FINANCIAL FLIGHT, MARKET FEARS & REAL ESTATES’ FIGHT

As predicted in my previous write-ups and blogs, after the financial meltdown in the United States last 2007, the World Market fell into a global spiral downfall. These cause the international economic situation to be fearful and cautious.

collage3

left: The 10-year treasury yield versus the UBS Growth Surprise Index from 2006 to 2013.(UBS Bloomberg)
right: Housing Demand Far Exceeds Supply. The underlying demand for dwellings is significantly higher than those being built. (UBS)

However, the Philippines manage to survive due to the strong economic fundamentals created by brilliant monetary and fiscal policies. The central bank of the Philippines and department of finance with the monetary board deserve due credit.

collage31

Brilliant Leaders behind Monetary and Fiscal Policies: Department of Finance Honorable Secretary Cesar Purisima, BSP Chairman Amando M. Tetangco, Jr.

The real estate industry benefited from low interest rates, constant cash flow from remittances, higher purchasing power from a stronger middle class and a boom in business outsource offices as well as residential condominiums.

Urban poor within the city.

Urban poor within the city.

Like any proven economic cycle, after a boom in the residential condominium market we are entering into a situation of over-supply. With almost 200,000 condominiums and townhouses being sold at the price range of P5-25M, we shall start to see a notable slow down and absorption rate.

Cenel Place, a first class five star commercial and residential condominium prominently located in the heart of Malabon City.  Situated at 239 General Luna cor. Burgos St., Brgy. Concepcion, Malabon City it is easily accessible to local markets, schools and churches.

Cenel Place, a first class five star commercial and residential condominium prominently located in the heart of Malabon City.
Situated at 239 General Luna cor. Burgos St., Brgy. Concepcion, Malabon City it is easily accessible to local markets, schools and churches.

The consequence as we experience today is tough competition by these condominium developers.  The Battle of Brochures, the Pricing War has begun. Each developer offering discounts, rebates, long-term payment plan, creative financing schemes and even allowing non-licensed agents to sell.

For example: A strategy being done by a developer that is majority owned by a commercial bank is using their bank managers to promote and sell their condominium project. Banks financing buyers of condominiums are getting more aggressive, offering commissions to agents, to entice them in utilizing their financing program to would be buyers.

The consequences of this situation would spell disaster in the long-term. My fear is that we may fall into the same trap as that of the financial crisis experience in the U.S. due to the over-expansion and high valuation of their housing sector.

However, the BSP said that Current volatility not yet a cause for concern. He said that even though local financial market took a beating, “The peso is moving in line with the regional trend,” BSP Governor Amando M. Tetangco  Jr. told reporters on the sidelines of a Senate hearing on the proposed 2014 national budget.

“The peso is not moving in a way that is inconsistent with what we can see with other currencies. The foreign exchange policy remains the same,” he said, adding that the BSP allows the peso to respond to market forces but with scope for participation in the market to avoid excessive volatility in the exchange rate.

The optimism of the BSP is shared by Fitch Ratings. An official said “THE EFFECTS of ongoing volatility will be relatively limited as the Philippines continues to be buoyed by its robust fundamentals.

I think the ongoing developments, like the Fed (US Federal Reserve) tapering, the rebalancing of global growth, will have a relatively limited impact on the Philippines,” said Andrew Colquhoun, Fitch Ratings’ head for Asia-Pacific sovereigns, in  a teleconference.

“Strong fundamentals, like its strong balance of payments position due mainly to the inflow of remittances from its overseas workers, continue to support the economy,” he noted.

We are aware that the world stocks are tumbling due to the US FED stimulus backtracking of $85 billion per month. As the speculation heightened, it is continuously wreaking havoc to the world market, especially in the Asia Pacific.   To add insult to injury, the escalating war between the West and Syria have added more tension to the world economy.

In his commentary entitled the Financial crisis and War, Harold James said that the current issues reminds us of both the approaching hundredth anniversary of the WWI and the 1907  financial crisis that started from the US. The politicians and commentators of that era got jolted and worried by the fragility of current global political and economic arrangements.

Unfortunately, geopolitical syndrome is happening again, and maybe on a much higher level. Recently, the world’s central banker, after a convention in Kansas City, gave a grim prediction — The world is doomed to an endless cycle of bubble, financial crisis and currency collapse.

Their meeting of the international financial system indicated an acceptance of the current financial situation. They said that despite the success of unconventional monetary policy and upgrades to regulate finances, the global economy cannot be balanced and would result to new crisis in the future.

Bretton Woods, creator of foreign exchange rate chart

Bretton Woods, creator of foreign exchange rate chart

The problem which worsened since the 1971 collapse of the old fixed exchange rate system of Bretton Woods, resulted to the “trilemna” of international finance becoming a pattern. – The trio included the impossibility of having free capital flows, fixed exchange rates and an independent monetary policy all at the same time.  Because of such pattern, most countries have plumped for control over their own monetary policy and a floating exchange rate.

Locally, as of August 28, 2013, we were not spared. The Philippine Stock Exchange (PSE) index closed at its lowest level in more than eight months, while the peso continue  to fall  against the dollar for the fourth straight trading day to end at its weakest point in nearly three years.

collage21

The PSE index (PSEi) lost 178.93 points or 3.02% to close 5,738.06, while the broader all-share index fell 111.09 points or 3.06% to end 3,515.55 as all six sectoral indices fell. Net foreign selling more than doubled to P5.74 billion from P2.46 billion in just two days. The peso, meanwhile, ended at P44.75 to the dollar — a 35-month low — Tuesday’s P44.50-per-dollar finish. The peso is expected to trade within the P44.65- to P45.30-per-dollar band today. Dollars traded last August 29, 2013 totaled $1.24 billion, higher than Tuesday’s $1.02 billion.

For example, Leading the losers was SM Investments Corp., which shed ₱51 or 7.45% to ₱634 per share.

Grim figures!

EXECUTIVES of US firms operating in Southeast Asia view the Philippines as having markedly improved, but the country still does not figure prominently as an expansion destination.

ASEAN Board Members

ASEAN Board Members

The ASEAN Business Outlook 2014 survey, conducted from May 10 to June 10 and released last August 29, 2013 found respondents optimistic about prospects in the region, with 91% expecting trade and investments to increase over the next five years.

As a solution to the current geopolitical and US Fed Stimulus ready to implement “contingency measures” that will shield the economy from the adverse effects of capital outflows, a central bank official said.

In times of heightened uncertainty and risk aversion, the Bangko Sentral ng Pilipinas (BSP) could of course deploy various contingency measures as needed to minimize the impact of capital outflows and ensure that liquidity remains adequate to fuel the economy’s requirements,” central bank Deputy Governor Diwa C. Guinigundo said last Thursday at the 5th Annual orporate Treasury  CFO Summit.

Now back to real estate on a positive note? Or optimistic tune?

Ortigas Phase 1Design

Ortigas Phase 1Design

The P25-billion redevelopment of the Greenhills Shopping Center recently completed Phase 1, and is currently on Phase 2. The massive project, boasts of more parking, high-tech cinemas, and a luxury residential condominium additional retail space amidst more open areas and canopied walkways.

The Greenhills Shopping Center is one of the premier shopping malls in the 1970s. It  quickly became a shopping and leisure destination in San Juan City, Metro Manila.  After 40 years, management decided to re develop the shopping center to meet the standards of modern international shopping centers while retaining its old charm of the iconic and entertainment.

In the midst of the Ortigas saga, the infighting continues as a tag-of-war between the Ortigas-Ayala block, versus the SM Group is escalating in the courtrooms.

Areas for development and regional group.

Areas for development and regional expansion.

Other real estate corporations remain un-fazed by volatilities of the hounding financial markets. The top three conglomerates are still eyeing expansion. “The volatility has been expected by housing demand.   “We have solid fundamentals notwithstanding market volatility; the Philippines is very much intact,” Ayala Corp. Managing Director Eric T. Francia said at the ING Bank-Economic Journalists’ Association of the Philippines forum.

The Ayala group, Mr. Francia said, will remain focused on its investments in power and infrastructure.

In summary, we all have to be cautious and face our fears. Fortunately the Filipino consumer remains hungry and regional expansion due to infrastructure development is pushing the real estate battle fronts away from imperial Manila to other major cities of Luzon, Visayas and Mindanao.

source:

Philippine Star

Bangko Sentral ng Pilipinas

Business World

Wikipedea

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s