Investing in WA Pilbara region

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

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?

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-UseNow 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/151589This 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.