Chinchilla - hold or run?

K

korringal

Hi all,

Guess who has learned a few valuable lessons of late. Got caught up in the chinchilla hype, and bought a couple of 4x2x2 H&L packages in chinchilla in 2011. Started off ok, but bubble has burst in last 6 months. Vacancy rates soaring and prices plummeting. Have my two properties on the market, but missed the window to get out about 9 months ago without realising a circa $80k loss which I'm kinda keen to avoid. Worst time to be selling.

Does anyone have any clue or a view on whether there is likely to be an uptick in rental demand / correction in the vacancy rate over the next 12 months? I have tenants, and can probably still hold at decent numbers of around $450pw on properties I paid low $400k for. Ok number, the benefit of having new digs I guess.

My concern is the *** completely falls out of the market and things do net stabilise in the near future.

tossing up whether to take the hit, run and try and make back the loss elsewhere, or ride it out.

Welcome the views of any other punters that are in the same boat or someone on the ground that might have some better knowledge.

Feel free to have a dig as well for falling for the sprinklers lines!!!
 
It would seem the Surat has a bit of steam left. The requirement for accommodation is in the construction, rather than the operational phase, with the sites being easily portable with modular accommodation options. Depending on your appetite for risk, and your cash flow needs, you might want to hang on 12 months.
 
I too hold some properties there and spend a lot of time researching. Bad time to sell atm, hold for a while if you can, at least you have tenants. There is still some steam left in the run there with still work to do in the construction phase. Word is it will get busier from July to November, then quiet most of 2015, then busier 2016 onwards, so get out later this year or hold long term, is my opinion.
 
powderfingers said:
I too hold some properties there and spend a lot of time researching. Bad time to sell atm, hold for a while if you can, at least you have tenants. There is still some steam left in the run there with still work to do in the construction phase. Word is it will get busier from July to November, then quiet most of 2015, then busier 2016 onwards, so get out later this year or hold long term, is my opinion.
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Thanks for that powderfingers. Have you been able to find any web-sites etc that shed any light on activity or are you hearing that that from word of mouth?
 
powderfingers said:
Hi Korringal, word of mouth plus download the report in this article: http://www.gladstoneobserver.com.au...-future-of-our-gas-industry/2253158/#comments
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I wouldn't take anything that the Observer publishes as gospel.. Pretty much miss the mark most times.

Is there anyone on the forum that's on the ground in chinchilla ? It would great to hear their point of view.

Korringal, did you buy your H&L from a local developer/builder?
Their was one that was spruking big time it would be interesting to see what they have to say now..
 
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Chinchilla has been ok to me have had my place there for 8yrs and have had it rented continuously for 6yrs. Spoke to my agent there today as I want to sell to move on to another project and I was advised to wait as they expect things to pick up again.
 
Current vacancy rate is 15.5%. Highest recorded in Chinchilla.

Highest recorded of any area in Australia is just over 30% at the moment.

Not saying it will get up there. Just to give you a comparison with the worst suburb.

Andrew
 
15.5 % wow.... Rents must be in free fall.
Sprukers bloody Sprukers! I bought an existing house a couple of years old from a realestate agent and didn't realise developers/sprukers where going to keep flogging the place. Even when things looked like slowing down I was still getting emails and seeing adds in property mags about cash positive properties and predictive growth. I was kind of hoping that people would be seeing through the smoke and mirrors. Very much the same as Gladstone.

Leads to the question (I have only been investing for about 5years, so not long enough to tell). But do most places that predicted for high growth adventually get flooded by developers?
 
Jenko said:
15.5 % wow.... Rents must be in free fall.
Sprukers bloody Sprukers! I bought an existing house a couple of years old from a realestate agent and didn't realise developers/sprukers where going to keep flogging the place. Even when things looked like slowing down I was still getting emails and seeing adds in property mags about cash positive properties and predictive growth. I was kind of hoping that people would be seeing through the smoke and mirrors. Very much the same as Gladstone.

Leads to the question (I have only been investing for about 5years, so not long enough to tell). But do most places that predicted for high growth adventually get flooded by developers?
Click to expand...

Jenko, got one via a local agent which was hooked up with a developer and another from someone who had me seeing bluesky.....

All up though, it could be worse. I have tenants, and the agent is telling me they could lease if they became vacant for around 450-500pw. I made the call to put sheds in which means they'll generally lease first if priced right. So, still looking at a yield of around 5.5%, which isn't exactly panic stations. Just need be hope market stabilises in next 6 months or so and can get out without doing my shirt.

With the benefit of hindsight, as a general rule if the spruikers have moved in, you've missed the boat and the likelihood of an oversupply is high if the market comes off a touch given developers and builders will just keep pumping out product while there's investors to flog it to. Personally, will be staying away from regional markets and going back to core metro and trying to add value rather than relying solely on market movements to generate capital growth.
 
korringal said:
Jenko, got one via a local agent which was hooked up with a developer and another from someone who had me seeing bluesky.....

All up though, it could be worse. I have tenants, and the agent is telling me they could lease if they became vacant for around 450-500pw. I made the call to put sheds in which means they'll generally lease first if priced right. So, still looking at a yield of around 5.5%, which isn't exactly panic stations. Just need be hope market stabilises in next 6 months or so and can get out without doing my shirt.

With the benefit of hindsight, as a general rule if the spruikers have moved in, you've missed the boat and the likelihood of an oversupply is high if the market comes off a touch given developers and builders will just keep pumping out product while there's investors to flog it to. Personally, will be staying away from regional markets and going back to core metro and trying to add value rather than relying solely on market movements to generate capital growth.
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Don't think its regionals which is your issue. It's the fundamentals.

Regionals can be fine if they are diversed and have growing populations, rather then a mining town.
 
korringal said:
Personally, will be staying away from regional markets and going back to core metro and trying to add value rather than relying solely on market movements to generate capital growth.
Click to expand...
I know what your saying but are city markets any safer? By the sounds Brisbane city has an oversupply of units and Sydney and Melbourne are about to be the same. Looks like if anything has a chance of decent return/growth the developers move in and flog it! Maybe looking for not so "hot" is the go?? I'm sure some of SS members have their fingers on the pulse.
 
Jenko

There's a difference, if you buy land in an established area in a city of over 100,000 (not an exact science!) then developers won't be able to influence the desirability of your house to potential buyers. In the smaller city's they will be able to hurt your rent though as it's not to far for renters to move out if they want a new house.

Anything smaller than above, Gladstone, moranbah, chinchilla, whyalla - then you are at the mercy of the local shire and their town planning vision. Which in a boom time will be of a town twice as big as the one they have today! With no regard given to what happens when the workers move away. The people on these councils generally are not too sharp , just show em the money

Then there's the exceptions, small towns in very remote locations - headland, Newman, onslow, Alice and of course your favourite would be weipa!
It looks as though after 15 years the developers are getting into karratha finally. These wa towns are protected by landcorp though which prevents the councils from over developing. The costs to build in these towns are normally so high that it provides a stable floor for your investment as well.
 
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