The X factor spooks world markets

19/12/2007 - 22:00


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This week’s property trust rout has highlighted the way in which an unexpected ‘x’ factor can change economic and market trends.

The X factor spooks world markets

This week’s property trust rout has highlighted the way in which an unexpected ‘x’ factor can change economic and market trends.

The sub-prime crisis in the United States, which stems from rash lending to home buyers by imprudent banks and other lenders, has caused shockwaves around the world.

RAMS Home Loans was the first big victim in Australia, after it was unable to refinance its loans.

Who would have thought a big, solid property company like Centro Properties Group would be the next to suffer?

The meltdown in global credit markets has caused the advocates of highly leveraged private equity deals to have a rethink.

Cutting out the jargon, that refers to people who wanted to borrow lots of money to buy businesses.

A prime Western Australian example was the proposed Alinta management buy-out.

It was predicated on the assumption that the management team, and their backers, would have been able to borrow large amounts of money at historically low interest rates.

They might have succeeded, if they locked-in their funding before markets turned, but that was not assured.

And what would happen in two or three years’ time when they had to refinance their debt?

Centro has found out the hard way what happens when it was unable to refinance its bridging loans.


China usurps US as the key economy

The turmoil in credit markets, and the associated collapse in the US housing market caused by lenders foreclosing and putting thousands of properties in the market, would normally cause great angst in Australia.

When the US sneezed, we caught a cold. That was the conventional wisdom.

At the risk of talking about new paradigms, which is always dangerous, the world seems to have changed.

China is now the driving force of the global economy, and certainly of the Australian economy.

If the US were to go into recession, China, and therefore Australia, would certainly be affected.

However the consensus is that China’s growth momentum will continue.

From a WA perspective, the reality is that we could cope with some easing in global economic growth.

WA industry is struggling to keep up with demand for our resources.

Supply constraints, labour shortages and rising costs have become the biggest challenge for business in WA.

For at least three years running, people in WA have been remarking about how incredibly busy they are.

In previous booms, everybody worked hard because they knew the boom would be short lived.

As this boom goes on, it makes sense to take stock of our hectic lives and plan for sustained, high growth.


Long-term planning needed in the state

While the state government is often lambasted for poor planning, WA has got its planning right in many cases.

The imminent opening of the Perth to Mandurah railway should be acknowledged as a great outcome for a fast-growing and increasingly congested state.

Similarly, the opening of the Kwinana desalination plant and planning for a second plant has put WA ahead of other states in this area.

In areas where the government has been caught out – like the tight supply of residential and industrial land – it is unreasonable to pin all of the blame on government.

The state has also invested a lot of money upgrading port facilities and planning for further growth in areas like the Pilbara and the Mid West.

Not always enough to keep up with runaway growth, but creditable nonetheless.

The Liberal Party has upped the ante on port planning by putting forward a bold plan to develop a new harbour at Kwinana and redevelop North Quay for houses, recreational facilities and tourism.

Opposition infrastructure spokesman Simon O’Brien rightly points out that the inner harbour is under acute pressure that will only get worse, to the detriment of many residents and drivers who have to compete with heavy trucks all the way to Kewdale.

The congestion problems have become so bad that special workshops have been held to try and avoid the delays that arose last Christmas.

Despite this, the government is wedded to the idea of keeping Fremantle as Perth’s major commercial port.

Moving heavy freight, including the livestock trade, to Kwinana is a sensible solution.

Allowing Len Buckeridge’s James Point to proceed with its long-standing plans for a privately owned port, competing with Fremantle Ports, would also be a welcome development.

Relocating commercial shipping would create an exciting redevelopment opportunity on North Quay, an area larger in size than the Fremantle CBD.


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