Australian Property News

Mining boom towns a golden opportunity – but how long will it last?

Posted on Monday, June 25 2012 at 3:36 PM

Many API readers have made huge capital gains and enjoyed massive rental yields in mining boom towns. They’re riding on the back of what’s considered by some as a once in a lifetime opportunity to try a new income generating strategy.

However, accounting and property investing firm Chan and Naylor warns mining towns as a long-term investment could turn out to be a costly ‘flash in the pan’ investment.

“It’s not only the new mining workforce for whom rich rewards await,” director at Chan and Naylor Ken Raiss says.

“These are new growth areas with little to no residential infrastructure. For the confident property investor, there’s income to be made, but the question is whether or not this is sustainable?”

Raiss’ comments come on the back of the 2011 Census results, which mirror the ‘two-speed economy’ of a country in the midst of a resources boom. Accordingly, the population in Queensland and Western Australia has grown by more than 10 per cent over the past five years. However, Raiss urges caution and says investors shouldn’t let themselves become intoxicated by the strong surface allure of rental yield potential.

“Because of the disproportionate housing supply and demand in these areas, it’s understandable that many property investors, some of whom consider buying land and property as a collective syndicate, see massive opportunity to maximise their capital return,” Raiss says.

“Property investment done well is a business exercise and shouldn’t be one of the heart. When investing in any new growth area, your number one strategy should be to minimise your capital risk exposure if, for whatever reason, the value of that property falls.”

In particular, investors should be careful about investing in ‘pop up’ mining towns, which Raiss believes could be potential ‘bear traps’. A significant red flag, he says, is towns which are largely mobile, male and solitary, meaning they can end as quickly as they start.

“This is a new industry based on a boom and all booms eventually end, that’s the cyclical nature of the beast.”

On the other hand, Raiss believes more established towns in and around new mining centres are the best bet, especially those that not only benefit by housing the overflow of mining workers but also through their association with other industries, such as tourism and transport.

“If you do your due diligence, then investing in these new markets can be profitable, but like any business, you need to know your market and do fewer things well in order to reduce your exposure to capital loss.”