Should you chase the next mining town boom?
So we all heard stories of investors who invested in mining towns just before they exploded and they ended up getting this huge capital growth returns and huge rental yields and they made a motza in the process. So should we as investors be looking for these mining booms and should we be going ahead and investing in them.
Moranbah: Potential Mining Town Boom
So looking at mining towns, I was recently reading an article about Moranbah, which is in Queensland and they’re talking about the potential of a boom in Moranbah and talking about the investments that are being made in the infrastructure and mining and all of this and it got me thinking about whether or not we should be chasing these property booms and whether or not we should be speculating on these things, looking into them and investing in this strategy.
I can’t give you financial advise to your specific situation, I would never try and do that, but when you’re investing in mining towns you obviously need to consider all of the risks and all of the rewards that are out there.
Increases In Vacancy Rates In Mining Towns
There was recently research done by SQN research and they noted in their report that 60% of all the mining towns that was surveyed had an increase in vacancy rates from December 2012 to December 2013.
So there was some towns that the vacancy rates increased significantly and there was some towns where the vacancy rates increased slightly, but when investing in mining towns you obviously need to consider the fact that that town is completely supported in most cases by one mine or maybe two mines or maybe a few mines and maybe some agriculture, but it’s going to be largely dependent on the economic activity that’s happening in those major mines.
So when you’re looking at these booms, yes of course, there is a great deal of money to be made, but a lot of that will hinge on the success of the mine and will hinge on the stage of the mine development as well.
The Different Stages Of A Mine
So, mines have different development stages and as a very rough guide, obviously every single mine, every single town is different, but you have the research stage were people are out there researching the area getting ready to set up the mine, making sure that there is enough coal or gold or iron-ore or whatever it is they’re mining out there.
You then have your set-up stage which, I guess, is when you have your massive influx of people and all your trade people setting up the mine and so forth. Then you have the operation phase where the mine is operating. No major infrastructure left to set up, maybe there’s some but just operating that mine and obviously the mining company getting the returns that they want.
So with these different stages there’s different amounts of people that come into the town to live in the town and different economic activity that’s happening, so you need to consider what stage of the mining process the mine is at in a town that you’re looking and investing in.
Also you need to look into the fact that mines often house their own employees on the mine themselves, so rather than the mines paying for miners to rent houses in the town they might build their own accommodation because it’s cheaper than paying the extravagant rents that are in the area.
So that could seriously effect vacancy rates in the area, could seriously effect your rental return if the mine decides to do that or does that at a large scale.
Risks Of Investing In Mining Towns
You also need to consider land releases and new builds and stuff like that, because a lot of it is supply and demand and if there’s more supply and the same amount of demand than well, prices may go down, rental yields may go down, there’s a lot of things to consider.
I’m not an expert in mining towns, I’m not advising you to invest in a mining town or not, all I’m saying is that you need to do your research on a lot of different factors.
So rather than just saying, well, is this going to be a successful mine, is this mine profitable, isn’t necessarily enough research to understand whether buying property in that area is going to be profitable as well.
You need to understand everything from the stage of the mine to future developments in the area, whether the mine is going to house people themselves. There’s so many different factors you need to take into account before you go out and chase the next mining boom.
So I’m sure there’s better people to talk about mining towns then me, so I’ll leave it at that.