“It’s a bloody basket case,” the forlorn investor sighed. It’d taken three months to find someone to rent his investment property in the Queensland town of Mackay. Six weeks later, the tenant had disappeared.
I was sitting on his back verandah, chatting about the state of the property market over the past year. Since slight shakes in the resources sector became loud rumbles, Mackay’s fortunes have slipped sharply.
Not too long ago, cane farmers and their families dominated the township. On any given day, the local shopping centre would be awash in a sea of beige or brown items from RM Williams’ latest line. In recent years, that landscape has been replaced by one of fluorescent high-visibility work wear as mining contractors became the workforce du jour.
A massive spike in investment in the sector and a boom in the Bowen Basin mining region to the west meant good things were surely on the way for Mackay. And for a while, things were very good – rents rose, house prices lifted, investors rushed in and developers followed suit.
When I was there for a visit a few weeks ago, I was struck by the noticeably quiet vibe around town. You don’t have to look far to spot the signs of a dramatically weaker property market. There are ‘for rent’ signboards on most streets and real estate agent windows are filling up with sale listings. It’s in stark contrast to the scene that greeted me about 18 months ago – an airport that was busier than the capital city one I’d flown in from and streets in town that were just as congested.
Back then, a local had described a rental and sales market that was positively hopping. “Nothing lasts more than a couple of days. No wonder all the city developers have flooded in to build their townhouses.”
Where did it all go so wrong?
Like a large number of locals, this investor’s tenant was a drive-in, drive-out mining subcontractor working at a site in Moranbah a few hours’ drive west. And like many others, the bloke had recently lost his job when mine operators slashed production.
A slump in foreign demand for resources and tumbling commodity prices have seen widespread job cuts at mines not just in the Bowen Basin region in north Queensland, but across the broader sector. Thousands of non-permanent jobs have been shed.
“He rang and basically said ‘sorry mate, but I’ve lost my job and can’t afford the rent’. So he just packed up and left without any notice and stopped paying the rent. There’s not a whole lot I can really do about that.”
He owns a recently built four-bedroom house about 20 minutes out of town. It’s now back in a rental pool that’s swelling by the week and a month after the previous occupant fled, it’s still sitting empty. It’s not the only one.
Ryan Connors is a research analyst with the Real Estate Institute of Queensland (REIQ) and says a “significant weakening” in the rental market that began earlier this year is yet to improve. The vacancy rate currently sits at 6.6 per cent. This time last year it was a very tight 1.7 per cent. Unsurprisingly, the Residential Tenancies Authority says weekly rental prices in Mackay have fallen by $80 per week for an average four-bedroom house.
“Agents have reported that the loss of jobs in the mining sector has left the region with a high unemployment rate, leading to increases in vacancy rates and significant falls in rental rates,” Connors says.
Helen Collier-Kogtevs from Real Wealth Australia is a mining town investment specialist and says Mackay is experiencing what many other regional resource sector-supported regions have in the past 12 months. A slowdown in mining and related service industries has seen housing demand come to a “grinding halt”, she says.
However she believes an eventual stabilising in both the commodities market and the political landscape could see an easing of tougher conditions in towns like Mackay.
“The market might pick up after the election if there’s a change of government and the mining and carbon taxes are abolished,” Collier-Kogtevs says.
The longer-term outlook for Mackay is also far rosier than that for a town like Moranbah. For one, Mackay has a diverse economy that comprises agriculture, freight and transport logistics, services and a bit of tourism, as well as mining.
Resource industry lobby groups are also quick to trumpet the still-promising prospects on the horizon. The Bowen Basin might be struggling at the moment, but there’s a massive pipeline of potential projects. Like the wider industry, mining in Queensland is far from dead and buried.
Across the country, there are more than $200 billion worth of projects under construction and more than 280 others currently in exploratory stages. If those mining initiatives under consideration were to come to fruition, that’d equate to tens of thousands of new jobs and hundreds of billions of dollars in economic benefits.
In the meantime, there are still 260,000 Australians employed in the resources sector, so it’s hardly a ghost town.
Across Queensland, finance for dwellings purchased by investors was up 14.9 per cent in May, according to Australian Bureau of Statistics data. The estimated number of actual investors in the market rose about 20 per cent in the same month. And the underlying dollar value of loans to Queensland investors was at its highest level since June 2009.
All of that clearly shows that investors are out and about in the sunshine state. Given recent volatility, it’s safe to assume the bulk of them are focusing their attention on the southeast corner. However when fortunes lift once again in mining-linked regions, they’ll no doubt go back to cash in on a growing demand for accommodation in otherwise promising towns like Mackay.
For those already there, it seems to be a case of holding on and hoping that turning of the tide happens sooner rather than later.
“That’s what you get with a market like this I guess,” the Mackay investor told me. “It’s not ideal but it could be worse. It’ll come back – you’d be stupid to say it won’t. Until then, you’ve just got to roll with the punches.”
Shannon Molloy is the deputy editor of Australian Property Investor magazine, www.apimagazine.com.au