Change afoot in mining towns

Change afoot in mining towns

By Margaret Lomas | 09 July 2012

I’ve been talking about mining towns for some time now and passing on a rumour I have been hearing about the concern by local governments over the escalating cost of housing in these towns. Both values and rental yields are off the charts in many such towns, running away on the back of strong consumer sentiment linked directly back to our healthy resource industry.

Blogger: Margaret Lomas, host of Property Success, Sky News Business Channel

I’d heard that two things were on the cards – firstly that councils were looking to flood the market with land supply in an attempt to take the heat out of the market. The second was that mining companies were looking to take on the job of accommodation provision for their fly in/fly out workers. Being in the position of being forced to pay rents of up to $2,000 a week, the mining companies were coming to the realisation that they could make massive cost savings simply by providing miners’ accommodation.

These rumours appear to be coming to fruition, with the completion of miners’ cottages in Gladstone (where the problem of high prices had yet to bite) and now the release of this story about Mirvac’s planned new suburb.

I was at the PerthPerth, TAS Perth, WA expo earlier this year and had investors asking for my advice on whether they should be buying $1m, basic house and land packages in the Pilbara which would rent for $1800 a week. Their eyes were glazing over with the promise of a huge positive cash flow and many were telling me of their plans to pay off debt quickly using such cash flow. My warnings about the imminent danger were falling on deaf ears and I know many of these investors were looking for my seal of approval, rather than really wanting to follow any advice.

The problem is, of course, that by the time news such as this is released, it’s too late to get out. There’s no question that such large accommodation releases will put not only instant brakes on runaway values, but the values will sharply turn and head south. It matters little if you paid the debt down because the underlying asset will reduce in value pretty quickly, as will the yield. Those putting so many eggs in this investing basket are headed for a downfall of catastrophic proportions.

I might love it when I am right but I hate to see even investors who don’t listen take such a big hit. The point is, even if I had not heard such rumours, a thinking person had to see that something needed to be done in these areas, and that sooner or later someone would think of something. The fact that they have thought of it sooner than even I anticipated just brings the downfall closer.

I’ve always recommended investing in towns with a mining influence rather than an actual mining town. Such a town usually has diversity of its own, and does not exist purely for the mining activity. When BHP in Newcastle closed down, Newcastle barely blinked an eye, having already grown to be a thriving, diversified town. There are many areas in Australia today which are benefitting from the mining boom, but they are not mining reliant and they have a thriving, underlying economies which are not impacted by fly in/fly out workers taking their wages out of town. Such areas may not boom with any great fanfare, but they won’t spectacularly bust either. The more likely scenario is that they will sit in your portfolio and grow quite nicely, year in, year out.

About the author

Margaret Lomas

Margaret Lomas

Margaret Lomas is the Host of two weekly property investment shows on Sky News Business Channel 602; 'Your Money Your Call' and 'Property Success with Margaret Lomas' which she creates and produces. Margaret regularly travels Australia summing up the potential of the investing landscape for her popular 'Town Spotlight' where she explores the hotspots property investors need to know about. Margaret is the best-selling author of 6 Property Investment books, including titles such as 'How to Create an Income for Life' and '20 Must Ask Questions® for Every Property Investor.' She has just released 'Investing in the Right Property Now!', a book packed with the latest investing guidelines.

In addition to being the Founder and Director of Destiny Financial Solutions, a company which has assisted Property Investors across Australia through mentor support and education for more than 15 years,... Read more

Change afoot in mining towns
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