Investors achieve wealth quicker when they buy against the pack
May 6th, 2013 • No comments
Property investors in the nation’s mining towns have been faced with some negative market reports in recent weeks.
SQM Research reported rental vacancies in mining towns across Western Australia and Queensland had risen over the past 12 months, while the Pilbara Development Commission released its latest quarterly housing market update (based on data from REIWA) observing decreases in the average advertised prices for rentals and properties for sale in Hedland, Karratha and Newman.
Long term investors in these markets will have experienced several cycles over the years and will know that regular market movements and seasonal fluctuations are commonplace; understanding these markets’ unique characteristics and how market data correlates is the key to maximizing returns and minimizing risk.
Mining town markets differ significantly from capital cities. They can turn a full cycle in 12 to 18 months and downturns (lasting from three to 12 months) have occurred regularly over the past decade. In contrast, capital cities generally experience a full market cycle every five to eight years.
During a down cycle, prices and rents in a mining town may roll back 10% to 15% over a six month period providing opportunities for informed investors to take advantage of these short term market changes. Investors can make outstanding capital gains in short periods by purchasing in a slow market and waiting six to 12 months for the upswing – as opposed to waiting for capital growth in the slower capital city cycles. Buying against the pack is often the quickest road to wealth creation and well-researched investors are likely purchasing now in preparation for the next market upswing
Mining towns also typically experience two quiet and two busy quarters each year which can be used to investors’ advantage.
The Christmas period to March produces a larger supply of homes for sale and lease making it an ideal time to buy. The busy period, usually June to October, is generally a result of an increased workforce for new projects awarded in the towns which drives demand for sale and rental stock and creates a sellers’ market.
Looking at the workforce demands on these regional towns, the FIFO populations and their average wages in these towns have never been higher. And despite reports of an industry slow down, there is still significant current infrastructure spend, and plenty more in the pipeline. The government is also committed to transforming these towns into cities through a billion dollar civil infrastructure upgrade.
While recent reports should not be ignored, it is equally important to consider that these towns remain some of the best locations to build property wealth, with the highest yields in the country. Our investor clients continue to average 10% to 13% rental yields from their Pilbara investment properties.
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