24/02/2011 - 00:00

Smart money on bright future in the west

24/02/2011 - 00:00

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WA property prices won’t be in the doldrums for too long.

HERE’S a question: What have Australia’s prime minister, Julia Gillard, Qantas, the big British law firm Clifford Chance, and the Irish rock band U2 got in common?

Answer: Western Australia.

More specifically, they have a liking for the wealth being created in WA, with all four plugging in to the cash machine that is the resources sector.

U2 cashed in last year by adding a second concert at Subiaco Oval when the first sold out virtually overnight. Liking U2 was one factor for the second event. Being a cash-rich economy was more important.

Clifford Chance, the biggest fee earner in the British law world, demonstrated its ability to spot the same moneymaking opportunity by last week moving into WA via the acquisition of the Perth law firm, Cochrane Lishman.

Qantas joined the game by adding extra seats to its Perth services, and finally recognising that flights from the west to destinations such as Brisbane and Sydney are long haul. It also recognised that the Perth route deserved more business class seats in decent planes, and not the scrap-heap contenders used for the past 30 years.

Ms Gillard has attached herself to WA by helping create the resources super-tax as a way of propping up failing industries on the east coast, and paying for trendy (but doomed to fail) ‘green and vote friendly’ schemes.

The pattern in those four examples, and there are more if you look, is recognition by people who know how to make money (or have the power to levy a tax) that WA is a plump chicken ready for the plucking.

It is also recognition that, with Asian demand for resources unlikely to slow in the next few decades, WA will remain a cash hot spot.

But, if all that is true, why are Perth property prices in the sin bin?

Surely with so much capital pouring into the state, and with executive and blue-collar workers rushing across the Nullarbor, it is illogical to have property prices falling.

The answer to that question is ‘not for much longer’. What we’re passing through is a four-phase process that involves:

• over-leveraged investors cutting their losses as higher interest rates bite;

• investors dumping property around Australia in fear that we will be hit by the same crash which has slashed property prices in the US and Europe;

• too many baby-boomers cashing out of their nest eggs at the same time as part of a plan to move into something smaller; and

• high stamp duty and other costs, making property a poor investment compared with opportunities in the stock market.

Those negatives are, currently, outweighing the positives of U2, Qantas and Clifford Chance spotting the upward trend in WA’s economy, and the flattering tax being applied to the state’s iron ore industry.

In time, the negative and positive forces will flip around. The ‘stale bulls’ will exit the property market. The great debate about property in general being over-priced will be resolved when the market recognises the differences between a region that is booming and regions that are bust, and the baby boomers who want something smaller will make their moves.

Knowing exactly when the worm will turn is the tricky bit, but there is no doubt that it will turn simply because of the inflows of capital and skills into WA thanks to Asian resources demand.

If asked to place a bet on the time of the turn, Bystander would pick the second half of this year, with property prices on the rise again by this time next year simply because of the weight of money pouring into the state, and the number of people who need housing.

Want to donate?

EXCESS cash, which will eventually drive the property market higher, is not always a good thing, nor is it always allocated correctly – though the examples about to be listed fall into the category of sacrificing sacred cows.

Most Australians, rich and poor, have made cash donations to the victims of floods, fires and cyclones. Companies, too, have pitched in, with the most generous donations made by BHP Billiton and Rio Tinto because they work in areas hit by natural disasters.

What none of the companies donating money did was ask the owners of that money, the shareholders, whether they approved.

There is no doubt that the owners of the cash would have given their approval, but it is fundamentally wrong for management to give money away without that approval.

What ought to happen is that shareholders are asked, perhaps annually, for management to make donations from a pool of money specifically set aside for charitable purposes rather than management gifting other people’s money without authority.

Make donations to worthy causes by all means, but ask first.

The second sacred cow involves government departments (or agencies) doing much the same thing, as best illustrated by the WA Water Corporation gifting money to the WA Symphony Orchestra in exchange for recognition as a primary ‘partner’.

WASO is a worthy cause, but it is also a business selling tickets to its concerts. Whether it’s a good thing that a government department donates money extracted from WA water users is questionable.

Given that the Water Corporation is also a monopoly supplier of scheme water to most households, it cannot be argued that the organisation gets a marketing boost from its WASO involvement – and that’s before asking whether the donation includes the provision of priority and premium seating at WASO concerts.

Good year for Deere

AS a final and more positive thought, the big US tractor maker John Deere is forecasting a record year ahead thanks to high prices for wheat, cotton, corn and soy.

Deere has revised up an early 12 per cent forecast rise in farm equipment sales to a 20 per cent rise to a record $US28 billion as farmers re-tool after the global financial crisis.

It might be wishful thinking, but if WA gets decent winter rains the buoyant outlook for farm produce might even flow through to rural property prices.

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“A thing is not necessarily true because a man dies for it.”

Oscar Wilde

 

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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