Are some mining towns too hot?

coalstar wrote:

India is also a country with ppl japan and also all of south east asia, China is only part of the story, then you have american consumers; and 500mml chinese moving from third world to middle class citizens in the next few years.

Buy well and at a discount, increase your yield and you'll do well in mining towns;

Moranbah though is way too expensive for me but prices won't drop off too much as theres not much land around it as its got mining leases all around it. if i was to buy in moranbah i'd only buy a house with enough land on the back to put a another house etc

Agree. Interesting situation with Japan. Because of the nuclear situation last year Japan has shut down all but 2 of it’s nuclear reactors therefore this assures the need for thermal coal to use as an alternative for energy production. Japan is also still our biggest customer in relation to hard coking coal.

I bought  new in Emerald (settlement last dec).  Very happy, rental vacancies low,  getting $950 pw for fully furnished house bought for $455,000 furnished.  To me this price is much much less risky than moranbah and check out the return!  Tenant is a corporate tenant and they even do their own cleaning and the people who stay there have their food provided elsewhere so the kitchen will be hardly used.  On a 1+1 etc lease (with commercial lease in place) for 5 years, still only pay 7.5% management fee.  Two friends have bought there also and everyone is very happy.  One is having a build and the same tenant I have has been chasing them to rent it.  When I called in October to investigate there were people sleeping in cars due to lack of accomodation.  With Emerald there is a flood risk.  85% of town flooded in last floods.  I have found insurance to be same price none the less as for a non flooding area and my place is elevated over 1 metre, far enough for 1 in 100 year flood. 

It is hard to buy at the moment, everyone seems to know about emerald now and good places are selling within a day.  Read the other thread on mining areas.  Josh has written lots on good estates to buy in and what to avoid (there are some dodgily made houses in emerald so watch out). 
Cheers, Janice. 

Just been doing some reading into Emerald and it looks promising.

That said – if its so promising how can they be asking only such a small amount for a place like this?

http://www.realestate.com.au/property-house-qld-emerald-109981781

I mean its so cash flow postitive it’s not funny?

Hi Popelich – apparently the auction was cancelled due to bad weather incl flash flooding & road closures. Unsure if they’ll organise another one in future but on realestate.com you can see some of the houses offered now due to auction being canned.

JT7 – we are currently awaiting a contract for purchase of a new villa in Emerald – have read all your posts & wondering if you mind if I PM you with regard to flooding & street we’re proposing to buy in – have received a bit of conflicting info ?

Hi,
for those that have purchased recently in Emerald or are in the process of purchasing is there much discounting on purchase price

Cheers

Short answer….No!

The market is starting to run hot.

Unless you have done your DD and know exactly what you are negotiating on…..there is little room for any discounting.

Vacancies are incredibly tight already and we haven’t even experienced the flow-on expected from the massive development in the Galilee Basin.

IMHO the market is turning fast. As with every investment…know exactly what you want and don’t hesitate when you find it.

Does anyone know the cost of property management fes in mining towns? Is it high too?

Is it also generally hard to find such managers since it may be a remote area?

I heard a rumour that prices have dropped by 30% in Moranbah and surrounding areas. Is this true?

I’m about to sign on the dotted line for a place in Moranbah and reading this thread is making me think twice and looking more towards Mackay for coastal living and more diversity and growth, or Emerald as a more affordable option.

The trouble is… neither of these provide the cashflow to enable further investing in the short term.

  Schmoo, the investors who do well out of Moranbah are those who purchased before the huge increase in yields and and sale prices. "The trouble is…neither of these provide the cashflow to enable further investing in the SHORT term"…yet. "Neither of these" (Mackay or Emerald) provides the risk or stress that you would obviously experience if you purchase in Moranbah…the stress is already revealed in your post. Focusing too much on the short term when investing in property compounds the risk.

The best commentary I have seen on the situation in Moranbah has come from Results Mentoring….

Housing Supply Risks

Prices and rents in mining towns are driven up when there’s a shortage of available housing compared with the demand for housing in the town.

Rents (and property values) will stabilise and possibly fall if new rental accommodation is made available at a faster rate than the rate of population increase in the town, leading to an over-supply.

What could cause a significant increase in the housing supply in a mining towns? An obvious possibility is the development of a new housing estate, or a large scale development of units/apartments.

Some mining companies are even building their own houses – either for the purpose of accommodating their own staff, or as a required contribution to community housing needs. For example, as a condition of approving the $4 billion Caval Ridge Mine near Moranbah the Queensland State Government required the BHP/Mitsubishi Alliance (BMA) to build 400 new homes, with 160 of these due to be provided in Moranbah by June 30, 2013.

But the dynamics of mining towns give rise to another, less obvious way in which the supply of rental housing may rise all of a sudden…

Remember that not all housing in these towns is already owned by investors – a reasonable proportion is currently owner-occupied. An influx of investors paying premium prices can result in home owners ‘cashing-in’ by selling their property to an out-of-town investor, and then leaving town – suddenly increasing the supply of vacant properties for rent.

Moranbah, for instance, became a ‘flavour of the month’ among mining town investors late last year. The supply of vacant houses for rent has since substantially risen in a short space of time, at least in part due to the transfer of a large number of houses from home owners over to investors (with the former home owners then leaving town rather than staying back and renting). Supply appears to have run ahead of rental demand in Moranbah, and there may be a lag before the available supply is soaked up.

Rental Market Manipulation

With the rate at which rents have risen in many mining towns over the last couple of years, it’s hardly surprising to see some of the bigger miners looking for ways to contain the substantial accommodation costs involved in housing workers in these towns.

In some instances it can actually be cheaper for a mining company to fly personnel in at the beginning of a day, and fly them out at the end of the day, than it is to rent properties in the town. Constructing temporary accommodation ‘villages’ can also be more cost-effective for a mining company than leasing established houses.

Either option helps reduce the demand for rental accommodation in the town, taking away some of the pressure on rents.

We can see these approaches reflected in moves by BMA last year where pressure was put on the Queensland State Government to allow a 100% Fly-In/Fly Out (FIFO) arrangement for the huge Caval Ridge Project, and to approve a 2500 bed accomodation village to service many of the FIFO workers.

There’s also the potential for large mining companies to use their economic ‘muscle’ to directly influence rents. For example, there are anecdotal signs that BMA is currently refusing to sign up new leases at the current high rentals in Moranbah. Given the commercial to house employees and contractors, it’s almost like a ‘staring match’ has begun between BMA and the landlords in Moranbah, and we’re waiting to see who ‘blinks’ first!