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Monday, October 20, 2014

The Philippine Consumer Has Not Peaked - Yet

Quite a few previous blog posts have detailed how the Philippine Real Estate Market may have already peaked in terms of sales volume and loans to the residential real estate sector.  The Philippine Real Estate Market has yet to peak in terms of price, although some of our ASEAN neighbors have already showed signs of plateauing to declining prices for residential real estate, notably including Singapore and Malaysia.

The two charts below indicate a slowdown in terms of loan growth in the real estate sector.

Since home prices have still continued their relentless climb, this  has not yet translated to a sharp uptick in Non-Performing Loans (NPLs) in the sector.

However, there was a slight uptick in NPLs from 3.15% of residential real estate loans in 2013 to 3.34% as of March 2014.

Negative Real Interest Rates

The persistence of negative real interest rates in the Philippines has led, unsurprisingly, to a sharp drop in Gross Domestic Savings Rate as a percentage of GDP since 2010.

Uptick in Consumer Loans

With negative real interest rates, it makes sense for consumers to buy tangible goods, such as real estate and cars, as a store of value.  Correspondingly, there was a sharp uptick in total consumer loans both as a percentage of GDP and as a percentage of the Total Loan Portfolio.

The uptick seems to have leveled off since 2012. Most of the increase, it seems, can be attributed to residential real estate loans and auto loans.  Again, the leveling off has not yet translated to any notable increase in consumer loan NPLs - yet.

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