Port Hedland Australia's iron ore boom town - Aussiehome

Hot spot | port hedland
Case study
Katie Joy
Former St John Ambulance paramedic
Katie Joy is one of the great success
stories to come out of Port Hedland –
within three years, Katie went from a
96-hours-a-week job to early retirement
in her early 30s through riding the Port
Hedland boom.
After extensive research convinced
her that the billions of dollars of
projects from one of the largest
companies in the world spelt great
things ahead for Port Hedland, she
used equity from an existing property
in Perth to purchase two investment
properties for $358,000 and $360,000
within a fortnight of each other in
February 2006. She chose these
properties based on their ‘executive
style’ presentation, which appealed to
company tenants, and the fact they
were low maintenance in nature.
Just over a year later, she plucked up
the courage to purchase a $760,000
double-storey house in Port Hedland
(June 2007) and then a $560,000 South
Hedland three-bedroom home in
October 2007. As her equity continued
to rise on the back of the commodities
boom, she purchased once again
in January 2008, buying a $730,000
South Hedland home.
While living in Port Hedland, Katie
self-managed her properties but
once she moved back to Perth they
were managed by local real estate
agents, including Crawford Realty.
Now retired since 2008, with a $4.3m
portfolio, $1.5m of equity and $8,500
per week rent, Katie continues to hold
her investments.
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$635bn stimulus package.
With a double dip recession being
speculated by some economists for the
US, there are concerns that this would
translate into lower demand for Chinese
manufactured goods that in turn would
slow China’s relentless growth (and
iron imports from Port Hedland). This
said, the world’s leading economists
continue to see very strong GDP growth
for China in 2011, which will only be
slightly lower than its 10-year average
of 10.1%:
• 9.9% according to the IMF
• 9.7% according to the OECD
• 9.1% according to the Asian
Development Bank
• 8.5% according to the World Bank
Note, their forecasts are nearly
three times the 3.5% IMF forecast for
Australia’s 2011 GDP.
Consequently, a serious slow-down
in China (and therefore iron ore exports
from Australia) does not appear likely.
2. Mining tax threat
The Mineral Resource Rent Tax
(MRRT) negotiated by BHP Billiton
and Rio Tinto with the Gillard Labor
Government immediately before the
August 2010 election was a ‘watered
down’ version of the aggressive
Resource Super Profits Tax, which was
attacked by mining companies, the
Western Australian government and the
federal opposition as devastating for the
mining industry.
The future of the MRRT is
uncertain. Labor lost numerous seats
in Western Australia and Queensland
due to the proposed tax but The
Australian Greens party (who now
hold significant power in parliament)
are in favour of increased taxation on
mining companies.
However, the potential for such
a tax did not stop Rio Tinto from
announcing immediately before the
election an $862m expansion of one of
its Pilbara ports. Indeed, Rio Tinto said
this expansion would be the start of a
multi-billion dollar enlargement of its
Pilbara operations (estimated by Merrill
Lynch to cost up to $11bn).
As they say, actions speak louder than
words and BHP Billiton was also party
to the same agreement as Rio Tinto.
While FMG continues to protest any
future tax, the fact that the MRRT
headline rate has been reduced from
40% to 30% and it allows BHP Billiton
to depreciate its current operations at
market value (rather than historic book
value) before payment of any tax means
that the real sting from any tax has
already been taken out.
3. High price point
A median house value of $955,000
will make any investor draw their
breath. However, so is a 10% yielding,
cash flow positive property with
strong capital growth potential.
Further, investors have the option
of buying in South Hedland (median
house value of approximately
$630,000) on the same yield and
growth prospects.
Ultimately investors need to
weigh up the higher price point, with
immediate cash in their pocket and the
future capital growth prospects.
Opportunity to ride the boom
As the second leg of the commodities
boom begins in earnest, property
investors have a unique opportunity
to capture substantial capital gains
and 10%-plus yields in Port Hedland’s
property market.
Should house values continue to
rise by even half the 10-year average
of 18%, this will mean capital gains
of some $90,000 per annum. Rich
rewards indeed.
Investors should also consider
where else in Australia has over
$500m in civic and local infrastructure
projects planned and underway to
specifically improve the ‘liveability’ of
the town’s population. Or which other
town actually has credible population
growth plans to double in size within
the next 15 years but also immense land
supply constraints.
Many investors missed yesterday’s
commodities boom; others, however,
will not miss today’s.
Flynn De Freitas is principal of Omega
Investments, a boutique firm specialising
in residential property investment in
regional mining towns. Utilising his
training and experience as a former
management consultant and investment
banker, he has developed an extensive
knowledge and understanding of towns
exposed to the commodities boom. For
investment opportunities please visit
www.omegainvestments.com.au
www.yipmag.com.au