Gladstone is located approximately 550km north of Brisbane and 100km south of Rockhampton in the mid-north coast of Queensland, Australia. According to Flynn De Freitas, principal of Omega Investments, Gladstone is fast becoming Australia’s top mining boom town as a result of massive planned and committed infrastructure projects at various stages of commencement. A summary of De Freitas’ article published in the December 2009 Your Investment Property magazine is set out below:
Investors and developers are infrastructure spotting when they ‘deliberately invest’ in a small town with an impending billion-dollar or larger local infrastructure project. In Australia, these projects are fuelled by the demand for commodities by the booming Chinese and Asian economies and linked to Australia’s status as one of the world’s leading suppliers of natural resources. Mining and energy companies involved in these projects are committed to extract, transport, refine and ship an ever increasing volume of resources within these small towns. As a result, these energy companies are committed to build new mines or gas platforms, railways or pipelines, refineries and ports to fulfil these investment commitments. The common threads among all these large infrastructure projects are:
- Massive cash investments by mining and energy companies into the local economy of the small towns;
- Thousands of new workers will be competing for new mining jobs with $100,000 plus wages being deployed to these projects;
- A shortage of local housing to accommodate this sudden surge in housing demand;
- Experienced investors who have done their research on previous property boom as a result of large infrastructure projects and are looking to invest in impending boom towns before others realise the opportunities and eventual benefits of the projects.
From the chart above, it is obvious that Gladstone’s main natural resource in the future would be concentrated on Liquefied Natural Gas (LNG). Out of the total of A$66.4 billion dollars worth of infrastructure projects, $51.8 billion or 78% of the projects are LNG related. By far the largest project involves a joint-venture between the third largest integrated energy company in the US, Conocco Phillips with Origin Energy in the A$35 billion Australian Pacific LNG project.
The 3 biggest infrastructure projects are all LNG related which involve some of Australia’s largest energy and resources organisations such as BG Group, Origin Energy and Santos. The A$7.7 billion Gladstone LNG project is a joint-venture between Santos and Malaysian petroleum giant Petronas.
de Freitas believes there are 4 important criteria which identifies booming infrastructure towns in Australia:
1. Population of less than 30,000
Infrastructure towns have to small with a population of less than 30,000. This dynamic ensures the project will fundamentally and permanently change the demographic and economic conditions. Larger towns do not feel the impact of the project on residential housing demand as much as smaller ones. As a result, rental yields and capital growth may be less significant. Gladstone’s population is approximately 30,000 and the migration of new workers as a result of the projects will satisfy this criteria.
2. Project value of A$1 billion or more
Large projects of A$1 billion or more are required to create the impact on local housing yields and value. Gladstone’s planned and committed projects have a total value of more than A$66 billion as shown above.
3. Large peak workforce
The projects’ peak workforce needs to be between 5 – 10% of the town’s normal population to create an impact on rents as the workers move into town. In this case, the peak workforce of the planned and committed projects of Gladstone is 21,400 compared to its population of 30,000, ie a peal workforce on population ratio of 71%.
4. Approved project status
The projects must have achieved ‘approved’ status formally granted by the State and Federal governments. This occurs in the last phase of the ‘feasibility stage’ of the infrastructure spotting cycle. When all the environmental and government approvals are granted, the final endorsement is by the Financial Investment Decision (FID) where the project is then classified as ‘confirmed’. This is the stage where house prices can surge between 10 – 20% as a result of investors jumping onto the bandwagon. Five of Gladstone’s infrastructure projects have received full approvals or entered into the ‘confirmed’ or ‘commenced’ phase while numerous other projects have also submitted their Environmental Impact Statements and are now awaiting government approvals, so they can proceed to FID endorsement.
Gladstone currently has 15 infrastructure projects totalling A$66 billion at various stages of approval and commencement.
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