So what do we think about Kalgoorlie?
Pros – Rental returns 7.5 to 9% easily achievable, positive gearing, current vacancy rate less than 0.5%, wide range of affordable properties and plenty ofnew developments, Has expanded to the point where it is not as critically linked to the gold price as it was inthe past
Cons– Town currently booming so prices might be higher than neccesary. Not a good capital growth area, still influenced to some degree by mining boom/bust cycle. Getting a tenant is easy but a good tenant might be challenging.
Apart from the Pilbara it appears to be offering some of the best returns in the state and I am sorely tempted – what do you think?
More big money being invested in the Pilbara and from many different sources and with rent returns 10%+.
By comparison Kalgoorlie is really only a gold town and its fortunes are dependent upon gold prices – it is a bit of a one trick pony in that regard.
Trouble is the Pilbara has higher entry level costs than Kalgoorlie.
Virtually all mining is predicated on continued growth in China or at least maintaining current levels of consumption and GDP growth. Nothing I research with regards to China supports that contention.
Every plausible commentator I read sees continued corrections in China as it readjusts down to a sustainable stable growth rate which is likely to be less than 5%.
That will see substantial drops in commodity prices and volumes. That translates into a substantial reduction in resource capacity expansion. In fact I wouldn’t be surprised to see a contraction within the next 2 years albeit small. That virtually kills the massive demand for accommodation. Take construction out of the picture and mining town demand drops by 70%
GDP growth is slowing and fast.
To me it’s patently obvious that China will settle around 2000 yr levels. From memory I think iron ore was selling for less than $20/mt. That doesn’t even come close to cost now ($50 – 80/mt) depending on who you listen to.
The industry expects iron ore to settle around $140/mt. I think that’s overly optimistic to say the least.
The Freckle
If the last post didn’t wake you up to the reality that is China perhaps this report from Christopher Pavese, CFA, Chief Investment Officer at Broyhill Asset Management.
The Freckle
It is quite humourous reading posts from people who have very little or no knowledge about a subject.
Derek, I must say that for someone who has a vested interest in the Pilbara, your bias is laughable. Kalgoorlie is not just a "gold town" or a "one trick pony". It has been around for over a hundred years and likely to be around for a hundred more. The amount of growth in Kalgoorlie is measured by the amount of sustainable new housing and not by the extreme shortage of available land and exploitation of investors and home owners by builders. There will come a day when the mining companies invest in their own housing and camps, to the detriment of current owners.
Freckle, one thing that hasn't ruled the well-being of Kalgoorlie is China. Other than the occasional investing into a mining company in the area, news about China is rarely spoken.
Laury, yes, Kalgoorlie is a stable place to invest. Most growth at the moment is by added value, ie renovating and development. The market is currently seeing movement of properties which should lead into rising values. The rental market is strong, and consistant returns are around the 7.5 to 9 percent mark. You can achieve better returns with some companies signing leases at around 10 to 11 percent return. Entry level into the market is around $230k to $250k.
Regards
John
Sounds like the yields are roughly the same as they were 10 years ago when I last window shopped there. Assuming the rents have risen then that means there must have been capital growth as well. As far as I know the gold price is more important for marginal/new mine feasibility and less so for large existing operations. It also has very nice barmaids.
jdufall wrote:It is quite humourous reading posts from people who have very little or no knowledge about a subject.Freckle, one thing that hasn't ruled the well-being of Kalgoorlie is China. Other than the occasional investing into a mining company in the area, news about China is rarely spoken.
Always amazes me how little people understand the affect and effects of wider global activity at the local micro level.
China is the biggest buyer of gold. China takes around 60% of global mining production (in all minerals/metals) for either its own use or refining and reselling.
The super pit has a finite life.. currently 2021.
The 2 biggest resources mined in Kal are gold and nickel. They account for $7.7B of Kal’s $8.1B GDP. Ten years ago China took 8% of world nickel supply. Today it accounts for 44%
At the height of the global financial crisis in 2008 and 2009, more than a dozen nickel mines in WA closed or were placed in care and maintenance. Analyst Peter Strachan believes nickel producers, who have recently ramped up production since the crisis, could be at risk of closure again. “As China seems to be the only thing moving these days in the area of iron ore and steel production, and 65 per cent of nickel is used in production of stainless steel, that’s just put the downward movement on nickel prices,” he said.
http://infocommodity.com/2011/09/30/future-nickel-prices-trading-fall-recession-2012Seems to me they’re blissfully ignorant of the impact China is having on them. If China goes south then expect Kal to feel some pain.
The Freckle
Wisdom of hindsight – wish I had invested in Kal 3 years ago instead of Robina – bank valuation just dropped 135K, now my debt is bigger than my asset! Oh well they say you only lose money when you sell so I guess I will own a little piece of Qld for a bloody long time now!
PS love the spirited debate!
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