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
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!
------------------------------------------------
Andrew Sheldon www.sheldonthinks.com
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