Déjà vu in Moranbah?
This struggling Queensland mining town, once considered a miracle property market, is rumoured to be about to boom again. Could it be true?
Anyone remember an investor fairy tale doing the rounds a few years ago?
It went something like this. Once upon a time, in a Queensland town far, far away from a major city there lived a quiet community on a grassy plain. Not all that much happened there, but that was just how residents liked it.
Because the town was small, there were few houses, but no one seemed to mind and the town stayed like this for decades. That was until a group of scientists discovered massive coal reserves nearby. Multi-national companies quickly followed and drew up plans to extract the coal. This required thousands of people to migrate to the area.
Suddenly the town having few houses was a problem. There weren’t enough places for new people coming in to live.
Those who owned properties took full advantage. They began selling their properties for triple or even quadruple the prices seen before the coal was discovered and made a killer profit. Investors soon got word of the money that could be made in the town and bought up land. They quickly erected houses on the land and made their own killer profit.
The name of that town was Moranbah. And for a lot of people that is where the tale ended. It is a story often spoken about as a reminder of what can happen for property investors who are willing to put their money in emerging property markets.
This year, whisperings of the fairy tale have returned with full force as reports are released of resurgence in Australia’s coal industry. One, commissioned by Matson Apartments, is particularly optimistic.
“Moranbah’s property market is poised for its next boom with over $17.2bn in major infrastructure projects planned and $5.6bn of these approved within a 60km radius of the township,” the report says.
This may be good news for those looking to get their share of mining town profits, but investors should consider the real end to the story of Moranbah. It is far from a fairy tale.
The tragic ending
You see, even though Moranbah expanded rapidly over just a few years, it still maintained the feel of a sweltering and small country town where not much happened. A popular option began to emerge: continue to work in the coal mine, but live somewhere else.
Mining companies loved the idea. As Moranbah property values continue their surge, prices and rents had become so unaffordable that a change was needed. The idea of fly-in fly-out workers lodged in mining camps took shape. Workers could live in a different town or city, fly to the site of the mine, stay in a mining camp and completely circumvent Moranbah township.
It was great for the mining companies but devastating for Moranbah property owners. Many had purchased property at absorbent prices, but because demand for them was waning, their rents and values plummeted. In the end, they lost hundreds of thousands of dollars.
It is for this reason that reports of a resurrection in Moranbah’s property market should be considered carefully.
The motivation for round two of a Moranbah boom is that an upward swing in coal prices may be enough to spur a new wave of mining workers into the town. The report commissioned by Matson Apartments says that new projects represent a game changer.
“Moranbah has faced a range of challenges in the last two years [but] there are signs the market is turning as nearby coal mines return to full production and new mining projects start construction,” it says.
Major coking coal projects include the proposed Red Hill Mine which would employ 3,000 contractors during peak construction and up to 1,500 workers and contractors, according to the producer of the commissioned report. “[Growth] is expected to see demand for 265 new dwellings per annum between 2013 and 2018.”
Behind the hype
Changes may be coming Moranbah’s way, but current indicators aren’t as encouraging. DSRScore.com.au figures show that the latest vacancy rate for the town is a whopping 6.6%. This suggests a market where an unusually high proportion of landlords have tenantless properties.
To put that number into contrast, the average vacancy rate among Australia’s 7,000-odd suburbs is between 1% and 2%.
Vendor attitudes aren’t encouraging either. The average vendor of property within Moranbah is decreasing his property’s original asking price by 23%, and considering that the average property is taking more than five months to sell, this suggests that sellers have lost hope: they aren’t seeing significant buyer interest and are lowering their expectations as a result.
Of course, if the upturn in coal mining activity has the effect on property prices that some are forecasting, such statistics could represent a perfect opportunity to get into the market at just the right time. But then, considering Moranbah’s turbulent history of prices growth is it really worth the risk?
Suburb to watch: Wynnum West
Wynnum West is a suburb within Brisbane’s increasingly popular eastern suburbs and benefits from being roughly 2km from the coast. Thanks to expanding public transport infrastructure, Brisbane’s entire eastern coastal region has been unlocked as an investment destination and within that Wynnum West is easily one of the area’s most affordable suburbs.
The median unit price is just $325,000, but there are a multitude of older units that can come onto the market for as little as $250,000. Since the average weekly rent within Wynnum West is at $375, creating an average rental yield of 6%, this makes a significant portion of the listed units prospects for cash flow positive property.
Buyers seem to have caught onto this fact, as recent sales patterns shows that increased activity pulled prices up 15% between January 2013 and 2014. Like much of the rest of Brisbane over last year, this was primarily driven by investors who purchased in the area to take advantage of the strong cash flow offering.
Amenities wise, the suburb offers everything a tenant would want – with young families making up the majority of the rental and owner occupier market. Local shops include a Coles and Woolworths, while there is also a K-Mart and plenty of fast food options such as McDonalds and Hungry Jacks. Schools abound and the Brisbane CBD is within 40 minutes commute.
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