Prospective Mount Isa investor Dale Collins was checking a well-defined crack in the walls of an old miner’s cottage when the real estate agent spoke of domination.
They were in the house’s kitchen, a closed off room with dusty brown walls and vinyl flooring, and Collins had just remarked that the setup reminded him of the inside of a 1970s caravan. The agent, draped in a black suit and tie in the outback heat, didn’t take kindly to the comment and decided he’d set Collins in his place.
“He told me it didn’t matter,” says Collins. “He said that the kitchen didn’t need to be pretty because the house would get high rents anyway. He said that once people came into Mount Isa they had to submit to their landlords. There was such a need for rental accommodation they’d rent anything and pay a high price for it.”
While the agent failed to persuade Collins, he touched on a growing theory among Australian investors. This line of thinking proposes that the best way to ensure a stream of high rental income and own a property that will quickly double in value is to invest in a mining town such as Mount Isa.
The theory isn’t backed up simply by hearsay. The facts speak for themselves. Of the 50 best performing markets across the country last year, 10 were in mining towns. Look further back and their case is even stronger. The fastest growing market in Australia over the last 10 years was a mining town – Wandoan in Queensland’s coal rich Darling Downs region – and most of the markets that follow close behind are also mining areas.
Astonishing as these increases have been, mining towns have had no shortage of bad press. The list of things that could seemingly go wrong with a mining town investment is long. Mines close, workers get retrenched, developers build too much rental accommodation – any and all of which could happen at one time.
NSW’s Broken Hill is a perfect example of such fears coming to life. Over the first half of the 20th century, the desert community was not just the third largest settlement in the state but one of Australia’s biggest cities. By the 1970s a lot of the mines that had nurtured the city’s growth began to close and this sent the local employment market into free fall. The population, which at that stage had been 30,000, quickly dwindled to 10,000. Property prices plummeted. What had once been a boisterous real estate market had a hole blown from under it and investors had no escape. In the forty years since, the population has slowly increased to about 17,000 and mining activity continues, but the city has never returned to its prior heights.
For some investors, like Dale Collins, such risks have proved too great. “I was interested in Mount Isa, but to be honest, with my budget I wouldn’t have got the right property for that kind of market. I thought I could sniff out a good deal on an older property and renovate it, but it’s hard and I’ve learnt that you can’t half-chance it. You have to spend a lot of money in a mining town.”
For other investors, like Australian Broker sister publication, Your Investment Property Investor of the Year 2013 winners Kate and Matt Moloney, such risks are part and parcel of the mining town deal. The young couple continue to invest in big projects in Queensland’s Mackay region – particularly Moranbah – which they believe offers great opportunities.
“There is a severe shortage of all types of rental accommodation in Mackay, so it’s helped us to organise some great deals,” says Kate, who adds that thanks largely to mining town investments, she and Matt have built a portfolio of roughly $8m in just a few years.
Kate is quick to admit, however, that she and her husband plan to start diversifying away from mining towns. It’s a viewpoint that hardly reassures new investors. What else can they conclude when even the best investors have doubts about mining towns?