Risk and reward: Gillard's mining tax revisions excites investors

Date: 19/07/2010

Looking for an investment property that offers a low buy in and high rent returns? Thanks to new Prime Minister Julia Gillard, Australia's mining towns are gearing up to become boom areas again as revisions are made to the super mining profits tax.

Australia's property market is ripe for investors. If you're a homeowner and think investing in property is out of your league, it might be time to reconsider. Property prices have increased dramatically over the past few years so chances are you've got a comfortable amount of equity sitting in a quiet corner of your home just waiting to be put to use. And if city median house prices are above and beyond what you can afford, why not consider a mining town?

According to RP Data senior analyst Cameron Kusher, the timing may now be right to snap up property in Australia's mining towns thanks to the friendly resolution of the super profits mining tax and a bounce back in commodities. After a bit of a shakeup during the global financial crisis, where many mines scaled back or closed down, it seems the resources sector is bouncing back.

Terry Ryder, founder of popular property advice website Hotspotting.com recently told Your Investment Property magazine that mining areas were at the top of his risky investment list. However, as Ryder notes, high risks may also have high rewards. "The one reason why you may accept the risk of a mining town is if the returns are particularly high," he said.

One such town that tops the list is Moranbah, a large coal mining town in the Bowen Basin in Queensland. 9% rental yields were recorded in April and the five year grown rate rests at 102%, according to figures from RP Data.

In research released yesterday, RP Data pointed to three regions where house prices should rise.

1. North-west Western Australia, especially iron ore-rich towns of Karratha and Dampier

2. Coalfield towns in Queensland such as Moranbah, Dysart and Clermont, all located in the Bowen Basin

3. Queensland's Western Downs, popular for a burgeoning coal-seam gas industry.

"There is likely to be a higher level of demand for Australian mines to pull resources out of the ground at a more rapid pace," said Kusher. "That means more workers and more demand for housing in what are generally chronically undersupplied markets."

In Queensland's Bowen Basin, median prices were $405,000 and median rents for houses were a whopping $750 a week. Not a bad starting price considering predicted growth.

If you've got a little more cash to burn, head on over to WA where house prices fell by 9.3% last year.

Median house prices in north-west WA now sit at $880,000, 3.3% below the peak and rents are high - on average around $1575 a week. This results in a 9.3% rent return - outstanding in anyone's books.

While buying in a high risk area certainly has its advantages, you need to be prepared to think fast, and smart. If you're new to the investment game, try to learn as much as you can from experts in the field and reputable publications and decide on the best investment strategy that will work for you.