Philippine Overseas Workers Help Fuel Philippine Property Bubble

Again reports glorify political superficialities as supposedly fueling economic progress.

From Bloomberg,

Filipinos investing in the local property market with money earned overseas helped make the peso Asia’s best-performing currency of 2012, even as a global economic slump sapped demand for riskier assets.

Euliver Dizon, a web designer in the U.S., is scouting for a home in Manila, praising President Benigno Aquino for improving the economy. Rommel Adre, a software developer who worked abroad from 2000 to 2011, bought a home in the capital and some properties to rent. Aileen Respicio, a former domestic helper, opened a beach resort with her Scottish husband six years ago and is now buying more land.

The peso has gained 3.7 percent this year versus the dollar including interest. Capital inflows aid Aquino’s drive to win an investment-grade rating, which would allow the Philippines to attract pension money needed to build roads, bridges and airports. Central bank data shows remittances from overseas workers rose 5.4 percent in the first quarter from a year earlier to $4.8 billion, accounting for 10 percent of the economy. They don’t detail use of funds.

There seems hardly a meaningful correlation between the year on year changes of remittances AND the Philippine Peso. In other words, it would be misguided to allude a causal relationship between the Peso and Remittances. This would be a post hoc fallacy.

Moreover, in reality, the Peso has been appreciating prior to the current administration. So domestic politics has hardly been a big factor in the Peso’s advances.

Also, the Peso’s rise has not been in isolation, the Peso has risen ALONG with major ASEAN contemporaries. This means that the Peso’s rise, as well as the Phisix has been a regional if not global phenomenon as I previously discussed.

This is another validation of George Soro’s reflexivity theory which describes the feedback loop mechanism between the influences of price actions in the financial markets and perceptions affecting real actions.

This also shows how policies can be manipulated to promote political agenda: What is misread as progress has in reality, been an offshoot of negative real interest rate policies. This ongoing property boom has long been in my tarot cards.

Yet local officials can’t see bubbles.

More from the same article…

The peso rose 0.7 percent to a one-month high of 42.635 per dollar yesterday. The central bank, due to report April data tomorrow, predicts remittances will reach a record $21 billion this year. They are growing faster than the 5 percent target, helping to support the peso, Finance Secretary Cesar Purisima said. He said there is no evidence of hot money driving property prices higher.

“We are monitoring carefully the situation to make sure we don’t create problems down the road for us in terms of asset bubbles,” Purisima said in an interview at Bloomberg’s headquarters in New York on June 12. “We are very far from the situation.”

Overseas Filipinos account for about 30 percent of residential sales, as many workers have already satisfied the food and clothing needs of their families, said Alex Pomento, head of research at Macquarie Group’s Manila unit. About 100,000 housing units have been added per year since Aquino took office in 2010, up from about 60,000 in 2007, he said.

Of course, it would be self defeating for politicians to curb the bubble which has been part of their image building or in projecting of their “success”. Public opinion is easily swayed by actions with short term impact.

Let me add that such news tend to overrate the 30%, which account for the residential sales by Filipino overseas buyers, but has been silent on the 70%--the local buyers. Media, mainstream experts and politicians panders to OFWs because the latter has gained political clout.

With the rate of real estate projects mushrooming over the metropolis, one would wonder where all the buyers and tenants would come from to fill up coming supplies.

Metro Manila has nearly 12 million population with a annual growth rate of around 2%. I don’t have data on the per capita growth of the metropolis, but construction activities suggest of expectations of immense (unrealistic) growth or an unsustainable boom.

Besides unlike Hong Kong and Singapore which has lack of land space to build on, the Philippines has vastly wide areas for residents especially if one considers the adjacent outskirts.

A little observation will help. Go out at night and observe the existing condos. I estimate that occupancy level, based on lights, has been less than 50% for most condo buildings especially on business districts. So more supplies will improve occupancy?

Overseas hot money may not (at the moment) be the drivers of the current property bubble but local money from easy money policies will. This will be compounded by money from Filipino Overseas Workers whom will be impelled by monetary policies abroad and seduced by political fiction.

I’d rather be picking on the wreckage of a bubble bust, than be a victim of political hysteria.