Vol. XXI, No. 184 [ Business World Online ]
Monday, April 21, 2008 | MANILA, PHILIPPINES
THE PHILIPPINES’ housing market joins counterparts in neighboring economies in facing a possible slowdown this year, as rising inflation rates force consumers to hold off property purchases and prod central banks to increase their policy rates, Global Property Guide said in a statement over the weekend.
"Asian property markets, though still relatively unaffected by the credit crunch, will soon be affected by inflation and higher interest... rates because of rising food, fuel and other commodity prices," Global Property Guide said.
"Higher food, fuel and other commodity prices affect the housing market negatively in several ways," the statement quoted Global Property Guide senior economist Prince Christian Cruz as explaining.
"At the micro level, households may postpone their decision to purchase a new house or spend on renovation if they anticipate higher prices," he said.
"At the macro level, higher food and fuel prices push inflation up. Monetary authorities typically raise key interest rates to stem inflationary pressure," he added.
The country’s inflation rate has been accelerating to 6.4% last March from 5.4% in February, from 4.9% in January and from 3.9% in December last year.
Frederic Neumann, economist of Hongkong and Shanghai Banking Corp., told reporters in a briefing early last March that the Bangko Sentral ng Pilipinas would likely to shift to a tightening bias within the second half given inflation concerns that are "worrying."
Particularly vulnerable
Asian households are particularly vulnerable to recent rises in food prices, the statement said. The price of rice has risen by more than 90% during the last year to March 2008, according the UN Food and Agriculture Organization.
The prices of other food commodities worldwide have also increased significantly, Global Property Guide said. Wheat was up 160% in March 2008 from a year earlier; soy bean oil by 104%, corn by 37%, and sugar by 26%.
The United Nations Economic and Social Commission for Asia and the Pacific estimates that food accounts for about half of the consumer price index (CPI) in the Philippines, compared to other estimates that place this factor at 28% in Singapore and 33.2% in China, to almost 50% for urban workers in India.
Private sector economists estimate that rice itself accounts for 18.7% of a Filipino family’s food basket and 9.36% of the entire Philippine CPI.
In the Philippines, bids at rice import auctions rose to a range of $872.50 per ton to $1,220/ton for 65% of the targeted 500,000 tons on Thursday last week, compared to the winning bids of $708.04/ton for 355,500 tons last month and from $474.71/ton for 454,000 tons in the January auction.
Retail price of regular milled rice in Metro Manila rose to P36 per kilogram last Saturday from P27/kg in the week ending last March 21, data of the Bureau of Agriculture Statistics showed.
Average retail price of regular milled rice nationwide rose to P28.40/kg in the first week of this month from P24.23/kg in the first week of last month, and from P21.81/kg in the first week of April 2007.
The price of almost all commodities is increasing, not only food. The price of light sweet crude oil has surged to $115 a barrel this month, up almost 80% from a year earlier. NYMEX crude oil has been above $100 per barrel since March 2008.
Under significant pressure
"Many Asian economies which have recently experienced residential real estate price surges such as China, Singapore, Philippines, Hong Kong and India (all of which registered double-digit house price increases in 2007) are under significant inflationary pressure," Global Property Guide said.
"Inflationary pressures are likely to cause Asia’s central banks to raise interest rates, and slow their housing markets," it added.
Global Property Guide’s Mr. Cruz said that "the situation is unfortunate because some Asian housing markets have not yet fully recovered from the effects of the 1997 Asian Financial Crisis."
"Even with strong house price gains in 2007, property prices in Asia are still below their pre-Asian Crisis peak levels," he noted. "In the Philippines, even with the 15% increase in condominium prices in 2007, it is still about 47% below its peak level in real terms."
The housing markets most likely to be affected by monetary tightening seem to be China, India, Singapore, the Philippines and Thailand, which have experienced the largest increases in inflation, Global Property Guide said.
"With global financial markets interconnected, the world’s economies tend to move together. The synchronicity was observed with the global housing boom — never before in recorded history did so many countries experience so much house price growth all at the same time," Mr. Cruz said.
"The housing market slowdown may also be synchronized," he added.
____________________________________________________________________
