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