All Topics / Help Needed! / Investing in WA Pilbara region

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  • Profile photo of dada2011dada2011
    Member
    @dada2011
    Join Date: 2011
    Post Count: 1

    Hi,

    I have been contemplating about investing in WA Pilbara region, primarily due to high rental returns. I know that a lot of people are skeptical about investing in mining towns and that knowing when to buy and when to sell is essential.

    However, I have been thinking about investing in Port Hedland/South Hedland and/or Karratha. I think that these towns are considered more as port towns rather then mining towns and chances of them ever becoming ghost towns are minimal. Too much has been invested in order for these towns to ever become abandoned.

     

    I have also done extensive research about current and ongoing projects, government initiatives in these towns and am fairly confident that it would be a solid and a long term investment.

     

    However, just because the property prices are so high and it’s always difficult to make that initial step I wanted to hear what people generally think about investments in these areas? Also would appreciate any other advice/suggestions people have about investments in Port Hedland/ Karratha.

    Profile photo of basbogbasbog
    Participant
    @basbog
    Join Date: 2010
    Post Count: 58

    Hi Dada

    No is answering so I thought I would throw my thoughts in.

    Mining towns, yes its timing, however mining towns are where I have made the largest gains, realised and unrealised.

    I own a house in Newman and settle on one in Karratha in 2 weeks. Karratha has come back a bit in price since the height of the Gorgan announcement, my reason for buying there is iron ore will have its ups and downs, however I see gas as a much more stable commodity as in it is all presold

    Port Hedland still has a lot more $$$  being put into it, BHP announced 1mth ago another 6.5 bill to be spent on the area. Will these areas see much more capital growth, who knows I thought I paid a lot in Newman when I brougt and yet up it goes. Rental returns are good however there are ways of increasing this, if you go ahead please feel free to contact me to discuss

    I do believe in going to look at the properties and the area, I am from Adelaide and comming from here we find it hard to comprhend the amount of $$$ being spent on these areas.

    I also own properties in capital cities etc so these purchases are part of a overall statergie

    Have Fun

    Barry

    Profile photo of onthemoneyonthemoney
    Member
    @onthemoney
    Join Date: 2010
    Post Count: 134

    Pt Hedland and Karratha have experienced a lot of growth and ideally wouldn't you want to get in at lower end of a property wave? If its rental income you want then these areas are ok. You might want to also consider the Gladstone region due to the massive foreign investment going on in the area. Many people from Karatha and Pt Hedland are investing in Gladstone right now due to the potential growth.. rents are also climbing steadily there.. worth a serious look in my opinion.

    Profile photo of maxine hafeymaxine hafey
    Member
    @maxine-hafey
    Join Date: 2011
    Post Count: 1

    Hi, I’m new to all this and was wondering about towns around the new alpha mine (in central western qld)? Has anyone considered investing in this area?

    Profile photo of onthemoneyonthemoney
    Member
    @onthemoney
    Join Date: 2010
    Post Count: 134

    Alpha boomed 2 years ago
    http://www.cqnews.com.au/story/2008/11/12/apn-alpha-on-brink-of-huge-mining/

    Collinsville is worth a look if you are after a pre boom town.. I have some good research material on this and happy to send to you if you shoot me an email.

    Profile photo of Kent CliffeKent Cliffe
    Participant
    @kent-cliffe
    Join Date: 2011
    Post Count: 110

    Hi Dada,

    I wouldn't say never invest in mining towns, but do it when the risk to you can be measured. If it is your first, 2nd or 3rd purchase, this will make up a substantial part of your portfolio. When speculating make sure you can afford the drawdown on your portfolio. Prior to the 00's mining boom the Northwest Mining Region of WA averaged a rough 2.5% capital growth. Once the capital works commenced, prices appreciated past their true value. The key to profiting from a mining town is by getting in early during the infrastructure construction faze.  Investors profit from the lag between commencement of capital works and the completion of adequate housing supply. A more risky way is when companies are willing to pay above market rents to allow them to be dynamically efficient. This is a nice term for meaning they can move out quickly and don’t have to worry about falling real estate values.

    I wouldn’t say it is all doom and gloom up the North West, but just be cautious. There are some signs of a speculative bubble, which includes:

    1) Appreciable growth in 1 particular asset class.
    2) Optimistic views to justify the appreciation.
    3) Excessive leveraging.
     

    1) Even during the property boom Pilbara’s growth was a standout and now the market is flat, The Pilbara is still relatively buoyant (it did drop).  

    2) There are companies with the whole business model of selling the sizzle of mining towns. Did this exist 5 years ago? When it is an emerging asset, be very wary. People tend to be optimistic I site the following examples (Flowers were old to the Dutch, but Tulips were new – stocks were and old idea, but tech stocks were new – Grain futures were and old idea, but energy/weather futures were new – mortgages were an old idea, but CDOs were new – My example: real estate was an old idea, but mining real estate is new) People often justify their decision with the shroud of history.    

    3) If you check out the last Senses data (still quite old), 85% of properties have a mortgage on them (Karratha as example). This is about 60% higher then the WA average. Rental properties make up over 50% the market this is about 80% above the WA average. This means it is a bit of an outlier which is not always a good thing on high side of growth. 

    There are supply issues up there due to native title and contracting trades, but the WA Government is planning to increase the land supply substantially. This will help contain prices:
    http://www.landcorp.com.au/Map/?cid=Karratha-Mixed-Use
    Now in Perth green fill doesn’t affect the price of inner city suburbs because the 45min travel time into the CBD is enough to differentiate the prices. However, in a small country town the difference between being 3min and 5min out of city centre is not enough to differentiate price. 

    Secondly check out this study which was completed by the CBA:
    http://imagebin.org/151589
    This suggests that for mining cash you may be better off investing in the Perth market.  

    In conclusion, I would like to say; mining real estate speculation isn’t a bad strategy, but it should be done earlier in the cycle and with measured risk. There are other investment opportunities out there that could suit your portfolio better. Try not to follow the heard, and you can’t predict the future but you can use history as a good example of possible scenarios.  

    I would be glad to talk to you more about any questions, send me a message. 

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