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Remember these? The above represents the price trend of Philippine real estate—based on the Bank for International Settlements’ (Makati CBD) data as of 1Q (which I noted here at the end of August).
It appears that the declining trend had been sustained in 2Q.
From Global Property Guide (bold mine)
In The Philippines, the average price of 3-bedroom condominium units in Makati CBD rose by 2.86% during the year to Q2 2016, in contrast with y-o-y increases of 2% in Q1 2016, 2.96% in Q4 2015, 5.41% in Q3 2015, and 6.61% in Q2 2015 and 5.4% in Q1 2015. Housing prices dropped 3.9% q-o-q during Q2 2016.
Note that the GPG year on year data on the table differs from transcribed report where the above shows of -2.86% instead of +2.86%.
But I will stick with the +2.86%. That’s because the penned number has seemingly dovetailed with the substantial (but still positive) decline in the growth rates of gross sales as reported by property firms from both the PSEi and Property index (which I also presented here in August or a month ago).
Besides a third force—the bank lending to the real estate sector—plays a role too. Though bank lending to the sector has somewhat moderated, the 2Q pace of real estate loans was still at a blistering 21.14% yoy! Although a chunk of these loanshas most likely been used to expand the supply side (land acquisitions and real estate inventories) rather than used in support of demand (thru vendor financing).
Anyway, the NEGATIVE 3.9% q-o-q in real estate prices already bolsters the case of an aggravated slowdown in 2Q. And 2Q performance signifies an extension of a trend which peaked in 4Q 2013-1Q 2014.
Curiously, the 1H 2016 slowdown transpired even when the BSP implemented a silent stimulus in 4Q 2015 to 1Q 2016. A lagging effect perhaps?
In sum, the above factors (real estate sales, bank lending, and real estate prices) reveal that the growth rates in the industry have been substantially decelerating but remain positive as of the 2Q
Yet the crux: The furious race to build supply, which most likely comes in combination with slowing demand despite the free money landscape, has been haunting the industry. Such downturn has been first expressed through prices and through top line sales. And these will eventually spread to profits. And pressure on profits will shift the limelight on the industry’s credit risk profile.
Of course, markets signify a time-consuming process
And if the present trend continues (which I expect it will), then big trouble looms ahead, not only for the industry but for the economy, which has now been pillared by real estate and related industries. Based on the government’s 2Q data, Real estate (14%), trade [tenants of shopping malls] (17.4%), construction (7.25%) and finance (8.5%) contributes to nearly half or a striking 47% share of NGDP. This demonstrates of the substantial exposure or leverage of real estate and related industries to the economy. As a side note, I use the government data, even if I have deep reservations about it, just to emphasize on the scale of leverage of said sectors.
Yet more signs of the deepening and spreading cracks in the Philippine real estate bubble
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