Port Hedland’s proposed outer harbour development has passed two key milestones, and speculation is mounting that the project will provide a boost to the local property market.
Having gained Environment Protection Authority approval for the project last month, mining giant BHP has announced that US$917m in pre-commitment funding has been approved for the construction of the 100m tonne per year iron ore facility.
It is estimated that the project will cost more than $20bn in total, and Crawford Realty group director Ryan Crawford believes that – should it go ahead – its effects on the local economy, population and housing market will be felt for the next decade.
“The massive expenditure project is heralded as the highest value single mining project in Australia’s history,” he said. “BHP will increase its in-town and FIFO [fly in, fly-out] workforce to complete the project, which will flow-on to increase wages, local business and sales and rental values within the town.”
Noting that the Hedland property market, like most mining towns, is directly supported by supply and demand, Crawford believes that the inflow of workers required for the project will squeeze an already tight rental market.
“For well over the last decade demand has outstripped supply in the town and with the announcement of the port project this trend is set to continue to levels not yet seen in the Pilbara,” he said.
“With current rental vacancy rates in the town at 0.5%, and an expected workforce increase of over 4,000 on the project, inclusive of both in-town and FIFO workers, the local market is expected to continue to struggle to supply the town’s growing needs.”
Investors who have an eye on the fortunes of Australia’s mining regions may be concerned by China’s recent economic slowdown. According to the International Monetary Fund’s World Economic Outlook, for example, Chinese GDP fell from 10.4% in 2010 to 9.2% last year, and is expected to fall further to 8.2% this year.
Crawford, however, believes that the Hedland region’s status as a “super resource centre” (an area supported by multiple industries and multibillion dollar companies) will see it through.
“The housing markets in these super resource centres tend not to be as affected by global factors and resource downturns, as they have a strong base to draw from in times of low ore prices and/or company withdrawal due to the sheer size and investment in the towns,” he says.
“A good example of this is Hedland’s performance during the GFC. Whilst sales of properties slowed during the period, the rental accommodation market stayed strong and actually increased during the financial crisis as a result of the large mining companies’ commitment to their projects and large scale operations within the town.”
The Hedland region’s phenomenal capital growth record and double digit rental yields continue to draw in investors, but Empower Wealth founding director Ben Kingsley believes that the positive returns on offer in the area need to be weighed up against the risks associated with buying there.
While he points out that “it’s not rocket science” to work out that the mining boom has created an accommodation shortage and driven up rents, he urges investors to consider what he calls the “liveability test”.
In other words, will new arrivals choose to settle in the area and purchase property there, or will they choose to rent for the short term while they’re working in the resources sector?
“Based on ABS data the short answer is they would prefer to live elsewhere and rent for the time they are working and earning good money,” says Kingsley.
“So when you consider a place like Port Hedland, you must understand the risk involved in your investment strategy, given the high entry costs into the market and how it can impair your future investment strategies.”
Full approval for the project is expected to take place in the final quarter of 2012, with its start-up date penciled in for early 2016.
The first phase of the outer harbour development is set to include:
a four kilometre jetty;
a four-berth wharf;
and 32 kilometres of dredged departure channel and landside infrastructure, including stockyards and a rail spur.
Do you think that Port Hedland can continue with its phenomenal growth record? Post a comment below, or have your say in the where to buy now section of our property investment forum.
10 things most investors never consider about mining towns
10 ways to pick a hot spot
WA Excerpt from the 2012 January Market report