Those who missed out on Gladstone’s boom in 2011 are probably wishing they’d bitten the bullet and dived into the market sooner rather than later. If you were like me, you probably watched prices increase by around $5000 per week, every week, for the entire year.
BY LAUREN CROSS
I kept thinking to myself ‘it’s a no brainer to snap something up in Gladstone’, but instead I went with an emotional purchase and bought a house (my principal place of residence) in Brisbane.
It’s now 2012 and while I don’t think it’s too late to buy in Gladstone, it’s now probably too expensive for my budget. It’s also already seen significant growth and I’d prefer to try and buy something where the market is bottoming out or starting to climb, rather than nearing its peak. However, everyone else seems to be cashing in on the mining boom – why don’t my fiancé and I?
I’m determined not to miss out on the next mining boom area but I’d still prefer to buy somewhere that’s only just starting to rise. That’s why I’m now looking at South Australia, which means I’d probably be buying near the bottom of the market in any given area, if and when the Olympic Dam expansion occurs. The project would create one of the world’s largest open-cut pit mines and be an economic driver for SA over the next 40 years.
The closest town to Olympic Dam is Roxby Downs, so logic tells me Roxby Downs will almost definitely take off. I recently saw a property I liked and even made an offer.
However, the ongoing subject of ‘high risk’ made me chicken out in the end. I was told by a couple of property experts, friends and family that a mining town was definitely too high a risk to take, especially for someone with my finances and experiences (meaning I still have a long way to go and a lot to learn). Instead, I was told that I should invest in ‘safer’ options, like Sydney, Adelaide or Perth. Of course, part of me knows you can’t really go wrong in a capital city, but try telling that to the investors who’ve made more equity than they ever dreamed of in places like Karratha, Moranbah or even Gladstone. It’s hard to see the ‘high risk’ when the mining boom has given so many people ‘high reward’, not to mention ‘high yield’.
Logic tells me Roxby Downs will probably be the next place to go (although there are plans for a BHP camp that would accommodate up to 10,000 people close to Roxby Downs on Andamooka Road, which had me slightly concerned about the impact on capital growth).
The next best bet would be to turn to Whyalla, Port Augusta or places that could possibly benefit from the Olympic Dam expansion in some way and even though I like Adelaide, the rental returns just aren’t very attractive at the moment. That’s also the problem with Sydney. I’d love to buy a little apartment somewhere around the Lower North Shore in my absolute favourite suburb of Mosman, but it’s just too hard to be so highly negatively geared at the moment. It’s also quite difficult to argue capital cities are better than regional towns when places like Gladstone and Mackay have outperformed Brisbane in recent years.
What do you think? Are mining towns really that risky? Is it better to invest in a capital city, or is now the time to be getting on board the mining boom? In fact, is this just the start of the mining boom and will regional areas outperform capital cities in the near future?
Lauren Cross is a journalist/subeditor of Australian Property Investor magazine, www.apimagazine.com.au
Lauren
Great article – I can definitely relate to your confusion !
I currently have two contracts in play – one in Dysart – the other in a Brisbane suburb 8km from the CBD. Both offer significant “up side” with the ability to renovate and subdivide. The Brisbane property is at the bottom of the market and about $100k under valuation… the Dysart property is – well – who knows where that market’s at ? I’ve watched Dysart prices rise $100K and rents double in the 6 months since I “chickened” out of a contract.
As a new property investor – buying my first pi (a mortgagee in possession) in the middle of the GFC in Jan 09 – I’ve been somewhat “lucky”… having bought several properties in distress – renovating and gaining equity – then using the equity to purchase the next property. I’ve accumulated approximately $600K equity in 2-3 years and have adopted a very specific strategy after exhausting every API Magazine for the last 3 years in an attempt to learn from and replicate others experiences. If this is a “down time” in property – I can’t wait for the normal or good times !
My strategy isn’t rocket science and it works well in a flat/down market. I look for properties in either a strong mining town or a Metro market that’s at the bottom of the cycle (currently Brisbane) offering the following parameters to MANUFACTURE my OWN capital growth and increase rent:
* Renovation opportunity – particularly adding bedrooms to increase yield.
* Subdivision potential – creating an additional dwelling (or 2-3 in Brisbane
with the “single unit dwelling code”.
Like you – I yearn for a Mosman or Neutral Bay ip unit having spent most of my life there. However – the yields and current lack of capital growth just don’t add up. It’s also hard to know if Sydney recently peaked like Melbourne or if it’s still “cheap”. I do know there’s a massive supply of upper market Mosman houses for sale right now due to a significant across the board pay and bonus cut to the banking sector. (Mosman is a banker’s haven).
I’m still very attracted to the mining market after some recent success with an ip I bought in Sth Hedland 12 months ago. I was lucky enough to gain subdivision approval (created a new lot at rear) and to get an opportunity to add 3 bedrooms to the property when the tenant moved out 1 month early while continuing to pay rent. The value of the property has increased by $350K in 12 months and the rent has now increased by $1000/week to $2500/week. Not bad for $30k in renovation and subdivision planning/application costs. When I actually subdivide the rear lot in a month or two – the valuer has estimated another $300K equity and another $1.1mil when I build a transportable house at rear.
That’s over $1mil equity in 12 months and over $4000/week ongoing NETT rent… using only $75K of my own money. Now that is LEVERAGE – using the banks money to create a significant passive income for myself. Despite this generous result – I still feel the doubt and worry creep in when I read property experts dissuading investors from mining towns and pointing out the merits of metro markets.
I’ve decided to put my money in both markets – to even out the risk OR to reap the best of both worlds. My portfolio includes metro Brisbane and regional QLD houses, sea change locations (not the Gold Coast) and mining towns likeSth Hedland with huge population expectations and very little land availability.
The cashflows from places like Sth Hedland allows me to buy quality negatively geared properties in premium CBD suburbs like Mosman in Sydney or Sherwood in Brisbane – where I currently hold two pi’s – currently awaiting development approval to subdivide each property into three properties while keeping the existing dwelling and adding new townhouses (SUD development code – unique to Brisbane and very profitable).
So with my newly acquired equity and increase to my income from the Sth Hedland ip – I’m back at the cross roads… do I use the equity to buy another ip in Brisbane or another ip in Sth Hedland (if you can find one) or Dysart/Gladstone etc ? Or do I build some properties on the vacant land pi I’ve been sitting on in Alpha for two years while waiting for this town to become the next giant of mining towns ?
Comment by David Purcell — February 25, 2012 @ 9:55 pm
Hi David,
First of all – well done! It sounds like your property investment journey is extremely successful so far! The equity you’ve gained in such a short time is actually quite astonishing and you should feel very proud!
I also wonder if Sydney has peaked or if it’s still ‘cheap’, as most of my friends who bought in Sydney have done very well.
It sounds like you got into the mining areas at the right time and at least you’re spreading the risk. Unfortunately, I can’t tell you where you should buy your next investment, as I too am unsure if Brisbane is better than Gladstone etc. What I can say is that I believe now is a fantastic time to buy and I think Brisbane is definitely at the bottom of the market. I also believe that investing needs to be a long-term strategy and commitment. But don’t give up on your dream – given the equity you’ve already got you may just get that Mosman pad sooner than you think.
Comment by Lauren — February 27, 2012 @ 9:13 am
Hello Lauren
I live in moranbah and have done for 40 yrs this yr. People have been saying that coal mining would only last for 20 yrs then…..here we are going through the biggest boom I have ever seen in my life….and we have the highest grade of coking coal you can get with appproximately 100 yrs worth left in just this area alone…
I own a couple of houses here but live in one of them and am about to build another here to upgrade. I would invest here again if i needed to add to my portfolio just because of the rental prices they are receiving currently….up to $3000 a week. Especially if it is something you can sell again such as a large family house, or affordable accommodation for the people who don’t have subsidised housing, i.e. mine supplied. There are still some excellent buys even in this current market, and I would look at two story with renos already done, and room to add on or put another unit in the back which many investors are doing currently. So short are we here for housing of any kind….good luck with your homework…
Comment by Lyn — March 2, 2012 @ 5:52 pm
Hi David,
I am interested to find out your strategy of how to look for property has potential subdivision potential, and what is your thought of next booming mining town,
Thanks
Wayne
Comment by Wayne — March 16, 2012 @ 10:46 am