Mining towns not rivers of gold: Terry Ryder

Mining towns dominate the latest list of real estate investment No -Go Zones compiled by national property analyst Terry Ryder.

The 2011 list includes the mining towns of Kalgoorlie and Mount Isa, as well as iconic sea-change locations Byron Bay, Gold Coast and Noosa.

“Mining towns have great allure for property investors because they often provide high rental returns and rapid capital growth,” Ryder says.

“But mining towns are among the most perilous locations for investors. They sit at the extreme far end of the risk spectrum.

“Mining towns have volatile markets that depend on buoyancy in the resources sector,” he says.

“Often the prices and rents in mining towns are sustainable only while a resources boom lasts.”

Ryder’s comments preceded the June quarter figures from the Real Estate Institute of Western Australia that show property in the Pilbara cooled a little, with the Port Hedland median pulling back by 5% and Karratha by 9%.

Real Estate Institute of Western Australia president Alan Bourke notes the market has been “extraordinary” in the iron ore belt.

Ryder, the founder of the www.hotspotting.com.au website, which focuses on forecasting Australia’s next property hotspots, has also nominated sea change locations among his leading ‘anti-hotspots’ locations.

For example, Ryder believes one of the least-known factors in Australian real estate is that iconic sea-change locations tend to have poor capital growth records.

“Investors often assume that locations that have high population growth and/or strong tourism markets will be real estate hotspots, showing superior growth.

“In reality such locations often deliver inferior gains for investors,” he says.

“The Gold Coast, Sunshine Coast and Byron Bay are prime examples of iconic sea-change areas that are not prime real estate performers for investors.”

“These three famous sea change locations don’t have a great record on price growth, with the Gold and Sunshine coasts plagued by over-supply and falling prices and Byron Bay facing court battles and erosion issues.”

Ryder also describes master-planned communities as having “lots of bells and whistles” but poor long-term capital growth.

He says urban renewal sites in Melbourne affected by oversupply may have had concerns about site contamination issues.

He considers prestige suburbs in capital cities as being over-heated and over-valued.

The full list of hotspotting.com.au 2011 No-Go Zones are:

• Master-planned communities – expensive, poor long-term capital growth
• Mining towns (general) – volatile, dependent on one industry, pollution issues
• Mining towns (Kalgoorlie) – falling prices, poor rental returns, volatile
• Mining towns (Mount Isa) – falling prices, poor capital growth, pollution
• Population growth leaders – oversupply, high vacancy rates, lower capital growth
• Prestige suburbs major cities – overvalued, volatile, unaffordable, lower capital growth
• Sea change icons (Byron Bay) – expensive, erosion, court battles
• Sea change icons (Gold Coast) – expensive, oversupply, tourism downturn
• Sea change icons (Noosa) – underperforming, unaffordable, inferior capital growth
• Urban renewal sites (Melbourne) – poor capital growth, oversupply, contamination

Ryder has been fairly consistent in his inclusions, as last year’s no-go list featured Byron Bay and Queensland's Sunshine Coast and Gold Coast. It also included prestige Melbourne suburbs, Mount Isa in Queensland, Kalgoorlie in Western Australia and the Roseberry/Zeehan area in Tasmania.

Ryder, a specialist property writer, is the author of four books about real estate and compiles the no-go zones list each year for his website.