Global Property Guide: Philippine Real Estate 2Q Price Growth Decelerated to 2.86% Year on Year, Negative 3.9% Quarter on Quarter!

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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

Path to Ochlocratic Dictatorship: PCIJ on the War on Drugs: The Official Unofficial Policy

According to the Philippine Center for Investigative Journalism (PCIJ), the incumbent administration’s war on drugs represents an official unofficial policy. (This may be called the politics of cognitive dissonance.)

From Interaksyon September 19: (bold mine)

HE RANTS and rails against the drug menace nearly every day, and sometimes, morning, noon, andnight time, but always only in press conferences of public events.

Yet for all his big and bold verbal attacks against the illegal drugs trade, President Rodrigo R. Dutertedoes not seem to have issued or signed even a single official document â€“ executive order, proclamation order, memorandum order, memorandum circular – to spell out in writing the goals, framework, vision, rules of engagement, or protocols for his war on drugs.

The situation: Duterte's war on drugs is one largely verbalized but not codified by any form of official issuance, or parameters in law and jurisprudence.

The implication: Duterte has not officially signed on to any document about his war, thus evading or defacing direct legal liability for his for now informal, verbalized instructions on how it should be fought.

PCIJ curated all the featured content of the "Briefing Room" of the Official Gazette of the Philippines on the official acts, issuances, announcements, and press releases of the Office of the President under Duterte from June 30, 2016, the day he took office as chief executive. The latest entry in the Gazette is dated Sept. 8, 2016.

As of Sept. 16, the Official Gazette also featured a bounty of stories and transcripts of Duterte's speeches and interviews with the media, the statements by his deputies at press briefings, and a few reports on relief operations for communities affected by recent typhoons.

In sum, as president for 10 weeks, Duterte has signed a couple of Executive Orders, a couple of Memorandum Orders, four Memorandum Circulars, and 56 Proclamations, a majority of which declared local area holidays.

In all, the entries offer a virtual diary of what Duterte has done or said, or not done and said, over the last 80 days of his presidency. – Malou Mangahas, PCIJ, September 2016

REGISTRY OF CONTENT OF THE OFFICIAL GAZETTE, OFFICE OF THE PRESIDENT OF THE PHILIPPINES, as of September 16, 2016

The above tells us WHY the leadership has been ultra-sensitive to any criticism to their adopted policies. And it also signifies a revelation as to WHY the leadership has responded—to any hint/s or expressions of misgivings—with vitriolic ad hominem politics anchored again on a barrage of horrific logical (but feel good superhero effect) fallacies garbed with expletives, threats, and intimidation!

Yet of course, the administration’s mantra as a basis for such actions represent again another fallacy—the appeal to the majority. For instance, during the controversial the spat with US president, the leadership asserted “I do not have any master except the Filipino people” (Philstar September 5)

And the irony is, when coaxing the military and police to pursue his pet project, the leadership uses ambiguous legal grounds for moral support: (GMA September 18): He told the soldiers that the Philippine National Police only has a supporting role to the AFP when it comes to protecting the people and the state. "Inyo 'yan eh sa constitution, is to preserve... Inyong trabaho iyan, baka nakalimutan  ninyo, inyo 'yan. To protect.. Do not allow the country to disintegrate," Duterte said without elaborating. He reiterated his earlier assurance that soldiers, as well as the policemen, will be protected by his administration in the fight against illegal drugs. "Sa panahon ko kung six years, wala kayong takot. Lahat nang gawin ninyo, sa utosko, akin 'yan. Kayo magpakulong sabihin lang ninyo, 'Utos iyan ni Mayor Duterte, siya lang ang tanungin mo. Siya ang ikulong ninyo.' Walang problema, trabaho lang kayo," he said. He added: "Just do what is the mandate of the Constitution, at ako na ang bahala sa inyo. I will protect you."

The leadership believes that popularity serves as sufficient grounds or basis for his political actions. In short, the underlying creed appears to be: The leadership IS the law.

This warning from the late great Russian American novelist and philosopher Ayn Rand reverberates: (Aya Rand Campus)

A society that robs an individual of the product of his effort, or enslaves him, or attempts to limit the freedom of his mind, or compels him to act against his own rational judgment- a society that sets up a conflict between its edicts and the requirements of man's nature­ is not, strictly speaking, a society, but a mob held together by institutionalized gang-rule. Such a society destroys all the values of human co-existence, has no possible justi­fication and represents, not a source of benefits, but the deadliest threat to man's survival. Life on a desert island is safer than and incomparably preferable to existence in Soviet Russia or Nazi Germany.

As with the Philippine stock market, “something for nothing” through “actions have only pleasant consequences” has now morphed into a defining character of Philippine politics.