Friday, February 27, 2009

off to the beach in 24 hours

Friday, February 20, 2009

real estate crisis: is the philippines next?

I have always worried ahead. Months before Pinoys even learned about recession, I was already having panic attacks. This "paranoia" is not "really paranoia." I prefer to call it heightened awareness, an inborn sense of readiness, if you will. So let's not doubt me, okay? Just trust my instincts and assume the worst: The Philippines will experience a real estate crisis soon. You can quote me.

Photo from NYMag.Com

Why am I so pessimistic? (Is there any other way to be?)

Here is the reason:

Real estate loan defaults may skyrocket.

a. Let's look at paying capacity. A very big percentage of Pinoys with mortgages these days are Filipinos who work abroad (OFWs) and Filipino immigrants who reside and work abroad but intend to retire here. Most of them jumped right into the real estate game a few months before the US subprime mess - when their jobs were more secure and everything seemed rosy. Back then, a monthly amortization of $1,000 USD did not seem like a lot. But now that there are layoffs even in the most progressive economies of the world, more and more Pinoy expats are losing their jobs, and we can expect more job cuts in the coming months. Tell me, can all of them afford to continue paying their housing loans? Some of them can, but something tells me
most of them can't.

Another huge chunk of the mortgagee pie is comprised of newly-"affluent" professionals in the BPO industry. You know the type - call center team leaders who are paid anywhere from P80,000 to P100,000 monthly. They get a condo unit, pay at least P35,000 monthly, and spend the rest on Starbucks and cigs. Suddenly, big clients of their companies cancel their contracts (no thanks to the recession), and people get laid off left and right.

Profits are down; just look at Convergys. The government tried to play it down two months ago, but make no mistake: Accenture, Teletech, ACS, etc. have all downsized since. Other big players are downsizing slowly, trying not to create a media hype. The "continued hiring" is a farce; and we will all see this when the 2009 graduates try (and fail) to enter the job market next month.

Will the new affluent class be able to afford their pads? Some of them, yes, but most of them can't.

b. Now, let's look at interest rates. Housing loan rates from private banks are in the 11% to 12% zone this year, which is a lot higher than it was several years ago. This is great for my bonds (tiheeee!) but bad news for mortgagees.

Some people are rejoicing because of the interest rate cut in government-funded housing such as Pag-Ibig ... but I smell something fishy. Call me paranoid, but won't lower interest rates only mislead Pinoys who cannot really afford a home into thinking that they can afford a mortgage?

Let's say that Juan, whose salary is P30,000 a month, takes out a P900,000 Pag-ibig loan for which he will pay P11,000 monthly for 25 years. Juan could very well afford the P11k monthly amortization while he is gainfully employed, but it would be an entirely different scenario if recession hits his job.

If Juan was single and prudent (with a nest egg of P200,000 at least), his money would tide him over 6 months of unemployment, until (hopefully) the economy picks up. But most Filipinos are not single - in fact, many are married with children by the time they are 25. The average savings of Pinoys is worth only 9 weeks of their expenses. There are plenty of bills - cellphone, internet, Meralco, LPG. If Juan is like most Pinoys, he cannot afford P11,000 monthly of he suddenly loses his job. He
will default on his "low-interest" housing loan.

c. Now, the price bubble. Did you notice the rather rapid increase in real estate price tags in the Philippines, especially in the pre-selling sector? You can buy a pre-selling condo for P2.5 million, and it will be worth 4 million in 3 years. There is something wrong with this. It kind of reminds you of New York, or Los Angeles, where properties were way overpriced only to plummet several years later.

I believe that real estate prices here have yet to experience a "correction." Prices seem to be too high; they do not reflect the real WORTH of the asset. The market should correct itself.

Does this mean home prices in the Philippines will go down? No. IMHO, real estate prices won't plummet, but they will stagnate for two years (at least) in order to correct the bubble. So if you are looking to buy, don't hurry. Don't believe the marketing hype. You will still get that property for about the same price next year, no matter what the developer tells you.

* * * *

Opportunities ahead

When MSP and I first talked about the imminent mess that is Philippine recession, he said only one thing:

This is an exciting time.

He could be right.


Friday, February 06, 2009

voluntary simplicity

"'Normal' is getting dressed in clothes that you buy for work, driving through traffic in a car that you are still paying for, in order to get to the job that you need so you can pay for the clothes, car, and the house that you leave empty all day in order to afford to live in it."

- Ellen Goodman

* * * *

Four months ago, I did a LIFESTYLE CHECK and resolved to live simply (but stylishly, of course). I have since made a few changes in my lifestyle, although only I seem to notice. So let me brag, mmmkay?

Let's see what recommendations from "Escape from Affluenza" I have managed to implement so far.

TIP 1:
When home-hunting, pick the smallest amount of space in which you are comfortable. This will limit the amount of stuff you can accumulate, and take far less of your time and resources to furnish, clean, maintain, insure and pay for. If your resources allow it, move to higher-density housing (duplex, condominium, or co-op). You will be living more lightly on the Earth in any of these choices and freeing yourself from the extra expense and time of paying for and maintaining a single-family residence.

MY VERSION: I live in a somewhat "green," minimal footprint condo that is more than big enough. At first I thought it was small (especially when MSP invades the space), but now, it seems perfect. It has everything I need: all the electronic conveniences, good lighting, big white walls, a big white bed. Even the mini ref turned out to be perfect. It fit right under the counter, saving floor space. And since I can see everything in there, food spoilage is avoided. I eat everything before I hit the grocery.

I took this picture while sitting in the garden one quiet Sunday afternoon.

TIP 2: Stop equating the amount of fun and pleasure you get with the amount of money you spend to get it. Sit down and make a list of 25 things you like to do that cost little or no money, and keep it where you can see it every day.

MY VERSION: I have three things so far: yoga, re-watching my old DVDs, and
running on the treadmill (the condo has a free gym). None of these cost me anything. I would add "seeing friends" on the list, but I have to spend on food or coffee when I do that, so that's not free. Maybe my list would get longer if only I thought about it more.

TIP 3: Stop pouring money into vending machines and espresso stands. Bring a thermos of coffee. Bring your own lunch occasionally. Two brown-bag lunches a week save the average worker more than $325 /PhP15,000 a year (assuming a $4.50 / PhP200 restaurant meal). Eat more cheaply, and you’ll probably have a healthier diet automatically.

MY VERSION: Okay, so I still eat out A LOT. Food and travel is my passion. BUT, I almost never buy coffee from Figaro anymore. I buy their beans and brew myself a cup (errmmm...a big mug) every morning. That's enough caffeine fix for the day. Oh, and when I do cook, I make enough for me and even MSP to last three days so we don't have to go on a lunch out. Dinner is easy- I usually just eat a soggy salad and a can of tuna, or whatever is left in the mini refrigerator.

TIP 4: Sell your second (and third, if applicable) vehicle, and only gas, repair, maintain, insure and otherwise pay for one.

TIP 5:
Congestion relief: make an effort to find at least one other person to car pool with, at least once a week.

TIP 6: You can cut the pollution your car emits and your annual use of gasoline by a quick 15% by simply keeping your car tuned and the tires properly inflated.

TIP 7:
New cars lose 20% of their value as they’re driven off the lot, 30% to 40% by the end of two years. Why not buy a well-maintained two-year-old car and take advantage of this situation?

MY VERSION: I did all four tips, combined. First, I sold the Mercedes - the car that ended up owning me. I now share a car with MSP. It's a Jap (and those who know me know I am allergic to Jap cars) but it's really economical. We keep it tuned, so it stays fuel-efficient. And of course, it is a used, fully-paid-for car. No senseless monthly amortizations on a depreciating thing.

TIP 8: Telecommute from your home one day a week. You’ll save 20% a year on transportation and clothing maintenance, and will feel less rushed.

MY VERSION: In the company MSP and I own, telecommuting is the norm. All our employees can work from home whenever they want. Productivity is much higher, and the office saves on electricity. It's a great deal.

* * * *

These are the things I managed to pull off thus far. I'm hoping to "shed even more clutter" this 2009.

This voluntary simplicity has paid dividends:

Some peace of mind. Now, I worry less over possessions getting stolen or damaged. Before, I constantly thought about my Mercedes getting scratched, or my house burning down, etc. Now that my life is simpler, I own things - they don't own me. The stuff I have are all replaceable; they are just things now. I still worry to death about money and business (it's my nature), but I don't sweat the little things anymore. Who cares if the car is left in the rain? This is a big leap for an anal-retentive basketcase like me.

More time to read. I finally finished the books I've been meaning to read for two years.

More opportunity to exercise and do satisfying physical work. I still can't swim, but man, can I run! The side triangle is still a pain to execute, but at least I do yoga.

Less money spent on almost everything. Okay, so this is not always true, but it is somewhat true. I save at least PhP2,000 a month because I avoid buying signature latte. The eating out budget has been cut back to just P10,000 a month (except when there are birthdays). I don't pay for LPG (thanks to the induction stove), electricity bills went down (I've set the air conditioner to economy mode), and I read only in the mornings when the sun spills into my window. It's too early to calculate how much I have saved from simplifying, as I am in the process of spending money to liquidate some assets right now. But I'm pretty confident that I can save more this year. Let's see come December.

More travel. I've been to more places (locally and internationally in the last 6 months than I have ever been in my life. Now that I can just pack my bags and leave the condo + readily access some funds (savings from all the simplification), there's simply no excuse NOT to travel. Even road trips are much easier, as I don't worry about the car getting scratched or breaking down. It's a Nissan - how expensive can repairs be?

More space. The reason the tiny condo looks bigger than it really is: DECLUTTERING. I don't buy a lot of stuff, so there's a lightness to the place. When I do buy, I give old stuff away.

So there.

I'm starting to become a hippie in a Prada.

I hope I can keep it up.