What Happens to Mining Towns After The Boom?

So what happens when a mining town boom is official over and seriously crashing? ghost towns? have no idea but it must be pretty miserable trying to survive in current climate.

Just read yesterday the QBE report where I think Karratha has dropped in value of 63%, Port Hedland 71% from peak, this is serious money when you consider median house price of Karratha at peak was over $1,000,000 and Port Hedland close behind?? Also many mine towns in QLD have dropped over 50% as per this article


6 mining towns go from boom to bust

 

Well firstly the locals have a bunch of parties, bidding good riddance to the construction crowd that drove up the price of everything, and overloaded the local infrastructure and crowded out the local pubs.

Then the sobering-up phase comes.. some people have a huge hangover because their FOMO took over and bought at stupidly inflated prices, others had bought before the boom and now it's back to business as usual, and those who couldn't afford to buy during the boom are now thinking it's a good time to cash in on other's poor fortune and buy a PPOR.

The jobs situation for locals isn't usually that dire, unless you told your boss to stick his/her job when you went in search of the big $$ (word travels fast in a small town)... Eventually, business confidence returns and then a few more jobs, housing prices stabilise albeit at a much reduced level, and the boom is long forgotten (except for the poor FOMOs).

 

Usually they just drag along on the bottom until mining picks up again, if it ever does.
Marg

 

It's not really that bad unless you fomo'd.

Im in Gladstone now and have been coming and going from before the boom and during it. It's still a normal town, there's enough work to keep things ticking along. ... much like perth it doesn't just have tumble weeds rolling around. as phase said, the grubby subbies move out along with the construction companies and house prices drop! The over supply of housing and workers drops to meet the new needs.

Prices here are definitely pre 2009 pre boom prices. I remember basic 3x1 sub median properties around 300k now those are down to 220k. The ones now advertised for sale and rent are bottom of the barrel places. Local buyers and renters are upgrading and moving into the nicer places on offer for bargain prices. I was talking to a young broker (very green) bought a unit for 180k and the previous owner paid 450k! While his mate has dropped his rent twice by $50 each lease.
Couple of rentals we looked at were $275pw down to $130 and another $400 to $250pw

Business wise some of the smaller ones have closed up (eg hair dressers) but overall it looks like business as usual. The 2 main shopping centres have the same shops still going. Maybe 2 empty.i was expecting a lot worse, if anything it's better there's a much nicer vibe around town. It always felt like an "angry town" with workers being here against their will... in exchange for huge buckets of money!

I was also in port hedland a month ago and it was my first time but apart from for sale signs around it looks like it would be in a similar position.

The locals are used to the boom and bust times. And the boom brings with it new people that stay on, usually the ones that want to stay. Families have kids in school etc on the water, great parks and facilities that the boom builds. Gladstone for its size has more family friendly stuff per capita than living in the city imo. The industry that still ticks along puts lots of money back into the community

 

If you live in a new estate you get to drive around the streets without worrying about seeing other cars

 

Would you buy now? Can you get a decent yield without worrying about vacancies?

 

We just did this in Darwin. Got a place we could have only dreamed of 5 years ago.
The people we bought it from were in real trouble. I galantly rode in and saved the day with a lowball offer....

 

Tumbleweed. Lots and lots of tumbleweed.

 

No. Prices won't be moving up for a while, still a big over supply and high vacancy rate.
You can get a bargain to buy but you'd want to be very selective on what you buy. Sub median houses and units are most vacant. So if buying you'd want to get something that is premium type property as you need to appeal to tenants or you'll lose them.

If i was to buy id want it to tick every box (if possible ) - great location, new house or recent reno, all the bells and whistles, great price, future development or reno potential. All the things that will get it rented over the next property plus be in a higher bracket of property. Not just a sub median investment property

I haven't looked in great detail yet at vacancy rates or yield. But yield wouldn't be fantastic <5% would be a safe guess.

 

That's how i read it

 

i think it will take a while then prices will be back to normal

 

Nasty stuff

 

Looks like Gwalia... (not an African country... a mining ghost-town in WA)

 

From an investing POW,

Boom

Then Kaboom! Will depend on when you bought and sold.

The problem isn't the mining towns - its the investors.

IMO investing in mining towns is a specialist area of investing and if you don't have that specialist knowledge then its very high risk. Personally I think its insane/pure gambling to invest in a mining town if you don't understand the uniqueness of that investing situation.

 

It's not really the prices that are a barrier to further investment. it is the risk of not being able to rent it to anyone (see Bob's post above). If you could currently buy something in a "regional" industrial town like Gladstone used to be before this last boom, then you might have gotten a house with decent yield. But after the recent building frenzy there is such an oversupply of vacancies that you will not necessarily be able to rent out your nice cheap property. Therefore it generally negates the purpose of investing in the usual sense.

 

What's insane is someone thinking they understand the uniqueness of the situation..
You make a good point though, IF someone was to 'invest' in a mining town, they need an exit plan and constantly monitor the place and pull the trigger quick when it comes time to sell.

 

Yes, in our case we had the exit plan but completely failed to implement it when we should have. Failed big time.

 

I would also say that these mining towns are just puppets in a bigger political game. The state and federal gov step in and give these projects the go ahead to cash in, which is great for the country and gdp etc but the towns and some investors are essentially "taking one for the team", they just don't realise til it's to late. The towns cash in on the infrastructure and increase rates, charge developers huge fees to come to party.

A lot of people whinge about fifo but if there wasn't fifo imagine the hurt there would be now with an extra 100, 500, 1000 extra properties on the market

it is the old supply and demand. They can't build houses quick enough when it's all go and then when all the greed and fomo join the party it probably goes further than it should. Council's and gov should put the brakes on with approving dev's but the parties in full swing and champagne flowing and no one wants it to end

And yes you need the exit plan before buying
But when you're getting 800pw when it was getting 400pw pre boom it would be hard to pull up stumps!

You do need inside knowledge and boom experience. The amount of gossip and changes is unreal. Everyone wants the party to last forever! But early on 2009 there were charts in the media showing how many employees were needed for construction phase and then how many ongoing jobs for production/maintenance. All the headlines were $x billion projects and thousands of jobs to be created.

After watching Gladstone, I'm glad we didn't buy it's been a great learning curve. Would i buy in the next mining boom town?.... don't know. I would be prepared to have a punt but to reduce the risk id plan to pull out quite early to stay on the safe side of the peak

 

The problem with exit plans is to gauge exactly when to implement them.

No-one rings a bell at the top or bottom of a cycle.

Share and property markets can crash virtually overnight and then it is too late for a planned exit.
Marg

 

You've moved on and learnt from that experience to invest that wisdom into the future. Doesn't sound like a complete 'failure' to me mate.