There’s good and bad news for investors in 2012, depending on where you want to invest.
If you’re cashed up and ready to buy, then the news is good, because you have the unique ability to get involved in the mining and resources boom. Let me be clear: this is not a “once in a lifetime” opportunity, it is a ONCE EVER opportunity, as the emerging markets of China and India and the industrialisation of these countries will only happen once.
China is experiencing a building boom of epic proportions, which is creating an insatiable demand for coal, a key ingredient in steel. Make hay while the sun shines, as the saying goes, as the mining and resources boom means many areas around Australia are presenting that rare, sought-after mix of strong capital growth and high positive cash flow returns. More on that below…
On the downside, those investors who already have assets in capital cities (myself included) need to be aware that metro areas are going into neutral mode. Capital cities will no longer continue to provide us with the levels of capital growth that we have been enjoying over the last few years.
It is therefore our jobs as investors to explore other opportunities, which is why – particularly in this current two-speed economy, underpinned by the mining and resources boom – my attention is firmly fixed on regional mining towns. If you want capital growth and positive cashflow, you have to be prepared to look outside of the big cities. Those who do will be richly rewarded.
Until next time, happy investing!
Helen Collier-Kogtevs
Hot Picks for 2012:
a Moranbah, Queensland – With over a dozen operating mines and the new $4.2 billion Caval Ridge mine project sending thousands of workers to the region, Moranbah is in the midst of a huge property boom. At the time of sending this market wrap, properties in Moranbah were priced at around $750,000 and were realising a weekly rental income of $2,200. It doesn’t take a genius to calculate that even after council rates, property management fees and the odd repair and maintenance bill are factored in, these figures will deliver serious positive cash flow returns… In fact, the average Australian wage can be replaced in just one deal.
|
Property purchase price |
$750,000 |
|
Deposit (10% – cash or equity) |
$75,000 |
|
Mortgage |
$675,000 |
|
Annual mortgage interest (6.5%) |
$43,875 |
|
Annual rental income @ $2,200 |
$114,400 |
|
Total gross positive cashflow |
$70,525 |
a Dysart, Queensland – A rural town of 3,500 people, Dysart is 250km south west of Mackay and around 60km south of Moranbah. The small town picks up the overflow of residents who can’t find housing in Moranbah and provides accommodation to workers at the nearby Saraji, Norwich
Park and Lake Vermont coal mines. Property values and rents have surged in the last 18 months, lifting from an average of around $400,000 to $600,000, with rents upwards of $1,500 per week.
|
Property purchase price |
$600,000 |
|
Deposit (10% – cash or equity) |
$60,000 |
|
Mortgage |
$540,000 |
|
Annual mortgage interest (6.5%) |
$35,100 |
|
Annual rental income @ $1,500 |
$78,000 |
|
Total gross positive cashflow |
$42,900 |
a Port Headland and South Headland, WA – These neighboring towns boast more than $17.7 billion of committed upcoming iron ore projects and more than $30 billion worth of gas investments. Furthermore, Rio Tinto is spending $20 billion on new mines in the area, so it’s no wonder that Port and South Hedland are considered a major port infrastructure region for iron ore and offshore gas platforms. All of this mining growth is putting pressure on the local housing market; with the current population of 14,000 expected to swell, REIWA stats show that Port Hedland’s median house price has jumped from $600,000 in 2007 to more than $1 million in 2011. While this higher property price tag may scare some investors off, keep in mind that homes are renting for around $3,000 per week!
|
Property purchase price |
$1,000,000 |
|
Deposit (10% – cash or equity) |
$100,000 |
|
Mortgage |
$900,000 |
|
Annual mortgage interest (6.5%) |
$58,500 |
|
Annual rental income @ $3,000 |
$156,000 |
|
Total gross positive cashflow |
$97,500 |
a Gladstone, Queensland – A major industrial township that is home to around 29,000 people, Gladstone is expected to undergo a major population surge over the next five years, as the region is set to benefit from $77 billion of estimated resource projects (currently under construction or in advanced feasibility assessment stages). These include major aluminium refinery expansions, aluminium smelter upgrades, power station upgrades, new major coal terminal at Wiggins Island and at least four CSG projects committed at Curtis Island. The number of employees required for construction is predicted to grow the local population by 31% within five years and more than double the population in the next two decades.
|
Property purchase price |
$400,000 |
|
Deposit (10% – cash or equity) |
$40,000 |
|
Mortgage |
$360,000 |
|
Annual mortgage interest (6.5%) |
$23,400 |
|
Annual rental income @ $480 |
$24,960 |
|
Total gross positive cashflow |
$1,560 |
Spots to watch:
These regions are speculative, meaning the risks and rewards involved aren’t quite as assured as in the boomtowns mentioned above – but the Queensland towns of Alpha and Chinchilla are certainly worth keeping an eye on.
a Alpha, Queensland – There’s a good reason why this central Queensland township, located around 450km west of Rockhampton, landed on Terry Ryder’s famous “Hotspotting” report for 2011. With a strong, diversified economy that relies on cattle, agriculture and mining, Alpha – together with nearby Emerald and Barcaldine – is part of the Galilee Basin, which is being touted as the new Hunter Valley or Bowen Basin. With a population of just 350 people, the tiny town experienced a mini property boom in 2010-11 when values jumped 20%, up to $220,000. There’s a chance this trend might continue with the area’s emerging profile as a future mining boomtown.
a Chinchilla, Queensland – The small town of Chinchilla, 300km west of Brisbane, is part of the Surat Basin. It is transforming from an area that was struggling after a decade of drought, into a modern energy hub, where new housing is being sold before it is even built. Initially driven by an influx of workers for the $900 million Kogan Creek Power Station, the median house price of just $86,000 in 2003 had doubled to $167,500 by June 2005. Today, good quality houses sell for an average of $350,000 to $400,000, while brand new executive residences can fetch up to $600,000. Investors can expect solid yields of 6-8%.
Sources: Data throughout this market report sourced from realestate.com.au, RP Data and Queensland Residential Tenancies Authority.
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