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Friday, December 18, 2015

Philippine Real Estate and Construction Loans Are Even More Out of Whack As of September 2015!

It sure looks that way, judging from this chart:




It looks like Real Estate and Construction Loans as a percentage of Total Loan Portfolio (TLP) rocketed past its historical range of 12.6% to 16.6% of TLP sometime in 2011.  That ratio peaked at 20.55% as of September 2013 but has bottomed out at 18.61% of TLP as of December 2014. In the last nine months of the year, this ratio has climbed back up to 19.96% as of September 2015.

Now, are we up to the levels of the previous real estate boom? (as in mid 1990s to 1997?) Honestly, we don't know.  BSP data only goes as far back as 1999 when the previous real estate bubble had already burst and the financial system was most likely deleveraging as evidenced in this chart.






Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High! - Updated as of 3rd Qtr. 2015

Has the Philippine Real Estate Bubble Already Burst?

Is There a Real Estate Bubble in the Philippines?


Are Philippine Real Estate Loans Out of Whack?


Thursday, December 17, 2015

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High! - Updated as of 3rd Qtr. 2015

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 9.48% 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 3rd Qtr of 2015, Construction GV as a percentage of GDP now stands higher at 12.06% 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 4.2% above equilibrium, a rise of 3.0% in just nine months.  Given all the planned new projects that are already at the execution stage, the momentum in Construction Investment will continue.



Wednesday, December 16, 2015

Construction Gross Value as a Percentage of GDP Has Is at a 25 Year High!

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 9.48% 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 2015, Construction GV as a percentage of GDP now stands slightly higher at 12.24% 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 5.2% above equilibrium, a rise of 4.0% 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, December 4, 2015

Great Depression vs. Great Recession: Unemployment - Updated November 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession.






But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.

In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By November 2015 or four years after the Great Recession bottomed out, only 46.35% of the population is employed, an increase of only 1.53% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take five more years before employment recovers to that of Year "0".





Great Depression vs. Great Recession

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

Friday, November 13, 2015

Plutonomy and the Evisceration of the Middle Class

Mean, Median, Mode

One of the first things we learn about statistics as kids is the concept of Mean, Median, and Mode, which are different kinds of averages. The "mean" simply means the arithmetic average wherein you add up all the numbers and divide the resulting number by the number of numbers.  The "median" is the middle value in the list of numbers.  The "mode" is the value that occurs most often.  The mean, median, and mode of a set of numbers can be very different from each other.

These differences are illustrated in the Wage Statistics for 2014 released by the Social Security Administration last October 2015.

Wage Statistics 2014
Social Security Administration






Net Compensation Interval (In US $) Number of Wage Earners Cumulative Number Percent of Total Aggregate Amount Average Amount
$0.01 — 4,999.99 22,574,440 22,574,440 14.2708 $46,647,919,125.68 $2,066.40
5,000.00 — 9,999.99 13,848,841 36,423,281 23.0255 $102,586,913,092.61 $7,407.62
10,000.00 — 14,999.99 12,329,270 48,752,551 30.8196 $153,566,802,438.45 $12,455.47
15,000.00 — 19,999.99 11,505,776 60,258,327 38.0932 $200,878,198,035.07 $17,458.90
20,000.00 — 24,999.99 10,918,555 71,176,882 44.9955 $245,317,570,246.88 $22,467.95
25,000.00 — 29,999.99 10,192,863 81,369,745 51.4390 $279,865,461,187.05 $27,457.00
30,000.00 — 34,999.99 9,487,840 90,857,585 57.4369 $307,828,947,411.16 $32,444.58
35,000.00 — 39,999.99 8,578,215 99,435,800 62.8597 $321,200,755,103.44 $37,443.78
40,000.00 — 44,999.99 7,553,972 106,989,772 67.6351 $320,563,569,965.15 $42,436.43
45,000.00 — 49,999.99 6,542,882 113,532,654 71.7713 $310,391,706,424.23 $47,439.60
50,000.00 — 54,999.99 5,723,269 119,255,923 75.3893 $300,016,377,448.51 $52,420.46
55,000.00 — 59,999.99 4,846,517 124,102,440 78.4531 $278,354,367,841.41 $57,433.90
60,000.00 — 64,999.99 4,201,232 128,303,672 81.1090 $262,203,932,128.68 $62,411.20
65,000.00 — 69,999.99 3,573,471 131,877,143 83.3680 $240,948,179,180.40 $67,426.93
70,000.00 — 74,999.99 3,094,739 134,971,882 85.3244 $224,145,278,103.36 $72,427.85
75,000.00 — 79,999.99 2,684,481 137,656,363 87.0214 $207,853,372,824.62 $77,427.77
80,000.00 — 84,999.99 2,297,338 139,953,701 88.4737 $189,370,862,869.17 $82,430.56
85,000.00 — 89,999.99 1,975,400 141,929,101 89.7225 $172,719,042,418.70 $87,434.97
90,000.00 — 94,999.99 1,714,370 143,643,471 90.8062 $158,442,931,588.44 $92,420.50
95,000.00 — 99,999.99 1,486,636 145,130,107 91.7460 $144,858,203,365.61 $97,440.26
100,000.00 — 104,999.99 1,309,068 146,439,175 92.5736 $134,083,282,259.67 $102,426.52
105,000.00 — 109,999.99 1,117,128 147,556,303 93.2798 $120,020,513,136.11 $107,436.67
110,000.00 — 114,999.99 977,055 148,533,358 93.8975 $109,855,105,705.14 $112,434.93
115,000.00 — 119,999.99 865,889 149,399,247 94.4448 $101,693,061,676.62 $117,443.53
120,000.00 — 124,999.99 773,339 150,172,586 94.9337 $94,660,281,091.31 $122,404.64
125,000.00 — 129,999.99 673,971 150,846,557 95.3598 $85,886,152,964.93 $127,433.01
130,000.00 — 134,999.99 595,827 151,442,384 95.7364 $78,899,843,713.01 $132,420.73
135,000.00 — 139,999.99 527,341 151,969,725 96.0698 $72,476,546,845.30 $137,437.72
140,000.00 — 144,999.99 466,992 152,436,717 96.3650 $66,519,743,635.12 $142,443.00
145,000.00 — 149,999.99 419,003 152,855,720 96.6299 $61,787,674,520.19 $147,463.56
150,000.00 — 154,999.99 384,581 153,240,301 96.8730 $58,607,775,121.57 $152,393.84
155,000.00 — 159,999.99 335,391 153,575,692 97.0850 $52,801,735,517.69 $157,433.37
160,000.00 — 164,999.99 296,048 153,871,740 97.2722 $48,087,213,596.86 $162,430.46
165,000.00 — 169,999.99 265,309 154,137,049 97.4399 $44,426,198,104.69 $167,450.78
170,000.00 — 174,999.99 239,515 154,376,564 97.5913 $41,304,379,348.95 $172,450.07
175,000.00 — 179,999.99 216,255 154,592,819 97.7280 $38,370,042,895.27 $177,429.62
180,000.00 — 184,999.99 200,592 154,793,411 97.8548 $36,588,064,085.78 $182,400.42
185,000.00 — 189,999.99 179,005 154,972,416 97.9680 $33,554,727,208.93 $187,451.34
190,000.00 — 194,999.99 165,277 155,137,693 98.0725 $31,807,897,759.84 $192,452.05
195,000.00 — 199,999.99 154,070 155,291,763 98.1699 $30,425,466,536.83 $197,478.20
200,000.00 — 249,999.99 1,039,897 156,331,660 98.8273 $230,863,458,226.21 $222,006.08
250,000.00 — 299,999.99 565,105 156,896,765 99.1845 $153,945,762,663.99 $272,419.75
300,000.00 — 349,999.99 333,584 157,230,349 99.3954 $107,708,119,615.81 $322,881.55
350,000.00 — 399,999.99 219,923 157,450,272 99.5344 $82,117,070,706.61 $373,390.10
400,000.00 — 449,999.99 151,162 157,601,434 99.6300 $63,997,346,472.50 $423,369.28
450,000.00 — 499,999.99 108,881 157,710,315 99.6988 $51,583,042,398.64 $473,756.14
500,000.00 — 999,999.99 345,935 158,056,250 99.9175 $230,331,407,862.96 $665,822.79
1,000,000.00 — 1,499,999.99 65,548 158,121,798 99.9589 $78,672,933,288.58 $1,200,233.92
1,500,000.00 — 1,999,999.99 24,140 158,145,938 99.9742 $41,431,838,733.52 $1,716,314.78
2,000,000.00 — 2,499,999.99 12,137 158,158,075 99.9819 $26,997,226,154.27 $2,224,373.91
2,500,000.00 — 2,999,999.99 6,871 158,164,946 99.9862 $18,747,446,313.27 $2,728,488.77
3,000,000.00 — 3,499,999.99 4,799 158,169,745 99.9892 $15,507,304,422.66 $3,231,361.62
3,500,000.00 — 3,999,999.99 3,258 158,173,003 99.9913 $12,166,741,762.34 $3,734,420.43
4,000,000.00 — 4,499,999.99 2,353 158,175,356 99.9928 $9,970,953,222.98 $4,237,549.18
4,500,000.00 — 4,999,999.99 1,822 158,177,178 99.9939 $8,633,941,395.34 $4,738,716.46
5,000,000.00 — 9,999,999.99 6,468 158,183,646 99.9980 $43,887,775,808.42 $6,785,370.41
10,000,000.00 — 19,999,999.99 2,230 158,185,876 99.9994 $30,065,006,121.19 $13,482,065.53
20,000,000.00 — 49,999,999.99 776 158,186,652 99.9999 $22,450,911,983.01 $28,931,587.61
50,000,000.00 and over 134 158,186,786 100.0000 $11,564,829,969.82 $86,304,701.27

158,186,786

$7,050,259,213,644.55 $44,569.20


Graphically, this data looks like this:





This report took data from 158.2 million wage earners who made an aggregate wage of $7.05 trillion dollars.  The mean wage per wage earner, therefore, was about $44,569.20 for 2014.  Now, what is the median?  The table above shows that 51.439% of the wage earners earned less than $30,000.00 per year.  This is not exactly the median income but it is close enough. The above graph show that around 22,574 million people or 14.27% of the wage earners earned less than $5,000.00 a year in compensation.



What does this all mean?

Simply put, a huge chunk of the population is poor.


 In 2014, there were around 1.27 earners per household:


No Earners One Earners Two Earners Three Earners Four or More Earners Total
Number (thousands) 29,883 45,821 39,162 7,342 2,379 124,587
% of Total 23.99% 36.78% 31.43% 5.89% 1.91% 100.00%


There were also 2.58 members per household.  Under the 2015 Federal Poverty Level Guidelines, a household of three people must earn $20,090.00 or less to qualify for federal cost assistance such as Medicaid, CHIP, and taxes.

Simplified 2015 FPL Guidelines you’ll use for 2016 cost assistance, 2015 Medicaid and CHIP, and taxes filed April 15, 2017
Persons in household 2015 Federal
Poverty Level threshold
100% FPL
1 $11,770.00
2 $15,930.00
3 $20,090.00
4 $24,250.00
5 $28,410.00
6 $32,570.00
7 $36,730.00
8 $40,890.00


This means that at least 38.09% of wage earners are qualified for federal assistance.  If the number of people per household is stretched to five, then a staggering 51% of the wage earners can be considered poor enough to qualify for federal assistance.






This information is not new. It was pointed out by several other blogs, most notably by Zerohedge.

These findings are further corroborated by the Credit Suisse Global Wealth Report.  Credit Suisse is a multinational financial services holding company with an extensive Private Banking and Asset Management divisions.  They market their financial services to Ultra High Net Worth Individuals. In other words, it is in their best interest to know who is rich and who isn't in each country they have operations in.

According to Credit Suisse, 50% of US adults are classified as Poor, another 37.70% are classified as Middle Class, and just 12.30% are considered Upper Class in 2015.




The Upper Class own a staggering 79.10% or $67.948 trillion of the country's wealth.  The Middle Class own 16.837 trillion or less than 20% of the nation's wealth.  The Poor? They own a mere $1.117 trillion or a measly 1.30% of the nation's wealth. Got it? Around 50% of US adults own a little over 1% of the country's wealth.



The astounding growth in the wealth of the Upper Class since 2000 has widened the gap between Mean Wealth per Adult and the Median Wealth per Adult.



In 2000, Median Wealth per Adult was 21.11% of Mean Wealth per Adult.  In 2015, that ratio is just 14.10%.



This ratio puts us just below emerging market darlings (or former darlings) such as Brazil (18.82%), India (19.94%), Indonesia (17.88%) and Thailand (17.24%).  We are just above oligarchic Russia (11.84%).


According to Credit Suisse, just 6.40% of the US Adult Population had wealth greater $1 million in 2015.  



But the bulk (86%) of those High Net Worth Individuals or HNWI just had $5 million or less of wealth.  Around 9% of  had $5 million to $10 million in wealth. 



So even among the HNWI who own 75.60% of the country's wealth, the numbers are skewed by the Top 1% of adults, who own 37.30% of the wealth of the entire nation.






Thursday, October 29, 2015

Great Depression vs. Great Recession GDP Growth Rates - Updated As of Third Quarter 2015

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 2014, the US economy is only 20.81% larger, in nominal terms, than the bottom in 2009, averaging only 3.85% growth every year since the Great Recession bottomed out. In real terms, the US economy is only 11.56% larger than the bottom in 2009, averaging only 2.21% 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.







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


Given this very sluggish recovery with no end in sight, it is no wonder that Ben Bernanke, who is only 60, said that he doesn't expect the price of money (interest rates) to rise in to its long-term average of around 4 percent in his lifetime.

Wednesday, October 28, 2015

Great Depression vs. Great Recession: Unemployment - Updated July 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession. 



But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.



In 2007, the year "0" of the Great Recession, 48.38% of the population was employed.   Four years later, only 44.82% of the population was employed, a drop of less than 4 percentage points.  By July 2015, around four years later, only 46.30% of the population is employed, an increase of only 1.48% percentage points.  The growth rate of employment was less than a third that of the Great Depression.  At this rate, it will take six more years before employment recovers to that of Year "0".




Great Depression vs. Great Recession

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

Tuesday, September 8, 2015

Singapore, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 1st Qtr 2015

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 six straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  77.08% above their year end 2004 levels. Overall prices levels, as measured by inflation have just increased by 30.22% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by almost 50 percentage points.




Malaysia



Neighboring Malaysia's House Price Index actually topped out at 181.64 in the second quarter of 2014 and has declined to 178.84 as of the first quarter of 2015.  Home prices are 78.84% above their year end 2004 levels.  General price levels are around 50 percentage points lower, at 30.37% above their year end 2004 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 2015, home prices have rebounded to 106.32, or 6.32% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 34.88% above 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 2015, home prices have climbed an additional 9.00% to reach 138.57.  Since the first quarter of 2007, home prices have risen 38.54%. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.





Hong Kong

Hong Kong real estate prices have leaped by 234.46% in a little over 10 years to reach a staggering 334.46 as of the first quarter of 2015 from a base of 100 since year-end 2004. General inflation levels have just climbed 36.85% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 197.61% during this period, the highest rate of appreciation in the countries covered in this post.



Philippines

Philippine house price index stands at 214.79% at the end of the first quarter 2015 or over 114.79% 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 fifty-five 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.




Wednesday, June 17, 2015

Great Depression vs. Great Recession: Unemployment - Updated April 2015

The reported unemployment rate during the Great Depression was significantly higher than the reported unemployment rates of the Great Recession. 






But are the two rates comparable? Before 1938, children were a significant part of the labor force.  In 1900, children younger than sixteen made up as much as eighteen percent of the labor force.  It was only when the Fair Labor Standards Act of 1938 became law that children younger than sixteen were barred from working in manufacturing and mining but not agriculture.

To make the numbers more comparable, it is better to get the ratio of Employment to the Total Population (which includes children). When we do this, the two measures are not so far apart.  In 1929, the year "0" for the Great Depression, 54.41% of the total population was employed.  By 1933, year "4", only 41.97% of the population was employed. But the rise in employment was dramatic.  Four years later, 47.63% of the population was employed, almost six percentage points higher. The employment momentum only stalled when the tax hikes of 1937 induced another recession in 1938 and new child labor laws barred children from the labor force.  If the momentum had continued, the employment ratio would have recovered in less than five years.


In 2007, the year "0" of the Great Recession, 48.42% of the population was employed.   Four years later, only 44.89% of the population was employed, a drop of less than 4 percentage points.  By April 2015, a little over three years later, only 46.27% of the population is employed, an increase of only 1.38% percentage points.  The growth rate of employment was less than a fourth that of the Great Depression.  At this rate, it will take six more years before employment recovers to that of Year "0".




"Great Depression vs. Great Recession"

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

Monday, June 8, 2015

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

The information has been out for almost two weeks now.  It was disclosed deep in the bowels of the 2014 Annual Report of 8990 Holdings, Inc. (HOUSE).  The real estate bubble has burst ...at least for HOUSE.  There was a marked deterioration in 2014 in 8990 Holdings' Past Due but Not Impaired Installment Contract Receivables both in absolute numbers and relative to its total portfolio of Installment Contract Receivables (ICRs).  An aging analysis buried in the 2014 Annual Report showed that delinquencies jumped by a minimum factor of 10 in all aging categories, whether the unimpaired but past due ICRs were delinquent for: 1) less than 30 days; 2) 31 to 60 days; 3) 61 to 90 days; 4) over 90 days.


A few charts tell the story:







Total Past Due But Not Impaired ICRs now comprise 2.45% of 8990 Holdings Total ICR portfolio as of 2014, an exponential jump from 0.25% in 2013 and 0.77% reported in 2012.

This, by itself, is not worrying.  What is worrying is that 8990 Holdings also reported a gargantuan hockey stick type increase in its Impaired ICRs, both in absolute value and relative to total ICRs.




So now we can see that both Past Due But Not Impaired ICRs as well as Impaired ICRs collectively comprise 12.29% of 8990 Holdings Total ICR portfolio of Php 14.113 billion as of December 31, 2014.

But what does this all mean?

Under 8990 Holdings' business model, the company functions like an in-house bank or mortgage lender, providing a substantial amount of financing to its customers so that these customers in turn can buy their homes.  This model is great... when it works.  For undertaking the risk of financing its customers, the company earns interest income from its customers over and above the gross profits it earns from the sale of a property.  Under this model, the company owns the title to the properties it sells until the property is fully paid off, obviating the need for an expensive and protracted foreclosure process when a customer defaults.

Unlike a bank, 8990 Holdings has a higher cost of funds because not only does it borrow money from banks to finance the development of its properties, it also borrows money from banks to finance its loans to its customers, often by assigning its ICRs to a bank in exchange for ready cash.  A bank has a much cheaper source of funding: its depositors who these days, are paid almost nothing for keeping their money in the bank.  In order to earn a profit on its financing operations, the home financing provided by 8990 Holdings tends to be much more expensive than the home loans provided by banks. Also, the customers of 8990 Holdings tend to me much more marginal and less credit-worthy than bank customers.  After all, why would anyone go to 8990 Holdings if they can get a much cheaper loan from a bank?

Has the company been too aggressive in its focus on sales to the point of sacrificing credit quality? Perhaps.  Have home prices gone up so much past the point of affordability?  Maybe.  Have the company's customers been hit with an economic shock in the past year?  If they have, it is not obvious because the nation's GDP grew at a decent 5.30% clip in 2014. But according to the Philippines Housing Land Use Regulatory Board (HLURB), there was a 16% drop in HLURB's Licenses to Sell in 2014 in the Socialized Housing space, 8990's market niche.

With 12.29% of its customers not paying off their properties on a timely basis means that as a bank, 8990 Holdings would rank as the 19th worst bank in the country in terms of Gross NPLs/Gross Total Loan Portfolio. 

Around 80% of these past due borrowers are in severe default, hence the impaired status.  In other words, these borrowers are in the process of being evicted from their homes and their homes repossessed by the company.

The company has already made provisions of Php 130.857 million for impairment losses and has recognized a loss of Php 56.972 million on property repossessions.  Expect more to come as the "pig" of impaired ICRs" winds through the "python" of the company's eviction and repossession process.

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Wednesday, May 6, 2015

Singapore, Malaysia, and Thailand Post Flat to Declining Housing Prices, Can the Philippines and Indonesia be Not Far Behind? - 4th Qtr 2014

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 five straight quarters, which, according to Bloomberg, is the longest losing streak in five years.  Home prices are still  78.90% above their year end 2004 levels. Overall prices levels, as measured by inflation have just increased by 30.33% since year end 2004.  In other words, for the past ten years, Singaporean home prices have outpaced inflation by almost 50 percentage points.





Malaysia


Neighboring Malaysia's House Price Index actually topped out at 181.64 in the second quarter of 2014 and has plateaued at 180.95 for the past two quarters of 2014.  Home prices are 80.95% above their year end 2004 levels.  General price levels are a staggering around 50 percentage points lower, at 30.15% above their year end 2004 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 054% 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 fourth quarter of 2014, home prices have rebounded to 105.44, or 5.44% higher than its year-end 2004 levels, way below its expected inflation adjusted levels. General Price levels are 35.05% above 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 fourth quarter of 2014, home prices have climbed an additional 7.44% to reach 136.57.  Since the first quarter of 2007, home prices have risen 36.57%. Indonesian Home Prices, like Thailand, have lagged inflation since 2007.




Hong Kong

Hong Kong real estate prices have leaped by 219.33% in a little over 10 years to reach a staggering 319.33 from a base of 100 since year-end 2004. General inflation levels have just climbed 35.36% during this same period.  In other words, Hong Kong home prices have outpaced inflation by an astounding 183.96% during this period, the highest rate of appreciation in the countries covered in this post.




Philippines

Philippine house price index stands at 210.64% at the end of the fourth quarter 2014 or over 110.64% 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 fifty 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 GuideWorld BankTrading Economics