Booming Australia mining towns draw capital for property

SYDNEY: Australian mining towns are attracting capital flows into property, driven by bets of further house price increases led by the resources boom, while much of the country's residential property market is flagging due to weak consumer confidence.

With limited supply and strong demand for housing, prices have already surged in mining towns such as South Hedland, Port Hedland and Karratha in the Pilbara region of Western Australia.

In the Pilbara, a major iron-ore producing area, median housing prices posted an average annual growth of 19% over the last five years, according to the Real Estate Institute of Western Australia.

Compared to that, national house prices rose by an average annual rate of about 8%, based on government data.

"A lot of the remote mining areas, up in the north west, have the fly-in fly-out model with their workers. They tend to commute their workers from Perth on a rotational basis," said Andrew Wilson, senior economist for Australian Property Monitors.

"Certainly, the areas which are experiencing and will experience increased activities through the resources boom will have a housing market that will reflect the low supply, high demand with higher prices," he added.

Some developers and agents are positioning themselves to capture the next growth.

Residential property agent Ray White last month launched a new office in Port Augusta, South Australia, near the huge Olympic Dam mine at Roxby Downs. BHP Billiton earlier this month approved US$1.2 billion (RM3.76 billion) in pre-commitment capital to start expansion work on the mine.

"Mining developments certainly spawn real estate activity, and we work to ensure we can adequately service that growth," said Lyndsey Douglas, communication manager for Ray White.

Ray White has recently opened residential offices in Condobolin in New South Wales, Moranbah in Queensland and will be opening one in Broome in Western Australia.

Private developer Walker Corporation and Eureka Funds Management have recently started their US$500 million residential masterplanned community in Gladstone, Queensland, which has the state's largest multi-commodity port.

Developers Lend Lease , Australand and Mirvac Group have been short-listed for the Mulataga project in Karratha, Western Australia to develop a residential community of more than 2,500 dwellings, according to local media.

Still, given the recent sharp price surges, some people are also becoming cautious.

"The risk in these markets is that they are intrinsically tied to the health of a specific commodity and the performance of the companies involved with the resource extraction," said Tim Lawless, national research director for RP Data.

"Any downturn in commodity prices can have a detrimental effect on labour markets and housing demand," he added.

Australia has benefited from a once-in-a-century mining boom driven by demand from Asia, although iron ore prices have recently come off their best on worries over Chinese demand holding up. — Reuters