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The Bear Case looks compelling now... Very!


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The Bear Case looks compelling now... Very!

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Five Big Bear factors

1. Mind the Gap! Prices have shot up ahead of lower Rents

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The index for Modern Condos in Makati has reached P175k psm, and Rents for Luxury 3BR units is now at P800 psm.  That puts Gross yields now at XX%. If yields go back to the historical average of the last five years (xx%), then Condo prices may need to fall by XX% - and more than that if Rents keep falling, and perhaps more than that for even more expensive brand new properties.

2. Aggressive Buying driven by foreigners, largely mainland Chinese

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>source: http://business.inquirer.net/246564/chinese-nationals-companies-now-alis-biggest-foreign-condo-buyers

Add HK (2.9%) to Mainland China (49.4%), and you get over HALF of the Foreign buyers

Based on 2017 data from property giant Ayala Land Inc. (ALI), international sales—referring to combined sales take-up by overseas Filipinos and foreigners—grew by 32 percent last year to P41.6 billion. This accounted for 34 percent of the company’s P122-billion sales take-up for the year.

Foreigners accounted for the bulk of 24.5 percent of ALI’s total sales take-up last year compared to the 9.6 percent share of overseas Filipinos.

Are these aggressive new buyers paying proper attention to the deteriorating fundamentals.  Will they be surprised by lower-than expected Rents, and have more difficulty in financing any payment balloons than they were led to expect (when they were sold properties by "optimistic" sales agents?)

3. PH Governments interest rates are shooting up - 10 yr Zeros hit 6%

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Why accept a 5-6% Gross yield on expensive new property - that's maybe 3-4% Net (!), when you can get 6% of Zero Coupon bonds issued by the PH government - and having a 10 year maturity?  Might it be smart to earn almost twice as much with government risk, while you wait for property prices to come down?

4. PH banks are becoming increasingly restrictive; balloons may not get financed

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After years of rapid growth, many banks are at or near their Property lending limits and are becoming more restrictive in their mortgage lending.  It certainly looks like those buyers who have payment balloons due of 60-80% (ore more!) may have some real problems in finding a bank who will lend to them all the funds they will need.

(from October 2014):

"Local banks will soon be ordered to cap real estate loans at 60 percent of their collateral values, down from the average of 80 percent at present, as banking regulators try to head off the formation of a property bubble in the country."

5. Future Supply is heavy, especially in Manila Bay, and BGC

Coming Condo Supply - per Colliers
=========== : Ye2016: Ye2017: 2018est : %vs'17 / 2019est: %vs'17 / 2020est: %vs'17 / +%chg
BGC, The Fort : 24,300 : 27,500 : 09,300 : + 33.8% /   3,000  : + 10.9% /  0,000 : + 00.0% /  + 44.8%
Makati CBD -- : 22,100 : 25,000 : 02,600 : + 10.4% /   0,600  : + 2.40% /  0,300 : + 1.20% /  + 14.0%
Ortigas Ctr. --  : 16,200 : 17,400 : 01,100 : + 6.32% /   0,600  : + 3.45% /  0,400 : + 2.30% /  + 12.1%
Manila Bay --- : 08,900 : 11,000 : 11,900 : + 108.% /   2,600  : + 23.6% /  0,000 : + 00.0% / + 132.%
Rockwell, etc- : 00,000 : 00,000 : 00,000 :
=Total Condos 91,200 : 101.6K : 27,200 : + 26.8% /  8,200 : + 8.07% /   3,100 : + 3.05% / + 37.9%

The numbers for expected completions in 2018 are scary!

=====

Rolling Over?

Already, the stocks action in two key property stocks, ALI & MEG is looking negative

ALI / Ayala Land Int'l      ... 10yr-W : 5yr-W : 2yr-D : 6mo-D : 10d :/ 6mo: ALI, vs-SMPH, MEG, DMC  : 10d :

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MEG / Megaworld Corp ... 10yr-W : 5yr-W : 2yr-D : 6mo-D : 10d :

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SUMMARY & Link (to here)

It is TIME - to make the Bear Call!
The Bear Case looks compelling now... Very!
Five Big Bear factors
1. Mind the Gap! Prices have shot up ahead of lower Rents
2. Aggressive Buying driven by foreigners, largely mainland Chinese
3. PH Governments interest rates are shooting up - 10 yr Zeros hit 6%
4. PH banks are becoming increasingly restrictive; balloons may not get financed
5. Future Supply is heavy, especially in Manila Bay, and BGC
==
Already, the stocks action in two key property stocks, ALI & MEG is looking negative
> (will add charts): http://www.greenenergyinvestors.com/topic/21885-the-bear-case-looks-compelling-now-very/

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HOW TO WIN, using this info - from the related Viber chat

Q: What do you expect to happen in the secondary resale market?

A:

Quick answer: There will be some real bargains when a few desperate sellers (who have to sell) hit low ball bids. But if you are buying for OWN USE, and you are getting a 30%+ discount to today's (expensive) primary market, do you really care much if one of your neighbors gets a better bargain over the next year or two?  But don't overpay now, since better bargain may be ahead

Q: How can we profit from the bear case. Are there down ETFs or some shorts we can use

A:

Etf's in PH property? That sounds like a challenge. There is so little liquidity, and so little transparency, I wonder how a seller of a Put or a Short contract could hedge it?

Maybe, Invest in Zeros and wait? (You are short already if you are a Tenant paying Rent btw)

 

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RATES REJECTED

BSP does not like the Higher Interest rates that the market is delivering now

They did not want to see 91day Rates rise by 0.33% since two weeks earlier.

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Summary:

In a fair auction, the market came up with interest rates that the PH Central bank (BSP)

felt were too high: cf. 2.989% vs 2.67% for 91 days in the prior auction, two weeks ago.

BSP will try again, and hope the rates are lower.  They are signaling that rates are rising too fast.

But how long can BSP stand against the power of the market?

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NO LIES, No B.S., just factual evidence -- and it is up-to-the minute

I am using THIS CHART ( update-6mos : 12mo ) to monitor the PH property market

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Please note:

+ MEG (megaworld) and DMC (dmci) recently made new lows. SMPH (SM) is holding up better.
+ ALI (ayalaland) is near the lows, and is testing the 252d / 1-year moving average = yellow line

A Break of the 1yr-MA, and a slide to new lows - especially if it comes with heavy volume, would be a sign

that a Bear Market in PH property may have arrived

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  • 4 weeks later...

Consumer confidence plunges in BSP survey

"Consumer confidence dived in the first quarter to the lowest level in over a year," said the BSP.

Still positive, at 1.7 percent, it is markedly lower than the 9.5 percent recorded three months earlier. It was the third consecutive quarterly drop, and the lowest since -6.4% recorded in the second quarter of 2016, the last time it was negative.

The current drop is drive by concerns over rising prices.

 

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