Pete Wargent blogspot

CEO AllenWargent Property Buyers, & WargentAdvisory (institutional). 6 x finance author.

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Thursday, 16 October 2014

Coal mining towns property bust


Astonishing volatility coming to a global market near you! The FTSE 100 took an absolute battering yesterday, while at one stage the Dow Jones was down by an outlandish 460 points before opportunism and a short squeeze saw a dramatic rebound.

Not too much different in Australia to a lesser degree, with shares diving by 1.5 percent in early trade before recovering to finish up on the day.

Long term investors will buy the dips. Traders need to be on their guard and think several times before holding overnight positions.

Coal mining towns

I have written here many times about why I think that the property experts' hot tips to invest in coal mining towns are far, far too risky (unless you have an abnormally strong stomach for volatility and vacancies), including here in particular where I detailed what I fear to lie ahead for the industry as commodity prices collapse.

Thing is, you can warn about mining town risks and commodity price bubbles all you like, but until supply comes online and commodity prices go into reverse, folk tend to unlikely to be all that keen to listen. Mining stock prices rise, construction booms, wages are sky high, property rents and prices soar...until they don't. 

Moranbah - properties sit empty for years and prices crash as jobs are axed

There have already been dramatic issues come to the fore in Morwell, while today come reports that Moranbah's boom has well and truly turned to bust with some properties losing up to 75 percent of their 'value':

"Prices have changed dramatically," Ms Exposito said, pointing at a three-bedroom home on leafy Leichhardt Street.

"They bought it for $800,000. It's now only worth $200,000."
As values fell, the vacancy rate climbed and there are now 300 empty rental properties in Moranbah.
Ms Exposito said she had never seen anything like it in her 27 years in the business.
"I have five houses myself and they have been empty for two years," she said. A string of recent announcements on job cuts and mine closures is likely to make matters worse.

Axe falls on jobs in the region

The biggest employer in the region, BHP Billiton Mitsubishi Alliance (BMA), is planning to axe 700 positions from six local coal mines. Hundreds more could be without work when Brazilian miner Vale and Japanese trader Sumitomo cease production at Isaac Plains by January."
Emerald - "a living hell", no sympathy as houses sit vacant says property advisor 
Meanwhile similar problems are set to hit Emerald's property market:
"WITH 282 rentals up for grabs in Emerald, and more than 350 in surrounding towns, it is a renter's paradise in the Central Highlands.
But for landlords, it is a living hell - with desperation at an all-time high as more rentals pop up onto the market.
Anna D'Silva has an investment property in Blackwater and said landlords were feeling the pinch and were forced to lower their rent or offer incentives to get tenants in their houses.
"I have offered free rent, offered tenants to tell me what you want to pay, within reason - I'd rather $80 than nothing," she said.
"I haven't had a tenant in the house for about four to six weeks.
"I call the real estate every other day, but no luck."
Ms D'Silva invested in the Blackwater rental home in 2008, and she has found recent times a huge struggle.
"My father suffered a stroke in 2009. He is still paralysed on the left-hand side and we are looking after him with physiotherapy," she said.
"The rent was helping me care for him at this point - and now it is back down.
"I have spoken to people; half of them are currently in rented property and landlords aren't able to make repairs because they can't afford it.
"They are really struggling to meet mortgage payments."
Ms D'Silva, who runs an online property investors group as well as blogs for a national property magazine, said FIFO mines and rates were the major contributors to the problem.
"I called six companies in Blackwater and they all told me 'sorry, we have got our own accommodation camps', and that was the end of the story - no sympathy, nothing," she said.
"They like to employ FIFO and it is just dragging the town into the ground.
"Investors will bring money to the place, they will subdivide, add dwellings, renovate, building economy.
"I have pleaded with the council (about rates), I don't know how people are surviving... if nothing changes they will drive people out of the town."
Ms D'Silva said if she could not find a tenant for her home, she would have to cut her losses.
"We will just put this down as a very bad mistake and move forward."
Len Rosemeyer has two investment properties in Blackwater and said the council was "rubbing salt in the wound" with its rates.
"If things don't turn to some extent, any signs of positivity, the town will go under," he said.
"What investors are going to want to come back? It's ridiculous; there are no incentives at all to be up there."
Local real estate agent Clinton Adams said property managers were also feeling the pain of the rental market.
"All agencies would be working very hard at the moment to get these properties full - it is a very emotional time for landlords and owners, and a lot of the property managers are feeling that too," he said.
"These are hard times, but they won't last forever. It will change again."

Worrying that experts could recommend these areas given Australian coal production prices.

Steer well clear.