PHILIPPINE REAL ESTATE CHALLENGE: WHAT HAPPENS WHEN HOT MONEY TURNS COLD

We are in the threshold of a new and interesting economic and financial era. The Philippine economy will once more be tested under the forge of economic, financial and business uncertainties.

The PSE Index as of June 17, 2013.

The PSE Index as of June 17, 2013.

Last week, as expected by some of my colleagues and economic analysts, the negative effect of the pulling out of direct foreign investments or hot money would mean the drop in the stock market.

However, the peculiar and unique characteristic of the Philippine economy is that of being resilient and strong. We may not be a dragon economy or a tiger economy, but we definitely have the good qualities of a “Bamboo economy”.

The past weeks, I have been convalescing from a long illness but this gave me the opportunity to read more about the world economy. I followed closely the US news and the movements of capital markets in the Philippines and Asia.

NEDA's Philippine economic update as of June 6, 2013.

NEDA’s Philippine economic update as of June 6, 2013.

I learned that the US economy has started to improve- housing sector and consumer demand growing, better than the past five years. However, the political situation in the US is not healthy. With scandals from the IRS, the horror stories of arms deal, “Fast and Furious “, and other confidential leaks have damaged the Obama Administration’s credibility.

As a policy, the US Administration started its public relation campaign and to save face. The powers that be in the White House and Washington are in need to cover up these damaging reports, scandals and expose. The strategy is to save the day with economic reforms and policies in order to make its citizens happy, prosperous and create the illusion of the American dream.

Finance Secretary, Cesar Purisima.

Finance Secretary, Cesar Purisima.

In doing so, the American money machinery, funds, and investments had to be pump back into their domestic market to fuel the American economic growth which is badly needed by the nation.

Competition in the world economy, the needs of the US financial and capital forces, plus the strong appetite of our Asian growth have all contributed to the need of Americans to pull out the billions from our stock market.

About $680B was drained out from our capital market. Hot money turning cold resulted to the drop of and fall of PSE stocks for more than 6%.

However, to my mind, our bamboo economy is resilient and strong. It is in the safe hands of very good technocrats who know their job well.  Our “Supermen” in the Aquino Administration, like Finance Secretary Cesar Purisima, the professionals in our Monetary Board and Banko Sentral ng Pilipinas think tanks, are outstanding and brilliant monetary managers.

BSP Governor, Amando Tetangco.

BSP Governor, Amando Tetangco.

The administration immediately place on hold government spending, temporarily stopped the much needed infrastructure projects and are closely monitoring and controlling our interest rates, inflation and money supply.

To sustain the growth of our economy, we badly need to tap foreign capital markets. But with our interest rates so low and yields below competitive foreign alternatives, the Philippines will not be attractive, unless we open up our stiff investment policies, taxation rules and regulations and ownership restrictions.

On the other hand, an optimist likes myself sees the blessing of this economic correction. I have been quite weary on the fact that the Philippine real estate has been overheating. The unrealistic increase in land values because of speculation is not at all healthy. Economists have always warned nations about the boom & bust cycle. But, in our case we are not in a bubble situation rather, it’s a phenomenon that property values have been driven so high due to low interest rates, speculation, money laundering, and remittances.

I have often advised investors to be careful and take a few steps back, see first the horizon, do comparable studies, and sharpen their financial options before rushing into a real estate investment.

The members of Monetary Board.

The members of Monetary Board.

Fortunately, taking all things equal, the Philippine economy shall remain a bamboo economy- resilient, strong and with growth rates above other Asian countries.

Real Estate shall correct its overheating prices, but will always be the safe and secure investment haven given the necessary prudent steps and due diligence before making an investment.

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