Home prices in mining towns decline on back of resources slow down
Increases outpaced the rest of the nation for a decade but are now tumbling as the boom in resources slows and companies lay off workers
After slashing the price of three planned townhouses by a third in the coal-mining town of Moranbah in remote northeastern Australia, agent Ricardo Baggio still can't find buyers.
"No one's got confidence," said Baggio from broker Ray White Group's Townsville franchise, about 550 kilometres north of Moranbah in Queensland state. "There are a few mines around the town but they're not hiring or they're downsizing."
Home prices in Australia's isolated mining towns, which outpaced increases in the rest of the nation over the past decade, are falling as companies such as Glencore Xstrata and Peabody Energy delay projects and lay off workers amid a slowing resources boom. The percentage of homeowners more than 30 days behind on their mortgage payments in Gladstone, a Queensland coastal town near more than US$60 billion of gas projects, was 0.94 per cent in March, according to Fitch Ratings, a 71 per cent increase in six months.
The Moranbah townhouses, which will be built on a flat, sparsely landscaped street about 1 kilometre from the centre of town, are on the market for A$525,000 (HK$3.7 million) each, down from an initial price of A$750,000, said Baggio. The median price of a home in Brisbane, the state capital, is A$425,000.
Prices in mining regions could fall as much as 30 per cent from a first-quarter peak, real estate-data company SQM Research forecasts.
Demand for housing in central Queensland and Western Australia state's arid Pilbara region, the nation's two biggest mining areas, is waning as record investment in resources peaks even as property developers keep building more homes. About A$150 billion of mining and energy projects have been cancelled in the past year as commodity prices declined, according to government figures.
"We expect we'll see an abrupt drop-off in population flows in mining towns," said Matthew Hassan, senior economist at Westpac Banking. "How that plays back to housing is extremely complex. But we know the direction: down."
In Western Australia, while only 1.6 per cent of borrowers were late on their home-loan payments in March, "vulnerability in the mining sector and associated projects could result in an increase in arrears during the year", ratings company Standard & Poor's said in a March 31 report.
In Queensland's Isaac region, which includes Moranbah, home prices fell 43 per cent in the year to April, and rents slumped 69 per cent, according to Sydney-based Australian Property Monitors.
Moranbah, about 1,000 kilometres inland northwest of Brisbane and home to more than 8,000 people, is near coal projects owned by BHP Billiton, Anglo American and Rio Tinto. BHP last year closed part of its Gregory coal mine, south of the town, and in February said it wants to sell the mine.
Anglo American CEO Mark Cutifani said last month that the outlook for coal mining is "grim". An index of hard-coking coal has more than halved since January 2011, when it peaked at US$366 a tonne, according to data from Energy Publishing.
Mining towns "are prone to significant fluctuations in property valuations, often driven by a combination of changes in the resource market and the shifting need for accommodation for mining workers," said Michael Savery, chief risk officer at QBE Insurance Group's Lenders Mortgage Insurance unit. They "require monitoring at either end of the property market cycle."
In Gladstone, about 500 kilometres north of Brisbane, property prices are falling as buyers find better value elsewhere. The median home price has fallen 4.6 per cent in the year through April to A$450,500, while in Rockhampton, 116 kilometres further north in a region that is dominated by livestock grazing, it has risen 5.4 per cent over the past year to A$350,000, APM said.
Housing markets in mining towns "have gotten ahead of themselves in terms of fundamentals and we've had a speculative market," said Andrew Wilson, senior economist at APM. "A lot of potential buyers, especially those employed in the region, are looking at less expensive markets, like Rockhampton."
Housing prices across Australia's major cities rose 3.8 per cent in June from a year earlier, according to the RP Data-Rismark home value index, after the Reserve Bank of Australia lowered interest rates by 2 percentage points between 2011 and May.
Australia had 73 mining projects under development in April, 14 less than in October, according to the Bureau of Research and Energy Economics.