apples with apples and oranges with oranges

I want to take this opportunity to respond to what appears to be the view of some investors and advisors when it comes to investing in regional areas that have a large economic reliance on the mining industry. I want to address the view that having the foresight to look outside the box and evaluate trends and shifting demographics makes one a “speculator”.

I have been prompted by reading many peoples posts, blogs and general advice to do this. I was having a discussion with a large developer in Noosa Heads only yesterday, and he laughed at the idea of investing in regional QLD. A direct quote from him which I encounter all the time is “what happen when the mine closes or lays people off?”. Is it ironic that I was having this conversation with a developer developing in Noosa? One of Australia’s worst performing markets in the past few years. In case you are wondering, I did not miss the “s” on the end of “mine”. It is quite a common view that there are just one or two mines driving this and our past “mining boom”. Call me arrogant if you wish, but when people give me their opinion on regional markets without ever doing any research or even having visited the topical area, I simply do not have the time in my day to listen. Why, Well I am that busy dealing with businesses and investments in these areas that I just don’t have time to listen to naysayers without any factual grounds to their argument.

I also would like pose the question; to what level do people accept responsibility for their “predictions” or “speculations”? I recently had two potential clients conduct their own due diligence on investing in regional QLD. One came back and said “my mortgage broker said I couldn’t get the finance as I wouldn’t get $600 per week rent, he thinks it would be more like $400 per week” Since this buyer received this advice, the capital value of the property he was looking at has increased by $20,000 in just 8 weeks. This is judged on direct comparative sales. Not to mention that the rent was guaranteed by a secure lease. The other situation was a prospective client had a Melbourne property advisor (don’t ask me what qualifications you need to be have that role) assess what they were looking at.  The response was… “I don’t see any economic drivers to increase capital value unless something happened in the mining sector” & “this is what my realestate.com.au and bismark search showed”. Realestate.com.au whilst conducting a professional due-diligence! Are you serious!  Whilst this “advisor” is living under a rock, there are people out there pro-actively seeking opportunities to provide security and wealth for their family both now and in the future, and you’re advising them on an area that you have never been to, so you base your research on realestate.com.au!

I have many problems with what I am going to label, uneducated views. Firstly, is that if you are not educated about an area in full, don’t pass a “comment” as “advice”. Whilst I, in all honesty, wouldn’t know much about the Sydney or Adelaide property markets for instance, I would not comment on them, let alone provide “advice” on them. Even with access to RPDATA (a bit up from realestate.com.au) you must understand that the information provided should be taken in full context. Not on its own. If you understand a local market, than you will most likely make sense of data and statistics available to you. However, if you don’t, than it is almost guaranteed that you will misconstrue the information you are looking at. This is fine if it is how you are going to handle your own investments, but surely not somebody else’s?

The view of these naysayers is that mining is not a secure industry to base a property investment on. However, it really isn’t as clear cut as this in reality. This statement is neither true nor false if you ask me. They teach that buying in or very close to a capital city is the best way to build a portfolio with good capital growth and security.

The idea that anyone who wishes to or does invest in a mining town is a “speculator” is actually quite offensive to me. For years I have been successfully investing in mining regions. Along with other people I know very well, we have all developed solid, long term, secure portfolios built on education, wisdom & professional due-diligence. I would in no manner, consider myself a speculator.

One view is that these areas are bad judgements for investment because it is majority investors who buy in mining towns. For my comparisons I am going to use Lane Cove in Sydney as my example, and to compare apples with apples I will use raw data from the 2006 census report and RP DATA.

In the 2006 census, in Lane cove NSW, 62.6% of properties were owner occupied. In Emerald, Central QLD, 56.2% of properties were owner occupied. Only 6.4 basis points difference in the owner occupied V investment property ratios. Whilst I agree that investing in regional areas minimises your exposure to an array of industries to drive employment, does this always directly relate to minimised capital growth? Of course it doesn’t. What drives capital growth is supply and demand along with increasing disposable income so the population can afford to spend more on accommodation. Does this minimised exposure to industries also mean a higher level of volatility? To answer this effectively, you cannot put apples in the same bag as oranges. There are many different regional areas and all need to be assessed on their own merits/pit falls as does any other area in Australia.

By using the census in 2006 to find the ratio of owner occupiers to Investors in a town, many in regional QLD are around the 50:50 ranges. 5 years have since passed so I am sure that the new census result next year will shine a new light on everything, we would be silly to assuming that the Australian economic landscape has not changed in the last 5 years. So let’s assume that in some areas the investor ratios is a little bit higher. Let’s ask why this is? Does it mean that investors are “speculative” and trying to get in on a boom? I don’t believe so. With a little bit of education, you will find that the average lifespan of a mining employee remaining with one company is 2.5 years. This is due to the fact that there are more than 2 mines currently operating in Australia contrary to popular belief. There is a severe skilled labour shortage in the mining sector and has been for some time. This is poised to get worse as time goes on. These employees generally stay in the mining industry, they are, in most cases, poached and offered better pay. Thus increasing the amount of times they move house, whilst at the same time, increasing their pay. This is the reason why you may find many investors active in a niche market where there are sometimes reduced owner occupier ratios. It does not mean that accommodation demands are in any way short lived, it purely means that the person living there may not be there forever as they have other opportunities presented to them. As part of any due-diligence that I do, I assess this as good thing, it means that the average wage of owner occupiers and my tenants are increasing, thus increasing potential rents and capital value.

Secondly, to say that “our mining towns” were fled by investors is a most uneducated point of view. As I mentioned earlier, we need to ensure that we are not comparing apples with oranges. There are, the odd towns in QLD let’s say, where a town has been impacted by just one mine. This has meant that the property market in that particular town has become very volatile. I will use Capella for example; it is only 30 minutes north of Emerald QLD. The small coal mine that was operating there decided to hold all operations in the wake of the GFC. This caused detrimental effects on investors as their houses were left empty at the end of their tenancies. Prices plummeted and investors were affected. However it would only take a 5 minute google search to assess the volatility of this “one mine” town compared to others. Production has resumed and houses are in demand again in this town. However, I personally wouldn’t invest there due to the volatility. 30 minutes away is Emerald, heavily reliant on the mining industry for its buoyant property market, accentuated by a very strong agricultural industry in the region. Prices in this town did not fall, the median sales price did as units and smaller houses became more popular. Rents were not impacted (if at all, only by 5%) and investors had no need to rush out and sell as they nearly all had the benefits of a positively geared property that was still in demand by tenants. This is because the town is supported by not just one mine, but numerous mines owned by some of the world largest companies. Not only is it supported by the mines directly, but by its underlying infrastructure of companies that contract to and outsource to the mines all throughout the Bowen Basin. As a so called “speculator” my investments were very, very good in the good economic times, and still good when everything apparently went bad in the world. Pretty good “speculation” on my behalf I believe! In fact, as many of you would consider me to be young, I am happy to say that I made more money in the GFC than any other 18 month period to that date. Here’s some good reading by Terry Ryder to re-iterate my opinion http://www.theaustralian.com.au/news/executive-lifestyle/lets-not-leave-out-the-good-bits/story-fn6njxlr-1226113942257 .

To assume that everyone wants to live within a short drive of a capital city is a far cry from reality. Believe it or not, there is a large amount of our 23 million population that actually enjoy living outside of the city and also in rural/regional areas. In fact this trend is becoming more popular as urban and regional sprawling occurs, not to mention or population projects of 40m people by 2050.  Governments are spending a lot of money to provide infrastructure to many regional areas including government offices as living in a regional city/town becomes quite often a more financially viable option. Not to mention that there are lifestyle opportunities to be had which are completely different to that of the city life. People enjoy these areas and establish their families in these regions. I particularly like this video by key demographer Bernard Salt on regional areas http://video.theaustralian.com.au/1987201416/Regional-towns-are-Australias-muscle .

Fly in and Fly out miners are becoming more and more popular and let me tell you why, because if there’s not enough housing near a mine, you have to fly them in and out. I challenge you to drive around regional QLD and find enough vacant houses in one area to support an entire mine site. Mines actually prefer to have their staff living local. In Emerald, some mining companies pay incentives if you buy a house and sign a 5 year contract. The reason the companies are asking to have higher fly in fly out ratios is because a little bit of foresight will show you that we have only just seen the beginning of this mining boom and they have to make preparations for the very near future to man a mine site properly when there are already 0 – 0.5% vacancy rates in all mining towns.

In regards to mining, it is here for your generation, and the generations to come. I want to put it into perspective for you, In Gina Reinhardt’s mine in Alpha, whilst they have only explored in depth a portion of their tenement, they have discovered enough coal to supply our current export demand for the next 150 years. This is one part of just one tenement in one basin in QLD.

In every major town throughout QLD, some major retail companies are investing billions of dollars in retail. In Mackay, there are new Woolworth’s shopping centres opening, the Canelands shopping centre in the CBD by Stock land is undergoing an extension to double its size including a new Myer store. A $120m development in Emerald is seeing a second Woolworths, a 2 hectare big W store and 40 other specialty shops. Townsville is undergoing massive retail development with Myers also. These key regions have been turned from country towns to thriving regional centres over the past 10 years. And now, we are seeing them change into mini cities with diverse economic impacts including mining which is only getting stronger as we see some of the largest corporate investments take place in Australia’s history right in our own backyard. These companies are not spending nearly $400 billion dollars for an overnight investment.

If you are scared of what impact a mining “bust” may have on your portfolio should you be exposed, then you need to understand that our whole economy is exposed to our mining sector. The misconception that by being in a capital city you would be immune to such an incident is just pure ignorance I believe. I would suggest some in detail research in to our key mining companies, where there employees are, and what indirect jobs have been created throughout Australia as a result of the mining industry. If you don’t want your property to be exposed to the potential impacts of something dramatically happening to our mining industry then sell your house now. And for those wondering why I didn’t ask where your house is, it’s because it doesn’t matter. There will be severe consequences for many people throughout our country if our mining industries bailed.

I am not saying that buying in any mining town will be a good investment; any person can clearly identify the risks involved in “speculating”. However I think it is important that people begin to compare apples with apples and oranges with oranges.

Whatever you do, do your own research, don’t let someone tell you that something won’t be a good investment or even that it will be. Come to the conclusion yourself, take in all the “opinions” you want and form your own due-diligence. There are many opportunities in all areas of this country for people, don’t ever let someone tell you what is good or not. I know that if I had listened to all the naysayers I would not be a successful businessman and property investor; in fact, I would still be at my high school desk waiting for the teacher to tell me I would actually do something worthwhile and successful. Lucky I didn’t listen when all the people told me I wouldn’t get anywhere.