What Happens to Mining Towns After The Boom?

I would say this is the first thing I thought of.

 

From what I've witnessed, in Mining Towns the time to exit is either:

1) When new FIFO/DIDO accom is nearly complete (depends on how much accom they're
building)

OR

2) When the electrical contractor mobilises to site, or just before they mobilise if you can find that out. (Sparkies are the last ones onto a job, so you know it's close to wrapping up when they arrive)

I'd also look to sell quick. You might leave some $ on the table, but you should have made a decent profit anyway.

Anyone want to buy in Alpha??

 

I wonder those investors who have properties in those areas would do now?

 

Dependent on how much money was invested, but it wont be pretty regardless? Very hard to recover because its a catch 22, there are no buyers or if you are fortunate to sell it would be hugely discounted. If you hold properties in mining towns returns have also dropped significantly. Investors may be stuck for years.

 

I recall some investors buying in Blackwater, QLD, a dot on the map, commercial properties and resi, I would say they would be swimming under water now.

 

Pray for a turn-around...

 

Just wondering if u know any of them?

 

Me? Know any property investors in mining towns? Yep. Quite a few. Old friends and parents have res and commercial in CQ, former colleagues still have mortgage hangover from Port Hedland and Hopetoun (from BHPBs Ravensthorpe).

I had an IP in Gladstone but sold it in 2009, just before the boom. Dumb luck.

 

So are they still holding the properties or willing to sell at huge loss but no buyer?

 

Yes I do

 

They're reading this now.

 

I know one, he was an idiot and got spruiked and also had a big case of FOMO but he is learning a lot through his costly mistake and trying hard to work off the potential equity loss when he finally pulls the sell trigger to get rid of his Gladstone property!!

 

this is in todays news

An $800k mortgage on a $200k house: the reality of the mining bust

I have a few questions,

Who is buying tehse nows, the article says OOs, however if you do live in the area and intend to live there, it must be like a kid in a candy store, almost brand new properties for $200k

I dont believe mining goes in cycles, ie once it goes down, the price of coal etc isnt guaranteed to recover

are there any investors buying up now?

the rental market must be pretty hopeless right now, is it even worth buying at high yields

 

When we first started traveling to the Pilbara the shortage of rentals and hotel accommodation was shocking. We'd have to delay projects for months until accomodation became available. We'd sometimes get word that certain port Hedland or Karratha hotels were full for the next 6 months. Hence supply and demand pushed the cost up. But while houses were being rented for 1 year leases at $1500 per week where maybe 3 train drivers were put up by Rio Tinto you also had massive 2000-3000 man accommodation camps spring up, once these villages were in place there was no need for the properties. The writing was on the wall. Couple that with most of the large scale expansions all finishing at the same time and Iron Ore prices plummeting the Pilbara as an IP heaven disappeared.

My first year travelling there I saw 4*2 for 500-600 renting for $1000 per week. When I finished before the meltdown 4*2 were $2m and were rented for $2200 per week.

I wonder if anyone was still buying at $2m. I hope not for there sake.

I also wonder how much of a hit the developers of the large camps took a hit, that wouldn't have been pretty.

 

Mining does go in cycles though.. pretty much every economy does.

The thing to understand is that commodity prices don't directly drive property markets. The boom and bust of property markets in mining towns comes from the influx of construction workers, the scramble to build more accommodation for them, plus higher wages in the town means people can spend more, then the out-flux as the work finishes and the workers move on to the next project (or unemployment).

Once a coal mine is built, it doesn't matter if coal prices drop, provided the mine doesn't close. There might be some redundancies, but a drop in coal price shouldn't impact the local housing market in any other circumstances.

Similarly, even if the coal price skyrocketed, you won't see property prices move until the mining company commences a major expansion or new project in the area.

 

But that's the thing most people don't understand @Phase2.
Commodity prices and mining town booms are not correlated. Ok. This most recent one in WA has been. But that is more coincidence than anything.
Mining boomscorrelate to construction. As major projects more through the phases the demand for people increases. However once the camps come on line and/or the project starts to complete demand can literally drop within a month.

If your trying to time that market you can't rely on housing data. You need to know the project and the life cycle stage of the project.
Plus you need an understanding of resource projects.

Few people investing in mining towns would have this comprehension.

Blacky

 

So @Blacky when is the best time to exit? I'm Looking to offload in a mining town that has a new project on the horizon. During the contraction phase?

And what's the best way to find out where a project is at? Is it simply asking around the town?

Cheers

 

It all depends on the project. Each project will be unique.

What is the life of the project?
What is the accommodation strategy for the project.
Is the project on schedule.

Ideally you would ride the boom out to the point where either a) the main accomodationcamp is complete (if there is one) or b) at the peak of the. Instruction manpower.
Hard to time it perfectly. Leaving money on the table by being early is better than trying to chase the market down.

Best way to understand this is by spending time in town and getting to know some of the workers. However you need to be talking to the right people that is someone who is working for the operating company. Not a grubby.

Hard to do if your not in the business.

Blacky.

 

Wow, I hope EVERY single investor who considers purchasing in any future mining boom reads this thread.

And then reads it again...

 

Great advice @Blacky thanks for the help!