Quote for the day: "Some men see things as they are and say "Why?". I dream things that never were, and say "Why not?"

George Bernard Shaw

The Prince and the Ayalas - another bull out of the pen

Saudi Prince Alwaleed bin Talal bin Abdulaziz forged a joint venture agreement with Ayala Land (ALI – P16.50) to build a US$153.0m hotel complex in Makati. Please read

Prince

I guess this is another event that will unleash the property bull. Earlier, I wrote about how Lucio Tan triggered the property bull. Please read:

Lucio Tan

Prince Alwaleed, aside from being the 13th richest man in the word, is a major player in the global real estate market. He is touted as the Donald Trump of the Middle East. He is also the biggest single shareholder in Citigroup. I guess, a vote from the Prince is something we should not pass-up. As I always like to say, buy when the writings are on the wall. This is clearly the scenario right now. The Prince has written the “bull sign” for us to overweight property stocks.

The case for a property bull is easily defensible. Here are my arguments:

1.) Income and wealth factor. Since 1997, per capita income in dollar terms, has risen from US$1,000.0 to around US$1,300.0. In peso terms, income has actually doubled during the same period. On the other hand, stock market capitalization has risen by 300% since it bottomed in 2001. All these point to the fact that there is a lot of excess wealth sitting around in the economy. Wealth is the key driver for pushing up property prices. As we have seen in 1997, property boom is almost always preceded by significant growth in income and wealth accumulation.

2.) Crisis values. Property prices have not moved since falling an average of 60% from its 1997 peak. Note that in 1996, lots in Makati CBD went as high as P460k per sqm. Currently, lots in the same area are doing at around P130k to P150k. This means that prices still has a lot of room to appreciate. In dollar terms, property prices are mere 20% of its 1997 peak. Assuming property prices go back to its 1997 values, it will still be 42% lower in dollar terms.

3.) It is still quiet out there. I guess the strongest argument for a property bull is that no one is talking about it yet even if there are clear signs that the sector is turning around. This means majority of the people are not convinced that a property bull is forthcoming. Remember, bull markets are born out of skepticisms. This is similar to smart investors buying stocks when the PSEi was trading at the 1,500 levels.

In the long run, “market” will always correct itself. We have seen the P/$ rate appreciate from P55.0 to P48.1 and PSEi rose from 1,000 to 3,200. I guess it is a matter of time before the property sector do the same. In the end, we just have to keep our eyes open and follow where the billions are going.