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April 4, 2012

Is the magic of Moranbah over?

Every investor who bought in the mining boom town of Moranbah last year seemed to be doing very well. I watched as prices went up, rents skyrocketed and average mum and dads hit the jackpot. Then, last month, the bubble finally burst.


I wrote a blog about a month ago, asking if mining towns are really that risky.
Well, as it turns out – they are!
And it’s the seemingly safe and mighty mining town of Moranbah that has come crashing down before anyone even saw it coming. Who would have thought that a town with at least five future planned mines, (see page 24 of this document for details) would currently be a place where landlords can’t get rent. Before Christmas, properties were achieving up to $3000 per week in rent. Now, a standoff between landlords and mining giant BHP Billiton Mitsubishi Alliance (BMA) is resulting in dozens of vacant homes (there are currently 121 listings on realestate.com.au).

The company is refusing to re-sign any leases for three months, forcing landlords to drastically drop their rental prices. On top of that, industrial action and wet weather has forced BHP BMA to declare ‘force majeure’ (an inability to meet obligations) at not one, but seven of its Bowen Basin coal mines. Apparently the company even told coking coal customers in Europe, Japan, India, Latin America, South Korea, Taiwan and China that it wouldn’t meet supply obligations. Who knows how long that industrial action could last, but while there are no workers, there’s no need for rental accommodation in these areas, which includes Moranbah. Yikes! (See this news brief for more details.)
Of course, those with locked-in leases don’t have much to worry about, but it’s a different story for those who’ve just bought properties or who have leases coming up. One investor I recently spoke to, who wishes to remain anonymous, told me the great rental yields advertised online aren’t as good as they seem. He claims agents leave good properties on the web for months and months, which gives investors a false impression that every property has amazing rental returns.
“They don’t tell the full story, that landlords can’t get any rent at the moment and prices are coming down,” he said.
“If you ring an agent, some will be honest, some won’t be.”
In fact, this investor currently has a property under contract in Moranbah, listed at $740,000. He was given a rental appraisal of $1900 per week for the property, but at the moment it’s listed for $1450 per week and there haven’t been any bites for the last two weeks. Now imagine a difference of $450 per week in rent and what that would do to any investor’s planned budget! Is it just me –  or is that enough to make you seriously freak out and head towards the nearest ‘safe’ capital city!
This particular investor also believes the property’s true value would now be worth just $670,000 and he’s currently trying to lower the price in the contract. He adds any investor who gets a rental appraisal on a property should take off 30 per cent when they do their sums (so if the appraisal is $1000 per week, don’t expect more than $700 per week). He warns they should also probably ‘get on the ground’ rather than buy something sight-unseen under a false pretence.
It sounds incredibly scary and even shocking, given that every Moranbah investor seemed to be finding their pot of gold only months ago. However, despite what must be an awful situation for many investors at the moment, I can’t help but still believe in mining towns. Although council is currently trying to negotiate with mining companies to release more land around the Moranbah area, this standoff and wet season and even industrial action surely can’t last forever, and the rental yields, even at 30 per cent lower than agents are quoting, are still very attractive to landlords (provided you can get a tenant). Prices in Moranbah are now coming back – but soon enough, surely they’ll start to climb. There is simply too much happening in the area! So for investors priced out of the market, they may get a window of opportunity to snatch a bargain. I’m sure I will be just one of the many curious people keeping a lookout on the web and talking to many people on the ground. As Warren Buffett once said: “Be fearful when others are greedy, and greedy when others are fearful”.

What do you think? Would you still invest in a place like Moranbah? Does this reinforce your belief that mining towns are high risk, or is it all part and parcel of riding the mining boom wave?

Lauren Cross is a journalist/subeditor of Australian Property Investor magazine, www.apimagazine.com.au


  1. I am an investor in Moranbah, and yes I’m lucky enough to have another 2.5 years to go on my current lease @ 14% yield.

    the situation highlighted above has certainly caused a ‘perfect storm’ for investors which will pass quickly once BHP sort their union issues out, however in the interim I believe it is still a good time to look for properties in Moranbah under $700k which would still yield +10% and trust that the market will recover because there is still a huge property shortage at anywhere above mid production levels in the region

    Comment by Colin — May 9, 2012 @ 11:21 am

  2. I too am a Moranbah investor. I purchased at the beginning of the year and luckily, have a Tenant until early next year. I have had many a sleepless night over the whole issue as i thought I thoroughly researched the area. It just goes to show what can happen. I hope,Colin, that you are right & that the market will recover & I hope it does really, really soon.

    Comment by Maria — December 8, 2012 @ 1:48 pm

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