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Tourism helps Broken Hill shed its one-horse mining town investment status - as Deloitte's questions mining boom longevity
As debate swirls as to the longevity of the mining boom, Westpac's decision to remove the remote NSW town of Broken Hill from a list of risky single-industry towns is certain to fuel debate about whether the bank has made the right call.
All the other towns on Westpac's list of single-industry towns - including Moranbah, Blackwater, Port Hedland and parts of Karratha - are heavily reliant on the mining industry, with Westpac effectively concluding that double-digit annual house price growth and double digit rental yields are not sustainable in the long-run.
According to Westpac, Broken Hill and the other mining town taken off the list - Kalgoorlie- Boulder in WA - have house price growth that has pulled back and rental yields in a more sustainable range.
“Broken Hill is still reliant on mining, but it has diversified into tourism. There are now lower mortgage delinquency rates, while house prices have slipped back and rental yields are between 5% and 6%," says Westpac spokesperson Danny John.
The bank's decision to update its list comes as a new report from Deloitte Access Economics says the mining boom may be over in just two years.
"The strong bit of Australia's two-speed economy won't stay strong for more than another two years or so'," says the report, authored by Chris Richardson.
"Mining companies are making it clear the current spike in investment is due to decisions taken a while back, whereas we are getting few new mining mega-projects across the line," says Richardson, who adds that the peak in mining projects may not be far off.
The Deloitte report does provide some vindication for Westpac ruling Broken Hill to be more than just a mining town, noting that energy giant AGL is currently constructing a new solar farm at Broken Hill.
But Westpac's decision to exclude Broken Hill from a list of “single-industry” towns has bemused LJ Hooker Broken Hill principle Jim Hickey.
“It seems very strange that Westpac would do that for Broken Hill under the current climate as I can’t remember it even being this bad in the housing/investment industry in my 27 years in the property industry and previous to that as a lending officer with the Rural Bank,” Hickey tells Property Observer.
“Broken Hill is very much a one industry town. If the mines fail, we will all fail,” he says.
Hickey says he has not sold a property to an investor since the GFC.
“I actually advertised a block of three units last year returning $19,500 per annum at $195,000 in Adelaide, Melbourne and Sydney and never got a phone call where previously my phone would have gone mad,” he says.
Hickey say the market has gone quiet again after enjoying five reasonable months of sales over the past six months.
Despite Hickey's concerns, figures compiled by SQM Research show that rents and median family income in Broken Hill has not risen at the kinds of unsustainable rates seen in places like Port Hedland (where houses rent for as much as $3,000 per week).
According to SQM, rents in Broken Hill have risen from $120 per week to $135 per week between 2006 and 2011 while family income has risen from $827 to $876 per week.
Realestate.com.au lists 323 properties for sale in post code 2880 (Broken Hill), among those a number of properties showing high rental yield potential, but below the 16% returns on offer in some mining towns.
Among those listed for sale aimed at investors is a two-bedroom cottage on a 532 square metre lot listed by Zeta Bennett from First National Real Estate.
The property is listed for sale at $105,000 and Bennett says investors can expect rent of $200 per week for a property in this price range, equating to a yield of 9.9%
Bennett also has a three bedroom house on O'Farrell Street on a 1,000 square metre block asking $159,000 with rental expectations of $185 per week. This gives an indicative rental yield Saveof 6.05%
Despite disagreeing with Westpac's assessment of Broken Hill, Hickey says there are some “very good things on the horizon” such as the Wind Farm at Silverton purchased by energy group AGL, which is due to proceed.
AGL have also received approval for a large solar farm to be split between Broken Hill and Nyngan with energy provider purchasing 200 acres of land close to town.
“Hawsons (Carpentaria) Iron Ore project looks on track and they are completing their second-phase feasibility study at present.
"A cobalt mine project looks like it will go ahead approximately 28 kilometres from Broken Hill,” he adds, following the discovery of cobalt deposits several kilometres in length and up to 300 metres wide by Broken Hill Prospecting.
“[So] mostly still mining related and therefore still a one industry town.
Westpac took Broken Hill off its single-industry list in mid-June with a spokesperson saying the town had diversified into tourism while house price growth and yields were now back at sustainable levels.
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