Econ Lobby: 2007

Tuesday, November 13, 2007

The problem with a strong peso…

The first problem with a strong peso is that it should not be called as such. Economists refer to currencies as either appreciating (increasing in value against another currency) or depreciating (decreasing in value). Calling the peso weak or strong puts positive or negative connotations into it.

An appreciating peso can be good or bad depending on your situation. If you earn US dollars like exporters, OFWs and call-center firms, then an appreciating peso is bad for you. You get to buy less in peso for the same amount of dollars you earn. But if you spend in dollars like importers, then a depreciating peso is bad for you.

From a nation’s point of view, an appreciating currency can be good or bad depending on whether it is a net importer or net exporter. For several decades, the Philippines has been a net importer thus we generally prefer an appreciating peso.

This also led to a strong belief that earning foreign currencies is good, thus pushing our countrymen to more than 190 countries and territories around the world. However, as more and more Filipinos work abroad (and send more and more dollars into the Philippines), the balance between import and export is shifting. Additional dollars come in due to the increased earnings of BPO firms and call center companies (warning: as the peso appreciates call center agents might be in for a crunch).

Right now our biggest import is oil, while OFWs are our biggest export. The overall economy is generally benefiting from the appreciating peso. Inflation is at its lowest levels in history. And oil prices in the Philippines would have risen much faster if the peso is not appreciating as much.

But the issue must be seen from an international perspective, the peso is not just appreciating… the US dollar is depreciating against all major currencies. One problem is that major oil-producing countries receive US dollars for payment. As the dollar depreciates, oil suppliers jack up their prices because they are now receiving less for every barrel of oil they produce. As oil prices go up, the economy of the US is affected more because it is more oil-dependent compared to Europe, Japan and other developed economies. As the US economy weakens, US dollar depreciates further, and a global economic slowdown might be triggered.

OFW families are also badly affected by the depreciating dollar. Since their dollar can buy less, OFWs have to send more dollars, leading to further appreciation of the peso. They even launched a campaign to withhold remittances with the aim of curbing the peso appreciation. It might be a losing battle; their remittances are being used for food, education, household maintenance and medicines. They cannot withhold for a very long time.

What should the government do?

1. Train OFW families to be dual earners. They should not rely on the remittances alone. More remittances should be channeled to savings and investments and less on immediate consumption and luxury.

2. Help exporters find other markets than the US. The EU, Japan (we need the JPEPA), Canada, and the rest of Asia is waiting for our products if only we can get our acts together.

3. Diversify and move away from the US dollar. When we buy oil, we pay in US dollars. When we take loans from China, we borrow and pay in US dollars. Since we get currencies other than the US dollar from our OFWs (Saudi Riyal and Dubai Dirham), we can probably use this to pay for our oil imports.

4. Resist the temptation of intervening too much. The main goal of the Bangko Sentral ng Pilipinas (BSP) is to maintain price stability. Then, why is it intervening with the foreign exchange? You can only achieve two out of three: price stability, free flow of capital and foreign exchange stability. Recent actions by the BSP suggest that they want all three… the results can be disastrous.

5. The appreciating peso is not really the biggest concern, a bigger concern is rising oil prices. We probably need an economist in NEDA and a competent person in the Department of Energy to deal with the problems of rising oil prices.

(thanks to rey barcelon for inspiring me to write this blog)

Tuesday, November 6, 2007

Risks, Rewards and Ratings Systems

Admittedly, Matthew (my employer) and I often have intellectual debates regarding the many aspects of the Global Property Guide. One of the most recent discussions was regarding the Investment Rating System. Each country is given a "star rating" based on the desirability of a country for a buy-to-let investment.

There were several issues involved. One of the most difficult issues to resolve is the primary basis of the rating system itself.

Matthew asks for a rating system primarily based on yields. According to him:

We are interested in focusing attention on high yielding places. If people want safe, no-risk, conservative investments with moderate to low yields, they will stay in their own countries.

At a glance, I can see that though not all 5-star countries are high yielding and not all low-star countries are low yielding, there are obvious reasons for it, where countries are exceptions to the "high-yielding = more desirable" rule.

I have several problems with this type of rating system. There are several risks and rewards in an investment. For me, an investment rating should show the balance between risks and rewards. In this case, the rewards are the rental yields. The risks are multiple. This includes political and economic risks and ownership risks.

An investment rating must show the balance between risks and rewards. A rating system based mainly on yields is a ranking based on yields and not an investment rating.

Matthew argues that if investors wanted low risks with moderate rewards they would not leave their own country. What if you live in a low rental yields country? Then you must go out and look for investments the can give you the return that you want. But should you invest immediately based on the rewards? No. You must check what are the risks attached to that high returns.

High returns attract the attention of investors. For instance, if rental yields in a particular city are high, then a lot of investors will come in. The increase in rental supply brought by the increase in investments will eventually push down rents. This will lead to lower rental yields. However, this increase in investment can only happen if the market is perfectly competitive.

In reality, markets are not perfectly competitive. In several countries, there are restrictions on the entry of foreign investors. While there maybe loopholes and shortcuts to go through the limitations this is extremely risky from the point of view of investors.

Political and economic risks are also significant hindrances for investors. Investors generally avoid countries that are on a brink of a civil war or economic collapse. In undemocratic regime changes, foreign investments are frequently the first victims of expropriation.

The results of a yields-based rating system are equally disturbing. Included in the best cities for buy-to-let investments is Thailand (currently ruled by a military junta which clamping down on foreign investments), China (currently flip-flopping on whether they actually want foreign investments in property or not) and the Philippines (whose president is constantly in political trouble).

For me, a country worthy to be considered among the bests is the one without any restrictions on ownership of buy-to-let properties. Rents are high because of high demand and not because of lack of supply due to barriers to entry. A country with a constant supply of renters because it continually attracts people due to economic and political stability.

(to be concluded... or not...)

Monday, October 22, 2007

Don't believe this bomb threat text

A former coleague sent this message thru YM:
sana hindi totoo ang passaround na ito--> jemrusalem07: 14:03] yanze79: look at this: <bomb threat forwarded msg.> MGANDANG GABI S INYONG LAHT ISA AKO NA MUSLIM TAGA LANAO GSTO KU PO MALMN NG LAHT PRA UMABOT 2 SA MNILA KTATPOS NOW LNG ANG PLAN NI SHEIK ANG UTAK S GLORYETA PLAN NLA PASBUGIN ANG ISA S TRAYNOMA SM MEGA 168 MRT UNION BANK QUIAPO RCBC HSBC AT MARMI PA WAG IPSA S KAKILALA NNYO NA MUSLIM BKA MLMN NLA N MAY NAGKALAT BE4 NOV 1 ANG PAGSABOG GAMIT VAN NA SSKYAN

After reading it once, I find it very lame and very pathetic. The text sounds like a coño colegiala. "KTATPOS NOW LNG ANG PLAN NI SHEIK"... as in you know, they are gonna make bomba this mall...

The writer seems to be faking it, first by writing in-all tagalog for the first few lines but slipped into his/her usual taglish lingo. Another problem with the text is the use of "PO" which is not customary in their dialect. Po and Opo are used mainly by Tagalogs.

I don't know why people spread useless info like this and I don't understand how they get utility from it. I think authorities can track this yanze79 and throw him behind bars.

Sunday, October 21, 2007

5 Reasons why Gloria would not bomb Glorietta?

After the news regarding the Glorietta blast came out, several groups raised the idea that it was a diversionary tactic by the government. Aside from the fact that the first person who raised the “diversionary tactic angle” was the only person I saw on TV planning to bomb Glorietta, i.e. the Honorable Senator Trillanes, there are several reasons why I don’t buy that angle…

1. The effects of the blast are too costly that the government cannot afford it. The government has exerted a lot of effort to attract foreign investments into the Philippines. A bombing in Metro Manila would undo several years of hard work. And it would take several years of peace and order before investors forget the blast. The blast will adveresely affect investment inflow, economic growth, the stock market and the real estate market.

2. They say that the blast is meant to distract the public from the political issues hounding the administration. If someone can pinpoint a time period when the president, any president of any country, is not embroiled in a political issue, then I will campaign for Trillanes next election. GMA has been in more serious political issues than now. The people are actually tired of corruption issues and grandstanding senators.

3. Typically, nobody is hurt in diversionary tactic bombings. Remember the staged Enrile assassination during the Marcos Regime used to justify Martial Law (for my age-group, read your history books), nobody was actually hurt other than the bullets and the car.

4. They said the bombing was planned so that the government can use the Anti-Terror Law, a.k.a. the Human Security Act. According to government officials, the law was severely watered down that it is very costly and difficult to implement. It is easier for the government to charge the bombing suspects with illegal possession of explosives.

5. I still don’t see the military guarding malls and other public places. If the blast was planned so that GMA can declare emergency powers calling in the military, then the military should be in the streets by now.

Echoing the call of Edj, please tell the Honorable Senator Trillanes to please shut up. At the least, please think before speaking. Come to think of it, we have no-talk, no-think senators (Lapid, Gringo, and Bong), no-think, just-talk senators (Jinggoy, Trillanes) and talk-and-talk-and-talk senators (Miriam, Ping, Chiz, Allan Peter…).

Wednesday, October 10, 2007

Selling our lands to Koreans?

“Only Korean tourists are allowed to set foot on the island,” said our informal guide as we were barred from entering Lu-li Island (Lulubog-Lilitaw) during our trip to Palawan last August 2007. Apparently, the island was rented or leased by Koreans and they only allow other Koreans there.

I distinctly remember that instance, when we met a group of Koreans from the Asian Development Bank. Some of them are nearing retirement and they are exploring their options if they want to stay here permanently. They already know that they cannot buy land and some are keen on buying a condominium. However, they were disappointed that even with condos there is a 40% limit, i.e., only 40% of the total condominium project can be foreign owned. This is in line with the constitutional limits on foreign ownership of land and corporations.

There is huge variety in terms of severity of foreign ownership restrictions set by different countries. Most developed countries have completely lifted foreign ownership restrictions, while some have maintained certain administrative procedures. Understandably, foreign ownership of land is not allowed in certain areas including those near borders and military facilities. In some countries, limited foreign ownership is allowed. In Dubai, for instance, only certain areas are open to foreigners. They even built artificial islands (Palm Islands and World Islands) so they can sell it to foreigners. In Malaysia, foreign ownership is set for properties above a certain threshold. This ensures that foreigners do not compete with locals in the affordable market segment.

There are several reasons for limiting foreign ownership, especially with land. The most common reason is patrimony and national interest. Some groups including nationalists fear that if foreigners control the land and companies then they will be able to control the economy and the country. However, as countries develop foreign ownership limits tend to constrain economic growth.It is interesting to note that former colonies have the strongest anti-foreign ownership laws including the Philippines.

Should foreigners be allowed to own land in the Philippines? If we are trying to attract retirees to the Philippines then foreign ownership issues will always be raised. People want to retire in a relaxed and beautiful place, near the beach and in the provinces. We only sell condominiums to them and most condos are in Metro Manila. There is a clear mismatch. Retirees are also getting younger and die longer. They want to feel secure over their property; 50-year leasehold is okay but not as secure as freehold. They also want to bequeath their properties with all the investments they poured into it.

"If we allow foreign ownership, we can be aliens in our land???!!!" I always hear these comments every time the issue is raised. Properties in the Philippines are very cheap from a foreigners’ point of few; they can end up buying an entire barangay or town. With unscrupulous real estate agents, insecure property rights, and corruption, rightful owners can be cheated out of their properties. With their money and influence, foreigners can bribe their way into ownership of any piece of land they wanted.

My stand: I am for foreign ownership of land but with certain pre-conditions. Security of property rights and land titling must be fixed first. Right now, both locals and foreigners are violating laws regarding private property. In several beaches, resort owners have encroached public space. Inalienable islands have been bought, sold and developed by rich and influential people. A lot of foreigners “own” private islands and lands through dummies. The problems in land ownership encountered in Boracay should and could be avoided.

We’ve got a long way before secure property rights is achieved in the Philippines. Politicians think that reforming the system of land ownership through the Land Administration Reform Act is elitist. As always, politicians are protecting their own interest. The political and economic elite benefit from the muddled and conflicting land laws and systems. And they would not want foreigners to be able to buy land here, they hate competition...

Interesting articles on the property rights and issues in the Philippines:

March 14, 2004
Reclaiming Land, Tony Leviste-Style
Newsbreak Online
http://www.newsbreak.com.ph/index.php?option=com_content&task=view&id=2215&Itemid=88889064

March 15, 2004
The ‘Fortunes’ of Loren and Tony by Ric R. Puod and Annie Ruth C. Sabangan
Manila Times Online
http://www.manilatimes.net/others/special/2004/mar/15/20040315spe1.html

October 16, 2006
Boracay natives fight for their piece of paradise lost by Mynardo Macaraig
Agence France-Presse/ Philippine Daily Inquirer
http://services.inquirer.net/print/print.php?article_id=26949

February 11, 2007
Losing From Land – No Free Lunch by Cielito Habito
Philippine Daily Inquirer
http://opinion.inquirer.net/inquireropinion/columns/view_article.php?article_id=91670

August, 3, 2007
Skirting ownership limits – Corporate Securities Info by Raul J. Palabrica
Philippine Daily Inquirer
http://business.inquirer.net/money/features/view_article.php?article_id=80274

Photo Inset: Luli Island (photo by Carol)

Tuesday, October 9, 2007

On Informal Settlers in the Philippines

Philippine Agenda: Housing
Air Date: April 14, 2007
Copyright: GMA Network, Inc.

Sunday, September 9, 2007

On Pag-IBIG and other housing loans

Q: I have been working for more than four years already and have been diligently contributing to Pag-IBIG, SSS and others. I wanted to take a housing loan for maybe 2M to 4M. I saw a house & lot for sale somewhere in UP Village, Quezon City. It is being sold for 10M, 2 houses in a 736 sq. m. lot. I was too late because it was already sold. I was also lost on where and how to get financing for house purchases.

If you have some details re: housing loans it would be great... so that in the future I know where to go and/or ask.

Regards,
Ms. Looking-for-housing-dette-info

Pag-IBIG Fund (or Pagtutulungan sa Kinabukasan: Ikaw, Bagko, Institusyon at Gobyerno, a.k.a Home Mutual Fund) offers the lowest interest rates in the market. However, the maximum amount that you can borrow is only two million.

Mortgage Rate	Loanable Amount
6%	P300,000 and below
7%	P300,000 - P750,000
10.5%	P750,000 - P2,000,000

The interest rate for the loan is fixed up to 30 years, w/c means there is no risk that you have to pay a higher amortization if ever interest rates go up.

The Loan-to-collateral ratio (a.k.a loan-to-value (LTV) ratio) of the loan amount to the appraised value of the collateral shall not exceed the following rates:

Loan Amount	With Buyback Guaranty	Without Buyback Guaranty/ Retail Account
Up to P300,000	100%	100%
Over P300,000 to P750,000	100%	90%
Over P750,000 to P1M	95%	85%
Over P1M to P2M	90%	80%

This means that for a property worth 2M, the maximum amount you can borrow is only 1.8M, the remainder (PhP200,000) you must pay in cash.

If you intend to buy a house worth PhP2M, how much are you going to pay monthly? If you choose with buyback guaranty (down payment of PhP200,000) and interest rate fixed for 30 years, your monthly amortization for the PhP1.8M loan is PhP16,465. (you can use the amortization calculator on this page http://www.pagibigfund.gov.ph/mt_calc.htm)

If you intend to borrow a bigger amount, you have to go to a commercial bank. Interest rates are higher and LTV ratios are typically lower, at 80% – 85% (i.e. down payment is 15% to 20% of the property value). The length of time that the interest rate is fixed is also shorter.

For comparison, here are the rates for two major commercial banks:

	BDO	BPI
	Super Value Home Loan	Build Your Dream Housing Loan
Mortgage Rate
fixed for 1 year	8.75%	8.75%
fixed for 2 years	9.25%	9.25%
fixed for 3 years	9.50%	9.50%
fixed for 4-5 years	9.75%	9.75% (5 yrs)
fixed for 10-15 years	10.99%	10.99% (6 -15 yrs)
fixed for 25 years	11.50%	11.50% (16 - 25 yrs)
Minimum Loanable Amount:
	P500,000.00	PhP 400,000
Maximum Loanable Amount: Based on appraised value of property
House and Lot	80%	70%
Townhouse	80%	70%
Condominium	70%	70%
Vacant lot	70%	70%
Maximum Loan Term
House and Lot	20 years	20 years
Townhouse	20 years	20 years
Condominium	15 years	10 years
Vacant lot	10 years	10 years

The following info came from the website of Pag-IBIG Fund:

http://www.pagibigfund.gov.ph/index.asp

Requirements for a Pag-IBIG Housing Loan

1. APPROVED PAG-IBIG Membership Status Verification Slip (MSVS)

(To secure PAG-IBIG MSVS, applicant must attend PAG-IBIG counseling at PAG-IBIG office-Rm 701 Atrium Bldg. Makati City)
2. PAG-IBIG LOAN COUNSELLING QUESTIONAIRE (PLCQ)
Signed by PAG-IBIG representative/counselor
3.Two (2) pcs, ID picture (1 x 1 )
4. Valid CERTIFICATE OF EMLOYMENT and COMPENSATION duly notarized (for PAG-IBIG I & II)
5. EMPLOYMENT CONTRACT or EMPLOYER’S CERTIFICATE OF INCOME (for POP members)
6. Latest PAYSLIP (one-month)
7. COMPANY ID or any VALID ID with applicant’s signature (photocopy)
8. INCOME TAX RETURN (ITRs) and W2 for the last two (2) years.
9. PROOF OF BILLING ADDRESS (photocopy)

How does one avail of a Pag-IBIG Housing Loan ?

Attend a Loan Counseling session at the Pag-IBIG Office concerned

Accomplish a Preliminary Loan Counseling Questionnaire, Housing Loan Application (HLA) and Membership Status Verification Slip. If eligible, secure checklist of requirements.

Submit HLA with complete requirements. Pay a processing fee of P1,000.00 (non-refundable)
Receive Notice of Approval/Letter of Guaranty and sign loan documents.
Proceed to BIR and present Deed of Absolute Sale (DOAS) between owner of the property and applicant for payment of documentary stamps and capital gains tax.
Proceed to Registry of Deeds (RD) for payment of transfer of tax and registration fees for the transfer of title.
Proceed to Notary Public for notarization of LMA and annotation of mortgage with the Registry of Deeds (RD) and to Assessor's Office to secure new tax declaration in the name of the applicant.
Secure Occupancy Permit from the Local Government Unit's (LGU) Engineering Office for Purchase of new Residential Unit (PRU), Purchase of Lot and Construction of a New Residential Unit (PLCH) and Construction of House (CH) loan purposes.
Submit the following documents to Pag-IBIG office concerned:

Original Transfer Certificate of Title in the name of the applicant with annotated mortgage
DOAS with original RD stamp
New Tax Declaration in the name of the applicant
Updated Real Estate Tax Receipt (house and lot, if applicable)
Occupancy Permit
Assignment of Loan Proceeds

Release of loan proceeds
Start monthly amortization on the month immediately following loan take-out/final loan release.

HTH

prince

Thursday, August 16, 2007

MRT and Phil. Property Issues

I always enjoy riding the MRT ... when it is not overcrowded (i.e., I am not forced to see the facial pores of other passengers). The 30 minute ride from North Ave. to Taft is fascinating, a snapshot of the Philippines and several issues that hound her.

Inequality is highlighted... from squatter shanties between North and Quezon Avenues, middle class housing between Cubao and Santolan, to condominiums in Shaw and Boni and exclusive gated subdivision in Ortigas, Buendia, and Makati.

You can also observe the Philippine property boom in action, with several buildings and condominiums under construction over the horizon. There are new malls (you can't miss the enormous Trinoma) and shopping centers (notice Highway 54 in front of SM Megamall). Several mothballed projects are also resurrected.

Along the trip, you can also get a glimpse of problems over property. At the northeast corner of Aurora Avenue and EDSA is the most expensive swamp cabbage patch (kangkungan). The property is apparently owned by a big bookstore chain but is embroiled in a dispute. The property is in a prime location, at the intersection of two major highways and accessible by both MRT 2 and LRT 3. It is probably worth millions of pesos.

At the northwest corner of Ortigas Avenue and EDSA is another wasted property. It has been dug, preparing for the foundation of a skyscraper. However, it was later found that if construction continues the stability of nearby flyovers and MRT will be compromised. Construction was halted and now you have a deep ravine in the heart of the metropolis.

Here are other things to think about while riding the MRT:
1. Why is Ortigas station closer to SM Megamall than Robinson Galleria?
2. Why is Santolan station named, Santolan- Annapolis? Should the North Ave. Station be renamed North Ave- Trinoma?
3. Why are some stations underground? Is it because of soil quality, structural engineering or is it because residents of gated subdivisions don't want prying eyes?