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Investors should approach mining town's ‘recovery’ with caution

By Jack Needham
18

Investors are being warned to proceed with care after a new report claimed the property market in one of Australia’s most prominent mining towns had turned a corner.

Mackay’s real estate market is showing signs of recovery following its dramatic downturn, according to a recent report from the Real Estate Institute of Queensland (REIQ), but investors are being advised to treat the news with caution.

Real estate agents are fielding an increasing number of enquiries from local buyers, according to the report, leading to speculation by the REIQ that the market has reached a turning point.

Mackay has suffered greatly since the downturn in commodity-related exports.

Only in June the area was named by CoreLogic RP Data’s Pain and Gain report as the biggest loss-making real estate market in the country, with 45.5 per cent of sales resulting in a loss.

The current median house price in Mackay is $340,000 – a 15 per cent decline over the past 12 months – according to CoreLogic RP Data.

But the REIQ report argues that record-low interest rates, combined with cheap housing stock, is driving a new wave of first home buyer activity in the area.

Peter McFarlane, REIQ zone chairman for the Mackay district, argues that this represents the first signs of a turnaround for the region.

“There has been a distinct improvement in the Mackay property market in 2015,” Mr McFarlane said.

“More first home buyers are taking advantage of the low interest rates and the affordable property prices to realise their dream of owning their own home,” he said.

Future price growth in the region is likely to be more sustainable as the market adapts and becomes driven by local owners rather than interstate investors, according to Mr McFarlane.

“Mackay has been re-established as a true local buyers’ market in the post-global financial crisis era of adjustment and renewed gradual growth," he said.

“As a result, market conditions have stabilised and confidence is increasing in the local property market and the broader local economy.”

He explained that moves to diversify Mackay’s local economy had led to a renewed optimism over the area’s prospects.

“Local government initiatives to broaden diversification of industry and facilitate development in the region have put Mackay on an economic development growth path in 2015, leading to a general feeling of optimism throughout the region.

“As outlined in the latest REIQ report, this positivity has now been reflected by the increased level of local buyers interested in investing in the property market,” he said.

But Ben Kingsley, CEO of Empower Wealth Advisory, cautioned investors to hold back on any entry into the Mackay market for the time being, stating that mining towns across the country have yet to see the worst of the downturn.

“In regards to mining towns, I would still be cautious before jumping in. I don’t think we've seen the bottom yet – we’re still seeing finalisations of capital expenditure and still some finishing off of expansions of some of the mines," he said.

“So I suspect we’re going to see less rental demand than we’ve seen. That will obviously mean that as these construction jobs further decline, we’ll still see a bit of vacancy and so there will be very little appetite or demand, which will affect prices.”

But Mackay may be in a better position than most once the recovery does commence, according to Mr Kingsley, owing to its attempts at economic diversification and location.

“It’s too early yet. I’d definitely say that Mackay as a township has got lifestyle appeal, it’s next to the Whitsundays, so from that point of view it has got a little bit more of a diversified economy. I suspect that you’ll start to see more focus on other agricultural assets as growth drivers for the township,” he said.

Even so, not enough signs exist of the Mackay market entering a clear recovery phase for any confident investment decisions to be made, Mr Kingsley advised.

“I wouldn’t be jumping in just yet. I’d probably give it another 18 months to two years before I’d really want to see the bottom [and] the signs of picking the bottom are near on impossible," he added.

“I’d prefer to see some uplift [rather] than some bottoming out. That’s probably my tip for most of those mining towns. I don’t want to be the trailblazer. I’m happy for others to trailblaze and then once I know the foundations are good, then it’s time to start.”

It's a sentiment echoed by Philippe Brach, CEO of Multifocus Properties and Finance. 

He believes that any recovery in the region will be led by a resurgence in iron ore prices – a distant prospect at this point in time. 

"As much as I’m convinced that Mackay will pick up again, I can’t see any points at this point in time. Mackay will start picking up when the iron ore prices start picking up [...] until they start moving I think the whole mining town real estate [sector] will remain subdued for sure. So I'm not sure where the REIQ has come up with a recovery in Mackay, because there’s no fundamentals for that at this stage," he said. 

In January this year, Trinity Property Consultants and the REIQ predicted that the Mackay property market would bounce back in 2015, claiming the region was set to become the “engine room for the Queensland economy”.

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