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Western Australia – The boom is coming to an end

A few days ago I wrote about the economy in Western Australia and how the success and draw of this economy is impacting house prices and the availability of rental properties.

Well, a recent article in the Aussie version of the Sunday Times tells us to beware as the good times are due to come to an abrupt end!

BankWest chief economist Alan Langford said WA’s heavy dependence on the commodity cycle made a bust inevitable.

“I deliberately use the word cycle,” he said. “We are in a super high period, but things will come down. I don’t know when or by how much, and there will be some pain. To think it will be a painless adjustment if China were to fall out of bed is pie in the sky, but it is less likely to be the hangover from the last time.”

The housing market was built on credit and Mr Langford warned homeowners against over-stretching themselves in case commodity prices collapsed. “People should be putting something aside and making contingencies for when things turn down,” he said.

“The bottom line is that WA is a net energy exporter. It will start to strain under its own success and an easing back – a modest reduction – might be good for parts of the economy.

“At the moment, things are being delayed, not because of demand but because they can’t get labour.

“I think we are probably in the tail end of the boom, certainly the second half, and will look back in history and see it as medium-to-long-term boom, a five to seven- year boom.”

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Market analyst Peter Strachan said WA’s reliance on resources was both WA’s strength and its Achilles heel. He agreed the state’s prosperity was closely tied to demand from China. “If China gets the flu, we are going to catch it as well,” he said. “We are experiencing a boom, but these things always come to an end.

“Part of the problem is that every time you open a mine you need to buy half a dozen bulldozers or trucks, and they all come from places like Korea or the US.

“In my view, we need to be moving up the value-chain a bit.”

But the pain was unlikely to be as harsh as that experienced 20 years ago because in the ’80s it was very much an entrepreneurial boom. Then, property prices were idle until the mid-’90s or even later.

“There was a lot of pain that had to be unwound from that and now, of course, it’s all a distant memory because vacancies are low,” he said.

Despite consensus that a bust was inevitable, investors were being reassured their money was safe in the resources sector.

But Bell Potter Securities wealth management head Heather Zampatti said investors should not put all their eggs in one basket.

Well, that makes the whole situation a lot less confusing….not!

I guess I can view this in a couple of ways. Firstly its kind of a good thing as it may mean that the rate of growth in the housing market (and the associated house prices) may start to ease off a little. If anything, if the ‘boom’ does come to an end it may well make the housing situation in Perth a buyers market.

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From a slightly more negative point of view, this isn’t going to happen in the next couple of months, if it is going to happen and it starts to happen not long after we get there then there will be a lot of uncertainty around jobs and companies may put any recruitment drives on hold whilst they wait to see how things pan out.

On the other hand, this is just another view from another economist who may just want to get his name in print. It demonstrates how things can potentially change so easily though.

Anyway, we have a house to sell (another two viewings to be booked in for today hopefully) :)

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Written by Mark

As the founder of Getting Down Under, Mark is passionate about demystifying the process associated with a move to Australia. Having launched Getting Down Under in early January 2006 and made the move to Australia from the UK in the same year, Mark continues to share resources and support for those looking for assistance. If you have a question for Mark, please post in our Community Forums. Please note All information provided on Getting Down Under should be considered in conjunction with our disclaimer. Please seek professional advice if you have any doubts!

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