Mining region ‘crash’ an ‘opportunity’ for investors

He said many existing and prospective investors are now “spooked by claims that the mining boom is over and are seeing visions of potential ghost towns”.

Mr Crawford’s rebuttal comes after numerous commentators, including SQM Research’s managing director Louis Christopher, turned their attention to the region’s downturn and warned investors about the dangers of investing in mining towns.

Late last year, Mr Christopher said Port Hedland, a mining town in the Pilbara region exposed to iron ore and gas, had experienced a “40 per cent plummet” in asking prices, with houses down from $1,500,000 to $900,000 according to the research house.

“Naturally, that has been an appalling result for existing property investors,” Mr Christopher said.

“The rental situation has also been just as bad. Rents for houses briefly peaked at $3,200 a week. They are now down to $1,500 a week.”

At the time, Mr Christopher conceded the worst may be over in the region, but likened the recent crash to “bloodshed”.

Commentators again turned their attention to Port Hedland in February when a house in the region passed in at auction for $360,000 after reportedly being bought four years ago for $1.3 million.

Mr Christopher said the auction news was “a very sobering result” which “could be a sign of worse to come in the Pilbara region if the iron ore price keeps dropping given burgeoning global supply”.

He said this particular house failed to attract buyers because the Port Hedland market is “especially vulnerable to the commodities downturn” and “the plunge in the iron ore price and slowing Chinese economy has stifled mining activity and stymied demand for property in Port Hedland and other mining towns around the nation”.

According to Mr Christopher, SQM Research figures show that asking prices for three-bedroom houses in Port Hedland shot up to $1.3 million in 2012, but “have since tumbled to just over $800,000 this year”.

He said the February auction that hit the news demonstrated that “house prices could fall a lot further before they stabilise”.

Mr Christopher said house prices were following in the footsteps of the rental market, which had also experienced a sharp decline in recent years.

“The drop in house prices follows plunging demand for rental properties as fly-in workers fly out and stay out. While demand was super hot during the mining boom, now that the mining sector has contracted sharply, thousands of jobs and workers have disappeared from Port Hedland and other mining towns, slashing demand for property and rents,” he said.

In response to these claims and various others, Mr Crawford conceded areas linked directly to the mining industry in the Pilbara have seen a drop in house prices over the past 18 months, but said “it’s important to consider all the facts and the potential that remains in the region”.

“The recent ‘downturn’ in the mining industry has seen the government use this within their over-exaggerated election talk, which as a result has seen many panic about their investments,” he said.

“The Pilbara has been and continues to be a huge driver of economic activity. In the past, housing supply has been unable to keep up with demand from quickly growing populations and expanding mining operations. Prices and rents surged, in particular over the past five years. Rents peaked at over $2,000 per week in Newman in 2012.

“2010 saw the introduction of the Pilbara Cities Scheme by the government to help stabilise the property market. However, in 2012 iron ore prices dropped unexpectedly and resource companies needed to reassess their investments. This has subsequently seen a drop in prices in the region.

“However, despite this over the past few years we have seen Karratha’s median house drop in 2013 regardless of annual turnover being at its lowest point in 23 years [according to the REIWA]. This in turn has seen a substantial increase in sales volume in the town from the local and investor marketplace, capitalising on lower prices.”

Mr Crawford said there is “little reason why you should not stay confident on investment within the Pilbara region over the long term, in particular South Hedland, Port Hedland, Newman and Karratha.

He pointed to long-term demand from China as a positive sign for the market and said the mining boom is “simply transforming from its initial birth to a more sustainable industry”.

“The mining boom is not over. Put simply, as the iron ore industry moves from the construction phase to the operations phase and commodity prices drop, so too have rents and home prices. A drop in prices in every marketplace is a natural part of the property cycle and is expected historically in these regions every four to five years. The benefit of these shorter cycle markets is that up-cycles and growth are just as frequent when projects commence and the market begins to improve again,” he said.

Mr Crawford concluded that the market outlook for the region was far more positive than other commentators were forecasting.

“Even with a shift in the mining industry and the so-called end of the mining boom, the property industry should still see positives. New investments and activity in the Pilbara region should see demand for property continue and a steady growth," he said.

“Investors should most certainly not be spooked by a mining shift when considering the Pilbara as an opportunity for current investment. Many have and continue to make substantial returns high above those achieved from capital city investing. However, in saying this, as with any investment, there is always risk when economic cycles change, and ensuring you're positioned to invest and hold your properties through the down-swing is the key.

“In coming years we have confidence that the region is sustainable and will continue to be. Government initiatives will continue to support the region’s growth as well as increased global demand for iron ore, adding to the infrastructure projects and on-the-ground operations in the regions.”