Have a little patience: Investing in a mining town requires a long-term mindset

 Planning and patience are the two things missing when most property investors go into action.

The herd mentality drives most decision-making among investors, rather than clear objectives and a coherent plan.

Then, when something goes wrong in the market, investors start to panic.

One sure way to mess up the results of property investment is to buy badly. Many of the people piling into Sydney markets at the moment are doing that.

And the surest way to complete the cycle of bad investment decisions to sell badly as well. Too many investors, driven by the herd mentality, buy at the peak and sell when markets decline.

They buy in a hurry and sell in a panic, then wonder how it all went so wrong.

This is particularly so with towns and cities reliant on the resources sector. Many people who bought when central Queensland markets like Gladstone, Mackay and Emerald were rising, are now in a lather because those markets have recently dropped.

With Mackay and Emerald, it’s a combination of overbuilding by developers and downsizing by mining companies. In the case of Gladstone, it’s purely an oversupply issue.

Lots of emails are coming in from investors afflicted by falling rentals and the consequent impact on their values. Should we cut our losses and sell?

When you buy in locations like this, you have to expect a level of volatility. It’s the nature of the beast. But, if you have bought with a long-term strategy in mind, patience is required.

Mackay, over time, has really delivered for people who own property there. Mackay suburbs generally have double-digit growth averages for the past 10 years. The city has a strong future, but is currently indulging a dip in the cycle.

Emerald also has a fine capital growth record, but the temporary pause in the coal industry has combined with new supply to lift vacancies and trim rentals. Since about March, the vacancy rate has jumped from 1% to as high as 9% - and is currently 7%, according to SQM Research.

The median weekly rent for a three-bedroom house in Emerald was $525 in the September 2012 quarter but by the September 2013 quarter was down to $350, according to the Residential Tenancies Authority.

Investors can be forgiven for a touch of unease but it would be a mistake to panic. Multiple mega projects are in the pipeline for the Emerald region – by my count there are seven coal projects totalling at least $35 billion focused on the Galilee Basin – and the Queensland government has just announced plans to offer a royalties discount for the mining companies who move first into the construction phase.

The jobs-creation potential of these projects is estimated to be somewhere between 25,000 and 30,000. Emerald, the nearest regional centre and airport, is poised to benefit.

Those who maintain a focus on the long-term end-game will benefit when all that starts to unfold.


Terry Ryder is the founder of hotspotting.com.au and you can contact Terry via email or on Twitter.

 

 


Terry Ryder

Terry Ryder

Terry Ryder is the founder of hotspotting.com.au.

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