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.
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.
posted by jack galt at
10:25 PM
5 Comments:
May I give an opinion why the real estate market appears to be quiet as you had described it. The current lending activity from local banks for end-users/investors feels like it pales in comparison with the activities in the years before the 1997 Asian Crisis. After the pains of taking hits in post '97 meltdown, local banks appear to be much less aggressive now in lending to property developers. Only mega developers capable of attracting foreign lenders and/or equity investors are in a position to take on promising opportunities in the property market. At the same time, end-users/investors hesitate to consider pre-selling deals due to failed deliveries in the past. COD is the preferred buying terms for the end/user, unless you are Ayala Land.
By
Unknown, at 2:16 PM
Admin,
Thanks for you comment. I do agree with you that the banks are not doing much right now. However, moving forward, I do believe that they will begin to open the credit lines to property buyers. I guess it is a question of "when". Here are my reason:
Most banks have already cleaned up their books. So they are in a better position to start lending.
Banks cannot make money with T-bills hovering at 3.0%. The days of banks relying on relying treasury operations alone to generate profits are gone. They have to start looking at high margin products to beef up their portfolio.
Banks have learned their lesson from the 1997 crisis. So I guess this time, they can come up with sustainable lending programs to attract the right buyers. Slowly, you see banks like BDO, Chinabank offering 25 year mortgage etc. I am sure the other banks will follow. This will make the property sector more exciting.
By
jack galt, at 7:00 PM
Another to consider perhaps is that the last stage of the Phisix bull run has yet to take place, suggesting that the time for the property market to benefit from a movement away from equities is not within sight. Stage 1 - the blue chips and secondary issues with sound fundamentals, Stage 2 - mining and other speculative stocks, Stage 3 - oil stocks and highly speculative stocks. In my opinion, Stage 1 has very limited to no further gains, Stage 2 limited gains and Stage 3 gains could be larger than the two other groups. I agree with you that it is matter of time before properties get the attention of the investing public. Those who have no taste for equities may have already taken positions in the property market.
By
Unknown, at 5:05 PM
With the bullishness of the real estate sector buoyed by OFW remittances and Call Centers, what is your opinion for ELI. I saw this was one of your portfolios in the beginning but was disposed.
With its BV at 1.54 and currently trading at .80, will this be a good buy at 0.70+++ level?
By
philstocks, at 6:35 AM
alexander,
the reason why i dropped ELI from my list is that I think investors are better off buying MEG than putting money in ELI.
In fact, i wrote before that ELI should already been taken private by MEG. There is no point having 2 listed vehicles from the same group. It is a distraction for MEG as well. The market cap of MEG is 10x ELI. So why bother with ELI.
I also find it strange that whilst MEG is raising capital, ELI, on the other hand is reducing capital through share buyback. So I guess even MEG does not know how and where to position ELI.
By
jack galt, at 2:12 PM
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