The Philippine government manufactured another eye captivating GDP number. They reported that real GDP was a sensational 7% in 2Q and 6.9% in 1H while NGDP was at 8.7% and 8.2% over the same period.
The spectacular GDP brings to the fore the most remarkable and intriguing discrepancy: why has growth in government revenues been up by only 1.1% in 2Q 2016 and 1.014% in 1H??? That’s a galaxy of difference! (Bureau of Treasury data here)
Moreover, just what happened to PSE 30’s eps growth of 12.3%??? Shouldn’t such outstanding eps performance postulate to more tax revenues for the government?
And worst, why has GDP been in a deviating path with the government’s revenue intake since 3Q 2014????It’s not anomaly, it is a trend.
Yet the divergence has become even more pronounced.
And it would seem that G-R-O-W-T-H doesn’t equal to taxes.
Have these been due to burgeoning tax leakages since 2H 2014?
Or has the government been immensely overstating GDP? Or could it have been both.
And another thing, I previously noted again in June: Since GDP is about money based spending and since bank credit growth accounted for more than 70% of money supply growth, then this means that the core segment of GDP has accrued from bank credit growth. In short, bank credit growth is the quintessence of GDP performance. So the target of reversing the decline in credit growth trend may have been intended to boost statistical GDP.
2Q’s NGDP was at an astounding 8.7% up from 7.7% in 1H, 5.4% and 4.6% in 4Q and 3Q 2015. 1Q and 2Q numbers have accounted for a HUGE LEAP from 3Q and 4Q 2015.
And as noted above NGDP has tracked bank credit growth. The correlation signifies a stunning .98!
Have the government been basing their GDP numbers on bank credit conditions? Or has the correlation represented a fluke?
Last week I wrote that the chief international exponent of the Philippine property sector, the Global Property Guide (GPG), seem to be suffering from schizophrenia. That’s because while increasing problems continues to emerge to plague the sector, the apologist for the real estate bubble seem to be having an increasingly difficult time in defending the populist concept: property inflation EQUALS G-R-O-W-T-H.
And at the last segment of the treatise, I showed the real estate NGDP of the 6 PSE listed firms which seem to be hurtling towards earth.
Now, I expanded the scope to include all PSEi firms with property subsidiaries PLUS issues composing the property index.
And if the 2Q and 1H outcomes would continue, then this will continue to confound GPG. And they will even have more arduous time defending the status quo.
More importantly, current conditions reveal that the BSP’s silent stimulus may not be as effective at all. While eps did jump, the effects on topline numbers of the real estate sector reveals of a significant sputtering.
This means that the BSP would need to intensify injections of monetary narcotics to keep the property sector from ditching.
As an aside, but I thought narcotics should mean death? Why doesn’t the administration apply the same treatment to monetarism? Or to those who implement them? Because the administration benefits from it?
By the way, inflationism is much much much much much much deadlier than drugs or grassroots criminality. Besides, part of the drug and crime menace has been rooted from inflationism.
The great author and journalist Henry Hazlitt**, who echoes JM Keynes on Lenin’s best way to demolish a capitalist system, on why inflationism leads to criminality and to societal breakdown
Like every other tax, inflation acts to determine the individual and business policies we are all forced to follow. It discourages all prudence and thrift. It encourages squandering, gambling, reckless waste of all kinds. It often makes it more profitable to speculate than to produce. It tears apart the whole fabric of stable economic relationships. Its inexcusable injustices drive men toward desperate remedies. It plants the seeds of fascism and communism. It leads men to demand totalitarian controls. It ends invariably in bitter disillusion and collapse.
And see now you see why the Philippines have embraced a leftist government? This has emerged mostly from the desire to solve social ills via “desperate remedies”. Or short termism in the form of the populist superhero effect spawned by bubbles!
Now back to the property sector
For the 1H figures: NGPD or growth of aggregate gross property sales of indicated property companies* has slumped from 2014’s 12.23%, 2015’s 9.4% and 2016’s 2.81%.
Curiously government’s real estate NGDP was 9.9% in 2015 and 12.4% in 2016 over the same period. It is as if government’s number and revenues declared by listed companies have been elicited from different countries.
*Companies included: Ayala Land, SM Prime, Megaworld, Vista Land, DMC Holdings, Filinvest Land, Century Property, 8890 Holdings (HOUSE), Robinsons Land, LT Group, Aboitiz Equity Ventures and Belle Resources. Global Estate Resources (GERI) is part of Megaworld.
For 2Q figures which included high flying Double Dragon: the property NGDP also reverberated 1H’s material downtrend 15.64% in 2014, 5.4% in 2015 and 4.1%.
Fascinatingly, the government’s numbers again totally depart from what the industry says: 12.3% 2014, 9.7% 2015 and 12.1% in 2016.
Again the Philippine real estate industry operates in two different worlds?
As a side note, despite the hoopla over Double Dragon (stocks up +145% year to date with PER 238.94 based on 2015 eps) property sales fell -7.54% in 2Q! It is why bubbles are so enthralling, people will attribute anything just to justify price chasing actions.
And to add to the list non property index and PSEi firms Shang Properties and Rockwell Land, 2015’s NGPD would be 4.4% and 6% for 2016. In short, for 2Q, the performance of the property sector had fundamentally been little changed in 2015 and 2016. But both have collapsed in the context of 2014 growth rates
Back to 1H, to add SHANG, ROCK, Santa Lucia Land, Crown Equities, GTCAP’s Federal Land and Property of Friends, the sector’s NGDP improves by a slim margin to 3.7% in 2016.
The lack of historical numbers by some of these firms has limited their inclusion to my assembled data.
Now of course, property firms are not a one size fits all thing. Nevertheless the overall numbers gives us a temperature, or a pulse or a measure of the industry’s health conditions regardless of what their eps numbers say.
Another insight would be from the distribution of growth per firm.
And the topline numbers of PSEi component firms and firms constituting the property index have been telling.
In 1H 2016, 5 firms posted NEGATIVE growth rates in property sales while four firms registered lackluster sales growth with less than 5%. In total, 9 firms or 56.3% of the above firms have performed below par.
Even worse has been the continuing huge crash in property or condo sales of Century Property (CPG) even as the company continues to massively pile up inventory and debt.
This is how CPG rationalized the crash: “For the six months ended June 30, 2016, the Group recorded revenue from real estate sales amounting to P=2,972.61 million and posted a decrease of 40.3% from P=4,978.34 million in the same period of 2015. The decrease in real estate sales is attributable to less revenue recognized in the first six months of 2016 for projects that turned over in the prior years. A significant portion of revenue from these projects were already recognized in 2015 and prior years.
Why use technicalities as pretext for the sales slump? What happened to G-R-O-W-T-H or to the fantastic 12.4 real estate NGDP????
And as shown above, those niggardly growth numbers have not just been from a single firm, the relative performance (for those with numbers) of many issues has materially deteriorated today compared to 2015 and 2014
And more importantly, it’s not just about competition but economic imbalances that have so far been influencing the downturn in property sales. Since economic activities are entwined, those weakening numbers will eventually spread to other sectors.
At the day’s end, the accrued ferocious race to build supply has begun to take its toll. Also those excessively priced property issues will very soon face a rude awakening.
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