QLD mining regions (Bowen & Surat Basins & Gladstone): Willing to help anyone with questions

We invested 7 months ago in Gladstone and happy with our puchase of a townhouse.  Rang up an agent to see what it was worth and ask about the market.  It has gone up probably $50,000 in value so happy with that.   Seems townhouses are the way to go as most of the people moving there are single and not wanting the large garden.  New places are preferred.   Prices are very elevated so I don't feel confident to invest at current prices. 

Also bought in Emerald in December and very happy with gross  yield on fully furnished 3 bedroom, 3 bathroom house of 11.4%.  Was told that in Emerald people are living in their cars and under bridges in Emerald due to the housing shortage.   Our place is rented out to managment, who are only there Mon – Fri and have meals provided so a good deal.  We also have a place in Mackay that is being built.  I feel that the emerald purchase was our best deal.  

All three of our houses have been new, might be time to take on a development project next.  Others might be interested to know that we have found it surprisingly easy to buy 3 houses in 6 months.  The bank just seems to keep lending us money due to two of them being nicely cash flow positive and one neutral.  Shame we took 10 years of having equity in our home to do something about it but better late than never. 

   I've just returned from a three day house-hunting trip to Mackay. Prior to going, I spent many hours surfing the web looking at all varities of residential properties for sale in the region, including Hay Point and surrounding suburbs. I had quality houses, units, houses with development potential on large blocks, houses with renovation prospects, median price houses etcetera all saved on R.E.com to check out. And of course, I've done my background research.
   Having never been to Mackay previously, one of the first important observations I noted was that the majority of the town is very low-lieing and prone to flood-water inundation. In my previous research, I had downloaded and studied council maps detailing flood prone areas, so although this observation came as no surprise, physically seeing the town impressed upon me the risk of purchaseing a property which might eventually suffer flood issues. Discussions with locals and agents revealed that the worst floods in recent memory occured in 2008 when 600mm of rain fell in three to six hours, depending on who I spoke to.
   Several of the properties I was interested in are in South and West Mackay, zoned high density residential. It's interesting in these areas that it's very common for rundown, poorly maintained old houses to be surrounded by or adjacent to well renovated older houses, new houses, and blocks of old and new units. The potential to upgrade or demolish and build for a healthy profit is obvious in almost every street i drove down in these suburbs. This phenomenon is not restricted to these suburbs, with many of the northern suburbs showing the same development trends, and in my opinion Mackay presents some of the best opportunities I've seen anywhere in the country for upgrading old houses to increase equity.
   Agents all told me that sales are increasing rapidly in Mackay, and several said that even just the last few weeks had shown a noticeable improvement. My own experiences there seemed to confirm this, with many of my selected properties having recently gone under contract, and two which I looked at on Saturday going under contract by Tuesday.
   Rental demand in Mackay is very high, with excellent and rising yields, comparable to those currently achievable in Gladstone.  Even the poorly maintained old houses rent quickly with prices in excess of $400 p/wk dependent on location.
   A trip to the Hay Point area confirmed that rental demand there is high as well. Although the expansion of Hay Point has not officially begun, engineers, designers, managers etcetera are reportedly already engaged there, and demand by the companies for rental properties in close proximity to the site is high. With the impending influx of workers, near-term high yields there are assured. The beach suburbs in the area are an interesting prospect, with a very limited number of properties in the region, although currently there is no shortage of houses for sale there. Again, however, a very high percentage of the properties are very low lieing, which is a scenario I prefer to avoid. Nonetheless, with an increasing number of cashed up miners in the region, and a limited supply of properties in theses areas, many complete with water views and well within the buying capacity of high income earners, I forsee high growth prospects for these properties in the near future.
   Back to Mackay. The topography of the town allows a continuous sprawl to occur to the south, which is occuring rapidly with large new developments underway there now. The airport is also to the south of the town. There is a Very Big and busy industrial area there also The expansion of the town to the north has occured in a more disjointed manner, with mangrove marsh and wet areas interrupting development. Some of the moderately higher ground in the town occurs around the suburb of Andergrove, an area which I investigated thoroughly and which offers a wide ranging selection of properties. To anyone who shares the same aversion I have to floods, this is an attractive area. However, I did find that during the "big one" in 2008, the drains in some of the streets were incapable of handling the high volume of water, and consequently even in relatively high areas, some houses suffered water damage. However, due to the sandly loam, the water apparently dispersed very rapidly.
    An aspect of construction in Mackay which greatly reduces the potential damage from water, is the usage of concrete blocks for the walls at ground level. This is a common construction method in the older properties, and I witnessed it being utilised in the construction of new houses in ongoing development areas. This material is not prone to the damage which timber and gyprock walls suffer when soaked. 
   There is a high hill, Mt Pleasant, on the north side of Mackay which stands out. Not a real big hill. Not enough room on it for a lot of houses. Premium space. On the eastern face and the crest of it, it is apparent that many of the more affulent citizens of the town have settled, with expansive houses taking advantage of the views.
   I concentrated my focus on the streets around this area, and have returned home with contract in hand for a very tidy 4bd 3 bath, fully airconditioned house (lower walls concrete block) situated about half way up the south west flank of Mt Pleasant. It has views out over the city and the Pioneer River. Purchase price appx $450,000. Current rent potential $600-$700p/wk. High and dry.
  It might also be of interest to other investors that I have found that well renovated properties, even though the work may be several years old, have the potential to achieve tax deprciation of around $10,000 p/a.
   Oh, and let's not forget airconditioners. It was hot in Mackay. And humid. I found walking indoors into an airconditioned room a welcome relief after spending a few minutes inspecting the yards of houses. Sleeping at night without air con would be unpleasant. Many of the older houses have inadequate airconditioning. If you consider buying a house with old airconditioners, or not enough, factor some new split system air cons into your calculations. You'll have a more easily rentable property, get a better yield, and you can depreciate the air cons.
 

Fantastic research moxi10.  Makes me feel confident in my investment in Mackay (in my case in Plantation Palms).  I never actually visited Mackay but you have done well to paint such a good picture.  Thanks for that and good luck with your purchase.

Hi everyone,

Thought to throw my 2 cents worth in on this topic.

Was up in Rocky/Gladstone over xmas break and over the past year or so have been analysing and waying up options to invest there.  The gameplan has been to buy a block large enough for duplex/small lot houses/villas and sub-divide and build 4 bed/4 bath workers accommodation.

The following information was provided by Gladstone Regional Council (GRC) planning section.  Heres the run down of requirements and fees:

Requirements for lodgement of DA application are as follows

  Full Town Planning Report addressing GRC planning scheme;
  Full survey plans of site showing elevations, footprints, easements,
  water and sewerage connections, etc; and
  Dept of Local Govt and Planning forms with required supporting statements and documentation.

Also duplex developments are impact assessable, this increases the fees to
council.  We were originally working on approx $30K for council fees, however this was way under as the list below illustrates:

Impact Assessable Application Fee – $3,900 + $2,000 (for advertising and public notificaitons)
Small Lot Housing Fee – $2,497
Reconfigure of Lot Fee – $$2,000 + $300/lot = $2,300 as one lot exists if duplexing.
Infrastructure Charges – $28,000.

If only doing duplex on one title only need to pay impact assessable fee.

Within the boundaries of the former GCC, minimum block is 800m2, within the former Calliope SC minimum block is 900m2 for these types of developments.

A breakdown of numbers so far is:

$300K land
$12K Stamp Duty
$1500 per square metre build cost (turnkey price) = $250K per unit (assuming approx 170sqm each unit)
$50K subdiv costs
Project total = $862K
To achieve a min 20% gross return on sale = each unit price approx $517.5K.

Haven't kicked this off yet due to:
1. New estates covenants do not allow subdiv/duplex on lots even though they are big enough, so it is proving difficult to find a developable block;
2. LNG proponents have been handing back houses to the rental market as their workers camps are being built, therefore this should damper demand for buy and rentals (have a search for rentals in Gladstone and see how many available, especially in new houses), a case in point neighbour to rellie in G has had their fully furnished near new house advertised for rent at $1000/week for 4+ months;
3. New estates and stages of existing ones are due to kick off in April/May, therefore hopefully land prices will drop later this year.

Also here's a tip for those looking to invest in the mining towns, after speaking to a mortgage broker (Mortage Choice in G), unless you have 20% deposit, you won't be able to leverage into these places.  The LMI originators won't go near them and they do not take into consideration the high rent return.  Effectively its a risk profile attached to these places in the view of the banks/LMI companies.  (Any mortgage brokers/bankers on this forum that can confirm this advice?)

If this is the case shame really, as there are some good positive cashflow deals in Blackwater from my reseach!!

My experience seemed to confirm what crazya was told. In August 2011 I had a contract to purchase an off-the-plan unit in Middlemount. I tried for a 95% loan, but was offered a max of 85%, and was told that valuations were difficult there, largely because of few comparable sales. If the unit had been existing rather than off-the-plan, it may have been possible to obtain 95%, but I don't know for sure. The development had unexplained lengthy delays, and the vendor had serious communication issues, so I used the finance clause to terminate the contract.
    I later tried to purchase an existing house in Dysart, and in spite of the fact that my mortgage broker tried two banks with two different loan mortgage insurers, I was only offered 80% loans. My mortgage broker then "felt out" other lenders without making full applications, the feedback on the potential to obtain greater than 80% finance was negative.
 

  Jack, I would appreciate a private message with details about your mortgage broker, if you don't mind sharing that information.

awesome thread, does anyone know if council allow granny flats to be built at the rear of properties in emerald and mackay?

Has anyone successfully done this? if so what was build cost and rent/yield afterwards?

is this worthwhile for increasing the yield or are they not in demand? seems not many 1 bedders up for rent in these areas?

thankz

 Thanks, Jack

 It may be useful for other investors to know  that I was  told by my mortgage broker that the valuers sent out by the banks have risk categories that they use to rate certain areas. The valuer used to rate a house in Dysart that I had under contract rated that town, as well as Moranbah and several others in the region, at a risk rating of 4 out of 5, five being extreme. He apparently also told my mortgage broker that he knew another valuer who had just raised his rating to a five for those towns. 
   It might be of interest as a reference point that Mackay is rated at one, and Sarina Beach, half an hour south of Mackay, is rated at three.

Can I have the MB details to please I was approved for one in Moranbah and then they changed thier mind that home has now gone up around 80k since christmas LVR was 20%

what do you base your prediction on??  I know there are three planned mines which will emply around 850ppl; Drake, Jax and Sarum coal projects

IMO you can't go wrong with the bowen basin and surrounding areas. All this doom and gloom of property bubble bust cannot apply to these mining areas, can it?. Some guy said it before… "lots of people with massive salarys trying to rent/buy properties that don't even exist yet".

Dispite key demand/supply data that is available now, you still have to look at the macro-economic outlook for the long term. I know this is speculation and I am indeed no guru on this topic but I will try to explain what I heard on the radio the otherday.

Basically it's a question of comodity price + demand. China has had a minor reduction in *growth* which has caused a massive overload of "the sky is falling" chatter. But the key word here is growth, i.e. it still has it.

From recolection it has been 10% p.a. for the last 3 years and now back down to 7%, which is still huge.
As growth slows, demand slows and as China is one of our biggest customers it will have an impact.

But when will we start to see a slow down in the energy/mining sector? Basically not any time soon.

If you have a look at the dollars spent investing it's rediculous. Something like energy up 40% from last year, mining up 20%.
Really if the big guys like BHP and rio + the AUS government were worried, it aint showing yet.

Check out mining atlas Australia and you'll see the main area for development is the bowen basin.
This also tells you where planned and potential sites are.
Then all you have to do is pin point where all this money is going…

Most of the towns suggested have seen growth in the last ten years at some point in time.
If you can afford the risk I would look at Chinchilla/Emerald/Bowen over Mackay/Gladstone.

But then again, missing 10% last year on gladstone was a worry of mine that has been and gone. Still looks good and if you try to time the market at the bottom all the time you usually miss (apparently).