- Broken Hill has the highest-yielding real estate in an Australian mining town
- This town provides a yield three times higher than Sydney and Melbourne
- Single industry towns, however, can be risky investments
The highest-yielding residential real estate investment in an Australian mining town is a two-bedroom house in Broken Hill, New South Wales.
That’s just one of the conclusions that comes from new data compiled by PropTech Group’s Real Estate Investar subsidiary. The data shows that property investors in mining towns can earn more than double the yields that are possible in the big capital cities. Along with those rewards, however, they may also be shouldering extra risk.
When advantage of investing in mining towns like Broken Hill, Mount Morgan in Queensland, or South Hedland in Western Australia is that prices are much lower than in Sydney or Melbourne. Investors can obtain their higher yields at one-seventh to one-thirteenth the average purchase price.
A median-priced two-bedroom house in Broken Hill is only $129,500. That compares to the asking price of $1.8 million for houses in Sydney’s CBD and $874,000 in Melbourne’s.
That Broken Hill house also delivers a yield of 10.03%, more than three times larger than the 3.4% gross yield for houses in Sydney. It is also more than twice the 4% gross yield investors can obtain in Melbourne.
The current commodity price boom is attracting many investors to mining town real estate. New projects to mine lithium, rare earths, and other commodities related to the green energy boom are creating new opportunities.
In April, commodity prices were up 54% y-o-y, and were just five per cent off their record high. The prices of Australian commodities like aluminum, copper, nickel, zinc, coal, gas, and gold are all up.
Australian mining towns will get further support later this year when China has signaled it plans to stimulate its economy with big investments in manufacturing, green energy, and infrastructure.
We saw in the last mining boom that great yields and high price growth doesn’t necessarily endure.
Mining towns see the greatest housing demand when new projects are being built. After initial construction, employment can drop because it takes fewer people to run operations. Single industry towns can be risky. If the mine reduces production or shuts down entirely, your property may end up empty and worth much less.
Let me share some other quick facts about mining towns from our recent report.
Did you know that Queensland is the top state for high yielding mining town property investments?
Queensland accounts for 19 entries in the top-50 list. Victoria has 11 of the top 50. The total for WA is 8, for New South Wales it is 6, and for SA it is 4. Tasmania has 2 of the top 50.
When it comes to yields, the highest yielding mining property category delivers yields of just over 10%. The median yield of the top 50 mining yielding property categories nationally is 6.96%. More than four out of five of the top-50 mining property investments have yields of 5% or better.
Jordan James, an agent who has helped many investors in mining towns and also grew up in one told me that buyers should plan ahead to reduce their risk.
“You can’t go into these investments without an exit strategy,” said Jordan, who is Director & Licensee of Realmark Karratha, in Western Australia.
Jordan told me that he advises investors to have a target price in mind, so they know when to realise their capital growth and get out when the market is good.