large area and cannot be defined by one city.
Your comment sounds like a prediction from an economist. I remember Western Sydney associate professor of economics and finance Steve Keen bet Margaret Lomas that house prices would fall by 40% after the global financial crisis. After he lost the bet he amended his comment to say that the predicted 40 per cent housing price drop would occur over 10 to 15 years.I have just come back from Karratha where they have begun civil works for the Karratha industrial area. Stage 2 has already sold out before contruction on stage one has even started. These blocks average for around $5m! This combined with the Baynton housing estate which has completely sold out through a ballot system tells me that places like Karratha have a long way to go before people starting leaving in droves. The Pluto project hasnt even finished yet. Gas Plants approved for Broome and Onslow. Gorgon project. The list goes on!
Corie you sound like your typical avid investor blinded by dreams of vast profits in boom time towns.
Karratha has minerals and more importantly energy as the drivers of that locality. Energy is the key there to long term sustainability however a downturn in ore will could see it pull back from boom time highs.
Port Hedland is a whole different kettle of fish. It is almost soley driven by minerals expansion projects. Stop those and you won’t be able to give property away here.
BHP wants to ramp up output from 150mt/a to 450mt/a. One of the big projects penciled in for here is the offshore loading facility. For that one to go ahead they need to get $200/mt to make it pay. The market is at around $180 and the big question is how much will China slow down and how fast. My bet is that it doesn’t get built in my lifetime.
http://www.smh.com.au/business/bhp-reveals-its-iron-ore-target-450m-tonnes-20110927-1kvhi.html
http://www.smh.com.au/business/bhp-reveals-wa-ambitions-20110927-1kvdw.html
I believe most of this to be hype for the media and analysts.The problem (or opportunity) in the Pilbara is that infrastructure and housing lag demand because demand has grown exponentially over the last 10 yrs. Two things will happen
a. demand will decrease due to completion of expansion projects. They can’t go on indefinitely. At some point demand will be met and once it is I actually expect to see demand decrease as the big boys increase automation and scale down their expansion plans . It takes fewer and fewer ppl to operate these big processing plants than at any other time in history.
b. demand for many minerals will be diluted (less demand on Australia) as new supply capacity comes on stream from around the world.
Like most boom towns many will be overbuilt. I expect that to happen around the 2012/13
The driver up here is construction of resource infrastructure not resources themselves. It takes 6000 workers to build a project and less than 300 to run it. Your typical big project takes around 2 years (some longer). I believe we’re getting near the end of the build out here in Australia. Even if the expansions continue my guess is the rate will decrease by at least 50%. A slow down in expansion will kill property in Hedland overnight.
Commercial property in Hedland takes months if not years to sell. I reside at one that’s for sale and they’re doing well if they can get one buyer per 2 months to look at it. The last industrial sell off was balloted. It was bought by speculators after a fast buck. Only a few have on sold so far and its been nearly a year. There’s more commercial property for sale here than you can shake a stick at.
Karratha’s a better bet than Hedland due to energy but I think the market there has topped out for the time being.
The new opportunity is Onslow I believe. Broome might not be as good a deal as some might think. Still a long way to go there.
Jack
PS: China is the unknown quantity. Everything in our economy is reliant on a fast growing China. When (not if) it slows down lookout.
This guy writes some interesting stuff;http://www.alsosprachanalyst.com/economy/china-economy-more-worrying-signs.html
ft – some recent articles in property magazines warn of the shortage of tradesmen and builders in Sth Hedland. Expect significantly higher build prices than what you may have seen elsewhere, and longer build times. Or consider a kit-home instead. Just something to consider in your due diligence, that build costs and timeframe will be higher + longer.
I’m sure in five years Port Hedland and Karratha will not drop the property prices. BHP, RIO and FMG got contracts signed for the next 5 to 10 years and even if you build a camp for FIFO and for construction all the staff will move their family to town and will require a place to live. I have a house in Karratha and the return is really good. I think the risk is very low.
Just my personal view as I have been working in the Pilbara for the last 10 years and it’s another world.
Mosqui wrote:even if you build a camp for FIFO and for construction all the staff will move their family to town and will require a place to live.Who told you that rubbish. FiFo’s tend be temporary workers on contracts to particular projects. Their families would prefer to live anywhere but the Pilbara. FiFo’s can’t wait to get out of the place when they rotate and I don’t know of one FiFo I’ve worked with over the last 4 years who has ever considered moving their family here. The opposite actually.
The drivers of property demand here are speculators and companies buying or renting houses for staff. A rental per person is half the price of putting staff in camps. Note this only applies to small companies with few options to house staff.
Rents are high because of the transient nature of renters and those let to businesses to house personnel often end up in arrears and or damaged. Damage and burglary are rife in South Hedland. Crime is a major problem here amongst indigenous locals.
Only a tiny portion of the property market here is for people who actually want to settle and live here. It’s 90% commercially driven. When (not if) that commercial pressure reduces the property investment profile will change substantially.
Jack
Been away for a week at a live in Incident Management Leadership conference. I moonlight as a bush fire control officer in my 'spare time' .
Caught this article in yesterdays online paper http://www.perthnow.com.au/business/business-old/hunger-miners-chomping-at-the-port-pie/story-e6frg2qu-1226161580458 – it might add to the discussion.
Someone mentioned 'kit homes' – try a http://www.nordichomes.com.au – they claim to be able to put a 4 X $ in Karratha from $330K
I don't know anything about the company, the product etc but the kit home option may be suitable – do your own research and make sure the company does build and deliver cyclone rated properties to the NW.
Jack is not wrong about the infrstructure problems in the NW – getting water to greenfield sites is bloody hard work.
Hi ft,
My thoughts on your questions below:
Has anyone done this and if so are there any issues such as getting title or arranging finance to build an investment property?
Given the attractive returns currently offered in the Pilbara, landing a block to build on, is your first challenge. If you have found an opportunity to do this without the lottery, I would look at it very closely. $250k for a 530m2 block in Hedland is quite good.
We recently were very very lucky in Karratha securing a block for first home owners / builders. Our block was $205k @ 515m2.Has anyone had recent building experience in this area of West Australia as I live in QLD and will have to run this from a long way away! could be a problem for on site inspections. And what would be the best type of home to put there?
..and what are the approximate building cost rates up there?
We are currently building an executive style 4×2 for $600k from a top-end builder. Once completed, approx rent shall be $2000-2400/week (14% yield), or sell for $1 – 1.1mil. Similar yields apply in Hedland. Lots of good builders up there. Be wary of modular homes – final costs can be similar given amount of earthworks/transport required. We wanted to build a really nice place given it was a nice corner block. Prob could have done it for $550k, but would have yielded $100-200/week less return.
Our CoCr (cash on cash return) for this project is looking to be between 70 and 80%.Like all investments, do as much research as you can on proposals for development / future projects in area etc. I am not that familiar with Hedland, but I do know that the ore companies are ramping up production and expansions in the area. Karratha is more secure with it's LNG, salt, fertiliser, ore-loading and bio-fuel sectors. Not to mention being the major port for barges to Barrow Island (chevon).
Irrespective, considering the vast differences in stamp duty from WA to eastern states, investing over here is pretty bullet proof.
There are tonnes of +ve cashflow properties in Perth at present too.Corie wrote:I remember Western Sydney associate professor of economics and finance Steve Keen bet Margaret Lomas that house prices would fall by 40% after the global financial crisis. After he lost the bet he amended his comment to say that the predicted 40 per cent housing price drop would occur over 10 to 15 years.Good point on Steve Keen. Here's an interesting discussion about Keen and his predictions……
Associate Professor Steve Keen did NOT predict the GFC
Not sure if I agree with everything there but it's interesting nonetheless.
Point of accuracy.
It was Rory Robertson (Mac Bank) who had the bet with Steve Keen.
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