Mining towns back in vogue as yields hit 10 per cent

Mining towns are making a resurgence as investors again look at the locations’ potential for strong capital growth and high yields.

According to the PropTech Group and its Real Estate Investar subsidiary, some mining towns have seen price growth as high as 50 per cent in the past 12 months, while rents have also skyrocketed with yields now reaching as high as 10 per cent.

Mitchell Shand, a property investor who purchased an investment property in Karratha for $500,000 in 2019, said he was looking to ride the wave of the current up-cycle.

“The bottom of the market in Karratha was around 2017 and 2018 and in 2019 the market had just started to move,” Mr Shand said.

“It was a good time to buy.

“I make money on the rental income and am planning on making capital gains.”

Mr Shand said it was important for other investors to understand how to invest in mining towns.

“Karratha is generally a market where you buy and sell rather than holding on for 20 years because the market moves so much,” he said.

“I have had my investment there for three years and plan on selling in the next 12 months to two years. 

“That is when I expect the Woodside Pluto LNG plant expansion. 

“Once that gets underway, people will be looking for houses, and it will be time to sell to an investor or to someone looking to move in.”

According to Real Estate Investar, growth has been the highest for four-bedroom houses in South Hedland in Western Australia, where prices have increased by 50.66 per cent in the past year.

Prices are also up ​​31.7 per cent for three-bedroom houses in Port Hedland and 25.18 per cent for three-bedroom houses in Dysart in Queensland.

Meanwhile, rents have also jumped with Broken Hill in NSW now attracting a rental yield of 10.03 per cent.

While Mount Morgan (8.86 per cent), Zeehan (8.66 per cent) and Dysart (8.61 per cent) are the next highest-yielding mining towns in the country.

Director and Licensee of Realmark Karratha Jordan James said one of the appeals of investing in mining towns was the combination of high yields and price growth at the same time.

“Mining town investment can be very rewarding,” Mr James said.

“It is higher risk, but that risk can come with higher rewards. 

“You get good rents and capital growth.

“There are not many other investments that give you both at the same time.”

Mr James said he’d already seen clients increase their equity $200,000 in just a few years.

“Many investors with whom I have worked have done very well,” he said.

“You can’t go into these investments without an exit strategy. 

“If they are not clear on their exit plan, they may miss the opportunity to get out when the market is good. 

“Prices may have risen and they may be getting an amazing rent, so they may forget that it can quickly turn around the other way.”

PropTech Group Chief Executive Officer and Managing Director Joe Hanna said the current commodity price boom was attracting many investors to mining town real estate.

“In April, commodity prices were up 54 per cent year-on-year, and are just five per cent off their record high,” Mr Hanna said.

“China plans to stimulate the economy later this year with big investments in manufacturing, green energy, and infrastructure, which will help support metal prices.”

Mr Hanna said mining towns saw the greatest housing demand when new projects were being built.

“We saw in the last mining boom that great yields and high price growth doesn’t necessarily endure,” he said.

“After initial construction, employment can drop because it takes fewer people to run operations.

“Single industry towns can be risky. If the mine reduces production or shuts down entirely, your property may end up empty and worth much less.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.