I am forecasting falling prices in the Philippines property market, and I suspect vacancy rates will increase. There are several reasons for this:
Filipino expats abroad are mostly in the USA, and lesser proportions in the Middle East and Asia. I think they are likely to be feeling a little less rich with falling housing prices, so less inclined to send money home. I think it’s the financially illiterate who will fair worse, and that includes a lot of Filipino domestic workers whom I think will have either:
1. Bought late in the USA – with a ARM loan due to reset with 30% higher mortgage repayments
2. Bought a lot of condos in the Philippines as a retirement income
3. Higher vacancy rates – actually vacancy rates are already high since a lot of Filipinos are sitting on property without letting it. I think financial pressures will either lead them to sell or rent.
4. The peso has fallen against the USD – so they might be waiting for further falls – decreasing remittances. I think it will fall as oil prices rise further
5. High oil prices will undermine economic activity in the Philippines as consumer spending falls. A weak peso will make oil even more expensive.
6. Prospect of higher inflation – as credit growth has been very strong along with remittances flowing in
7. Demand for yield – a lot of Filipinos have bought apartments but are just sitting on them. The problem is that if they have any financial problem they might find them back on the market. one can expect that some of them are in over their heads.
8. Supply – I don’t think local developers will cool off on projects – I think they think the global economy will recover, and its true that chinese investors will increase as investment out of China is relaxed. But I see that as a longer term influence
The value of those remittances will increase as the peso falls – but this will be offset by higher oil prices in local peso terms. So I believe there will be net selling. I don’t see a collapse in property prices though….more likely just a stagnant market.
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Thursday, September 13, 2007
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