According to Australia's Science Agency, there could be up to 250 trillion cubic feet of gas hidden in huge coalfields below the plains around 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 plan is mine the coal for gas and convert it into liquefied natural gas (LNG), which will allow it to be easily stored and transported. 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. Unsurprisingly, investors are excited.
So what is Gladstone's potential?
Initially, the story reads much the same as other parts of the country. Property prices have fluctuated in the last year, with median sale prices starting at $224,000 in July 2008, peaking at $435,000 in February this year and currently standing at $236,000 for the last four months. In the last year, over 1,500 jobs were cut in the mining industry 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.
The real reason behind Gladstone's moment of fame is the LNG potential. In short, the gas companies want to mine the highly complex coal seam gas (CSG), temporarily convert it into liquefied natural gas and ship it to Asia, creating a $50bn LNG industry. 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.
However, whether Gladstone's moment in the spotlight lasts longer than 15 minutes depends on how successful the LNG plants are. 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. There is also the issue of demand. 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.
Of course, this hasn't stopped a great deal forecasting and estimations. In July, Queensland Premier Anna Bligh told her state parliament that over 18,000 jobs could be created through the new coal mining opportunities and the regional economy will grow by estimated 8.3%. Twenty million dollars has been earmarked for improving infrastructure in the town and the Australian Inland Rail Expressway, which would serve Melbourne to Darwin, is a possibility.
Ongoing 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. Boyne Smelters and the Yarwun Alumina Refinery provide thousands of jobs in the area, while the Wiggins Island Coal terminal will employ over 750 in the first stages of construction. Gladstone Pacific Nickel Limited (GPNL) is establishing a $4.4bn long-life, nickel and cobalt refinery in the town and Boulder Steel is developing a plant, which estimates to provide over 2,500 short- and long-term jobs.
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. Statistics like these suggest there could be huge investment potential in Gladstone.
"Even without the LNG news, Gladstone is still a thriving industrial town," says Mark Spearing, director of LJ Hooker Gladstone and zone chairman of the Real Estate Institute of Queensland.
"There might not be as many ships going through the harbour, but there are still enough to provide work. We had a busiest period for rentals over the last year in the last month, and they were mainly to mining and port workers. Any prudent investor has Central Queensland on their radar."
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. Meanwhile, in Telina and Kin Kora low-set brick properties starting at about $350,000 and can expect rental rates of $330 per week.
There is a good range of old stock in Gladstone, but new development is limited. 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. To the south of G80 is Sun Valley Rise, a development of 41 villas, and (by the same developer, Merranda) Avion Place, a group of 24 townhouses.
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. "Prices have stabilised in Gladstone but once the next industrial announcement is made, this will change overnight," says Spearing. "I expect houses in the $350,000 bracket could jump to $400,000 straight away. If you want to capitalise on the LNG news, now is the time to do it."
According to Andrew Allen of Ray White, Gladstone is no stranger to this type of industrial-related fluctuation. "When Rio Tinto built Queensland Alumina in the 1960s, it kick-started Gladstone," says Allen. "In the 1980s, RioTinto bought another aluminium smelter and the market jumped dramatically. 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 echoes Mark Spearing, recommending Telina's low-set brick properties and units in the CBD but he also suggests Glen Eden, where a three-bedroom low-set brick home starts at $350,000 and can expect about $350 per week in rental. 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.
"Santos' Environmental Impact Statement has projected that they will need 3,000 workers for the LNG plant on Curtis Island," says Allen. "They estimate 2,000 will come from outside Gladstone, with 50% working couples, 25% singles and the final 25% families. Our experience has shown the majority of these people are looking at two- or three-bedroom houses. 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. Until two years ago, he and his father, Norman, only invested in Sydney. But following a tip-off from a friend they turned their attentions to 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. All 17 of their rental homes are occupied and they rent to both private and corporate tenants including Rio Tinto.
"This is very much a long-term investment," says Zylberberg. "These industrial projects take years to build and in that time there will be ups and downs in the rental market. However, it only needs one project to take up the slack in the market."
More than just mining
Industrial factors aside, Gladstone still has appeal. 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, which is undergoing a $65m upgrade, is serviced by QantasLink and flies direct 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 just want Gladstone to be one of those fly-in, fly-out towns. We want workers to come here and bring their families," says Glenn Churchill of the Gladstone Area Promotion and Development Limited. "We have invested a lot of time and money into the social infrastructure to ensure that Gladstone is an attractive offer not just because of the industrial opportunities, but also because of the town itself." The non-for-profit organisation offers industry and location tours, showing visitors the economic lay out of the town and introducing them to the facilities and services. It's a smart way for newcomers – including investors – to get a measure of the town.
"Doing your research and ensuring you buy the right property is essential," advises Alex Zylberberg. "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. We know from experience that renters want to be near the shops and be able to walk to town, so units in the CBD are often the first to get tenants."
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. "The risks here are the same as investing anywhere," says Mark Spearing. "You need tenants, you need the right property and you must do you 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. Investing in Gladstone is not a short-term gain; you should expect to wait at least five years to see a decent return."
It comes down to: who dares wins. It is an investment that is just too risky for some, especially when consumer confidence is at such a low. However, for brave investors it is a move that could bear impressive fruit.