According to Australia’s Science Agency, there could be up to 250 trillion cubic feet of natural gas beneath Gladstone. If this is proved true, it will make the region the world’s fourth-largest source of natural gas – ahead of Saudi Arabia.
The coal will be mined for natural gas, and then converted into liquefied gases (LNG), which can be stored and transported quickly. Considering the demand from Asia (in Asia-Pacific alone, annual LNG demand is expected to double from 100 million tonnes to almost 200 million tonnes a year by 2015) and the fact that Australia’s domestic gas consumption is only 0.5% of the bigger economy, this finding signals huge potential for Queensland, and in particular, Gladstone. It’s not surprising that investors are excited about this finding.
Is Gladstone still a potential leader?
It is similar to what you see in other areas of the nation. Over the past year, the median property price fluctuated. It began at $224,000 on August 2008, and reached $435,000 in February 2009. It currently stands at $236,000 after just four months. The last year saw more than 1,500 job losses within the mining sector in Central Queensland. The capital growth of median house prices dropped 16.8% in Gladstone between 2008 and 2009, and vacancy rates stand at 5.4% – the highest in seven years.
Gladstone’s fame was built on his LNG potential. The LNG industry is basically a company that wants complex coal seam gas to be temporarily converted into liquid natural gas and shipped from Asia. It costs $50 Billion. Santos, Chevron, British Gas Group and Inpex are among partners in the several proposed LNG projects for Gladstone’s Curtis Island and Fisherman’s Landing, with a targeted final investment decision for the end of next year and an estimated 5,000 jobs created. China National Offshore Oil Corporation (CNOOC) have signed an agreement with British Gas Group to buy 3.6 million tonnes of LNG a year for 20 years, but it is Santos – who have plans for a $7bn project – who are likely to complete the world’s first-ever LNG plant fed by CSG in the town.
Gladstone’s moment in the limelight will be brief. It all depends upon the success of the LNG plant. The plants rely on their ability to draw large amounts of gas from coal – a challenge that has led many companies to harvest the gas well below its potential. Another factor is the demand issue. At present Asia’s buoyant market is driving this, but should this demand fall off, we could see a similar situation to earlier this year when 1,500 jobs were cut in Central Queensland and firms such as Rio Tinto – who have offices in Gladstone – made dramatic cut backs to contractors.
Forecasting and estimates continue to be made despite this. Anna Bligh, Queensland Premier said that new coal mines will create over 18,000 jobs in Queensland and that the region’s economic growth rate will be 8.3%. The infrastructure of the town has been improved and twenty million dollars has been invested in the Australian Inland Rail Expressway, which would connect Melbourne with Darwin.
Continued infrastructure projects
It’s worth noting that there are already thriving industries in the town – not enough to close the current vacancy rates but an indicator of its potential nonetheless. The town’s biggest asset is its natural deep water harbour – the fourth-largest in Australia and home to the world’s fifth-largest coal export port. The Yarwun Alumina Refinery and Boyne Smelters create thousands of jobs in the area. In its initial stages, the Wiggins Island coal terminal will employ over 750 workers and provide more than 750 jobs. Gladstone Pacific Nickel Limited (GPNL) is establishing a $4.4bn long-life, nickel and/or cobalt refining plant. Boulder Steel plans to build a plant that will create more than 2,500 jobs over the long- and short-term.
Thanks to the record prices for coal that were a hallmark of last year, Queensland minerals and energy producers returned almost $3.4bn in royalties to taxpayers in 2008/09 – the highest recorded figure – and next year this is projected to be about $1.8bn. To top it off, in March this year, demographer Bernard Salt predicted that Gladstone’s population will increase by 68% by 2026. Statisticians like these indicate that Gladstone holds great potential for investment.
“Even with no LNG news, Gladstone continues to be a thriving urban city,” says Mark Spearing director of LJ Hooker Gladstone & zone chair of The Real Estate Institute of Queensland.
Despite not having as many ships passing through the port, there is still plenty of work. Over the past year, the month of December was the busiest month for renting in Central Queensland. These were mostly port workers and miners. Any prudent investor should keep Central Queensland in mind.
There are many options for investing
With this in mind, Spearing suggests investors look towards Gladstone’s CBD and the suburbs of Telina and Kin Kora, with units and low-set brick homes around the $350,000 mark representing the best investment. Units in the CBD start at about $180,000 – providing you’re happy to renovate – and can command up to $320 a week rent. Low-set brick properties in Telina and Kin Kora start at $350,000 Renting a property in Telina and Kin Kora is $330 per week.
Gladstone has lots of stock, but very little development. LJ Hooker are promoting G80 – an off-the-plan site of 74 apartments near the port, due for completion in 18 months – with prices starting at $298,000 for a one-bedroom apartment with furniture and rental packages on-site. Sun Valley Rise (a 41-villa community) and Merranda Avion Plaza (a group 24 townhouses), are both located south of G80.
The lack of new-build stock is one of Gladstone’s investment attractions: once LNG work gets under way, the demand will far outweigh the supply – a nice state of affairs for any investor. Spearing states that, although Gladstone prices have stabilized, the situation will change once the next industrial announcement is made. I believe that houses priced in the $350,000 range could go up to $400,000 as soon as possible. This is the best time to profit from the LNG news.
Ray White’s Andrew Allen asserts that Gladstone is susceptible to this kind of industrial-related fluctuation. Allen states that Gladstone was created in 1960 when Rio Tinto made Queensland Alumina. “In 1980s RioTinto acquired another aluminum smelter. The market boomed tremendously. Then, in the 2000s, coal became the next big product – and now it’s LNG. This is the perfect storm – the market is no longer relying solely on one product; it has diversified.”
Allen endorses Mark Spearing’s recommendation for Telina’s low-set brick properties, and units within the CBD. Glen Eden is also recommended by Allen. This three-bedroom home has low-set bricks and rents for $350,000, with an average of $350 per month. In new buildings, Ray White are currently promoting Oasis on Roberts – a development of three-bedroom townhouses starting at $375,000, with projected rentals of $350–$400 a week.
Allen stated that Curtis Island’s LNG plant will require 3,000 workers according to the Environmental Impact Statement of Santos. They expect that 2,000 workers will come from places other than Gladstone. These include 50% of couples who work, 25% of singles and 25% of the remaining 25%. These people are most interested in homes with two or three bedrooms. Considering the severe under supply of these properties – especially new buildings – anyone who buys now will be in a prime position to cash in on that.”
Property developer Alex Zylberberg is one of the very people who hopes to benefit from Gladstone’s housing shortage. His father Norman Zylberberg was his only investor in Sydney, and he had not invested there until two years ago. A friend tipped them off and they decided to concentrate their attention on Gladstone. “We looked at various one-mine towns but the draw of Gladstone is it’s diversified,” says Zylberberg. “The LNG is so huge it’s off the scale, but even if only a couple of the projects go ahead, that’s still enough workers to fill the vacancies and then there are all the other industries too.” The Zylberbergs have six projects, with a mix of land and properties. They rent all 17 homes to private and corporate tenants, including Rio Tinto.
Zylberberg said, “This is an extremely long-term investment.” These industrial projects can take years and could cause rental market fluctuations. One project is all it takes to fill the market gap.
More than just mine
Gladstone is still appealing despite its industrial elements. It’s the start of the Great Barrier Reef gateway and is a two-hour ferry ride from Heron Island – a 16-hectare island known for its crystal waters and superb diving. Gladstone Airport currently has $65m in renovations and is now operated by QantasLink. It also flies to Brisbane. It’s also measures well in recent crime surveys: in the last year, 19 robbery offences have been reported – lower than both Mackay and Rockhampton – and unlawful entry sits at 478 offences in the last year compared with 898 in Mackay and 1,454 in Rockhampton. These factors don’t quite make it a holiday rental destination, but they certainly increase its attractiveness – something that is important when trying to pull in those industrial workers and their families.
“We don’t want Gladstone to just be a fly in/fly out town. Gladstone Area Promotion and Development Limited says Glenn Churchill that they want workers to come here and bring their families. Gladstone’s social infrastructure has been improved to attract workers and their families. The non-profit organization provides tours of industries and locations. They also introduce visitors to the facilities and services available. It’s a smart way for newcomers – including investors – to get a measure of the town.
Alex Zylberberg advises that it is important to do your research and ensure you are purchasing the right property. “A renovated apartment close to the CBD would we wise – they also represent good value as they are low maintenance, often come with an on-site manager and have low, entry-level prices. Tenants want to be near shops and to be able to walk into the town. This is our experience. Units in the CBD are usually first to rent.
And this is where the risk of investing in Gladstone lies: investors need tenants to keep their assets profitable but in order to reap the best rewards, property must be bought now, before the success of the LNG plants – and in turn the tenants – are confirmed. Mark Spearing says that Gladstone has the same risks as any other location. You need tenants. You need the right property. Do your research. I cannot emphasise how important that is – speak to professionals who know the market and make sure you spend time here seeing it for yourself. Gladstone investing is not an investment that can be made in a short time. For a decent return, it will take at most five to five more years.
Let’s face it, who dares win? This is a risky investment due to low consumer confidence. Investors who are bold can reap impressive results.