(Recently we explored the reasons why people invest in mining towns and discussed the types of mining towns and their scale of risks and rewards. This time, we discuss the risks involved in investing in mining towns. Read on!)
No doubt, mining town investment can be risky. That’s because mining town investment is about timing. You want to buy in and see your values and your yield grow — or at least stay the same as it was when you bought it, but it’s hard to pick. This is particularly noticeable of course in the smaller towns where the economy of the town is driven purely by the mining activities but it still be noticeable even in those larger regional centres.
Mining projects are not undertaken to make money for property investors.
There, it’s out! Sad, but true!
Mining projects are undertaken to make profit for mining companies and there a few things that we need to know:
- Mining projects have a lifecycle and phases within the lifecycle. There are phases of a project, such as the initial construction phase where the project will require large amounts of personnel and so this can drive up property value and yield, based of course on the law of supply and demand pertaining to housing. There is an operational phase, where you may see a reduced requirement for housing due to reduced levels of staffing required.
- Resource commodity prices can impact upon projects and decisions are being constantly made and re-evaluated about the financial viability of projects.
- Projects can be downsized, closed or not go ahead at all. They can be postponed or shelved completely and although sometimes we may know this is going to happen, sometimes we will not. Media speculation often comes after decisions are actually made and decisions are made in big company board rooms everyday, to which we are not invited. Like I said, mining projects are not undertaken to make money for property investors – it can just be a side effect.
- Mining companies can decide to develop their own accommodation to reduce the costs associated with housing their employees and this can greatly affect demand for rentals and the development of residential housing.
Mining towns can ebb and flow like the tide based on many factors outside our control, including the global economy, the national and local enconomy. Sometimes the tide is most definitely in and you’re making money. Sometimes the river dries up completely and leaves you high and dry.
Some investors get in and get out at the wrong times, or the right times! Others go along for the ride and take it for what it is.
Interested in investing in mining town locations? Give me a call, I’d be happy to help.