5 questions to ask before investing in mining towns

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Fortunes have been made and lost by investing in mining towns. Sam Saggers, CEO of Positive Real Estate Group, offers his considerations to get it right.
  1. Does the town have a diverse economy?
Single market economies are towns that have only one resource, for example copper. The fate of that town fluctuates with copper prices, and is completely dependent on demand. The new mining markets, i.e. the ‘new boomtowns’, have high returns and low entry points but many of them aren’t solely dependent on one commodity and its international price point.
  1. Is there a purpose to the township prior to the boom?
Take Mackay versus Middlemount for example. Mackay is a major Queensland city, conversely, prior to China’s massive coal demand, there was not much in Middlemount except a fish and chip shop! I know where I’d be investing.
  1. Is there more than one company in the township?
If there are multiple heavyweight forces, it means there will be huge capital injections. Jobs will be created therefore accommodation will be needed, which in turn forces rental and house prices up. Additionally, if one company has an unexpected share market dip, there will be other companies still operating.
  1. Are the mining companies planning to provide housing to miners in the form of ‘dongas’?
Some mining companies provide onsite accommodation for fly-in fly-out (FIFO) employees to ensure they keep costs down.
One reason miners earn such high incomes is often due to the housing shortage. Some mining companies have started camps and included that into the workers’ salary, which reduces wages and ultimately affects the growth of property. The more dongas or camps, the lower the wages of the workers, therefore house prices will stay the same in that town.
  1. Is there a local property manager in town?
Having a good rapport with your property manager means you are protecting your investment. If there are no real estate agents in the township, you can just imagine the nightmare of trying to look after your property, especially if you are located far away.

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