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Friday, September 23, 2016

Singapore, Hong Kong, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 2nd Qtr. 2016

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



Singapore's home prices have now been declining for eleven straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  70.38% above their year-end 2004 levels. Overall prices levels, as measured by inflation have just increased by 29.09% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by more than 40 percentage points.



Thailand




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 In the first quarter of 2016, home prices have rebounded to 16.41, or 16.41% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 33.78% above their year-end 2004 levels. In other words, Thailand Home Prices have lagged inflation by as much as 17.36% since their year-end 2004 levels.



Indonesia




Meanwhile, in Indonesia, home prices have shown no signs of slowing down their upward trajectory.  In fact, prices seem to have gone parabolic, climbing 4.63% in the last quarter of 2013, from a base of 121.49 as of the third quarter of 2013 to 127.11 as of year end 2013.  In the second quarter of 2016, home prices have climbed an additional 16.86% to reach 143.97.  Since the first quarter of 2007, home prices have risen 43.97%, while inflation has raised general prices by 73.17% during the same period. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.



Hong Kong


Hong Kong real estate prices have leaped by 215.30% in a little over 10 years to reach a staggering 315.30 as of the second quarter of 2016 from a base of 100 since year-end 2004. General inflation levels have just climbed 41.39% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 173.90% during this period, the highest rate of appreciation in the countries covered in this post.


However, it is important to note that Hong Kong Home Prices have also entered into a correction phase, declining by 9.99% from its recent peak of 350.31 as of the third quarter of 2015 to just 315.30 as of the second quarter of 2016.  There is a distinct possibility that Hong Kong Home Prices may have entered a bear market just as it did in the aftermath of the 1997 Asian Financial Crisis. See previous post: How low can Hong Kong Property Prices Go? Some Clues from the Not Too Distant Past



Philippines

For the first time in years, Philippine House Prices seem to be on the decline.  As of the second quarter of 2016, the Philippine House Price Index stood at 218.29 or 1.22% below the peak of 220.99 as of the first quarter of 2016.  However, they still stand at 118.29% above their year-end 2004 levels.  Philippine home prices, with the exception of Hong Kong, have posted the largest 10-year gains among all the countries considered in this blog post.  Like Singapore and Malaysia, Philippine home prices have outstripped inflation by over fifty-six percentage points.  Like Indonesia and Hong Kong, 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, September 16, 2016

Construction Gross Value as a Percentage of GDP Is Near a 25 Year High! - Updated as of 2nd Qtr. 2016

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 2nd Qtr of 2016, Construction GV as a percentage of GDP now stands higher at 12.48% of GDP - an all-time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 3.3% above equilibrium, a rise of 3.1% in just six months.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.




Friday, September 9, 2016

Have Philippine Home Prices Already Plateaued?

For the first time in years, Philippine House Prices seem to be on the decline.  As of the second quarter of 2016, the Philippine House Price Index stood at 218.29 or 1.22% below the peak of 220.99 as of the first quarter of 2016.  


Based on BSP's Residential Real Estate Price Index (RREPI), the price declines seem to have taken place in Metro Manila (NCR), which slipped a marginal 0.26% from 116.9 as of the fourth quarter of 2015 to 116.6 in the first quarter of 2016.  Meanwhile, prices outside NCR have shown healthy gains.



Sales volumes, as shown by HLURB's License to Sell statistics, seem to show around a 5% drop for the first half of the year and a 22% drop in sales volumes since hitting a peak in 2012.




Is this a mere blip or pause in the relentless upsurge of the real estate market? Or the beginning of a sectoral decline? Only time will tell.

Friday, August 12, 2016

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Second Quarter 2016

In March 2015, two illustrious economists, both Former Fed Chairman Ben Bernanke and Former Treasury Secretary Larry Summers have been duking it out on the blogosphere about secular stagnation.  In layman's terms, both are attempting to describe why does the US Recovery from the Great Recession feel so sluggish.




Although the overall collapse in REAL GDP was relatively shallow  (-3.1% from peak to trough in real terms and -0.4% in nominal terms) and took place over two years (2008 to 2009), the recovery in the five years since then has been very anemic.  The economy reached parity with its pre-recession peak GDP in nominal terms in 2010, only three years after the Great Recession started in December 2007.   In real terms, it took an additional year, by 2011, to reach parity with its pre-recession peak.  By the 2nd Qtr of 2016, the US economy is only 27.87% larger, in nominal terms, than the bottom in 2009, averaging only 3.57% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 15.61% larger than the bottom in 2009, averaging only 2.09% growth every year since 2009.



The overall economic contraction during the Great Depression was much more severe (-46% in nominal terms and -27% in real terms from peak to trough) and took much longer (four years from 1930 to 1933).  In real terms, economic parity with its pre-depression peak was only reached in 1936, seven years after the start of the Great Depression. Despite the severity and depth of the economic contraction, it only took three years after the 1933 bottom for the US economy to reach parity (in real terms) with pre-depression peak in 1929.  Recovery, in terms of economic growth rates, was a lot more robust, averaging 10.9% annually during this period.  In the four years since the US economy bottomed out in 1933, the US economy was 43.5% larger than the bottom in 1933, averaging 9.44% growth per year every year. In nominal terms, the US economy only recovered its pre-depression peak only sometime in 1941, when WWII spending began in earnest.


Great Depression vs. Great Recession



Source: www.worldbank.org, www.bea.gov, Reinhart and Rogoff, "This Time is Different"

Friday, July 8, 2016

Singapore, Hong Kong, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 1st Qtr. 2016

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



Singapore's home prices have now been declining for ten straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  71.11% above their year-end 2004 levels. Overall prices levels, as measured by inflation have just increased by 29.39% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by more than 40 percentage points.




Malaysia




Neighboring Malaysia's House Price Index actually topped out at 229.30 in the third  quarter of 2015 and has declined to 227.50 as of the fourth quarter of 2015.  Home prices are 127.5% above their year-end 2000 levels.  General price levels are over 100 percentage points lower, at 25.56% above their year-end 2000 levels.



Thailand



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. In the first quarter of 2016, home prices have rebounded to 115.22, or 15.22% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 33.67% above their year-end 2004 levels. In other words, Thailand Home Prices have lagged inflation by as much as 18.45% since their year-end 2004 levels.



Indonesia



Meanwhile in Indonesia, home prices have showed no signs of slowing down their upward trajectory.  In fact, prices seem to have gone parabolic, climbing 4.63% in the last quarter of 2013, from a base of 121.49 as of the third quarter of 2013 to 127.11 as of year end 2013.  In the first quarter of 2016, home prices have climbed an additional 15.43% to reach 142.54.  Since the first quarter of 2007, home prices have risen 42.54%, while inflation has raised general prices by 71.68% during the same period. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.


Hong Kong


Hong Kong real estate prices have leaped by 214.84% in a little over 10 years to reach a staggering 314.84 as of the first quarter of 2016 from a base of 100 since year-end 2004. General inflation levels have just climbed 40.49% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 174.35% during this period, the highest rate of appreciation in the countries covered in this post.

However, it is important to note that Hong Kong Home Prices have also entered into a correction phase, declining by 10.12% from its recent peak of 350.31 as of the third quarter of 2015 to just 314.84 as of the first quarter of 2016.  There is a distinct possibility that Hong Kong Home Prices may have entered a bear market just as it did in the aftermath of the 1997 Asian Financial Crisis. See previous post: How low can Hong Kong Property Prices Go? Some Clues from the Not Too Distant Past


Philippines


Philippine house price index stands at 220.99 at the end of the first quarter 2016 or over 120.99% above their year-end 2004 levels.  Philippine home prices, with the exception of Hong Kong, have posted the largest 10-year gains among all the countries considered in this blog post.  Like Singapore and Malaysia, Philippine home prices have outstripped inflation by around sixty percentage points.  Like Indonesia and Hong Kong, 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.


Source: Global Property Guide, Trading Economics, World Bank, Colliers International Philippines

Tuesday, June 28, 2016

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





For the past two years, we have noted the sharp uptick in delinquencies in installment contracts receivables (ICRs) in 8990 Holdings Inc. (otherwise known by its ticker: HOUSE).

In 2014, in a post entitled "Has the Philippine Real Estate Bubble Already Burst?", we noted a very sharp uptick in HOUSE's ICRs that were over 90 days past due.  The marked change was very evident during the period from December 31, 2012 to September 30, 2013.






Impairments of these past due receivables were minimal, climbing from an absolute zero in 2012 to just Php 7.2 million in 2013 or a negligible 0.07% of 8990's total ICR portfolio.

Shortly after that post was published, those past due ICRs mysteriously disappeared in the company's audited 2013 Annual Report (See  8990 Holdings, Inc.: The Case of the Disappearing Past Due Installment Contract Receivables).  ICRs that were over 90 days past due dropped from a reported Php 236.0 million as of the September 30, 2013 (Unaudited Interim Report) to just Php 16.0 million as of December 31, 2013 (Audited Annual Report).

Those disappearing past due ICRs miraculously reappeared in the 2014 Annual Report, when HOUSE report that Php 177.4 million or 1.26% of its ICRs were over 90 days past due (See: "The Philippine Real Estate Bubble Has Already Burst for HOUSE (8990 Holdings, Inc.)".

These are the money shots:





Impairments showed "hockey stick"-like exponential growth, jumping from just Php 7.2 million or 0.07% of Total ICRs in 2013 to Php 1.4 billion or a staggering 9.84% of Total ICRs as of year-end 2014.








Today, the pig is out of the python.  The "pig" of Impaired ICRs has almost doubled to more than 18.14% of the total ICR portfolio (the python).






But ICRs that are over 90 days past due has dropped considerably from Php 177.4 million or 1.26% of total ICRs in 2014 to just Php 100.6 million in 2015 or 0.53% of total ICRs in 2015.  This could mean that the pipeline of incoming impairments (meaning 90-day past due ICRs) may have stalled or even dropped.





This could mean that 8990 now has a better handle on screening its customers for credit worthiness.  It could also mean that the Philippine real estate market has stabilized.  Volumes for the overall market have remained stable and home prices have continued their upward trend.


Socialized housing, the market space where 8990 predominantly operates has also done well in 2015.  So this could be a factor as well.



8990 remains heavily exposed to areas outside Metro Manila.  Over 50% of its ICRs are in Davao and Cebu.  Exposure to the Metro Manila market is minimal, only 2.11% of ICRs are originated in Metro Manila.



And that could be a good thing.




Source: 8990 Annual Reports, 2012 to 2015; HLURB, edge.pse.com.ph

Friday, June 17, 2016

Construction Gross Value as a Percentage of GDP Is Near a 25 Year High! - Updated as of 1st Qtr. 2016

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 9.59% 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 2016, Construction GV as a percentage of GDP now stands higher at 11.27% of GDP - near an all-time high for the past 25 years.  But the real story is that Cumulative Construction GV has gone well above equilibrium and now stands at 2.5% above equilibrium, a rise of 1.6% in just a little over one year.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.