The downside of the mining related property boom was even more spectacular than the upswing, but values have now steadied and rents are rising providing some of the highest rental yields across the country.
In the run-up phase of the mining boom there were two Australian regions that recorded spectacular capital gains, fueled by a surge in investment coupled with big pay packets, generous corporate subsidies for housing costs and a severe undersupply of housing relative to the growth in housing demand from cashed-up workers. The Pilbara region of Western Australia was booming on the back of iron ore and the Bowen Basin of Queensland was thriving thanks to coal prices. The Karratha council area (called Roebourne until 2014), which is a good benchmark for the Pilbara mining region, saw housing values rocket 87% higher over the five years preceding the market peak in 2012, while the Isaac shire, which covers a broad swathe of Queensland’s Bowen Basin, saw house values climb 72% higher over the five years preceding the 2012 peak.
Since conditions peaked in line with commodity prices and a wind down in infrastructure spending, dwelling values in these regions have moved through a long and deep downturn. Some suburbs have seen the median value of a house fall by more than 80% (WA’s Newman is down 84.2% since peaking and Qld’s Dysart is down 83.0% since peaking).
Although the recent trends can show some volatility due to low transaction numbers, many of the these mining regions have started to see housing conditions bottom out and commence what is likely to be a drawn out period of recovery. Most regions are showing housing values that are well below levels recorded ten years ago, which may be attractive to home buyers and investors. Rental vacancies have tightened substantially which is driving up rents, in fact some of the Bowen Basin towns have seen asking rents rise by more than 20% over the past twelve months.
Higher rents against low housing values is driving rental yields higher, with most of the towns likely to be providing a positive cash flow from the outset. Gross yields are typically above 6% in these regions.
Of course a note of caution always needs to accompany anyone considering a property purchase in these regions. The economies of a mining region are inherently shallow; asset values are highly dependent on the price of the commodity that lies under the dirt and the willingness of the private sector to invest capital in extracting it. Government policies can disrupt conditions, as can company policies worker accommodation, fluctuations in the Australian dollar and appetite for trade with key trading partners.
Investing in these areas is high risk and investors should expect a high rental return to compensate for that risk.
The RBA, based on spot prices, reported bulk commodity prices are 16.5% higher over the year in Australian dollar terms. If coal and iron ore prices remain elevated against a lower Australian dollar, we could see mining infrastructure investment gather some pace.
Investment in minerals exploration has been consistently rising since mid-2016, rising to the highest level since December 2013, which bodes well for further infrastructure investment across the mining sector. If that does eventuate, there should be positive flow on effects for these mining regions.