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Friday, July 21, 2017

A Tale of Two Markets: China vs. Hong Kong Residential Real Estate

Home Prices in China, as measured by Shanghai Home Prices, have recently begun to plateau, signifying a possible slowdown in the real estate sector for 2017. 


Hong Kong Home Prices have resumed their upward trend after dipping in 2016 and have hit new highs as of the first quarter of 2017.

Both real estate markets have surpassed their inflation adjusted levels by a very wide margin.

What happens next is anyone's guess. Stay tuned.

Related Links:

How low can Hong Kong Property Prices Go? Some Clues from the Not Too Distant Past.

After a 10% Market Decline in Late 2015 to Early 2016, Hong Kong Home Prices Resume Their Relentless Upward Trend in late 2016

Friday, July 14, 2017

The (Un)Steady State of Philippine Real Estate in 2016

At 109.77%, 8990 Holdings still has the most Real Estate Receivables relative to its Stockholder's Equity in 2016. Next is Century Properties at 70.49% of Stockholder's Equity, followed by Ayala Land at 46.92% of Stockholder's Equity.

Naturally, 8990 Holdings still has the most problematic Real Estate Receivables. Problem Real Estate Receivables amount to 11.10% of its Stockholder's Equity as of 2016. Believe it or not, this figure is way down from the 20.40% it posted in 2015.  Ayala Land's Problem Real Estate Receivables amount to 6.72% of its Stockholder's Equity in 2016. Neck and neck for third place are SM Prime Holdings and SM Investments with Problem Real Estate Receivables amounting to 3.68% and 3.61% of their respective Stockholder's Equity.

 SM Prime Holdings also holds the dubious distinction of having the highest percentage of Past Due But Not Impaired Real Estate Receivables relative to Total Real Estate Receivables in 2016. This is closely followed by Ayala Land with 14.63% of its Real Estate Receivables in Past Due status. Both Vista Land and 8990 Holdings have similar ratios with 9.58% (Vista Land) and 9.44% (8990 Holdings) of its Real Estate Receivables falling Past Due in 2016.

Related Posts:

Ayala Land's Real Estate Receivables Problem Has Gotten Worse, Not Better

8990 Holdings Inc.'s 2016 Annual Report: What a Difference an Auditor Makes!

8990 Holdings Inc.'s Impaired Installment Contracts Receivable (ICRs): The Pig Has Finally Broken Out of the Python!

The Philippine Real Estate Bubble Has Also Burst For... Ayala Land!

The Philippine Real Estate Bubble Has Also Burst for Vista Land

The Philippine Real Estate Bubble Has Already Burst for HOUSE (8990 Holdings, Inc.)

Friday, July 7, 2017

The Unbearable Volatility of BSP's Residential Real Estate Price Index

Perhaps because the index has been in its infancy but according to BSP's Residential Real Estate Price Index (RREPI) investors in residential real estate have been experiencing a nausea-inducing roller-coaster ride in terms of asset prices.

The swings in the areas outside the National Capital Region (Ex-NCR) are particularly problematic. Within the past two years, RREPI - All Types for the Ex-NCR area has swung from a high of 125.7 in the second quarter of 2016 from a low of 106.2 as of the 2nd Qtr. of 2015, an increase of 15.51% in just one year. Then in the next quarter, the index drops by 10.74% to 112.2 as of the 3rd Qtr of 2016. The RREPI - All Types index for the Ex-NCR area now rests at 116.8 as of the 1st Qtr 2017 or 4.10% higher than what it was just two quarters ago.

This volatility of the Ex-NCR RREPI-All Types has influenced large swings in the overall Philippine RREPI-All Types. Since its inception, the nationwide index has swung 10.18% from bottom to top. No doubt, the volatility of the Philippine-wide RREPI-All Types was tempered by the low volatility of the NCR RREPI - All Types, which fluctuated by only 2.63% from peak to trough.

The same dynamic has been playing out as you drill down into the index's sub-sectors, whether they be Single Detached Homes, Duplex, Townhouses, or Condominiums. Ex-NCR is volatile while NCR has smoother fluctuations, leading to a more volatile nationwide index for each sub-sector.

The Philippines was one of the last countries in the ASEAN to institute a National Residential Real Estate Index. Other countries have done this much sooner. However, late is better than never. In the meantime, for planning purposes, the index has limited utility.

Tuesday, July 4, 2017

Great Depression vs. Great Recession GDP Growth Rates - Third Estimate of the First Quarter of 2017

Last Thursday, June 29, 2017, the Bureau of Economic Analysis released their third estimate of 2017's first quarter GDP growth rate: 1.40%. For the fourth quarter of 2016, GDP grew by 2.1%.

The economic recovery from the Great Recession has been downright sluggish, never taking off beyond the 3.00% growth rate that signals a robust economic recovery and always flirting with the 1.00% growth rate that signals a stalling economy.

On a nominal basis, the economy is 31% larger than what it was ten years ago. In real terms, it's just 13% larger.

On a per capita basis, real GDP grew by only 5.34% for the past ten years, for a compounded annual average growth rate of only 0.52% per annum - far less than the so-called "Hindu Rate of Growth" threshold of 1.30% per annum. This growth rate is so slow that it is almost imperceptible.

To top it all, the growth has not been evenly distributed. As of year-end 2015, Real Median Household Income stood at $56,516 or 1.58% below the Real Median Household Income of $57,423 in 2007 and 2.41% below that of 1999 ($57,909). Almost all the gains in the economy have been going to the upper echelons of US society.

Friday, June 23, 2017

Construction Gross Value as a Percentage of GDP Is Near a 25 Year High! - Updated as of 1st Qtr. 2017

Last May 4, 2015, we noted that Construction Gross Value (Construction GV) at 11.21% as of the year-end 2014 was already well above its historical average of 9.65% of GDP since 1990.  This ratio has run at an above average rate since 2009 and has already eaten away at the "cumulative underhang" or underinvestment in construction that has taken place since 2004, when the excessive investment in construction that took place in the mid to late 1990's was being absorbed.

As of the 1st Qtr of 2017, Construction GV as a percentage of GDP now stands higher at 12.01% of GDP -near the all-time high of 12.22% (posted in the 4th Qtr 2016) for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 4.9% above equilibrium, a rise of 4.9% in just fifteen months.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.

Friday, June 16, 2017

Singapore Continues its Controlled Slide of House Prices While Philippine House Prices Hit New Highs in 2017 Q1

Almost all countries discussed in this blog post, with the exception of Thailand, have been experiencing rapid growth in home prices that have outstripped inflation by a wide margin.  The gap between home prices and their inflation adjusted levels are at the widest ever, particularly in Singapore, Hong Kong, and the Philippines.


Singapore's home prices have now been declining for fourteen straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  66.32% above their year-end 2004 levels. Overall prices levels, as measured by inflation have just increased by 29.19% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by almost than 40 percentage points.


Neighboring Malaysia's House Price Index now stands at 262.42 as of the third quarter 2016, 162.42% higher than year-end 1998 levels.  General price levels as of the third quarter 2016 are only around 48.41% higher than their year-end 1998 levels.


In Thailand, which has been experiencing political turmoil for some time, home prices have remained essentially flat since the end of 2004. Home Prices ended 2013 with the index at 100.54, just 0.54% higher than the end of 2004, but showing a substantial recovery since the recent low of 74.08 posted in the third quarter of 2009. Since 2013, home prices have rebounded to 114.50 or 14.50% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 34.51% above their year-end 2004 levels. In other words, Thailand Home Prices have lagged inflation by as much as 20.01% since their year-end 2004 levels.


Meanwhile, in Indonesia, home prices have shown no signs of slowing down their upward trajectory.  In fact, prices are now at 146.32 or 46.32% above their first quarter 2007 levels. Inflation, however, has marched higher.  General prices are 77.52% above first quarter 2007 levels, lagging inflation by 31.20%.


Philippine house price index stands at 225.44% as of the first quarter 2017 or over 125.44% above their year-end 2004 levels.  Philippine home prices have posted one of the largest 10 year gains among all the countries considered in this blog post.  Philippine home prices have outstripped inflation by more than sixty percentage points.  General prices stood at 164.63% or 64.63% above their year-end 2004 levels. Like Indonesia, Philippine home prices have so far no signs of slowing down their upward trajectory for the foreseeable future.   The question is, is this momentum sustainable?  Or will the Philippines and Indonesia follow its ASEAN neighbors, Singapore, Malaysia, and Thailand, in exhibiting plateauing or declining house prices?  That remains to be seen.

Friday, June 9, 2017

Ayala Land's Real Estate Receivables Problem Has Gotten Worse, Not Better

At around this time last year, in a blog post entitled "The Philippine Real Estate Bubble Has Also Burst For... Ayala Land!", we wrote about how the company's past due installment contract receivables (ICRs) for real estate have quadrupled in 2015 from Php 1.95 billion in 2014 to Php 8.80 billion in 2015. Much of the past due ICRs were severely past due - over 120 days past due.

Total past due ICRs comprised as much as 13.4% of the entire Real Estate ICR portfolio in 2015.

Today, that figure is even higher. As of year-end 2016, 14.63% of Real Estate ICRs are now past due. More than one in seven Real Estate ICRs is now past due.

The credit quality has gotten worse, not better.

The amount of severely past due Real Estate ICRs (over 120 days past due) has grown by almost 80% in just one year, from Php 3.58 billion in 2015 to Php 6.43 billion in 2016.

Real Estate ICRs over 120 days past due now comprise 8.11% of total Real Estate ICRs in 2016.

Past Due But Not Impaired Real Estate ICRs now comprise 6.72% of the company's Stockholder's Equity as of 2016, up from 5.88% in 2015 and more than four times the 1.60% level the company posted in 2014.

Despite this, the company's Impaired Real Estate ICRs have dwindled to zero in 2016. Around Php 9.55 million of Impaired ICRs, which have been impaired since at least 2012, were written off in 2016.

Sooner or later, the company will have to recognize these past due Real Estate ICRs as impaired and the impairments will have to be written off... someday. We just don't know when. But if Ayala Land, one of the country's most prestigious and largest real estate companies, cannot handle its growing Real Estate ICR problem amid a booming economy, this does not bode well for the rest of the industry.