Monday, 25 June 2012

Moranbah, the fastest growing municipality in the country and its inevitable growing pains

Quoted by one of the countries most renowned demographers, Bernard Salt, as “the fastest growing municipality on the Australian Continent” The Isaac region and its hub of Moranbah is certainly going through some growing pains. But what does it all equate to?

2011 was a year that produced some of the best results for property investors in the country. The median sales price rose over 30% and rents sky rocketed to record levels, providing investors with 17% rental yields at purchase price.

With the FTE population set to double, why has this thriving hub come to a grinding halt? It should be no surprise to anyone who is actively looking to invest in the Bowen basin that the BMA (BHP & Mitsubishi Alliance) union led strikes are causing havoc throughout the region. The recent closure of Norwich Park mine just down the road in Dysart sent shockwaves through the property investing community. BMA claim the mine was running at a loss and the union disputes was what tipped them over the edge of the cliff.
As Terry Ryder pointed out, watch what they do, not what they say. Is it convenient that the tail of the Minerals & Resources Rent Tax is being discussed and BHP is a key player in the negotiations with the Labor Government on this tax? The closure of a mine puts them in the box seat when they are arguing there point against taxes, not to mention union involvement within their mining operations.
Close eyes need to be kept on Dysart and local insight and networks are vital to ride the wave successfully into the future. None the less, some great opportunities will be had in the long term future.
But the union disputes don’t stop in Dysart, the shockwaves have reverberated to its neighbourhood hub of Moranbah. The housing market has come to a standstill as new leases aren’t being signed by key players including BMA, and in fact, people are vacating as there employment contracts aren’t being renewed by BMA.

The lay person would put this down to the fact that BMA simply refused to pay the rents landlords were asking. Allow me to clarify one thing here using an example of one of my clients who owns a house in Moranbah. With a quality, low maintenance tenant in his property in July 2011 he was achieving $900 per week in rent. He anticipated that upon a lease renewal in January 2012 he may receive above $1000 per week. Renting direct through the a contracting company, he contacted the housing manager to ask their opinion on the matter. In one phone call, the company offered an increase of $300 per week. However when the lease came up for renewal in January, it was time to formalise the increase to reflect market value. The company immediately offered $1900 without even being asked by the landlord.
I tell this story to illustrate that it was not the landlords who demanded such increases in rents, it was the companies offering it as they are completely aware of the demand for housing and their reliance upon it both now and in the future. The thought that Moranbah’s housing market has slowed down at present is actually, completely un-related to the prices they were paying for rent. It has to do with a political standoff between BMA, the Unions and the Government. The fact that Moranbah’s housing market has retracted, is nothing less than a by-product of an 18 month old bitter dispute with the unions.

What does this mean for Moranbah’s future. To get a true understanding of it, I believe it is important to look at 2 things:
1.         The current change of local government which has seen the Isaac region become one of the last Labor Strongholds of QLD.
2.         What items are already agreed upon in the currently negotiated EBA’s (Enterprise Bargaining Agreements).

The new local government are anti-mining camps that will impact the township and its service providers who were originally there to service the full time residents, not a fly-in-fly-out workforce. The new council are pushing strongly for more family housing to be built to grow the community for the long term. The newly elected LNP government has since handed back decision making power to local councils that hastily became powerless to the ULDA (Urban Land Development Authority) who were appointed to take over development control in certain regional councils throughout Qld.

When looking at some agreed points in the EBA, there’s some positive news for property investors. Firstly, miners were against being housed in 30+ year old houses were there standard of living was decreased significantly to that of the city life. They are demanding a higher standard of accommodation from their employers, which both parties are agreeable to.

As a result, an amount of $2000 has remained as a weekly contribution to the employees rent. This in itself is a true indicator of where Moranbah’s rental market will inevitably end after nearly two years of bitter disputes between one of the country’s largest mining companies and the CFMEU.

With an increased demand for high quality accommodation around the $2000 range, it leaves the older houses to be used to service sectors that simply cannot pay such high rents. Industries such as health services, construction, retail and small professional services will once again be able to thrive, and help Moranbah continue to become the hub that it was designed to be.

The next five years is planned to see more expansion projects and new mines under construction within a 50km radius of Moranbah than any other time in history. Over 5000 full time employees need to find accommodation as nearly $13 billion dollars of private Capital Expenditure comes to fruition.

Could now be a prudent time for sophisticated investors to enter the market, and take advantage of weaker market conditions in preparation for the potentially prosperous years ahead?