Currency dynamics impact property decisions

One of the big benefits of having a portfolio of international investment properties is the benefit of being able to buy properties based on local fundamentals, but also with an eye on international currency movements. For this reason I am currently in NZ, and I've just purchased a property for $NZ78,000 (or $US 41,000) based on currency conversions at this point. Its a buyers market at the moment so I was able to buy this property from some panicky old people, but also managed to get 3 months deferred settlement and I only have to pay nominal rent of $70/week before we reach final settlement. In case you are wondering what I got, I purchased a 2br home with a study on 756m2 of land in a rural town with a population of 44,000 very friendly people, 2 hours from a majority city, and just 2km from a lovely beach. The broadband signal on the beach was not so good so we opted for 2km away. The property was listed for sale at $NZ99K. There were bigger bargains but this suited us.
Why this property makes a lot of sense lies in the market dynamics and the global currency movements. Here are the reasons why the NZD has taken a major tumble:
1. The carry trade: The carry trade has broken but it will rebuild. The implication is that NZD again looks like good buying. Confidence will rebuild in NZD as the country is now more competitive than ever, and its a major food producer. We might not pay as much for premium food, but we will continue to eat, and the food market fundamentals don't look bad either, which is why we like the rural market
2. Rural areas - some parts of NZ have been undergoing depopulation so property prices have not fallen. Some areas which were depopulating are now growing, so in certain markets the dynamics are changing. Rural areas like this which were yield propositions are now growth propositions.
3. Tax benefits - NZ has some very attractive elements which favour investment. These include no capital gains tax on property, no transfer taxes, no GST. The 4% agent commission is levied on the seller.

NZ is also getting punished because it has a lot of debt, but one needs to appreciate that its terms of trade just improved a heap because its currency is weak and commodities (which it exports) are denominated in USD. The other attraction is that one-third of its external debt is denominated in AUD, and many will realise that the AUD roughly tracks the NZD, and that at a time of weak metal prices, the NZD might actually do better. But importantly the NZD is essentially not exposed to AUD.

I have attached here some charts showing just how attractive NZ property is in your local currency. Oh...and did I mention that NZ has some of the most open foreign investment and migration regimes in the world...because too many technical people keep moving to Australia for higher pay. The benefits of investing in NZ are particularly good for the Japanese, Europeans and anyone from a US-denominated currency. Its also one of the most beautiful countries in the world and contrary to my initial view people can be really friendly in this country. My earlier holiday perceptions were wrong.

www.sheldonthinks.com

Property sales in NZ

At the moment I am in New Zealand. I arrived about 2 weeks ago in Auckland. The appeal was a swag of cheap property for just $NZ80,000-100,000. Some are in really bad locations like the cold part around Southland, but others are close to major cities. I am in the process of preparing a report on the property market here because the country makes a lot of sense for Americans, Britons and Japanese based expats, assuming you dont mind the distances. It suits writers like myself or the semi-retired.

The attraction of NZ is the prices, the spectacular scenery, and contrary to my previously uninformed view after 3 fly & drives here, NZ'ers are actually very friendly people. There are drive-by shootings here related to gangs, but nothing that would make an American flinch. I've even seen Japanese tourists here. Usually the gangs shoot themselves.

Anyway I bought a Holden 2001 Combo and have travelled south of Auckland stopping off at all the real estates. Some really beautiful spots to be seen. Actually I prefer the South Island, but actually I am looking at a place close to the beach. More details in coming weeks. The real attraction is the weak NZD. The first thing I did was buy a car to send money, then I bought the car for $NZ5,000. Actually I organised to view the car after looking on the internet. The dealer even picked me up from the airport. Great little car/van. Its a 1.4L engine so great fuel economy for touring, and I'd happily sleep in the back if I was camping out, as I intend to do alot of mountaineering and kayaking here. As soon as I buy a house I will be buying an inflatable kayak. I want one this summer. Can't wait until I go back to Australia or Japan.

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Andrew Sheldon www.sheldonthinks.com

When to buy Japanese foreclosed property

In recent times I have been suggesting that for a lot of buyers it does not make sense to buy foreclosed property in Japan. People investing funds from countries like Australia and NZ should not invest in Japan at this time unless they want to see their asset value erode over the next 5 years. Even if you are flipping these properties you will pay higher capital gains tax in Japan for short term trading in property.
The people who should be buying property in Japan are those who are living in Japan, earning money in Japan, who retain their savings in Yen. In addition there are those countries whose currencies remain strong against the Yen, who also have the opportunity to invest in Japan. Japan therefore has appeal to the Japanese-based English teachers, financiers (who still have a job) and programmers. Even if you don't plan living there more than 2 years it probably makes sense to buy your own place and renting it out. There are several factors to consider:
1. Japanese interest rates remain at record lows - this has not translated into economic stimulation for other reasons, but recognise that it likely will at some time. Higher interest rates will strengthen the yen at some point.
2. OECD countries which have lowered their rates of late will eventually have to raise them, partly due to inflation, partly because of the normal credit cycle.
3. An eventual recovery in economic activity will strength the currencies of commodity producing currencies, so it might be prudent for people to remit their funds back to Aust, NZ, etc by that time (say 3-4 years). You can pay off an investment property in 3-4 years based on current yields....if you buy the right property.
2.
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Andrew Sheldon www.sheldonthinks.com

Philippines - attacks on successful people

There was a story in the SMH Online “Aussies 'held captive' in Philippines” on 6th Nov 2008 highlighting the experiences of an Australian property/resort developer in Boracay. In this instance his family were held hostage by ‘armed thugs’. Greg Hutchinson, the owner of SandCastles resort, believes the intent of the bandits was to intimidate him.
Hutchinson was one of the original developers on the island, arriving in 1989 when there were just 10 resorts. This is not a new phenomenon. There are vested groups in the Philippines who resort to intimidation if you achieve too much success. You establish a successful business model and they want to force you out. A time of financial crisis is the best time. The intimidation is not just of foreigners, but Filipinos as well, whether local or foreign. The Philippines is a nation of victims and perpetrators. The trick is to have modest goals or to spread one’s interests broadly, so that you remain under the radar. Avoiding the drug, prostitution and arrogance settings is another sensible strategy. I would therefore recommend avoiding these places.
Hutchinson said he had been experiencing such intimidation for three years. He said "There are certain elements in the country who wait until you develop something, make a success of it and then they move in and force you out so they can reap the rewards". One could speculate on what rewards the bandits are after? Were they there to rob the guests, were they trying to discredit the owner’s establishment, did they want to burden him with higher security costs than them, did they hope to encourage him to move out before his 30-year lease expires in 11 years. Maybe some combination of those. Interesting this article follows a similar story of a Australian businessman in Angeles City, who was killed because his business was too successful. I haved posted on this previously. Its apparent that the Philippines gets a bad reputation from these crimes. They always seem to be centered on those centres of ‘prestige’ like Boracay, Manila and Angeles.

Buying foreclosed property in Australia

Here is a good article on foreclosed property in Australia.
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Andrew Sheldon www.sheldonthinks.com

Property market risks moving forward

The property market risks looking forward is an important issue to consider. My focus is Japan and the Philippines, so I will restrict myself to those two countries because I consider them the most promising in the Asia Pacific region. There are 3 main considerations:
1. Foreign exchange exposure for foreign investors or foreigners residing locally looking to repatriate earnings from Japan.
2. Debt leverage
3. Interest rates

Interest rates in Japan are already very low so there is only one way they can go and that is up. The most pressing reason to raise rates would be inflation in the current climate. This is not a factor however that you strike Japan in isolation, so this is not an issue, and there is no reason to rein in private spending because its not strong. The private sector in Japan is not overly leveraged, though the government is. At some point the government will be looking at increased taxation to fund the public sector deficit. I think this is likely to fall upon the property market because consumption is weak and the government will be reluctant to tax income given the economic weakness. I don't see this as a significant increase. Certainly not enough to discourage investors given the high yield opportunities.
For the Philippines, debt leverage is very low, which augers well for future credit growth. Interest rates in the Philippines have always been at a premium because of the poor propensity for Filipinos to save. They pay a premium for borrowing abroad, which also increases the risk to local banks. Well the Philippines is not the only plausible source of capital. I think we can expect an increase in foreign savings flowing to the Philippines as the Arroyo reform agenda continues...albeit slowly. Metal commodity prices are lower, soft commodities are likely to fair better. The country will continue to attract remittances from abroad. Its a good story, though I do see it taking some time for the Philippines to benefit. Attractive features include Chinese, Korean and Japanese investment. The Philippines will be a future tourist and retirement destination. The scale will however be low-key for the time being as developer projects are restricted by foreign investment limitations. Its not the time to commit a lot of capital, but high net worth individuals with local relationships are investing with confidence. Some are not protecting themselves. Some don't know how to protect themselves. I recommend using protection!
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Andrew Sheldon www.sheldonthinks.com

End of the global property cycle?

Are you wondering whether this is the end of the property bull market? You will hear conflicting information. There are those saying that:
1. The OECD countries are so indebted that they will take years to bail themselves out
2. You have central banks cutting interest rates around the world

What gets me is how people just don't understand global finance...including the so called experts. Everyone is an expert. I must concede that it does take a lot of time to learn global finance. It covers a lot of topics. Fortunately property is one of those areas which is a lot simpler to understand. Simple, but its not always readily evident. For instance, relationships are often over-simplified. eg. Cuts in interest rates mean rising housing prices. That is a dangerous assumption. Falling property prices mean recession or depression. So which way is the market going?

My answer to this is simple. Its going sideways. That is true for property and equities, though equities clearly offer the superior opportunity to trade positions. You should therefore look for rallies and sell into weakness. The implications for property: Look for yields in Western markets. Really Japan is the only OECD market offering good yields, and best of all is that anyone can buy property there. I bought property there on a tourist visa.
The other opportunity are those Asian markets which have not yet moved. The best two economic laggards are Indonesia and Philippines. These two countries still offer capital growth propositions. Among those two countries the Philippines is by far the best prospect for a number of reasons including visa rules, reform measures, language, etc. The Philippines like Japan also has a sizeable foreclosed property market, though the price discounts are not nearly as compelling as Japan. But thats ok its a interesting story for different people. If you want a tropical life you go to the Philippines, if you want a cosmopolitan life you go to Japan. If you are a high roller, then you have a place in each country, and spend a few nights transferring in Macau besides. :)
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Andrew Sheldon www.sheldonthinks.com

Refurbishing foreclosed properties a great hobby

I count refurbishing my ex-girlfriend's foreclosed property (and my own) as among the most rewarding things I have ever done. It was great fun to start something from scratch and learn how to repair a house (as well as learning the peculiarities of the Japanese property market). Admittedly I did most of the work :) She spent most of her time sleeping in and talking to her mother, but that's ok. Her father was pretty happy too to see us doing such things. Finally she was doing something productive with her life. 'He's a keeper'. Well that wasn't to be. But anyway, its a great way to build a relationship with your partner. I can't think of any better way to learn about another person. It's fun, its education, its challenging, its a diversion from what can be a very sedentary life. And best of all you can make MONEY!! The payback can be as little as 3-4 years. That's return on your equity assuming you leverage with a bank. If you simply pay cash then it will take you a little longer.
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Andrew Sheldon www.sheldonthinks.com

Maintaining your foreclosed property

One of the legacies of buying a foreclosed property is that sometimes they are not well maintained. This is one of the issues I deal with in my foreclosed property report because its a big issues for those who are buying an investment property. One of the most important tasks is to look after the septic tank if you have one, as well as making sure the gutters are cleared of pine needles. You cannot expect tenants to do it, and of course you can't expect outgoing (delinquent) homeoowners to do it. If you don't clear out the gutters water can flood the house and damage the walls. Some times you can get away with a repaint, but on other occasions its more serious.

I had my first Japanese buyer today! Sorry to say I have not produced a Japanese language version, but I was just thinking what a great way to learn another language. Whether you want to learn English or Japanese, people of both languages now have a great tool for learning home economics. :)
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Andrew Sheldon www.sheldonthinks.com

Russians increase buying of Philippine property

Russians have been amongst the new wave of investors in the Philippines according to a recent article. This interest is likely to die since oil prices have since fallen from $145/barrel to $80/barrel. One can argue that these prices are still high though since oil is a real asset class, though Russia also produces a lot of other commodities which are faring far worse. The implication is that we can expect Russian interest to remain in cheap property markets like Japan and the Philippines. Aside from the cheap property there is also the benefit of warmer climate which is not a feature of Russia.
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Andrew Sheldon www.sheldonthinks.com

Google Maps in English

The search for property in Japan is getting easier since Google has added English to its map labels for Google Maps, making it the best choice for foreigners without Japanese ability. Otherwise you can use Yahoo Maps (without English).

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Andrew Sheldon www.sheldonthinks.com

South coast of Tokyo appealing for foreclosed property

There is a lot of interest in the Japan Foreclosed report of late. For good reason you can image. The shattered confidence of Japanese buyers is likely to draw foreigners since the Japanese market is relatively cheap. Last year I was in Japan for my brothers wedding. This was my 2nd Japanese wedding - this one was traditional. My one was modern. That marriage lasted a year :)
I am very impressed by the southern coastline of Tokyo. The wedding was held in the town of Yugawara. This is an onsen town so kind of a tourist area, but not overwhelmingly so. Importantly the wedding guests were very friendly. No death threats which is always positive. I went drinking with some of the friends of the brides brother. They were the nicest people. Normally I never connect with Japanese guys, but these guys were very engaging and good fun. Nice area to invest in foreclosed property as these areas will be valued in future as 'alternative' lifestyle havens. I have looked all along this coastline heading south into Shizuoka, as far as Shimoda. That far south and you are dealing with a slow, expensive rail connection to Tokyo, but around Yugawara-Odawara is good buying.

View Larger Map
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Andrew Sheldon www.sheldonthinks.com

Opportunities for Arab investment in the Philippines

Another group of countries with an appealing exposure to the Philippines is the Arab (OPEC) bloc, with its petrodollars. Arab governments and investors looking to diversify away from the USD assets might consider the Philippines. We can see from the following charts that the Arab countries currencies are still strong against the peso. Will that remain the case as oil prices weaken? I suggest it will because oil is a hard commodity, though certainly we are not going to see oil prices taking off for a few years again unless there is an oil shock.

The obvious link for Arab investors to the Philippines are:
1. Personal - those Arabs having relationships with Filipinos wanting to retire or invest in the Philippines. Muslim Mindanao has suffered because of conflict, but not all areas are subject to conflict. Its a big island and conflict is confined to certain areas.
2. Muslim link - There is I guess some desire of investors to invest in a place that share one's values. I would argue that religion is skin deep, but if you can connect with people on a deeper level, you might appreciate this opportunity.

3. Commercial - There is of course an opportunity to supply food, handicrafts and other products from the Philippines to the Arab world.

The attractiveness of the Philippines extends beyond the currency opportunity. Its a relaxed culture will compelling opportunities to buy property with scenic splendour. I didn't look at other Arab currencies, but I dare say they are in the same favourable position to buy forecllosed property in the Philippines; whether you are from Kuwait, Oman, United Arab Emirates. Flight crew and pilots are other people who might welcome such opportunities after talking to several in Manila. Mind you, these pilots were from all over the place. One was a Pakistani, another a Saudi educated in England. The world is more global. The question is - Do you have a home in the Philippines? See report.

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Andrew Sheldon www.sheldonthinks.com

Japanese investors and retirees in the Philippines

I have some Australian and NZ friends in Tokyo who are earning Japanese yen. There is no question that now is a good time for them to send those dollars home whilst the AUD and NZD languish at 66Yen and 60Yen respectively. Another option is to buy property in the Philippines in coming months. The Philippines is a little different from Japan. Japan offers exceptional yields, but the Philippines offers better growth prospects given its reform trend, 2% population growth as well as land reforms.

For Japanese retirees too, this is a good time to make a move to the Philippines. The Japanese pension system is returning a paltry 1% on Japanese bonds. That is where Japanese savings are stored by the Japanese Postal Scheme, not to mention US 'worthless paper' bonds, losing more value by the day. For Japanese savers, unless they have some valuable property in Tokyo or other cities, they are likely to be looking at retirement in the Philippines, or sleeping with other homeless under a subway bridge in Sumiyoshi, collecting garbage cans every day for extra money.
As the attached chart will show, then Yen is particularly strong against the peso. I would also argue its a good place for foreigners based in Japan, earning Yen to place their money, particularly the Canadians and Americans since their currencies are relatively strong against the peso. No point sending it home. Buy the end of the year you could have paid off an apartment.
I think Japanese property developers are soon going to wake up to the opportunity to develop tourism and retirement developments in the Philippines. Its not such a lifestyle change for many since the families are inclined to go home to the countryside once or twice a year to see family. Instead some will go to the Philippines. The Japanese will miss their culture, so some will want large developers to duplicate Japan in the Philippines. Already companies are looking at certain areas. Mayon Volcano might just be mistaken for Mt Fuji if some developers have their way. There is a proposal to establish an international airport near Legaspi City for the benefit of tourists.

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Andrew Sheldon www.sheldonthinks.com

Philippines property attractive to Chinese investors

The weakening peso is proving lucrative for Chinese investors considering an investment in the Philippines. The peso is likely to suffer somewhat because of weaker exports to Japan and the USA. In contrast there is the possibility that the Chinese government might invest offshore to weaken its currency somewhat. China is facing the same prospect as Japan in the 1960s to 1980s, when their ascending currency placed upward pressure on their currency. China now faces the same pressures. In response, just as the Japanese did before, we can expect the Chinese state enterprises to invest in Philippines property. For the Japanese the interest was property and mining assets in the USA and Australia. For the Chinese, I think we will see a broader spread of investments, but clearly insofar as property is concerned the Philippines is the best place. Why? Well the country is already familiar to them. There are already a lot of Chinese-owned resorts, Chinese people living in the Philippines, and thus Chinese cultural influences. For Chinese private investors too there are opportunities for business, as well as the ability to invest from a strong currency, as well as providing some security away from an uncertain political regime. You can be sure that China is not shifting from communism to capitalism, but rather the collectivist fascist model embraced by its Western counterparts. Even the Philippines is not free from this trend. We are going to see more government spending in China, more public education, insurance, etc. The Philippines, with tax receipts of just 17% of GDP, looks relatively good.
The Philippines is particularly attractive for Chinese travel & property development companies. Already several Chinese companies have formed local join ventures to buy local property. The same opportunity exists for all Chinese from Singapore, Taiwan or mainland China, since all those currencies are strong. For more info refer to the 'Buying Philippines Property' report.

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Andrew Sheldon www.sheldonthinks.com

Which currencies will drive Philippines property?

Many buyers of property in the Philippines are foreigners, including among them balikbayan. The recent collapse of asset prices will be impacting on families in several respects:
1. Employment - job losses will be undermining people's capacity to pay off home loans and credit card debts

2. Foreign exchange movements will be increasing/decreasing debt payments for everyone. Those in the worst position are Australians or NZ'ers. Those in the best position are likely to be Asians like the Chinese, Koreans and Japanese. The Americans look ok in the short term, but as the Fed makes cuts to rates, this might not be the case in the future. Arab investors will no doubt also be in a strong position to buy foreign assets as this market settles.

3. Inflation squeezes out defaulters. Inflation is actually no problem for real assets, but in the short term the higher interest rates will squeeze people who are not cash rich into foreclosure if they can't sustain their job or meet margin call obligations.









Given these circumstances one would be inclined to buy Philippines property when these circumstances are at their worst, but one might hold off actually paying off the debt until the optimum time - that is when the peso is weakest. We really need to look at the trend to determine this. At the moment the peso is weakening.
The currencies or countries in the best position to buy property in the Philippines right now are: Canada, the Chinese & Arab (OPEC) oil currencies, Vietnam, among others.

The Canadian dollar is generally very stable against the Philippines peso. The Chinese yuan is a very hard currency so we can expect a lot of public and private Chinese investment in Philippines property. There are several reasons for this, but I will explore that is a separate post.

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Andrew Sheldon www.sheldonthinks.com

Foreclosed property in Japan still good buying

One of my Japan Foreclosed Property buyers tells me that foreclosed property prices are still cheap in Japan. There are properties being sold well below the nominal property prices. One must appreciate the trgic sense of life of the Japan people. Most of them live in fear....which is why they are collectivists with a strong social identity. Westerners with a strong stomach (...that is trust in their own judgement) can really get a bargain. But why enter the market with no information? A $20 report can help you save thousands buying an already very cheap property in Japan. Japan is a big country, and there are a lot of foreclosed properties in the retail end of the market.
One of the reasons Japanese people are not so active is because Japanese people are too ashamed to talk about it. But sometimes the wife lets the information out, and it spreads around the neighbourhood. Or maybe the owner lets the neighbour next door know, his friend for years. Maybe he is hoping he buys it for him and leases it back to him for cheaper rent.
This is just one of the factors driving the market. Download the table of contents here. Clearly the current weakness in the US is creating buying opportunities in Japan, that the fearful Japanese have pulled back from buying. You will not get any closer to bottom than over the next couple of months.
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Andrew Sheldon www.sheldonthinks.com

Financial crisis will offer more Philippine property opportunities

The Philippines already retains one of the largest inventories of foreclosed properties in the Asian region. When you consider the poor state of Filipino personal finances and the prospect of more 'bouncing' loans as the US and Philippines economies get sold off, you can expect the number of foreclosed properties to increase. There will be a number of families pondering the purchase of their SUVs, or their holidays abroad. Having said that, Filipinos have learned from the 1997 Asian Currency Crisis, but we do need to consider that reduced debt leverage (a modest 27% of GDP) does not translate into a savings culture. We also need to consider the impact on their families abroad who will be under pressure of their local spending siblings and other family.

The opportunity for those cashed up foreigners, balikbayan and locals will be apparent. One might also expect a number of 'humbled' (by the asset price collapse) to reconsider a decision to retire abroad. They will no doubt be struggling with the decision to work a few more years to retire in the USA, etc or decide to recover their savings and move back to the Philippines.
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Andrew Sheldon www.sheldonthinks.com

Where will the Arab world invest its petrodollars?

Commentators raise the spectre of Arab OPEC oil countries coming off the USD peg. For a long time commodities, including oil have been priced in USD. This was because the US was the world’s largest market and considered a stable, strong currency. Over the last 20 years US supremacy and its currency have never looked weaker. Commentators are questioning whether the USD should be the basis of commodities trading. It must be remembered however that just because the USD is the currency for receipt of commodity trades, in fact its only really a reference price. There is nothing stopping a commodity trade from being converted from the USD into any currency. The issue is rather - which currency will the Arab countries decide to hold their receipts. The 'hardness' of commodities is readily apparent when we see oil prices strongest at times of USD weakness; notwithstanding the fundamental issues driving oil prices.

If the Arab OPEC countries (the most important of which are Saudi Arabia, Egypt, Iran, Kuwait, United Arab Emirates, Iraq) should decide to change the basis for currency receipt it would make little difference. If the Arab world decided to retain their receipts in another currency that would be a different issue. We need to consider that Arabs are probably more likely to opt for commodity holdings like gold, silver, platinum and palladium. But these are very illiquid markets, hardly large enough to retain all their petrodollars. Of course if there is an international agreement to restore a gold standard it would be an attractive investment. But few people are calling for that. I would suggest we are likley to see more Arab invcestment in the Arab world, but also in Asia. When the worst carnage is over in speculative asset classes like property and equities, then Arab investors will be well positioned to invest in these asset classes.

I would think that the Asian Islamic nations of Indonesia, the Philippines and southern Thailand might have particular appeal for Arab investors. Indonesia is more difficult because of its unfriendly visa and investment rules. There is already an attractive framework for Arab property investment in the Philippines. Consider the following:

1. There are a lot of Filipinos working in the Arab world, so one would expect this to result in trade, personal and cultural alliances
2. The Philippine peso is not pegged to the USD, and since the peso is becoming less dependent on US trade each day, this augers well for the peso. Japan has displaced the USA as its largest trading partner, and China is also expected to become more important trading partner.
3. Filipinos working in the Arab world can also be expected to invest in the Philippines since most retain and support family in their home country.

The collapse of oil prices might be a factor underpinning greater Arab investment in the Philippines. The other factor might be the shift towards autonomy for the southern Muslim State of Mindanao. For those unaware, the southern island of Mindanao has a large Islamic population dating back to the 11th century, at a time when Arabs were trading in Asia. The Muslim Filipinos were able to resist for the most part Spanish colonisation. It was the independent Philippine-American administrators who finally subjugated the Filipino Muslims by encouraging land occupation by Christians from the Visayan Islands. We can therefore understand the Muslim aggression when you consider the central government’s attempt to marginalise their population.

Hostilities recently broke out again, however at some point a peace will be reached. The opportunity to benefit from a resurrection of economic development remains good once peace can be established. It seems likely that Mindanao will offer the Arab world a plausible base to expand their presence in Asia since Asia promises to be the centre of global economic development. I would expect some Arab investors to be picking over the plethora of foreclosed property assets in the Philippines, particularly in the island of Mindanao. Might we see some resorts in the Sulu Islands.

Investment in Mindanao can occur at many levels. There are of course Arab men with Filipino wives and vice versa, there are Muslim investment funds, Muslim development banks, as well as the large international agencies like the ADB and WB which recognise the under-performance of the region. That just makes it a more attractive investment when peace finally comes.
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Andrew Sheldon www.sheldonthinks.com

Cheaper than foreclosed in Australia

You might wonder - what could be cheaper than foreclosed property at a time of collapsing property prices in Western markets? Well there is very cheap foreclosed house & land offerings in Japan, and the wonderful aspect about Japan is that those foreclosed properties don't have to be so far from a regional centre. I bought one for $30,000 just 1 hour from Tokyo, but you can buy them for as little as $10,000 for something 3 hours from a major city. That might seem inconvenient, but unless you are up the far north of Japan, or on the west coast of Japan, its pretty hard to get 'remote' in Japan. The secret I think is to look for something near Nagano , Sapporo, Fukuoka or Nagoya since these are international airports.

So you ask - what could be cheaper? Well I came across this opportunity. A number of country towns are copying this idea, so I suggest you can expect more of this in future. Basically property prices have shot up in the cities, but rural areas have not had the same benefit. As a consequence a number of Australian country towns have resorted to offering cheap or even free land through lotteries in order to encourage more people to live in these areas. Some towns are very remote, say 6 hours from Sydney, on the far Western Plains of NSW. But some are a lot more convenient. The latest offering comes from the town of Avoca. Refer to the program on Channel 7's Today Tonight. The cost of building the average house in Australia is around $110,000. The location of Avoca is shown on Google Maps. The biggest problem might be justifying living in these areas if you don't have the appropriate skills. The best candidates for jobs in such areas are online writers, graphic artists, retiring war criminals (Australia has welcomed a few recently, so don't miss out) and unemployed war criminals looking to turn over a new leaf.
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Andrew Sheldon www.sheldonthinks.com

The risks of investing in Australian & Philippines property

Forums are a good place to get a sense of what people might be thinking when they consider investments. I of course receive all types of criticism. There are people who are so narrow or safe in their thinking that you will never convince them. Some people however recognise that risks are managed rather than avoided. If you want the best fruit you have to climb to the tree branches where people cannot reach. So some of the feedback on a particular forum was:

1. The Philippines suffers from earthquakes. For Australians the idea of living on an active geological landmass might raise fears. If you have lived in Japan, as I have, you would know that the Philippines is far more stable than Japan. Housing is designed for earthquakes , and it has no impact on land prices. This is true of volcanic eruptions as well. There are 3 volcanoes in the Philippines that erupt every 10 years, the rest are smokers every few hundred years.

2. The Philippines is an economic laggard. That has historically been true, but that is changing. Even without substantial reform the economy was able to grow at 7.2% last year . Not bad. You don't buy when everything is good, as that's when property is probably fully priced. You buy when things are stuffed, but look like getting better.

3. Poor economic prospects=bad investment': True enough, the Philippines has problems, but that is a global phenomena and those economic declines create buying opportunities.

My argument was that the Philippines is a better place to invest you money. Incomes are growing faster, population growth is far higher, economic policy is turning around. You can see my reasons by downloading the free chapter from the study I prepared. By comparison, the Australian economic outlook is ok, but property is already fully valued, and tight land supply because of zoning restrictions poses a small threat of greater land releases. More likely we could see state government efforts to encourage more densely urbanised settlement and fast-ttracking of transport services to outer-lying areas, but the state government (because of its $1 billion deficit) has since cancelled plans for a land release. We are therefore looking at stronger home prices, or land releases. Land blocks in outer Sydney costs $160-200K already when they should be $50K.

In the Philippines you have lax land regulations, but the slow adoption of the Local Government Code will change that. That means you are going to see the opposite effect, where certain land is going to greatly increase in value. Oh, and what about higher food prices in future? They will justify an increase in the value of farm lands as income yields increase. You dont' have to live there, but the Philippines is the place to invest. Oh, and there are 1.2 billion Chinese across the South China Sea who are going to want holidays when the government opens the doors in 5-10 years. In the meantime there are millions of Koreans and Japanese retiring who can't afford to live in their home country. The Philippines has the most relaxed visa rules in the world, and they just got more relaxed, not less. So you tell me - which way should your money be going?

PS: This is not intended to be a comprehensive review of the risks of investing in the Philippines or Australian property market.

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Andrew Sheldon www.sheldonthinks.com

Buying property abroad never easier

Centuries ago there were periods when people took it upon themselves to explore the world. They engaged in great adventures, travelling to the far corners of the Earth. In those days the explorer was the exception, or it was exceptional circumstances like War and colonisation that took people to other parts of the world. Today its tourism, inter-racial marriages and employment. If these changes are significant, then they are about to get even more so. There are several big changes under way:
1. Employment exchange: Global companies are able to employ foreigners with ease. Certain professions also allow you to migrate with ease, such as doctors, nurses, seamen, programmers, teachers and financiers. But this shift is destined to grow and to be two-way as countries become more satisfied by global exchange. Most of these arrangements are bilateral relationships between friends and neighbours, but these relationships will grow.
2. Marital relationships: Increasingly there is a willingness by people to explore inter-racial relationships. When I married my Japanese girlfriend years ago it was unusual for a foreigner to have a legitimate relationship with an Asian girl. By no means was I the first, but I'd never known anyone, whereas its far more common now. Different cultures are now something to be explored, even if one goes not fully commit. Sometimes this can result in people living in foreign lands. Dual citizenship rules are being adopted in a number of countries, but we might expect these rules to become even more relaxed. Some countries like the Philippines have seen the benefit of relaxing their rules. You can stay in the Philippines for up to 18 months as a tourist without even leaving the country.
3. Retirement: Just 30 years ago it would have been inconceivable that people would retire abroad. This is likely to become a popular scheme in some countries. Already individuals are doing just that. A number of Westerners are retiring in places such as Spain, Thailand, the Philippines, Ecuador, Fiji and New Zealand. Increasingly we are going to see government-sponsored efforts like a Japan-Thailand program, and a Japan-Philippine program. These decisions are already been taken by individuals for financial reasons. At some point governments are going to pick up on this trend. A great many under-funded retirees in Western countries are going to struggle to live in the West. I am expecting governments to actually pay off these people to retire abroad. Japan is likely to be the first. Japan is facing a huge dilemma with respect to its under-funded pension scheme. Japan has one of the oldest populations in the world, and its Postal Savings scheme is investing in Japanese government bonds (to support the local economy) paying just 1% interest. At some point the government is going to need relief. The only way the government can address this issue is through massive reform measures, that would prove politically unpalitable. It makes more sense to get rid of the problem, and its 'very Japanese'. Young mothers today are less inclined to look after their husband's parents, and sometimes not even their own. The Japanese way is to pay off retirees and foreign governments to accommodate their old people. For the Philippines it makes sense as the Philippines takes Japanese retirees and Japan takes skilled Filipino workers. All those bar and factory workers in Japan can become carers in Philippine nursing homes for Japanese retirees since learnt Japanese dancing in Japan. There is no reason why other countries cannot do the same, but a lot of this retirement will be a personal decision, but core projects will be required by government or large private companies to kickstart these efforts for retirees wanting a familiar lifestyle. Resort locations make a lot of sense, particularly those near international airports. The best market is the Philippines. The question of how is the subject of this blog. This of course makes sense too for Japanese young people who might want to follow their aged parents to the Philippines after they die. This is not a solution for everyone. It will be a voluntary program, or one for those willing to accept a payoff. The Philippines is not so unfamiliar to the Japanese. There are many Filipinos living in Japan, and some years ago the Japanese government was actually encouraging Japanese farmers to find Filipino wives. Such a program will however require Japanese government support. At some point it will prove inevitable. Koreans and Taiwanese will not be so far behind them. Its interesting because we are likely to see certain countries dominating in certain regions. For instance, there is a lot of Chinese investment focused on the NW coast of Luzon, which are serviced by Subic/Clark and Laoag International airports. There seems to be an effort by the Japanese government to create a presence around Legaspi City in Bicol after the Koreans upstaged them in Cebu. I would expect an international airport in Cagayan in North Luzon in around 20 years as well.
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Andrew Sheldon http://www.blogger.com/www.sheldonthinks.com

The economic cycle and the property market

Several months ago I had an important insight. Unsurprisingly this insight followed a mistake. Actually I made several mistakes. Firstly I expected the Federal Reserve to push the Fed rate back down to 1% before it started to raise rates. In fact its done very little of either. The Fed I guess is determined to not let interest rates feature as an issue in the forthcoming US election. The 2nd mistake was I believed gold was going to over $2000/oz in the run-up to the election, due to softer interest rates and an escalation of tensions in Iran. In fact gold only rose as high as $1034/0z. The reason was the Fed did not do as expected, and there was no conflict in Iran, but there was something more. It was the realisation that this credit cycle is not over. The banks are over-stretched no question, but after some consolidation you will see the markets recover. People might have some difficulty believing this because they are not accustomed to seeing a 'super cycle'. There are those periods in history when economic conditions are particularly attraction and sustained for a long time. These circumstances occur during periods of:
1. Trade liberalisation: There has been no period of greater market liberalisation in history. Africa, Asia, Eastern Europe, and even the Western countries have witnessed an opening up of markets. This has not simply been a reduction in trade barriers, but a willingness to buy product with little consideration for where it comes from. Its not just products either; increasingly business services are being outsourced, and people are even finding marital partners overseas. All this augers well for future exchange because there is a consensus that closed markets do not create jobs.
2. Innovation: This is without a doubt one of the most innovative periods of world history. This is not surprising given the prosperity, skilled population migration, strong competitive pressures and the pooling of savings that has helped fund long term investment. The greatest gains have been the savings from product miniaturisation and material sciences, the growing functionality of products and the scalability and automation of business processes as a result of software & hardware-based internet solutions. The other aspect of this super-cycle is financial innovation. There are a raft of new financial products such as credit instruments and derivatives which have extended the capacity of money to make money. This has the inevitable potential to push up asset prices even further. We need to remember that it is only Western markets that are fully leveraged at the moment. This is not the case in Asia. This gives a clue as to where future investment will be.
3. Barriers to development: Never has it been easier to develop a business. The scalability of internet solutions, the ready availability of information on the internet allows any person with access to the internet the power to learn and engage in global product markets. This will continue. Watch as governments streamline the way they collect taxes, since in all fairness they are the worst at recognising market realities. We will have greater freedoms to travel, to live in foreign countries, etc. This is as much a cultural revolution and the focus is on integration of markets, cultures and families. The availability to study and interact on the internet very much changes the 'cultural' constraints. Everyone can find their 'type of people' on the internet.

For these reasons the globe is on a journey that is not yet finished. The reason I know this cycle has not yet finished is because it has not yet reached ever corner of the globe. A super-cycle is like a tsunami; it makes an indelible impact on every shore in its circle of influence. The ASEAN region is undergoing a period of transformation including trade liberalisation, financial market integration and eventually more common regional currencies. The emerging ASEAN trade bloc will encapsulate 3 of the largest economies in the world - Japan, South Korea and China. China, Japan, South Korea and Taiwan have the highest foreign exchange reserves in the world. Whilst they are likely to continue investing in US bonds, we are going to see more domestic consumption in Asia. These countries are going to become less veracious savers, just as Japan's national savings rate fell from 30% to 9% between the 1960s to 1990s.

These super cycles are not without precedence. We can consider the first super-cycle to be the period shift from hunting & gathering to agrarian land occupation about 30,000 years ago. In early AD there was several regional empires which were significant, but nothing swept the world like the Rennaissance Period from the 1550s. During this period the printing press was discovered, global maritime exploration took off because of improvements in ship building and navigation, which gave rise to the ascension of the British Empire. Later super-cycles were the American-sponsored cotton, tobacco and sugar export boom. Today its being lead by China and India. What is important to recognise is the exponential growth trend. More people, more ideas, more innovation, more money and more leverage. It means more reward, but also more risk if you don't understand the trends. The current credit contraction or 'credit crunch' is a buying opportunity. The West has had its asset inflation - some countries like China and Thailand have done OK, but there is going to be a focus on the ASEAN region in the coming decade that will see it perform even better than the Western markets. Each successive empire is built faster than the last. The US overtook Britain in very good time, Japan overtook the USA (in per capita terms) even quicker, South Korea even quicker, and China even quicker still. This says more about the power of money flows and ideas than anything else, though certainly some will elevate the superiority of their culture.
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Andrew Sheldon www.sheldonthinks.com

Why buy our Philippines Property 2008 report

My partner and I have posted advertisements for the 'Buying Philippine property' report all over the internet. The response has unfortunately been underwhelming, so I went back to the customers who have purchased the report and asked for their insights. The good news is that they were happy with the detail of the report, even at a higher price. They did however suggest that they almost bulked at the thought of paying for the report because of the risk that it could be crap since it was purchased off the internet. These people did however buy the report because there was no competition and because of the detail implied by the table of contents. One of the buyers suggested that we offer a free chapter as a teaser, and so we have just done that.
A critic on eBay who did not buy the report said it was too expensive, and that all the information is available on the internet. I assure you that everything to learn is not on the internet. Most of the content on the internet is offered by the agents who represent the sellers. In addition the training for Philippines real estate agents is just a few months and very slim. More problematic still is that they are not great analytical thinkers. You can get information from the internet but often it does not state how things are. For instance the usual commission is 5%, but wouldn't it be nice to know if you could pay as little as 3%. Do you think an agent will tell you that. Do you think an agent is going to investigate property boundaries? Might have just saved you $800 minimum on a house purchase. This is an integrated report offering over 330 pages of detail on the Philippines property market. Basically you are getting the benefit of 4 months research and analysis for $19.95, not to mention a lot of travelling around the country looking at properties. That's a low sum when you consider the lack of competition and time that has been invested. Download the table of contents and a free chapter to give yourself confidence that this is a worthwhile purchase. In addition I will offer a free listing of over 2900 foreclosed properties and growing. These properties come from the major banks as well as a lot of the smaller rural banks that no one bothers with.
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Andrew Sheldon http://www.blogger.com/www.sheldonthinks.com

Who are buying property in the Philippines

I just flew to Sydney over the weekend, and in the process I took the opportunity to talk to people about my new 'Buying Philippine Property' book. It was probably feedback I should have sought before righting it, and it was not totally unexpected. But it did focus my mind on the market for this book and the fact I had covered the required issues. I identified the following groups:
1. Business foreigners - I did not talk or identify this category among the people I spoke to.
2. Single foreigners who came to the Philippines for girls. I suspect a lot of these guys when they are not with girls, are complaining to other guys about how bad the girls are. Not unexpected when you are 20-40 years older than your GF. These people are generally on tourist visas and far dominate. Comments from this group are basically - they wouldn't trust buying property in the Philippines because they are cheats. Well in as much as these 'guys' are here for short term relationships, in a poor country, and much older than their partners, this is not surprising too anyone. Mind you there are ways they can buy property with protective measures, even it not in their name. They can of course buy condos in their name. I can offer assistance to these people in terms of identifying how to buy and how to identify fake partners for the innocent among you. I have lived in several Asian countries and dated numerous. More importantly I have analysed those relationships.
3. Coupled foreigners who are living or visiting the Philippines in relationships based on respect I would expect to have more favourable comments to make about Filipinos and buying property in the Philippines. That's not to say they should not take precautions. I identify those options in the book as well as strategies and property values, to assist people make those choices.
Another negative comment from a person was that he knows a number of people who had trouble selling a property in the Philippines. One of those who was screwed perhaps. Well if there is no market for these properties clearly that is an opportunity to buy properties at distressed prices. If someone is making a huge loss, then someone can make a huge gain. The logic of pundits is rarely critically appraised. It pays to break it down. Mind you its true enough. There are plenty of sharks trying to rip people off buying property in the Philippines. They are readily identified and avoided though. I do provide suggestions on that note.

Of course the other big market for property is Filipinos, OFWs/expats and balikbayan. I did not however talk to this group since they were not readily evident. They tend to have different reasons for buying, eg. Easier to blend in, greater local support, etc.
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Andrew Sheldon www.sheldonthinks.com

My other great conversation tonight was with a Japanese businessman. He was a lot smarter and more interesting than most Japanese businessmen I talk to. No hint of arrogance and a moderately conceptual thinker. What the Japanese lack in capability they make up for in system thinking, working things through. They are not naturally critical thinkers, but some experiences have ensured that some of them are 'special', as was my conversation counterpart tonight. One of the truly Japanese gentlemen, and there is no better place to meet them than overseas.

We discussed Japan mostly. He had a lot of interesting things to say about Japan history post-WWII. I was talking about the prospect of mass Japanese emigration to the Philippines and such countries. There will come a time when the Japanese will build cities in the Philippines. The constitution however does not allow it. The question is how the issue is resolved. Well maybe private citizens will make the choice themselves by buying property in the names of Filipinos or setting up corporations. More likely I think Japanese corporations will set up 40/60 JVs but they will hold the rights for 75 years.

The pressing reason is the under-funded Japanese pension system. There is a lot of wealth in Japan, but its no longer so evenly spread. Consider that you could draw a ring around Japan, and most homeowners outside a certain perimeter would be 'on average' unable to meet their pension obligations. This engineer lives in Tokorazawa, no problem, he has a house worth $400-500K, no problem. Go out to Hanno, and they are just $50-300K, depending on the building age and proximity to the station. Go to the rural areas and these people are living on subsidised farm income, with houses with $10-30,000, land that no one wants. For those inward of Tokorazawa, they will have Thai or Filipino maids taking care of them in Japan. For those living in the outer perimeter, they will either die at 55-60yo of alcohol-related death or be paid off by the Japanese government to retire in the Philippines or another such place. This of course presents a problem. Japan would happily allow Japanese to go abroad, but they would suffer without people to replace them. Can we expect Japan to have an open-door policy? I think its coming. I think the decision to fingerprint foreigners entering the country is a sign of that desire to control 'foreign' crime, mostly Chinese organised crime. The Japanese would never lower themselves to commit a crime of course. This will of course take time to happen.
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Andrew Sheldon www.sheldonthinks.com

The Philippines is over-sold

I was up the pub in Manila tonight talking to some expats. I was talking up the prospects for a stronger Filipino economy. I don't mean to imply that the Philippines is going to put out some startling performances any time soon, since the global economy is weakening. But I am implying that in 3-5 years the Philippines economy will do very well, and that in the next 0-3 years it will out-perform other markets.
Speaking to these people and you would think I'm talking pipe dreams. Not just expats. One of them had a Filipino friend who talked about corruption. Yes, there is terrible corruption in the Philippines. I would however argue that it will eventually be curtailed. Maybe gradually, maybe a radical fall with a new anti-corruption president. Clearly that is not Arroyo, though I would argue that corruption can't get any worse, so thus the Philippines has only upside in that respect. Its in the area of tax and land administration reform where I see the greatest prospect for gains. Greater tax receipts will allow the government to improve compliance.
I don't think these people see the positive factors. They are not looking at the empirical evidence, which is positive. I would also argue that these people are cynics or tragic, always too prepared to put down the Philippines. Its great sport, but one does have to acknowledge progress. I don't think its prejudice, I think its just being accustomed to a point of few, just as the biggest cynics are found at the bottom of the market. The evidence supports them. They can talk about where the market has come from, but can they offer any evidence for where its going.

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Andrew Sheldon www.sheldonthinks.com

Foreclosures on the increase

One gets the sense that the number of foreclosures are on the increase. On the weekend I drove around the edge of Lake Taal, from San Nicholas to Laurel, then up the edge of the caldera to Tagaytay. It was interesting to observe the amount of 'FOR SALE' signs around. One gets the impression a lot of them are foreclosures since the signs are often the same style of signage. Its still a little early to buy I think, buy its a good time to get a sense of prices. Your market is not so much people who are being squeezed by higher interest rates at this point, but small businesses who expanded too quickly, business people who lavishly went out spending before they had actually made the money, only to see their margins plummet with higher costs and lower prices. There is not just a credit squeeze, there is a squeeze on profit margins. It will be some time before confidence returns to the market, but that's not to say investors in the Philippines should wait too long. There is higher inflation in the market and less debt to purge in this market. I think Western markets will recover far more slowly than the Philippines.

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Andrew Sheldon www.sheldonthinks.com

Hardcopy of ‘Buying Philippines property’

There is a lot of interest in our book ‘Buying Philippines Property’. Inquirers are asking if it would be available in hardcopy form. The answer is – it’s possible, though I would encourage you to buy the eBook copy for several reasons:
1. The books are cheaper. I could not possibly sell this book for $50 if I didn't get the benefit of free shipping, no printing costs, and low cost of materials. Did you know 60-70% of the value of a printed book goes to a publisher/distributor? That is another compelling reason to sell books direct.
2. The book is more useful. My books are dynamic in the sense that I provide hyperlinks to current data where it is available. This means that you can readily update content when you need it. For example the latest inflation figures, a list of barangays. I provide a lot of links to external sites as well as my online resources. This might include hyperlinks to white sand beaches in Google Maps, or a location map of shopping malls.
3. eBooks are more flexible since readers can read the book wherever they are, without having to carry the book around. This means you can read the book when you are in a coffee shop, or in an airport without carrying two volumes.
4. eBooks offer enhanced communication: There is the opportunity to develop a relationship with the buyers of your book. This is good for me because I learn more about my customers, and they sometimes become friends, as well as being an opportunity for them to ask questions, and for me to provide updates on any critical content. By comparison, the humble ‘hardcopy’ looks a little tired.

Of course the problem is that people still buy 85% of their books in bookstores, yet I would guess that a great many of those people are buying novels, cookbooks, travel books, where there is really no opportunity or need to communicate with the author. This should highlight the fact to people that eBooks are a compelling way to sell NON-fiction books. This is my business model. I hope you also find value in this approach to information. Basically it offers you the opportunity to buy for $50 information that took me 3-4months to compile. Why did it take so long? Because I was also going out and talking to rural banks so you don't have to, looking at a lot of ugly people so you don’t have to.
With this particular book there is going to be a lot of interest from retirees in the Philippines, some of whom might find the technology for eBooks a burden. Please let me know if this is the case and I will see if I can make alternative arrangements.
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Andrew Sheldon www.sheldonthinks.com

Discrimination against foreign tenants

This article by JapanProbe highlights the difficulty that Westerners have finding rental accommodation in Japan. Prejudice in Japan is concealed somewhat because foreigners often live in Japan with the support of spouses, girlfriends and sponsoring companies (employers). In my case, I did all three. Some foreigners are able to lease on their own accord, but often they need a Japanese guarantor, or a sponsoring company.
There is the option of 'gaijin accommodation' as well, which is short term rental accommodation targeted at foreigners, which is priced around Y60-150,000 per month. The most popular is Sakura House. Such companies have grown to a size where they are able to offer decent accommodation all over Tokyo. Prejudice against foreigners is particularly strong in rural areas, though even in tourist areas, where you would expect Japanese business owners to appreciate the value of foreign customers, there are signs saying 'No foreigners'. That is of course a red flag for a foreigner like me to enter. he he.
If you are looking at accommodation in Japan for more than 2 years, or you plan to come back, it might make sense to buy your own place. Bear in mind however that apartments have steep management fees attached to them. The solution of course is buying a house and lot. There are reasonably priced housing in subdivisions on the outskirts of Tokyo, say around Sakado in Saitama. I viewed a lot of such properties selling for around Y3.5-6.5 million, though you can pay a lot more. Some people would never consider living in such a place. In these cases you need to wait for further weakening in the market as central city prices rallied more than the outer suburban areas.
I personally don't think the Japanese prejudice is much of a concern because of the alternatives. The Japanese are more scared of foreigners than anything else. They don't understand foreigners and are not very comfortable outside their rigid routines. Its a very homogeneous society and they really do want to knock down the nail that sticks out, but at the same time few of them take the time to understand foreigners.
The Japanese tend to be very polite when they have to accept you. My new neighbour is a lovely guy, a retired engineer from Tokorazawa. My other neighbour is the guy from whom my property was acquired. He is surprisingly friendly, though he can be difficult. He took a year to move his rubbish from my lot (previously his). People are very friendly. On our other property, the prior owner even offered parting advice on how to maintain the house. i.e.. Keep pine needles out of the gutters because they can cause water to flood into the house. It makes all the difference if you can converse in Japanese, otherwise they are not so helpful.
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Andrew Sheldon www.sheldonthinks.com

Yakuza involved in Japanese foreclosures

The Philippines is not the only country face foreclosures. This article by William Pesek of Bloomberg highlights the deterioration in the credit quality of Japanese property holders. The question is - would one want to bid on a property that is associated with the yakuza. I'm not entirely sure how well the yakuza would feel if the they lost money. I'm quite certain I would not want to be a foreigner in those circumstances as they would likely find the support of a local authority. The solution is simply to avoid the types of properties which would attract the yakuza.
Japanese properties offer very attractive yields because over the years property prices have fallen whilst rents remained stable. The market picked up for a few years but has softened again. The yields remain attractive, particularly for well-bought foreclosed properties, though its not yet time to buy back in the centre of the major cities.
Japan is a yield proposition and mainly serves those living or retiring there. The Philippines otherwise suits investors with a regional perspective. Japan is a reform laggard, while the Philippines is looking interesting.
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Andrew Sheldon www.sheldonthinks.com

The politics of property in the Philippines

Property in the biggest industry in any country. If you consider how important building or housing construction is to a country, then appreciate that real estate is sum value of that land and property over its useful life, say 70-100 years. That's a lot of value, and agents get a 5% commission for any sale on those assets. So you might therefore appreciate the importance of the real estate sector, and the implications for how the sector is managed. Ever wondered why the real estate sector remains loosely regulated despite the desire of the peak bodies to increase regulation. Well let me give you my theory:
1. Realty associations have no interest in improving the standards of agents. Apart from the rhetoric, they really want their agents dumb and docile so they go out and earn commissions for them, but never have the standing to establish their own agency. Put another way, they want a steep supply curve, where they act as gate keepers.
2. Real estate has several associations because they want power and prestige rather than wanting to improve the industry. Reason is not the standard.
3. Realty associations want to talk down the standards (and they are bad) of the industry because it increases their market share, and increases the number of agents working for them.

The industry, like any other, is divided into perpetrators and victims, and they operate on different planes. Consider the following:
1. Aspiring unlicensed agent who wants a piece of wealth and will do anything it takes to achieve it. They don't see the need for a licence because the industry is poorly regulated, and if they ever had a license they could lose it. If they don't have a licence, they can always become a legitimate agent later because they could only be prosecuted on criminal grounds. Can convicted criminals become real estate agents. I don't know, but I dare say a bribe will avoid that consequence.
2. Honest agents - bless these people because they are so unaffected by the world around them. Seldom do I meet them, but then the scum of the earth are attracted to foreigners, so its understandable if we are a little tragic in our assessment. Or maybe its when confronted by a foreigner than people truly reveal themselves. Sorry, I have not conducted an empirical study of industry ethics. But if I estimate from unsolicited contact with agents, the news is bad.
3. Industry leaders: There are those who have influence and those who earn it. On the issue of earning respect, there is an agent named 'Gigi' who is all over the internet. I don't know if she is a good agent, able to delegate responsibility so that she can adequately service clients. Regardless, her marketing efforts are formidable. A cynic would conclude that Gigi died 20 years ago and her agency has retained her facial image as a brand. She is the new breed nevertheless challenging the old school, which is about protecting entrenched interests.
4. Profitable bureaucrats: There are those bureaucrats with the power to veto projects. They of course have the capacity to earn significant kickbacks so any proposal made does not get to the next stage, as the politician controlling that department is going to require so much more. So I guess for an aspiring developer, you really want to know the people in the department, so you can avoid the politicians. So congrats to the directors with influence. It is of course those corrupt dept heads which are promoted.
5. Unprofitable bureaucrats: These are the people who for lack of presentation or a legacy of honesty, or outspokenness are unable to rise through the system. Some of them become people haters, complaining about every issue, others do their own smaller deals. You might call up the dept, and they have this desire not to help you on the phone. Instead they want to meet you at a coffee shop, so they can sell their services. eg. I can get your project approved. These are of course the fixers. Some of them are useful because they are the unloved technicians who actually have some sense of objective reality. There are those very smart people who have remained deputy directors because they have been outspoken. They risk loosing their jobs, but they are sometimes tolerated because they are good. These people in a Western country would be perceived as 'negative' because Westerners evade such thoughts. In the Philippines people cannot escape it. Its great to here these people when they speak out. You get so many insights.

The values that drive the Philippines political system should be apparent to one and all. Living by others standards of value and judgement, by compromising any sense of personal pride and integrity, thats how these people become like that. The thinking is so entrenched that virtue is rendered impractical. People are reduced to concrete-bound, short-sighted morphs. So how does it change? It requires reason to be the standard of value. So how do you get that? Well it takes the following:
1. Better data gives better decisions
2. Better justice since law enforcement is at least a tacit attempt at instituting objectivity, that is assuming the laws are objective. Big sigh there!
3. More outspoken people, particularly influential people outside the sector
4. Greater prosperity would give people greater sense of conceptual comfort. You don't engage in abstract thinking when you are on the edge of extinction
There is of course a chicken inside that egg.
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Andrew Sheldon www.sheldonthinks.com

Why are Filipino real estate agents so bad?

There are a number of reasons why Filipino real estate agents are so bad. First I should clarify that not all agents are in fact licensed agents. This is of course asserted as reason why you should use a 'licensed' agent.

The reasons why agents, brokers, referrer are so bad can be traced back to the following:
1. Culture is a generalised set of values that define a nation's values. Of course it must be appreciated that 30% of Filipinos are close to the poverty line, so its fair to say that desperation is never far from most Filipino minds, and the allure of material possessions and comforts. This country defines people as victims and perpetrators based on money, influence and education. Justice is given very little attention, though I understand the government is starting to clamp down on bad agents. It will take some time before a cynical Filipino people start reporting incidents of malpractice, so that is more reason for the government to be more vigilant. Are there any signs of that? No, corruption remains ever-present at the top.
2. Lack of training: I know someone who has done the required or approved training to obtain a real estate license. The course is just 20 hours of seminar and of course the study to pass the exam. Just 58% of attendees pass the exam. In the course they claim that real estate is 90% law and 10% all else. Based on my assessment (right) law should only be about 32% of the course content, and I am allocating 40 hours to it, more than twice the amount required for the Filipino license. I am in fact suggesting that a half-decent course in real estate would need to be about 123 hours of course work (compared to 20 hours present). This of course no guarantee of service, but it would greatly lift the standards because I can assure you, it would discourage the plethora of 'weekend warriors' who are currently doing the course. They include retirees, socialites, Congressmen's silly daughters.
3. Lack of breadth: The biggest problem with agents is their lack of breadth. The above bar chart shows the lack of subject diversity in the course. These agents should be making this a profession. The problem is they are treating it like a sideline. This can only result in a deterioration in standards. As a foreigner I am constantly annoyed by people selling me property. I am of course the gold mine that is going to generate a signature which is going to buy them a car. They are hoping for a P1 million commission. The problem is - even the best of them don't know much about the market, they don't know how to analyse the market. Why? They know they only have to rot learn 20 hours of course material to get a licence. I dare say those that don't pass still practice the 'art', as no one expects a license to mean much anyway. Apparently the industry is calling for higher standards, but then there are politics there too, because their vested interest is increasing the market share of their members.
4. Ethics and ambition: The problem with the Philippines is that anyone good enough to be conceptual, has a running chance of scamming you. They see an opportunity to make money from a foreigner, or even expat Filipino. I just don't deal with them. They don't realise how they show their hand when they make such propositions. They neglect to see the conflict of interest, the deceit. They live in a subjective reality because there is an almost total absence of accountability. If you get caught there is a good chance you can pay your way out of trouble, particularly for the larger enterprises.
5. Lack of enforcement: The only way the industry can lift standards is by lifting the level of enforcement, and raise the standards for compliance.

You might think that I am against the idea of buying property in the Philippines because the agents are so poorly prepared for their job. But actually no. I am a great believer in managing risk rather than avoiding it. I also believe that you don't need a real estate agent in the Philippines. The best approach is to deal direct with buyers if you can. Avoid all agents wherever possible. I think you do need the assistance of a Filipino if you are not one, otherwise you will not be able to communicate in the local language, and that would help you a great deal. Its easy enough to find someone to help you. There are ample Filipinos out of work. Even a call centre agent gets just P1000/week net ($US22), so you shouldn't have much trouble finding someone willing to help since they are amongst the better paid. They might even take time off for you if you doubled that. Its better to have an older person with an education. You might just teach them something about real estate besides.

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Andrew Sheldon www.sheldonthinks.com

Buying property from rural banks

An important element of the Philippines property market is 'acquired assets' or foreclosed properties. Many people will be familiar with the major banks in the Philippines which offer properties to investors. These banks have the advantage of a large number of clients and also far greater resources to promote the sale of their foreclosed properties. In contrast, there are some 751 small rural banks scattered across the country with maybe 1-5 branches. Most of these banks don't even have email or website capacities. So you might ask how these banks sell their properties. Well the answer is - with a great deal of difficulty. Some are more helpful than others. Some just don't want to sell. Some have useless lots, some have valuable properties. Some are prepared to offer deep discounts, others are waiting for the market to meet their prices. You might ask - how do you get in contact with so many rural banks? Well you don't need to. We have spoken to many of them. The attraction of these properties is that they are under-loved. These banks don't have the high-end customers that the major banks have. The discouragement by some banks suggests to me that they don't want to waste time with tire kickers, or they have some vested interest in retaining the properties. It's not all too clear. I've had rural bank managers trying to sell me other non-bank properties so they can make commission. When I was not interested, they were not interested in selling me bank assets. A lot of that type of thinking around.

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Andrew Sheldon www.sheldonthinks.com