Suggestions by some that there is a risk of a property crisis in the Philippines are way off-ball. There has not been the crazy buying that we have seen in other markets, at least not with respect to domestic debt financing, and foreign banks don't readily lend to property purchases abroad. The Philippines has among the lowest mortgage debt to GDP ratios, so no great credit bust ahead. All that buying came from OFWs, balikbayan rich from offshore savings and investments. When the US looked peakish, they moved money to the Philippines, resulting in the strong currency last year. High oil prices, weaker outlook has taken the top of the market, but there will be another period of strong strong in the Philippines property market.
There will come a time when the Philippines does have a property crisis, but we have yet to really see the boom yet. It has started, but it has a long way to go. In another 15-20 years I dare say, after $10-15 bil of investment in resorts and condos by Chinese and Korean developers, you will see the top of the Philippines property market. I might be overstating the intensity of the investment. Labour productivity and the strong yuan are likely to make China very attractive for Chinese, but there are other considerations. Pollution in China, a desire for exotic locations, diversification, not to mention that the Philippine currency will be no slouch either. We are a long way yet from that. We are seeing an inflationary phase resulting from higher commodity prices and a slight shortage of skilled labour. This is a rest period, not a sustained slump. I must say that other Asian countries will perform well as well, but the Philippines I think will lead the ASEAN countries, though I think Indonesia will offer some interesting opportunities in a few years after it relaxes its regulations regarding foreign investment and visa restrictions. Malaysia and East Timor too should have some appeal.
It must be remembered that this economic cycle is a 'super-cycle', as was witnessed in the 1880s and the prior booms when the world made great headway. As long as there is cheap labour capacity I dont see it running out of steam. There will be cost impositions on the global economy like higher oil prices, environmental compliance, but these will create just temporary setbacks since these costs are absorbed.
As far as the current property weakness is concerned, it will not sink far because of the low debt exposure, but prices are set at the margin, and any surplus property sales will hurt the market, as well as creating an over-supply of property. There is also strong inflation which is pushing prices up. Unlike Western markets (excluding Japan) high debt is not pushing up interest repayments as bad.
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Andrew Sheldon www.sheldonthinks.com
There will come a time when the Philippines does have a property crisis, but we have yet to really see the boom yet. It has started, but it has a long way to go. In another 15-20 years I dare say, after $10-15 bil of investment in resorts and condos by Chinese and Korean developers, you will see the top of the Philippines property market. I might be overstating the intensity of the investment. Labour productivity and the strong yuan are likely to make China very attractive for Chinese, but there are other considerations. Pollution in China, a desire for exotic locations, diversification, not to mention that the Philippine currency will be no slouch either. We are a long way yet from that. We are seeing an inflationary phase resulting from higher commodity prices and a slight shortage of skilled labour. This is a rest period, not a sustained slump. I must say that other Asian countries will perform well as well, but the Philippines I think will lead the ASEAN countries, though I think Indonesia will offer some interesting opportunities in a few years after it relaxes its regulations regarding foreign investment and visa restrictions. Malaysia and East Timor too should have some appeal.
It must be remembered that this economic cycle is a 'super-cycle', as was witnessed in the 1880s and the prior booms when the world made great headway. As long as there is cheap labour capacity I dont see it running out of steam. There will be cost impositions on the global economy like higher oil prices, environmental compliance, but these will create just temporary setbacks since these costs are absorbed.
As far as the current property weakness is concerned, it will not sink far because of the low debt exposure, but prices are set at the margin, and any surplus property sales will hurt the market, as well as creating an over-supply of property. There is also strong inflation which is pushing prices up. Unlike Western markets (excluding Japan) high debt is not pushing up interest repayments as bad.
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Andrew Sheldon www.sheldonthinks.com
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