Bubble Burst?

[JJReyes]

When should you purchase a Philippine property for either lifestyle or investment reasons? Is the Philippine in a real estate bubble? New York Times Sunday edition has a very interesting article. The Bank for International Settlements, a.k.a. the Central Bank for Central Banks just issued a strong warning.

 

 

http://www.nytimes.com/2014/06/30/business/international/central-bankers-issue-strong-warning-on-asset-bubbles.html?_r=0

 

Central Bankers Issue Strong Warning on Asset Bubbles

By JACK EWING

JUNE 29, 2014

 

FRANKFURT — An organization representing the world’s main central banks warned Sunday that dangerous new asset bubbles were forming even before the global economy had finished recovering from the last round of financial excess.

 

Investors, desperate to earn returns even as official interest rates are at or near record lows, have been driving up the prices of stocks and other assets with little regard for risk, the Bank for International Settlements in Basel, Switzerland, said in its annual report published Sunday.

 

Recovery from the financial crisis that began in 2007 could take several more years, Jaime Caruana, the general manager of the B.I.S., said at the organization’s annual meeting in Basel on Sunday. The recovery could be especially slow in Europe, he said, because debt levels remain high. “During the boom, resources were misallocated on a huge scale,” Mr. Caruana said, according to a text of his speech, “and it will take time to move them to new and more productive uses.”

 

The B.I.S. acts as a clearinghouse for transactions among national central banks and also as a setting where central bankers can discuss monetary policy and other issues like financial stability or bank regulation.

 

Its board includes Janet L. Yellen, chairwoman of the United States Federal Reserve; Mario Draghi, president of the European Central Bank; and the heads of central banks from Japan, China, India and many other countries.

 

The organization often uses its annual reports to send a message to political leaders, commercial bankers and investors, and reflects a widespread view among central bankers that they are bearing more than their share of the burden of fixing the global economy.

 

The language in the 2014 edition was unusually direct, as was its warning that the world could be hurtling toward a new crisis."There is a disappointing element of déjà vu in all this,” Claudio Borio, head of the monetary and economic department at the B.I.S., said in an interview ahead of Sunday’s release of the report, which he described “as a call to action.”

 

The B.I.S. said governments should do more to improve the performance of their economies, like reducing restrictions on hiring and firing. The report also urged banks to raise more capital as a cushion against risk and to speed up efforts to deal with past problems. Countries that are growing quickly, such as some emerging markets, must be alert to the danger of overheating, the B.I.S. said.

 

“The signs of financial imbalances are there,” Mr. Borio said. “That’s why we are emphasizing it is important to take further action while the time is still there.”

 

The report said debt levels in many emerging markets and Switzerland “are well above the threshold that indicates potential trouble.” Yet investors show no sign of being deterred. This month, for example, investors snapped up $1.5 billion worth of bonds sold by the government of Kenya. The debt paid an interest rate of 6.875 percent, very low for a country that has deep economic problems and has been rocked by terrorist bombings.

 

Continue reading the main storyContinue reading the main storyContinue reading the main story

In contrast to many economists and analysts, the B.I.S. played down the risk of deflation, a downward spiral in prices that can have devastating economic effects. When deflation takes hold, people stop spending because they expect prices to fall further. Company profits slump, and unemployment rises. In Europe, there has been an intense debate about whether the region could slip into deflation, and whether the European Central Bank should be pumping more money into the euro zone economy as a countermeasure.

 

Mr. Borio said it was unlikely there would be a repeat of the kind of catastrophic deflation that occurred during the Great Depression in the 1930s. He noted that prices have been falling in Switzerland for several years but that the country has continued to grow and unemployment is low. “We are not saying deflation is not a problem,” Mr. Borio said. “But we would like to try to take a little bit of the emotion out of the debate.”

 

The B.I.S. also had harsh words for corporations, which it said were not taking advantage of booming stock markets to step up investment. That is one reason that gains in productivity — the foundation of sustained economic growth — have slowed in most advanced economies, according to the report. “Despite the euphoria in financial markets, investment remains weak,” it said. “Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions.”

 

The overall message from the central bankers was that the world has forgotten the lessons of recent years."The temptation to postpone adjustment can prove irresistible, especially when times are good and financial booms sprinkle the fairy dust of illusory riches,” the B.I.S. said. “The consequence is a growth model that relies too much on debt, both private and public, and which over time sows the seeds of its own demise.”

Edited June 29, 2014 by JJReyes

[Thomas]

An organization representing the world’s main central banks warned Sunday that dangerous new asset bubbles were forming even before the global economy had finished recovering from the last round of financial excess.

“We are not saying deflation is not a problem,” Mr. Borio said. “But we would like to try to take a little bit of the emotion out of the debate.”

The B.I.S. also had harsh words for corporations, which it said were not taking advantage of booming stock markets to step up investment. That is one reason that gains in productivity — the foundation of sustained economic growth — have slowed in most advanced economies, according to the report. “Despite the euphoria in financial markets, investment remains weak,” it said. “Instead of adding to productive capacity, large firms prefer to buy back shares or engage in mergers and acquisitions.”

/IF B.I.S. didn't said the last section of POLITICAL reasons to trying to assist recovery of

/then it's BS...    :mocking:      because why try to get more capital to add production in companies, which have higher production capacity allready than they need...

 

Western economy has been  bad many years now - although the boom show many investors can't think Fundamental value, only look at TA  (=only look at how the share price changes !!! which can be very stupid to do, when to many only think TA, because then it will be selffullfilling  - until reality catch up...  Who would want to pay much to much for a share, when they - finaly - understand it's worth* much less?...   Not I     :)

 

Traditionaly an established company is worth access value + 3 times one year profit (adjusted for exbantion and research costs - IF these costs likely are good investments.

Nowadays many value revenue MUCH to high* in most cases. High revenue isn't worth much, if it don't generate profit...

 

(*As e g when Ericson (phones) shares did cost around 75 SEK, when I published an article saying they were worth under 20 and "everyone" said I were an idiot. A few months later the share price droped to 4  SEK...   :lol:          I found that by just value it traditional.)

 

I don't remember when I said first time the western economy is domed in the long run, but it was years BEFORE 2008 crash - but I don't expect it's that domed yet    :)

 

Let's see if the Philippine government act so the Philippines get a good share or if other SE Asian countries will get the future exbantion...

[jon1]

I think that overall, most real estate prices (especially in Manila) are over inflated and due for a correction. I just purchased a new long term lease rental property in Subic (2 story, 3 bedroom, 2 bath) for about 4Mphp. Looking thru the old documentation, this unit originally sold for $28K in 2008. That is almost 4x growth in just 6 years. I do see the demand for rentals continuing to rise within the Freeport so can see the lease values to continue to increase. I do doubt that they will ever top 5 or 6Mphp in the future. 

[Tukaram (Tim)]

I doubt i would ever buy for an investment here.   In Iloilo they are so overbuilding right now!  Many of the buyers are OFW's trying to rent the property put while they are gone.  The rental market is terrible.  They are asking so much - most units stay empty.   And you can rent a small, privately owned house for very reasonable rates.    But the larger subdivisions and condo towers sit empty.

 

After the bubble bursts... there may be some good prices though...

[Jack Peterson]

After the bubble bursts... there may be some good prices though...

It would be the condition, of the property, that would worry me stood so long with no maintenance. 

[jon1]

 

After the bubble bursts... there may be some good prices though...

It would be the condition, of the property, that would worry me stood so long with no maintenance. 

 

Yes I agree. Their construction quality is marginal at best. 

 

I chose to invest my rental property as it was built by the US Navy and is in good condition still. Over the last 2 years that I have lived here, I have seen a lot more expats moving into the Freeport. Their reasons typically are that they are tired of the brownouts and flooding being experienced in the Olongapo/Subic areas. There are very few empty rental units now in the Freeport and I see more construction starting.

 

In the business district, there is a new Best Western hotel going up near the Baypointe Hospital and a new Apartment/hotel also going up not far from there too. 

[Kinilaw]

I think prices in Cebu will drop back to where they were 6-7 years ago. It seems to me that the local market is being over built relative to demand. There are alot more BPO earners now but they can't afford the properties being built nor the rents that will have to be charged to make these new properties attractive from an investment standpoint.