Investors trapped with no option to sell
Landlords in a number of regions across the country are facing a dire situation with untenanted properties and predictions that the market won’t turn around for another decade.
In response to comments by BIS Shrapnel – in which chief economist and director Frank Gelber claimed investors who still hold properties in mining towns were “stuffed for a long time” and should cut their losses and run – Right Property Group’s director Steve Waters said mining town investors may actually be stranded and have no options available to them.
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“I love that comment – cut your losses and run. It’s a pretty broad statement. A lot of these properties won’t be able to get sold – so it’s not going to be as easy as that,” he said on The Smart Property Investment Show podcast.
Mr Waters said investors with properties in “one-trick pony towns” should examine their exit strategies but are unlikely to find buyers.
“A lot of these areas you’re not going to be able to sell. The debt’s going to be far more than what it’s worth. So you’ve got to look to other avenues to perhaps supplement the income for the mortgage and hopefully the rest of your portfolio can help sustain that,” he said.
Positive Real Estate CEO Sam Saggers said it was difficult to see any growth coming into mining towns over the coming decade, especially with capital city growth rates slowing.
Mr Saggers said areas such as Moranbah, Dysart, Newman, Karratha and Port Hedland had contracted in value by upwards of 75 per cent, and even though it was difficult to imagine, they could decline even further.
He cautioned that investors who were hoping to sell these properties could face significant roadblocks because the market has a limited pool of potential buyers.
“When there is no [rental] return, they’re very hard to sell to another investor. Are owner-occupiers buying in those areas? Well they’re very, very limited at the moment. There aren’t a lot of locals shopping. A lot of people have actually left town, so you’ve got a population movement out of those areas,” he said.
“You’re going to have to hold on. And it could be five, 10 years before really there’s an optimum time to sell.”
Mr Waters agreed that the fortunes of regions won’t turn around any time soon and said the short- and medium-term are likely to hold more pain in terms of property prices.
"I don't think there's a hell of a lot you can do other than bunker down, look at your cash flow and look for exit strategies," he said.
The full interview with Sam Saggers about what's next for investors in mining towns can he heard below. Mr Saggers also discusses which regions will replace mining towns for investors seeking fast gains and high cash flow, and reveals what's in store for Sydney and Melbourne's property markets heading into the New Year.
The Smart Property Investment Show podcast with Steve Waters is available for free here, or you can subscribe on iTunes.
