To this end, SQM Research has just released a resources town update which casts the spotlight on property in four well-known mining towns.
These are Port Hedland in Western Australia, Muswellbrook in New South Wales, Olympic Dam in South Australia and Orange in New South Wales.
The relevant data doesn’t paint a pretty picture for investors in any of these towns, although there are some signs that the worst might be over.
In Port Hedland, asking prices for houses have fallen from $1,500,000 down to $900,000, which is a 40% drop. Rents for houses have fallen to $1550 a week (from a peak of $3200 a week).
However, vacancy rates in Port Hedland have stabilised at 6%, while overall listings have fallen in recent months.
In Muswellbrook, vacancy rates have fallen from a peak of 14% back down to a still-high 9%. Rents have been pulverised although there are hints this might be bottoming out.
In Olympic Dam, the vacancy rate has fallen from a peak of 10% back down to 3% and rents have bottomed out.
While there are some signs of an imminent recovery, the yields on acquisition are just 4% - which is too low to be worth the risk.
In Orange, rents appear to have stopped falling and vacancy rates have been trending down again, which suggests a tighter rental market.
SQM Research director Louis Christopher said that, overall, such towns contain significant risks for the average property investor.
The risks result from the single or two-pronged economic base that these towns tend to have.
This shows that, while the highs can be fantastic, the lows can be disastrous for property investors, Christopher said.
“While our charts might be pointing to a possible bottoming in the market for some such towns, it is very early days and it is just as likely there is another leg down before the real bottom arrives.”
Also, the yields need to be significantly higher to offset the risks, Christopher adds.
“Buying on a yield that only equates to what you can get in the capital cities is not an acceptable risk adjusted return on offer.”
Further, it is worth noting that the trends of migration flows between the states have been changing over the past few years.
RP Data head of research Tim Lawless said recently that mining states have seen a sharp slowdown in both overseas migration flows as well as less net migration across the state borders.
“Conversely, non-mining states are seeing a pick-up in interstate migration flows as workers ‘bounce’ back from resources sector jobs that are no longer there.”
