Last time I looked (realestate.com.au) at rental property availability in Port/South Hedland there were 33 properties. That was about a month ago maybe less.
Today there are 52 listings.
60% jump….
Sound's like what has happened in Moranbah this year.
There were 33 available properties for rent at the start of the year – just checked now on RE.COM and found 212.
A young switched on guy I worked with up there had managed to acquire 5 properties over several years. He had a paper profit of around 2 mil and leveraged at 60%. I suggested 2 years ago he should think about selling out and taking the CG. I tried to explain to him how things were likely to unfold over the coming years. Like many he couldn't see the trees for the forest. His weekly TO was around $10k/wk plus a nice income of around $6k. He was killing it and believed like many that the resource sector would simply roll on for decades.
It's the age old problem. When you're caught up in a bull market surge, when do you get off the wave before it crashes. Many I think will have made really good paper profits only to see them vaporise as the accommodation overbuild combined with construction contraction materialises before they can get out.
His $2mil paper profit will probably get wacked pretty hard and his leverage will end up closer to 100% if he marks to market.
It'll be interesting to see how this goes over the next 12 months and what the extent of the correction will be. I know if I owned property in a resource town I'd be be having a few sleepless nights to say the least.
Just had a look at properties for sale there …. 257 !!!!! Six months ago a place usually sold within a month often only days
I note they still want crazy prices for stuff up there. 3 mill for a vacant beach front block… insane!!
Do you think this will be the case more so with towns purely driven by coal mining or do you expect all resources to be affected?
-Nathan
nguli wrote:Do you think this will be the case more so with towns purely driven by coal mining or do you expect all resources to be affected?Jez I could write a PhD paper around that question.
All resource economies will take hit but to varying degrees. The problem for regional areas that have resource activities in their area is that their respective economies will depend to some extent or other on the resource sector. As a percentage of their economies that will vary but regardless any down turn will still impact these towns. A complicating factor is that many of the small town economies are interdependent for a range of services and activities. So problems in one town may spill over to another, schools for example.
There are several problems with resources. Namely;
- by the time the committed infrastructure spend cycle completes they will have substantially over built their capacity. That means little if any future growth for decades
- production costs have grown to the point that coupled with over capitalisation many of these operations will become marginal at current (and probably declining) prices.
- compounding pricing woes will see demand side reductions in volumes. For plants to stay viable when prices are falling means higher volumes must be achieved to stay above break even. Unlikely given falling global consumption.
- central banks globally are devaluing their currencies which is pushing up local prices further suppressing demand.
- competition is increasing globally as production from emerging countries comes on line
- sovereign risk issues are causing problems for conglomerates trying to figure out how to match planning with future demand expectations.
- stimulus programs in other countries are not likely to eventuate. As this become clearer markets that have held up based on market propaganda will invariably contract.
My immediate to long view on resources is that production levels will initially decline below demand levels considered to be a mean average for at least the next decade. Oil and gas will be the exception but it will also have its problems. I don't see any improvement in global demand for iron ore and coal for some time.
China and India were the two countries originally haled as the drivers of a massive growth in coal demand. Both economies are basket cases but for differing reasons.
Interesting. It is a shame those who had large unrealized gains only to watch them disappear as you were saying above.
-Nathan
nguli wrote:Interesting. It is a shame those who had large unrealized gains only to watch them disappear as you were saying above.Given your MO you are probably at risk as much as they are.
It's taking a while but there is slow awakening to threats that a global downturn will throw up. Past PI strategies need rethinking and the emphasis should involve an element of tactically defensive postures. Your strategy was great in a bull market but is vulnerable in a bear market. This bear market though is substantially different to past bear market corrections. Its global nature is unusual compared to what was often national or regional corrections. In the past you bet on the healthy parts of a global economy helping the sick parts readjust and regain momentum. This time around the whole system is sick and getting sicker.
There's nothing out there to help the system rebalance itself. In ancient financial systems they realised that the system had to be reset from time to time. Most debt was owed to the state (tax payer). A debt forgiveness would be enacted and the system reset for another round. We don't have that circuit breaker today because debt is never forgiven.
The next 3 decades are going to be nothing like the last 3.
Notice how from around 1880 to 1950 property actually declined over that cycle. My guess is that we are entering another super cycle where real property values decline over time. You can see how exponential growth over the last decade could not be sustained – something has to give even without the global pressures we face today.
Property is a long term play. The long term outlook is questionable to say the least.
Sorry freckle what do you mean by 'MO'?
Hi
I work in the coal industry and I am lucky enough that my job is safe at the moment, however it is sad because over the past month times have got real hard and I am seeing a big change in the way the mines are operating, mainly costs and what they spend on incidentals and more importantly contract labour. The amount of contract labour that has been cut recently can only lead to one thing and that is people moving from the area and vacating houses..
nguli wrote:Sorry freckle what do you mean by 'MO'?Modus Operandi (method of operation)
Aaahh I see! Well I do agree with most of what you have said. And yes I am just as much at risk. However I struggle to do nothing 'just in case'. I am still pretty young and the way I see it is if I try my hardest and fail, I will learn a good lesson and still have plenty of time to pick myself up and turn things around.
Hi Troy,
Now this is what I was curious about in my first post. I am hearing alot of stories like this but all related to coal mining. I work in copper/lead/zinc and haven't experienced anything to this extent. Whether the commodity prices still have a reasonable profit margin, the business run more efficiently or more demand for these metals I'm not sure. Maybe Its just a matter of time…
-Nathan
nguli wrote:However I struggle to do nothing 'just in case'.Slowdown.. ever notice that when you're in a car the faster you go the less you see. Life's like that. It's about the journey not the destination.
Quote:I am still pretty young and the way I see it is if I try my hardest and fail, I will learn a good lesson and still have plenty of time to pick myself up and turn things around.And that differentiates you from the intelligent investor. With that approach there is a good chance you'll end up on the windscreen of life.
There are two types of go-getters out there. Dumb motivated people and smart motivated people. Very few of the dumb motivated crowd make it into the top 10% and when they do it's through good luck not good management. Smart motivated people on the other hand have a much higher success rate in reaching the top 10%.
Your challenge as a young enthusiastic investor is move from the dumb to the smart category. Life's much better if you try and succeed the first time. Having to repeat the process until you succeed sucks.
nguli wrote:I work in copper/lead/zinc and haven't experienced anything to this extent. Whether the commodity prices still have a reasonable profit margin, the business run more efficiently or more demand for these metals I'm not sure. Maybe Its just a matter of time…Copper's the one to watch. Demand is falling so you may see a drop in volumes at some point. Copper is a speculative commodity and current prices are being supported by speculation on stimulus. As it becomes apparent that stimulus won't appear or have the desired affect copper could be exposed to a sudden price crash. The Chinese like to use copper as security for RE loans which is a worry. It's becoming apparent that some smelters/foundries have used commodities to secure financing for various operations not in line with demand. Commodities used for security have been rehypothecated in many cases and as financial ventures collapse this is causing a few problems to say the least.
The problem with copper in that context is that true stock levels, consumption etc aren't really known. As china unravels this could cause a few problems for miners to say the least.
Lead and zinc are reasonably stable by comparison.
Point taken. I know at times I am going 100mph with my blinkers on, perhaps only seeing what I want to see.
Cheers,
– Nathan
This is not good, I have a girlfriend who has purchased a development site in Karatha to build 10 units, joint venture.
I thought this was very high risk at this time of the cycle. Looks like I could be right.
WI
worldinvestor wrote:This is not good, I have a girlfriend who has purchased a development site in Karatha to build 10 units, joint venture.I thought this was very high risk at this time of the cycle. Looks like I could be right.
WI
Don't write Karratha off just yet. The Woodside LPG project mooted for north of Broome may just end up being a pipeline to the Dampier processing and port facility.
In saying that though I think anything property related in resource intense towns is suicidal to say the least. I can't see any long term viability with property at this point
Should be interesting to see how it unfolds. The smelter here is scheduled to shut down and dismantled by 2016 as it is sitting on a large copper deposit aswell as it being more profitable for them to ship out the concentrate rather than smelting it. But it seems like everything is still full steam ahead. The concentrators are undergoing huge upgrades as well as a new Gas fired power station being constructed in town, also Legend is building a large phosphate plant expected to be completed next year.
There is minimal vacant land and people are sleeping in cars because there is no rentals available. Rent keeps climbing with house prices slowly following behind and it is becoming quite hard to resist.
Obviously things can turn around quite quickly in these types of markets, but no-one has a crystal ball as to when and whether things will be on the up for a little while longer…
-Nathan
BHP Billiton axes NRW contract
BHP Billiton Ltd has announced it will axe its Port Hedland project, with the impact to be felt largely by project contractor NRW Holdings Ltd, The Australian Financial Review reports.
According to the newspaper, BHP has terminated part of a $120 million contract for work at its iron ore blending yards in Western Australia.
It is understood BHP is set to pay as much as 10 per cent of the value of project contracts to opt out of the agreements with NRW and two other contractors.
A spokesman for NRW has confirmed the termination and said they were still yet to determine the financial impact of the decision on NRW.
That's going to hurt. NRW do mainly formation earth works. They employ a lot of people mostly in camps I think with maybe a small part of their lower to middle management in housing
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