Naive for investors to buy in mining towns

By Reporter 10 October 2012 | 1 minute read

Investors are naively “falling for” mining towns that are about to see a downward spiral, according to a property advisor.

Warning against the surface-level attractiveness of mining towns, Kevin Lee from Smartline Home Loans said that there is an obvious issue with these areas and investors would be naive to jump in without understand this risk.

“The reality for many property investors in those far flung Australian outback mining towns is that once the mineral or ore etc has been extracted from the surrounding countryside or if the mineral prices crash, then "it's all over" for the towns that boomed because of it,” said Mr Lee.

When this crash is seen, a huge population decline and rising vacancies will become evident.

Pointing to Queensland’s Moranbah as a typical “two-speed economy” area, with more than 50 mines in the district, he noted that the ‘real’ population is a small group of people suffering from the $2,000 rents that mining employees can pay.

This, he said, isn’t a new phenomenon. Towns such as Broken Hill and Cobar had great success in their mining heyday, but they are no longer going forward, he noted, with populations once at 10,000 now shriveled to 1,000.

“It’s a Catch-22 and it can't last forever,” said Mr Lee.

Other examples on the list of towns that boomed due to resources and then declined, include a number of gold-mining towns Australia wide from Cassilis in Victoria and Ora Banda in Western Australia to Ophir in New South Wales.

Naive for investors to buy in mining towns
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