palmer tips cash drought as credit dries

http://www.goldcoast.com.au/article/2008/10/16/17538_gold-coast-news.html


Palmer tips cash drought as credit dries

Shannon Willoughby

October 16th, 2008

AUSTRALIA'S economy is caught between 'two worlds', says Gold Coast mining billionaire Clive Palmer.

Mr Palmer, pictured, founder of Mineralogy which owns one of the world's largest magnetite iron ore deposits, said Australia's economy was feeling the effect of the global credit crunch, but continued to grow thanks to resource-hungry China.

The former real estate agent said despite his forecast for strong and continued growth fuelled by commodities, property prices on the Gold Coast would fall another 30 to 40 per cent in the next two years.

Mr Palmer said last week's interest rate cuts and Tuesday's $1.5 billion increase to the home buyers' grant would have little impact in boosting the the housing market on the Gold Coast, Sydney, Melbourne and Perth.

"We are in an economy which is caught between two worlds. One which is moving and expanding and well-capitalised, and is flying with commodities. Another world is providing us credit. Credit is very scarce," Mr Palmer said at yesterday's monthly TSS business breakfast.

"Most of our banks in Australia are great borrowers and the credit market has dried up, (especially) somewhere like Surfers Paradise and the Gold Coast. Our banks have over-lent, as they always do, to the housing and real estate market.

"You will see declining rates in real estate fall in the vicinity of 30 to 40 per cent over the next two to three years, which is very drastic.

"People will have less disposable income because of the credit crunch and the increasing interest rate.

"Although we have seen the Prime Minister, Kevin Rudd, move very quickly to move rates down, I don't think even he or the Reserve Bank can stop the scarcity of funds and the demand in driving up interest rates in the long term.

"There will be more and more foreclosures, people will have less disposable income.

"There will be a lot of devastation in some trades (like the development industry) and many people will have to relocate where the jobs are, like WA or Queensland mining towns."

Mr Palmer said the drying-up of cash would affect tourism.

"But on the other hand, our economy will continue to grow because of the demand for our resources in China and to a lesser extent India," he said.

Mr Palmer, who owns the Gold Coast United Football Club, said China's goal was to continue to buy resources to service its economy.

He said the buying power of Chinese middle class was far greater than Australia and New Zealand combined and 90 per cent of its GDP was internally driven.

He said China had foreign exchange reserves heading towards $2 trillion.

"They have got more money in institutions than any other country in the history of mankind," he said.

"If they want to build anything, if the economy slows, all they would have to do is inject some of those savings into infrastructure, into public works and then the economy speeds up."