Property Report – June 2012
It’s all about resources and infrastructure..
by Terry Ryder.
creator of hotspotting.com.au
It’s all about resources and infrastructure, which means jobs, jobs, jobs
The places delivering strong capital growth are the ones creating jobs.
They’re not the places on the coast where people go to holiday or retire. They’re the places, often inland regional locations, where industry happens and jobs are created. And right now, it’s all about resources and infrastructure.
Here’s my simple formula for those chasing capital gains …
Resources + infrastructure = JOBS
Growth happens where people go to access new jobs. It seldom happens where people go to take a break from their jobs (holiday) or where people go after quitting their jobs (retire). And, perhaps more obviously, prices don’t rise where jobs are being lost and unemployment is high.
For a detailed analysis of markets nationwide, click on the topics below …
|National Overview||The infrastructure/resources regions will do best in 2012.|
|Feature topic||To understand the current climate, visit Gladstone.|
|Adelaide||Outpointing Sydney on infrastructure – and the new boom mining state.|
|Brisbane||Challenging Perth and WA.|
|Canberra||Infrastructure can pull Canberra back to growth.|
|Darwin||Major revival looming for Darwin.|
|Hobart||No action, no jobs, but there is hope.|
|Melbourne||Latrobe Valley move will pitch Victoria into the Resources Revolution.|
|Perth||The state with the big numbers – and Perth is starting to revive.|
|Sydney||Regions doing well – we await a Sydney revival.|
|Conclusion||Resources fundamental – but don’t rush to mining towns.|
The infrastructure/resources regions will do best in 2012
Western Australia’s exploding resources sector has finally caught up with Perth’s residential property market.
Vacancies are very tight and rents are rising, with tenants queuing at inspections and some offering more than the asking rent to secure accommodation.
This was inevitable. Last year we saw strong take-up of CBD office space and warehousing premises, plus low vacancies in Perth’s hotels – all consequences of rising employment and population growth inspired by the expansion of the resources sector.
Now that has flowed through to residential property. The Perth market has been in hibernation for the past four years, but has finally awakened.
This is happening because the companies receiving the big contracts from the miners are headquartered in Perth – and many of the mine workers live in Perth and go to work as fly-in-fly-out (FIFO) personnel.
The federal inquiry into the impact of FIFO trends has been told that it costs a mining company $100,000 per year more to accommodate a worker in Port Hedland, as opposed to flying them in from Perth. This is largely because the average Port Hedland house costs over $1 million and rents for $2,000 per week.
So we have seen rising traffic through Perth Airport, which is already well beyond the levels of the pre-GFC upturn in the mining sector.
And it’s only just starting. A record $150 billion worth of WA resources projects is expected to help the state grow at nearly twice the rate of FY2011 for the next two years.
Despite what the media would lead you to believe, it’s not all about WA. Queensland is also seeing massive action, South Australia is rapidly emerging as the third big resources state, Darwin is abuzz with prospects of becoming a gas hub of global significance, the Hunter region of New South Wales has become one of the most dynamic economies in the nation, and even Victoria is seeking to grab a slice of the action with plans to expand the mining of brown coal in the Latrobe Valley.
This kind of resources action means billions of dollars spent on new infrastructure, particularly rail links and export terminals. Anywhere with an export port within cooee of the mining provinces faces major expansion.
Any regional centre with a well-rounded economy and some impact from the resources sector is going to experience growth and high demand for real estate.
If you want to understand the current real estate climate, visit Gladstone
There is no more powerful example of the impact of resources and infrastructure development than in Queensland’s industrial muscle town, Gladstone.
Here there are projects worth around $100 billion happening, half of which are now under construction.
They include LNG processing plants, three export port expansions, new rail links, an airport upgrade (recently completed) and other infrastructure.
Developers are busily trying to build new homes to cater for the influx of thousands of workers, but because approvals and construction take time, they are well behind the high level of demand.
Property prices and rents have risen in the past 12 months. The Surveyor-General recently released its assessment for land values in Gladstone, recording an average annual rise close to 20%, with some sections of the Gladstone market rising 35%.
Rent reviews for houses typically results in weekly rents rising $100 or more.
The key factor is that this process is only just starting. The overall scope of current and committed developments in Gladstone entails 27,000 construction jobs, many of them still to come. More projects will come to Gladstone in the future, as a result of everything that is happening now.
Bechtel, the giant US family company which manages resources projects, is responsible for all three of the LNG processing facilities currently under way on Curtis Island, just off Gladstone.
It has established a workers village on the island where around 1,000 of their construction personnel are living. Eventually 6,000 will be living there. These sorts of facilities are important to overcome the peaks and troughs of workforce numbers in places like Gladstone, given that the jobs in building a processing plant are more than the jobs in running the facility once completed.
To consider the kind of real estate impact we can expect in Gladstone from the upcoming surge in jobs, let’s look at what happened to Gladstone during an earlier boom phase. Before the GFC in 2008, Gladstone had around $20 billion in new developments on its books, creating new jobs and rising demand for accommodation.
The property market rose strongly from 2004 to 2008, delivering four consecutive years of double-digit price growth, including 30%-plus in 2007. In five years, Gladstone’s median house price rose from $230,000 to $390,000. The long-term growth rates of the various suburbs in Gladstone range from 12% to 17% per year.
If $20 billion in new projects generated that kind of real estate reaction, imagine what $100 billion will do.
Gladstone currently has a shortage of everything that matters: residential property, office space, industrial property, hotel rooms, hire cars and skilled workers.
The high cost of renting houses has become the No.1 local issue, particularly for households who are not working in the resources-related projects, where the big wages are earned. It was a core factor in the recent local government elections and also the Queensland state election.
The issue is unlikely to improve any time soon, given that projects that are committed but not yet started – including another massive LNG facility, a steel mill, port expansion, a power station and a nickel plant – entail investment totaling $25 billion and another 11,000 construction jobs.
Last year, Gladstone’s median price rose almost 20% while prices continued to go backwards in Queensland locations such as the Gold Coast, the Sunshine Coast, the Whitsundays and Cairns.
Over the past five years, Gladstone house prices have increased 65%, compared to 14% on the Gold Coast, 6% in the Whitsundays and 33% in Brisbane. Gladstone unit prices have grown 77% in five years, while they have gone backwards in Cairns, the Whitsundays and the Fraser Coast, with virtually no growth on the Gold Coast or the Sunshine Coast.
Vacancies are negligible in Gladstone, competed to 3% or 4% in Noosa, the Gold Coast and Hervey Bay.
Adelaide and South Australia:
Outpointing Sydney on infrastructure – and the coming state on resources
I often tell people that South Australia is Australia’s most under-rated state and Adelaide the most under-rated capital city property market. I illustrate the point, in part, by describing how Adelaide has more infrastructure under construction than does Sydney, a city five times larger.
Currently under way in the SA capital are a desalination plant, an upgrade of the Southern Expressway, the South Road upgrade, the Royal Adelaide Hospital project, extension of rail links to Seaford, electrification of the city’s rail system, expansion of the Edinburgh defence facility and major infrastructure at the Techport facility which is building the new Air Warfare Destroyer fleet.
These projects represent around $7 billion in current spending.
Adelaide will feel considerable impact from the resources sector, as South Australia continues its evolution into the nation’s third big mining state.
Most of the headlines have been hogged by the $30 billion expansion of BHP Billiton’s Olympic Dam mine at Roxby Downs, which is already creating expansion for Adelaide-based firms. Most of the companies that will receive big contracts from this project will be headquartered in Adelaide, creating growth in white-collar jobs and a lift in housing demand.
There is also the possibility that BHP Billiton will relocate its global headquarters for uranium to Adelaide, because of the Olympic Dam development.
Other SA locations that will feel economic impact from the Olympic Dam expansion include Whyalla and Port Augusta, which will both play major roles as the project evolves.
There is growing resources action beyond this big project. A number of iron ore mining projects are in various stages of development on the Eyre Peninsula, for which new export port facilities will be built at Whyalla and Port Lincoln. There is a vast new mining province emerging in the west of South Australia, with economic spinoffs for the remote regional centre of Ceduna, which has an export port of growing importance.
Coober Pedy has a number of significant mining development in its neighbourhood and, closer to Adelaide, there are resources projects emerging on the Yorke Peninsula, with Ardrossan the most likely beneficiary.
The great unknown is the impact of the joint federal-state decision, announced last year, to allow mining in the Woomera Prohibited Area, previously off limits to everyone but the military. The WPA is known to contain Australia’s biggest copper and uranium resources, so the outcome is potentially bigger than Olympic Dam.
When mining in the WPA begins, there is likely to be impacts for Coober Pedy, Port Augusta and Whyalla, which are all strategically located.
Brisbane and Queensland :
Challenging Perth and WA as the boom centre of Australia
Media, in its simplistic way, tends to portray the Australian economy as “Western Australia booming” and the rest struggling. That scenario overlooks many things, including the considerable challenge being mounted by Queensland for the title of No.1 boom state.
WA is generating unimaginable riches through iron ore and liquefied natural gas. Queensland is on a similar path through coal and coal seam gas.
To quantify Queensland’s contribution to the Resources Revolution, mining companies are spending $35 billion on new export facilities alone. Bowen, Mackay and Gladstone are the key venues.
Until recently, Queensland had two major mining provinces – the Bowen Basin and the North West. Now it has four, with the Surat Basin near Toowoomba and the Galilee Basin near Emerald doubling the scope of the state’s mining sector.
The two main pistons of Queensland’s economic recovery are the nexus between the Surat Basin and Gladstone, and the one between the Bowen and Galilee Basins and Mackay/Bowen.
The Surat Basin is where the bulk of the coal seam gas is being extracted, before being piped to Gladstone for processing and export. This is creating rising real estate markets in Gladstone, Toowoomba, Chinchilla and Roma.
The Bowen Basin and Galilee Basin coal precincts are seeing expanding activity, with new rail links being built to the main export facilities near Mackay and Bowen.
Indian companies are big investors here. One is spending $10 billion on its coal mine, new rail link and multiple export terminals.
Pretty soon there will be three or four new rail lines being built across the state, as well as a dozen new export terminals. This is serious infrastructure building.
Brisbane will feel impacts in multiple property markets. The take-up of CBD office space and industrial premises started to accelerate last year and there will be gradually-rising demand for housing this year and beyond. As is always the case, the companies winning big contracts from the miners will have headquarters in the state capital, while many of the mine workers will live in Brisbane and go to work on the fly-in-fly-out basis.
There are all sorts of repercussions for the mining towns – like Moranbah and Dysart in the Bowen Basin – but often the biggest economic and property outcomes are experienced in the capital city.
The recently-defeated State Government led by Anna Bligh was unpopular for all sorts of reasons, but one positive thing it did do was facilitate considerable development of new infrastructure. Brisbane currently has the Airport Link road/tunnel project well advanced, as well as the Northern Busway, the Ipswich Motorway upgrade and the Royal Children’s Hospital project – each a multi-billion-dollar enterprise.
Rising confidence within Queensland has been enhanced by the defeat of an unpopular state government and a Premier seen as being untrustworthy and ineffective. Time will tell whether the public’s faith in new Premier Campbell Newman is well-placed, given his own track record for broken promises and evasion of tough questions.
Canberra and the ACT:
Infrastructure can pull Canberra back to growth
Canberra has had some bad news of late, including announcements of cuts to public service jobs as the Federal Government seeks to bring the Budget back into surplus. There are reports that 1,500 people will be culled from the federal bureaucracy, most of them in Canberra.
Highly-paid bureaucrats comprise a key fundamental of Canberra’s every-steady property market, as they are reason the ACT consistently delivers the highest averages incomes and lowest unemployment in the nation.
So cutbacks on public service employment levels will hurt the real estate market.
Infrastructure developments can, however, soften the impact. Nothing huge ever happens in Canberra, which is a city of only 360,000, but it often has a number of small-to-medium-sized enterprises under way.
Currently happening is a new women and children’s hospital, a project costing about $110 million. The Cotter Dam, key to water supply in the national capital, is currently being expanded to increase its capacity 20-fold. A major re-development of Canberra Airport has been completed recently, including a new shopping centre which includes the biggest Woolworths supermarket in the country, which opened in April.
There’s a new secondary school, the $56 million Harrison School, which is up and running but an ongoing work in progress.
There are plans to replace Canberra Stadium with a facility modeled on the Forsyth Barr Stadium in Dunedin, New Zealand, which has a roof, can host multiple sports and can increase its capacity from 20,000 to 30,000 when required.
The Alexander Maconochie Centre, a prison with around 300 guests of Her Majesty’s government, is to be expanded. The city’s universities are on a constant path of upgrades and expansions, including plans for a new medical training facility at the University of Canberra. ASIO will get a new headquarters costing around $600 million.
There are also various smaller road and bus lane projects happening around the city.
There’s plenty of new residential development under way as well to cater for a growing population, with Queanbeyan undergoing a development boom as it absorbs some of the spillover growth from Canberra.
Darwin and the Northern Territory:
Major revival looming for Darwin, future major gas hub
Darwin is getting excited at the prospect of becoming one of the nation’s major gas hubs.
The ConocoPhillips LNG plant at Wickham Point has been operating for six years and the $34 billion Ichthys gas project should be under way by 2016.
By that time, the supply industry in Darwin will be “a huge business”, according to Chief Minister Paul Henderson who says: “The offshore gas industry is expected to be the biggest driver of NT’s economy over the next 40 years.”
The Territory Government is seeking companies to build and operate a marine supply base in Darwin. The base will be developed next to East Arm Wharf. Many of the companies based at the site will serve the oil and gas industries in the Timor Sea, including Shell, Inpex, Total and ConocoPhillips.
The supply industry is already worth $150 million a year to Territory business and is expected to grow strongly. The giant Bayu-Undan gas field is largely serviced from Darwin and the Sunrise floating platform will use the city for food, maintenance and transport. When the Ichthys project proceeds, the supply industry will be a multi-billion-dollar business.
Charles Darwin University is spending $6 million on an oil-and-gas research and training centre at its Casuarina campus. An agreement to set up mining academies in the Territory was signed in March 2012.
It’s estimated the Territory will need an extra 6,000 workers in the next five years to meet demand from mining and gas companies. Industry and the Government will work together to show students clear pathways to careers in mining.
Many property investors have bought in Darwin because of the proposed Ichthys gas facility by Japanese company Inpex and its French partner Total. This will be the biggest ever enterprise in the Territory.
There have been a number of recent reports making bullish forecasts for the Territory economy and the Darwin property market.
The Property Industry Confidence Survey published in April by ANZ Bank and the Property Council of Australia found that the most confident property market in Australia is found in the Northern Territory.
It found that, nationwide, a strong engineering construction sector is generating greater confidence in Australia’s property sector. The overall outlook for the June Quarter 2012 was six points higher than for the March Quarter.
Property Council chief executive Peter Verwer said that more than half the quantifiable lift in sentiment was attributed to three regions: Western Australia, the Northern Territory and Queensland. The Northern Territory was the location to record the highest confidence level.
Darwin’s median house price rose 7% in the March Quarter, according to a Colliers International report. At the same time, Deloitte Access Economics says the Northern Territory economy is “set to go from stagnant to starring”, with the second fastest growth rate in the nation over the next five years.
Hobart and Tasmania:
No action, no jobs, no growth – but there is hope
The hardest place in Australia to feel bullish about is Tasmania. It continues to score at the bottom of the state and territory rankings on key economic indicators like population growth, unemployment and economic activity.
The Gunns pulp mill project, on which many pinned hopes for economic revival, continues to stumble and appears no closer to a go-ahead. The state forestry agreement, designed to end years of conflict in an industry which is critical for the Tasmanian economy, is developing a similar history and is hurting many local economies. Big employers, like the aluminium smelter and the Temco factory in the north near Launceston, are struggling.
The State Government, which is hampered by the lack of an absolute majority, seems intent on austerity rather than stimulus, which isn’t helping.
But the state is not without hope. The agricultural sector is doing well and there are two irrigation schemes worth $100 million to give that industry further impetus.
Tasmania will be the first state to have its National Broadband Network rollout completed and there is hope for retail, with Woolworths saying it will increase its workforce in the state. Growing numbers of cruise ships visiting Hobart are helping to keep tourism healthy.
Home building is weak but renovations are strong, with about $800 million in spending in the current financial year.
There are a number of CBD property developments in planning and the new suburb planned for Hobart’s eastern shore by a Korean developer will cover 158 hectares and generate 1,000 jobs – if it happens.
There are a couple of road infrastructure projects, including the $200 million Brighton Bypass. The Musselroe Wind Farm is a $400 million project which promises to create jobs.
Tasmania needs some of the proposed major developments to get under way, to generate some jobs and some consumer confidence. At present it is the stagnation state in a nation which is a global economic leader.
Melbourne and Victoria:
Latrobe Valley decision will pitch Victoria into the Resources Revolution
Victoria has been a remarkably strong performer as an economy and as a property market over the years, given that it doesn’t have the resources impetus that other states get.
But there are prospects for that to change, with the April announcement that the State Government plans to increase the mining of brown coal in the Latrobe Valley.
The State Government will promote development of the state’s brown coal reserves, with plans to open up new coal opportunities. It proposes a tender for new allocations of Latrobe Valley brown coal, to be finalised by the middle of next year.
A number of mining companies have put their hands up to take significant chunks the coal rights on offer. Coal technology firm Exergen says it will bid for up to 1 billion tonnes of brown coal for export to Japan and India and for use in a new demonstration power plant. Another firm, Australian Energy Company Limited, is seeking up to a billion tonnes of coal for export as briquettes and for a fertiliser project
Meanwhile, Latrobe City Council has welcomed the decision to allow HRL’s proposed dual-gas fired power station to establish at full capacity. In a decision handed down in April, the Victorian Civil and Administrative Tribunal overturned the Environment Protection Authority’s restricted project approval, allowing the company to construct a 600mw plant near Morwell. The EPA had approved a reduced 300mw version of the plant last year, which will “gasify” brown coal to generate power with relatively cleaner black coal equivalent emissions.
This suggests a brighter future for towns like Traralgon and Morwell, which some feared would decline because the carbon pricing scheme would kill off the coal-fired power stations in the region. It appears rumours of their death have been greatly exaggerated.
Another strand of Victoria’s bid for a bigger slice of the economic action is plans to increase its export infrastructure. Melbourne is to get $1.2 billion container port at Webb Dock, at the top of Port Phillip Bay, which will increase handling capacity to up to $100 billion worth of trade a year and create 2,500 jobs.
There also plans to develop a major facility at Western Port and to lift the importance of the Port of Geelong by transferring the car import-export business there.
Victoria certainly needs some oomph from export sectors like resources because one of the traditional cornerstones of its economy, manufacturing, is struggling. Victoria has become “the employment drain of the nation”, shedding 1,000 jobs a week since the middle of last year. The state lost 27,700 jobs in the six months to the end of February.
As one example, Toyota sacked 350 workers at its Altona plant in Victoria in April. It is another blow for the car industry in Australia, which increasingly relies on government subsidies to remain viable.
Perth and Western Australia:
The state of the big numbers – and Perth is starting to thrive
Publicity-seeking economists are falling over themselves trying to dream up new superlatives to describe the Western Australia economic miracle.
In efforts to grab headlines, they are making increasingly spectacular statements about the WA economy, relative to the rest of the nation.
Here’s one: “So strongly is WA performing, the national economy is now being viewed in terms of Australia as a whole and Australia excluding WA.” This is from the latest report card by CommSec, which measures the nation’s eight jurisdictions against eight economic indicators and suggests that WA’s influence, courtesy of the mining sector, has become so powerful it warrants its own special consideration.
“WA has consolidated its position as the nation’s strongest economy,” CommSec chief economist Craig James says. The state is leading on construction activity and business equipment spending, while its jobless rate is the lowest next to the ACT.
Iron ore led an increase in the state’s mining exports to $112 billion last year, according to ABS data. Exports for the steel-making commodity increased from $34 billion in the previous year to $57 billion in FY2011. Mining exports in general were up $29 billion from the previous year, with Japan, China and South Korea the state’s biggest export recipients.
Deloitte Access Economics says 25% of all construction in Australia is occurring in WA, where almost $90 billion worth of mining, energy and infrastructure projects are currently under way. Projects have increased 17.5% over the past year.
The Housing Industry Forecasting Group, a joint industry and government body established to provide commentary on the housing sector in WA, predicts the construction of new dwellings will increase 11% over the next year. This is significant because nationwide new dwelling construction has been falling.
The thing about WA’s leading role in the resources revolution is this: it’s really only just beginning. The mega gas projects like Gorgon and Wheatstone – these two together are worth $72 billion – are just starting to move into the construction phase, handing out multiple contracts worth hundreds of millions of dollars each.
The resources upturn is producing some spectacular numbers in terms of supporting infrastructure.
WA’s environmental umpire has approved BHP Billiton’s $20 billion proposal to construct and operate an outer harbour at Port Hedland, doubling the port’s capacity. The Environmental Protection Authority says it has recommended approval of the development, which will comprise four stages of construction over eight years. BHP is expanding its Port Hedland infrastructure to cope with the export of 240 million tonnes each year from 2014.
New export ports are also being built near Karratha and outside Geraldton, likely to entail another $10 to $12 billion in investment.
The State Government has released the master plan for a $1.5 billion development in Karratha. Urban designers, community leaders and traditional owners spent three days in April putting together the first plans for the Mulataga development. It will see 2,000 new homes built linking the Karratha town site to the ocean. Karratha is the key regional centre for the $43 billion Gorgon gas project, among other major venture.
Meanwhile, Rio Tinto will spend $300 million Rio to build 212 houses in Wickham, adding 30% to the town’s population. A new town administration and training centre will be built along with 198 fly-in-fly-out accommodation units and a 420-seat cafeteria. The company has nearly finished a $22 million sporting and recreation centre near the town oval. The upgrade of the town is part of the mining giant’s push to expand iron ore production capacity to 283 million tonnes a year.
Sydney and New South Wales:
The regions doing well – we await a Sydney revival
New South Wales is not generally thought of as a resources state but there’s plenty of mining action.
Newcastle and the Hunter region is one of the powerhouse economies in Australia, boosted by an expanding coal mining industry connected to an expanding export port. There’s still plenty of life in the iconic regional centre of Broken Hill, the North West around Gunnedah and Narrabri is an emerging mining and coal seam gas precinct, Orange has a significant gold mine and there are pockets of resources activity around centres such Tamworth and Dubbo.
These are all locations with strong prospects for property investors, offering the appeal of affordable prices and good capital growth potential. I particularly like the Hunter region, which has a diverse economy, a growing population, new infrastructure (including the Hunter Expressway, upgraded rail links and an expanding port) and lots of jobs prospects.
Plans have been announced to make the largest coal export operation in the world even bigger. The $5 billion Terminal 4 project that Port Waratah Coal Services (PWCS) proposes for Kooragang Island will allow an extra 120 million tonnes to be exported through the Port of Newcastle. If construction starts in a year it will be ready to export coal by 2015.
There are few locations in Australia that offer such an attractive combination of attainable house prices and solid growth prospects as does Newcastle and Hunter region.
Sydney is another situation entirely. Our biggest city (and a recent host of the Olympics) really should be a national market leader but it has been the opposite of late – its price growth has been the weakest among the eight state and territory capitals over the past decade. Having a government that was both a laughing stock and a national disgrace didn’t help. Nor did the absence of infrastructure development commensurate with the size of the city.
So we await action from the Barry O’Farrell government. It appears serious about building the North West Rail Link, which will probably cost $8 or $9 billion. The project is expected to support 16,200 construction jobs and inject $25 billion into the NSW economy. Tunnelling is expected to start in 2014, and trains are due to run by 2019.
A $1 billion airport makeover is planned for the next eight years, designed to remove the split between the Sydney domestic and international terminals.
Construction of a $1.6 billion freight terminal in south-west Sydney will start in 2014 and be completed by 2017, creating1600 jobs during construction and 950 when the terminal is up and running, rising to 1700 jobs if it is expanded to handle interstate freight. Freight will be transferred from trucks onto trains at the terminal in Moorebank, from where it will be taken to Port Botany, reducing the number of truck trips by 3300 a day.
The Sydney Entertainment Centre, Convention Centre and Exhibition Centre at Darling Harbour will be closed for three years while they are expanded or replaced under a $1 billion upgrade approved by the State Government. O’Farrell says the scope of the Darling Harbour upgrade first announced last year has been expanded for the second time to ensure the facilities are equal to or better than those in other Australian capitals. The size of the precinct to be redeveloped has been increased from 12 to 20 hectares. New facilities will include: a replacement for the Entertainment Centre with seating for 8,000 people; an increase in the size of the Exhibition Centre from 25,000m2 to 40,000m2, making it Australia’s largest exhibition space; a convention hall with capacity for 10,000 people; and a 300-room hotel. Up to 3500 jobs are expected to be created during the construction.
Outside of Sydney there is also plenty of infrastructure happening: new power stations (including a solar power station), wind farms, hospital expansions, major road construction and port expansions.
Key locations for this kind of action include Newcastle and the Hunter region, Wollongong, Goulburn, Tamworth and the North West around Moree and Gunnedah.
Yes, resources are a fundamental factor – but don’t rush to mining towns
Mining and associated infrastructure is the strongest of the pistons driving the national economy and its property markets – but don’t rush out and buy real estate in a mining town.
That’s unless, of course, you understand the risks and are willing to trade that for the prospects of high rental returns and capital growth.
Recent events at Dysart in Queensland’s Bowen Basin provide the perfect illustration. Dysart has averaged annual growth in its median house of 31% per year – yes, 31% a year – over the past decade. Double-digit rental returns are available on houses because rents are so high, thanks to demand from mining companies and their workers.
But then, in April, everything took a surprise turn. BHP Billiton, after 18 months of disputes with unions, spat the dummy and announced it was closing down the Norwich Park coal mine. If it’s serious (rather than using the threat as a negotiating tactic) 1,400 people will lose their jobs – although some may be re-assigned to other mines in the area.
That seriously changes the market dynamic in Dysart. Anyone who recently bought a rental property in Dysart at the median price (close to $500,000) would be feeling a little sick right now.
The safest way to exploit the Resources Revolution as property investors is to buy in substantial regional centres that benefit from the mining sector but don’t depend on it – places like Toowoomba and Mackay in Queensland, Muswellbrook in the Hunter Valley of NSW, or Geraldton in WA.