Commodities boom comes with pitfalls as property bubble leaves many behind and those outside mining face soaring prices
Australia is riding a natural resources boom but it is leaving many in the country behind. Photograph: Tim Wimborne/Reuters
Australia
hardly qualifies as the developing world, but there is no doubt that it
is booming, with few ill effects from the financial crisis and growth
set to top 3% this year.
But the boom comes with pitfalls. The surge in the mining industry in recent years has led to a giddy property bubble which, although good for landlords and homeowners, is not so easy for anyone unconnected with the mineral wealth.
In the tropical Queensland city of Gladstone, seven hours' drive north of Brisbane, a retired painter, Allan Giles, is completing the sale of another of his investment properties. He is on the right side of the equation. His modest three-bedroom brick-veneer house with a huge garden and picket fence is three blocks from the sea. Eight years ago he paid A$145,000 (£94,000) for the house. It has just sold for A$375,000.
"Much of that growth has been in the past two or three years," said Giles, who has bought and sold about 20 properties in the Gladstone area over the past 20 years. "Prices were pretty ordinary a while back but what's driven properties up is the investors who know they can command huge rents. It's not uncommon for a really ordinary, older, three-bedroom house to bring in A$600 a week in rent."
The property boom in Gladstone, as in many parts of Queensland, is tied to the state's natural resources. Prices are in large part being driven up by A$60bn investments in the construction of three liquid natural gas (LNG) processing plants, which will convert coal-seam gas to LNG, ready for shipment to energy-hungry nations in Asia.
Giles's experience is being repeated in many other places across Queensland where resource projects have brought in an army of workers, driving up prices. Queensland's biggest resources industry is coal and exports from the state accounted for 20% of global trade in 2009. But the resources revolution is creating losers as well as winners.
Simon Pressley, chief executive of the property-buying agents Propertyology, says few people understand the enormity of the resources revolution in Australia. "In China and underdeveloped Asia there are billions of people living in primitive villages who are moving to brand new cities the size of Sydney or Melbourne that are popping up on a fortnightly basis.
"Australia has some of the biggest reserves of natural resources in the world and will help to build these [new] cities and then provide ongoing demand for energy from coal and gas."
Australia is now the ninth-largest energy producer in the world. It is the world's largest exporter of coal and iron ore, the third-largest uranium producer and in future years will be the second-largest LNG exporter, according to the government's recently released energy white paper.
The International Energy Agency projects that global energy demand will grow by 30% by 2035, with 50% of that growth happening in China and India. It will feed the rapidly growing middle class and by 2030, more than two-thirds of the world's middle class will live in the Asia-Pacific region (including India), according to the OECD, up from just under one third today. Europe, by contrast, will fall from having about a third of the world's middle class today to just 14% in 2030.
Australia's mineral riches are responsible for about 50-60% of the country's foreign export earnings. In the past decade, coal used to make electricity has jumped from $28 a tonne to more than $100 a tonne, while the price of iron ore has gone up tenfold. The sustained increases have driven investment in resource-rich towns.
In the Bowen basin in central Queensland, home to Australia's largest coal reserves, at least two smalls towns dependent on mining have seen property values increase by as much as 4,000%. According to Terry Ryder, chief executive of Hotspotting, which advises investors on emerging markets, 10 years ago you could have bought the typical house in a town such as Moranbah (in the Bowen basin) for A$50,000. Now the average house price is more like A$750,000.
"Investors have been attracted to the strong gains and the very high rents they can charge but they are the most volatile markets in Australia," he said. "If you are prepared to ride out those peaks and troughs you can do very well, but it's risky. I don't invest in those sorts of places because I probably wouldn't get to sleep at night."
In recent months, job cuts at mines near Moranbah and the softening of commodity prices have seen rental vacancies jump from zero to 6-7% almost overnight, dragging down house prices. Ryder says investors will still probably be able to cover their costs if they drop their rents but they will not get the exponential returns of recent years.
Whatever the long-term security, in the short term, as well as many winners from the resources revolution, there have also been losers. Workers in the mining industry earning as much as A$125,000 a year to drive a lorry can afford to live in areas with a booming property market, but others struggle to keep up with rising prices. Shops, hospitals and schools in many areas have struggled to find staff. The growing fly-in, fly-out workforce, meanwhile, has put extra pressure on local services.
The wealth generated by natural resources has also helped to keep the Australian dollar high, doubling in value against sterling and the US dollar in a decade. This has hurt exporting manufacturers and tourism. Australian interest rates have also stayed higher than in most western economies, with the base rate currently at 3.25% compared with Britain's historic low rate of 0.5%. The average mortgage holder is paying more than 6% interest. This has affected the cost of living of all Australians paying mortgages, not just in the resource-rich states of Queensland and Western Australia.
Back in Gladstone, Chris Allen, of Gladstone Designer Homes, says he will build about 40 properties this year, mostly to be sold offplan. More than a third of his customers are investors from around the country, some from as far as the gas hubs in Western Australia who have seen the impact the industry has had on their local property markets.
"With what's happened in Gladstone with the gas and what's predicted to happen in the future, no one is expecting things to drop any time soon," he said.
Source: http://www.guardian.co.uk
But the boom comes with pitfalls. The surge in the mining industry in recent years has led to a giddy property bubble which, although good for landlords and homeowners, is not so easy for anyone unconnected with the mineral wealth.
In the tropical Queensland city of Gladstone, seven hours' drive north of Brisbane, a retired painter, Allan Giles, is completing the sale of another of his investment properties. He is on the right side of the equation. His modest three-bedroom brick-veneer house with a huge garden and picket fence is three blocks from the sea. Eight years ago he paid A$145,000 (£94,000) for the house. It has just sold for A$375,000.
"Much of that growth has been in the past two or three years," said Giles, who has bought and sold about 20 properties in the Gladstone area over the past 20 years. "Prices were pretty ordinary a while back but what's driven properties up is the investors who know they can command huge rents. It's not uncommon for a really ordinary, older, three-bedroom house to bring in A$600 a week in rent."
The property boom in Gladstone, as in many parts of Queensland, is tied to the state's natural resources. Prices are in large part being driven up by A$60bn investments in the construction of three liquid natural gas (LNG) processing plants, which will convert coal-seam gas to LNG, ready for shipment to energy-hungry nations in Asia.
Giles's experience is being repeated in many other places across Queensland where resource projects have brought in an army of workers, driving up prices. Queensland's biggest resources industry is coal and exports from the state accounted for 20% of global trade in 2009. But the resources revolution is creating losers as well as winners.
Simon Pressley, chief executive of the property-buying agents Propertyology, says few people understand the enormity of the resources revolution in Australia. "In China and underdeveloped Asia there are billions of people living in primitive villages who are moving to brand new cities the size of Sydney or Melbourne that are popping up on a fortnightly basis.
"Australia has some of the biggest reserves of natural resources in the world and will help to build these [new] cities and then provide ongoing demand for energy from coal and gas."
Australia is now the ninth-largest energy producer in the world. It is the world's largest exporter of coal and iron ore, the third-largest uranium producer and in future years will be the second-largest LNG exporter, according to the government's recently released energy white paper.
The International Energy Agency projects that global energy demand will grow by 30% by 2035, with 50% of that growth happening in China and India. It will feed the rapidly growing middle class and by 2030, more than two-thirds of the world's middle class will live in the Asia-Pacific region (including India), according to the OECD, up from just under one third today. Europe, by contrast, will fall from having about a third of the world's middle class today to just 14% in 2030.
Australia's mineral riches are responsible for about 50-60% of the country's foreign export earnings. In the past decade, coal used to make electricity has jumped from $28 a tonne to more than $100 a tonne, while the price of iron ore has gone up tenfold. The sustained increases have driven investment in resource-rich towns.
In the Bowen basin in central Queensland, home to Australia's largest coal reserves, at least two smalls towns dependent on mining have seen property values increase by as much as 4,000%. According to Terry Ryder, chief executive of Hotspotting, which advises investors on emerging markets, 10 years ago you could have bought the typical house in a town such as Moranbah (in the Bowen basin) for A$50,000. Now the average house price is more like A$750,000.
"Investors have been attracted to the strong gains and the very high rents they can charge but they are the most volatile markets in Australia," he said. "If you are prepared to ride out those peaks and troughs you can do very well, but it's risky. I don't invest in those sorts of places because I probably wouldn't get to sleep at night."
In recent months, job cuts at mines near Moranbah and the softening of commodity prices have seen rental vacancies jump from zero to 6-7% almost overnight, dragging down house prices. Ryder says investors will still probably be able to cover their costs if they drop their rents but they will not get the exponential returns of recent years.
Whatever the long-term security, in the short term, as well as many winners from the resources revolution, there have also been losers. Workers in the mining industry earning as much as A$125,000 a year to drive a lorry can afford to live in areas with a booming property market, but others struggle to keep up with rising prices. Shops, hospitals and schools in many areas have struggled to find staff. The growing fly-in, fly-out workforce, meanwhile, has put extra pressure on local services.
The wealth generated by natural resources has also helped to keep the Australian dollar high, doubling in value against sterling and the US dollar in a decade. This has hurt exporting manufacturers and tourism. Australian interest rates have also stayed higher than in most western economies, with the base rate currently at 3.25% compared with Britain's historic low rate of 0.5%. The average mortgage holder is paying more than 6% interest. This has affected the cost of living of all Australians paying mortgages, not just in the resource-rich states of Queensland and Western Australia.
Back in Gladstone, Chris Allen, of Gladstone Designer Homes, says he will build about 40 properties this year, mostly to be sold offplan. More than a third of his customers are investors from around the country, some from as far as the gas hubs in Western Australia who have seen the impact the industry has had on their local property markets.
"With what's happened in Gladstone with the gas and what's predicted to happen in the future, no one is expecting things to drop any time soon," he said.
Source: http://www.guardian.co.uk
No comments:
Post a Comment