Gates open to foreign investment in the Philippines

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The Philippines government has further opened the doors to Westerners in a move that is destined to cause dramatic changes in the nation in several respects:

1. Boost condo investment by foreigners as they see the Philippines increasingly as an investment destination

2. Boost foreigner relationships with Filipinos

3. Boost retirements in the Philippines

4. Boost the appeal of the Philippines as a holiday destination

5. Boost the appeal of resort accommodation and lifestyle provisioning

The move by the Philippines government is to offer foreigners a rolling opportunity to obtain a 6-month visa in the nation, with the prospect of up to a 36-month stay. This is big news when you consider:

1. The dismay of many Western governments for their country, or their governments

2. The lower cost of living in the Philippines, i.e. The relative ease for foreigners to set up residence and live off pensions, or otherwise live off the land.

3. The spectre of Western governments struggling with the pension obligations of their citizens

Now, in fairness, the Philippines is not exactly ready or 'to Western standards' when it comes to lifestyle. i.e. The problems as I see it are the following:

1. The enfranchisement of the Philippines - that has turned the country into a boring experience. The exception of course is in the national capital and a few tourist centres. 

2. The pollution and the dire state of infrastructure. In this respect matters are getting dramatically better. i.e. The Fort City in Manila is a new modern city, and less corruption and strong economic growth has resulted in visible improvements. 

3. The traffic problem is still there as prosperous Filipinos are buying cars. This is a global issue of course. Few cities are very good at controlling traffic. Hold a thought for Manila's transit network. Its jeepney and bus networks are good value and efficient, and I'd expect similar from its rail service as it expands. 

Expect Metro Manila to be the 'Tokyo of the South' with rail networks connecting people quickly to different parts of the city. Manila has little love of rail now, but watch as that crowded network rapidly expands. That will occur because of the traffic, but also because the government has just greatly raised the fares, which will precipitate more spending rail connections. The implications is, you need a Philippines Property Guide, and you need to buy property investments in the right location to benefit from these shifts....I'd say with some urgency, as there will be a rapid rise in demand. Expect an Asian property demand. The Philippines and Indonesia already have among the most appealing yields in Asia (excluding Japan)...around 7%.

The most appealing places are city (Manila, Davao, Cebu) and inner city areas (Subic, Lipa, Tagaytay, Eton City, etc). Now, Manila is essentially a collection of village cities like Tokyo, just starting to be connected by rail.  Major developers are building new 'cute' local residential villages, however there are major hubs like Ortigas, Trinoma, Mall of Asia (on Manila Bay) and Makati. Makati City is the traditional centre of business, however that might be expected to change, as new industries overtake old, and even old businesses seek 'new infrastructural developments, rather than being imprisoned in anachronistic centres. The GreenBelt shopping centre in Makati City however retains some appeal. These areas are appealing because they are destined to attract the 'culture' and services that Westerners desire. Unfortunately, outside of Manila, its very much 'franchise' city because these places are simply poor, and correspondingly under-capitalised. This might change with more foreigners, as existing tourist havens built by foreigners have shown.

The other appealing aspect of the Philippines is:

1. Relatively 'hard currency' compared to Japanese Yen, the Euro and USD

2. Rapid population growth of 2%

3. Rapid rates of urbanisation

4. Rapid growth in incomes due to call centres, business outsourcing

5. Proximity to Asian growth centres

6. English is one of the 2 national languages (along with Tagalog)

7. Increasingly 'open gate' policy to foreigners

It does not get any better than in the Philippines; and we saw this trend start 8 year ago. My partner and I bought property for P700/m2; its not worth P2100/m2 based on an offer from a recent prospective buyer. That is a far higher rate of property price appreciation than in the West; and it will continue as interest rates are only now getting really cheap. This has all the makings of a property boom!

You can buy a condo in Manila from P2mil ($US40,000) upwards, though it depends on standards and target market. If you buy in down-market location, you will be tolerating over-use of services by poor relatives from the rural areas. i.e. You might find people parking in your car spot, being noisy, hanging out their laundry; not to mention the cheap dowdy looking façade of the property. Invest smart! 

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Placing Philippines property investment in its historic context

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I had some feedback from a reader. 

"Hi Andrew. Many years ago, I stumbled across your blog on investing and property. I also noticed you lived in Japan for sometime. I quite liked your thinking and analysis....I have family and business commitments in Japan. Currently I'm based in China. I'm looking for an investment property but am thinking Malaysia or Indonesia now. I can afford Australia but its still 40-60% overvalued in my opinion". 

Well I think Indonesia is a frontrunner with the Philippines. I prefer the Philippines because:

1. I think its a more trusted 'English' jurisdiction, though condos less reason for concern perhaps if you deal with major developers

2. Visa restrictions - I think foreigner demand like yourself is a big part of any property market, so tight visa restrictions in those countries give the upper hand to the Philippines. You can stay in the Philippines for 18mths before you have to leave. Now, that might not bother you if you are always flying around anyway, but it will impact on demand for property if you are looking for capital growth. It might not preclude Indonesia, since Indonesia might go the same way, however it might convince you to defer that 'Indonesian option'.

3. The Philippines is getting a big boost from remittances - these people work everywhere - relatives abroad

4. The Philippines is big in business-outsourced-process (BPO) market, and increasingly its teaching English as well, as many Chinese, Koreans and others come hear or communicate over the internet for anything from $3-7 per hour. 

5. The current Aquino administration has greatly cut corruption, so Western corporations are taking more interest. There is still a lot of government waste, and that will probably remain until the employment slack is absorbed.

6. The Philippines has a loose zoning regime, so if this is not the case in Indonesia, this might impact on people's decisions, but since foreigners' can't buy property unless they are married to a local, this might not help anyone. 

Most of these issues favour the Philippines over Indonesia, though I know Indonesia has also lagged...and it has perhaps also made some progress with corruption. Maybe the smog over Singapore says something else....a brush fire out of control :)

Personally though the beaches of islands in Bali probably have more appeal. You might find it comes down to the particular context of the opportunity, i.e. a bottom-up investment decision, taking the view that maybe both places merit consideration. For instance, Bohol in the Philippines is reputed to have good beaches, its close to Cebu, and a Japanese aid organisation is building an international airport there. Such infrastructure development might spell another tourist mecca like Boracay. 

As a side note, I think Australia is over-valued in some respects, but that's not to say I think property prices in Australia are going to collapse. I would however argue that:

1. Australia is vulnerable, and Asia is not on fundamentals

2. Asia has more growth upside

3. Business prospects are better in Asia....but its hard to go past Australia as a place to live if you don't mind an American-style fascist government

Andrew Sheldon NZ Property Guide Philippine Real Estate Guide Foreclosed Japan Guide Applied Critical Thinking, Strategy, Integrity Investments SheldonThinks

Japanese funds new Manila light rail lines

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The Japanese government under its aid development program is offering support to the Philippines government to develop a 2nd line under the Manila Light Rail Transit (LRT) program. This is the 3rd project after Japan helped fund the first light rail line in 1984, and the second MRT-2 in 2003. The 3rd rail line, referred to as MRT-3, was completed in 1999 using private funding under the 'Build-Operate-Transfer' (BOT) route. 

The funds will probably be used to fund the extension of the Yellow and Purple lines into the outer areas of Greater Manila. This will mean beyond the current terminal stations of Santalan (Yellow Line Extension) will be extended to Bacoor City) and Baclaran (Purple Line Extension) will extend the line to Rizal. These developments will of course ease congestion on the highways, as well as offering better connections to the city. Eventually it seems probable that the Yellow Line will extend to Batangas City, and that the Purple Line will circum-navigate Lake Laguna, whilst its western extension goes north to San Fernando and beyond. This is of course speculation and probably another 10 years away in terms of development scheduling.

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Bohol development underwritten by Japanese

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The latest news is that the Japanese government has approved $570 million in aid for the Philippines to build a new airport on Panglao Island, an island connected by a bridge to the city of Tagbilaran, on the greater island of Bohol. Bohol is a growing tourist attraction, both for Filipinos and Westerners. The island has however been a relatively under-capitalised centre for resort development in the past, but that seems destined to change. The Japanese of course will be keen to reform their welfare system, and I can't help thinking they have grander plans for a 'retirement centre' for elderly Japanese. Might Bohol be a gateway for Japan? Might we in future see Filipinos offering care to Japanese retirees/invalids by day, and working in Japanese-supporting call centres by night? 

There is the added value of tourism to the Philippines. The island of Bohol has a great expanse of white sand beaches, and it helps that Cebu, another popular nearby island is also an easy connection by ferry. I fully expect that the island will become a huge exotic paradise holiday resort to mirror the development of Boracay, which is by far dominated by Filipino developers. Bohol offers far greater potential because its larger. This should add to the appeal of the place, as there will be no doubt a dispersal of developments around the coastlines of Tangbilaran City. 

What is the message to investors? Now is the time to buy a beach strip of land and build a resort. I imagine there will be a raft of opportunities for condominium developments as well. An SM or Robinsons Mall, which have long spread from the major cities, will surely be coming to the island of Panglao. 

Japan had earlier expressed interest in funding an upgrade of the Legaspi City airport; so I'm not sure what to make of this development. Perhaps the aid agency through otherwise of the opportunity given that natural disasters have been an issue of late. Legaspi City is next to Mayon Volcano. This near-perfect conical peak was probably part of the appeal, but after the Japanese tsunami, perhaps it became the reason for an aversion to the city. I've not heard more on that proposal. 

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

When to retire in the Philippines?

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Many expatriate Filipinos living in the United States are inclined to retire in the Philippines. There are of course many reasons to do so, and not to do so. Among the reasons are:
1. Proximity to old school friends
2. Greater value for their savings
3. Greater opportunity to work in non-profits or opportunity for their children

The reasons not to are perhaps:
1. Nicer natural environment in the USA
2. Greater job satisfaction
3. Suffering is everywhere - you don't need to go to the Philippines
4. I'm no longer Filipino - I'm a balikbayan that no longer relates to homeland values
5. My savings are adequate such that I don't need to

These are different perspectives, and the reality is that one can choose both. The reality is that its never been easier to invest abroad, or to travel abroad. There are greater opportunities in property in the Philippines, and that is where most people make money - in property. this is becuase:
1. The Philippine population rate is growing 2% per annum - maybe America is the same given its Mexican influx - offsetting natural birth rate sluggishness
2. The rapid rise in incomes in the Philippines - whilst unskilled wage rates in the west flounder, and corresponding welfare/tax imposts rise, and govts screw up with inadequate provisions for this problem
3. The rapid rates of urbanisation - seeing provincial unemployed flock to the cities
4. The tightening land use restrictions - surely the 1991 Land Code will take effect sometime???

These are the trends which cannot be ignore, irrespective of any blow-off by excessive land prices. The rise in the PHP has been a phenomenon since 2005 - when it was P54. Today its close to support at P40. The question is whether this support for the USD is going to hold. I suspect it will. You don't have to believe me. You can watch and wait for a reversal.

The implication of a reversal, and it may consolidate for a time, is that it becomes more appealing to move any savings from the US to the Philippines to pay off interest-bearing debts. Buying property in the Philippines is a decision which depends on local fundamentals, which for the reasons mentioned, are good. Also yields on most property are very good given the added capital appreciation, and trend. Property will eventually become overpriced.

Andrew Sheldon NZ Property Guide Philippine Real Estate Guide Foreclosed Japan Guide Applied Critical Thinking, Strategy, Integrity Investments SheldonThinks

Business outsourcing and creation in the Philippines

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The Philippines has a strategic advantage in the call centre/ business outsourcing arena. How long is it going to last. This is an interesting question. I would suggest it will sustain itself because people as they are educated and wealthier are opting for those resources which will bring them into the global market. Consider the following:
1. University influence - At the moment the people showing the most commercial acumen are those who are going to those ivy league universities or who have professional or business-owning parents. This list of people is growing
2. External role models - Teachers are often not good role models since most of them are unthinking, unchallenged bureaucrats; however the expatriate uncles and brothers often are, and often willing to finance opportunities which they bring to the family.
3. Investment propensity - There is a lack of places to invest in the Philippines. People are more likely to invest in their brothers job than buy investments like land and stocks. You can't trust stocks, and many  families are divesting under-utilised land rather than buying it. This does not make land a bad investment (in the right area), but it does convey that Philippines, even if they are asset-rich, are cash-poor.
4. Disparity of opportunity - There is a strong distinction to make between those working in the global economy and those stuck in the domestic economy. Many foreigners come in and attempt to build businesses in the low-end market because its big. The problem is that they have no value proposition beyond their 'great idea'. The problem is that their idea is so easily copied, so they make the mistake of entering an arena where the barriers to entry are low.

The Philippines is a land of opportunity....just choose your vocation wisely. See our blog post on the global dynamics of outsourcing and offshoring.

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Author Andrew Sheldon| Applied Critical Thinking | www.SheldonThinks.com

Corruption in the Philippines

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The following article highlights the problem with governance in the Philippines. Read this article, and then my commentary. 

The problem with the current system is:

1. The centralised nature of financial disbursements

2. The lack of accountability for how those funds are disbursed

3. The lack of discretion that taxpayers have to contribute. i.e. Taxation is coercive; not voluntary.

4. The lack of legal action for anyone else to fill the 'needs' failed by government

5. The cynicism of taxpayers who, lacking discretion with their taxation, are loathsome to contribute more.

The problem is our system of government which results in:

1. Sanctioning of powerful interests whose legitimacy rests on their capacity to win an election. They do that by making promises which are contingent upon extortion of financial resources from taxpayers. i.e. This is essentially mob rule, and its no kinder than any tyranny. In fact, its worse because its sanctioned as 'your choice' because you 'chose' one tyrant over another, who are competing on the practicality of extortion. Where can that system take you, but towards greater community resignation, and greater political leader desperation. It will ultimately lead to a more oppressive state, as you back is broken. The paradox is that representative democracy was supposed to preserve stability; but in fact its setting society up for the perfect storm, and your politicians will not take responsibility for it. 

2. Repudiation of reason as the standard of value. Under democracy it is mob rule which decides what gets done. The implication is that arbitrary rules dictate what people do, and detached from any context, it is possible for anyone to circumvent the law by finding a 'loophole' in it. Whether the loophole is identified by government, to impose a new law/tax upon you, or corporates trying to reduce their tax burden, the implication is that government becomes, not a framework for protecting you, but a framework for systematically imposing arbitrary law upon you. Yes, it becomes a framework for tyranny. Death by a 1000 statutes. Statutory law comes to displace a far more coherent and logical framework of 'principled' common law, which actually far better carries a context, and is far less controversial. That's not to say that it is perfect. It is not fully open to rational debates; particularly since it has been subjugated to the 'public interest' test of statute law. i.e. Common law today has to be popular. 

What is the solution? It is clear to me that the solution is:

1. Meritocracy - This means different things to different people. Some consider the current system a 'merit-based' system because its the successful, wealthy people who dictate how the system functions because they finance powerful interests or parties, which succeed in getting them elected. This is extortion or mob rule to me. i.e. This is coercive or 'brutality' as the standard of value, i.e. The threat of physical force. I am instead suggesting rational debate, open to the poor (or their representatives) and rich alike. People argue 'whose reason'? The answer is yours; but there is no conflict between rational people, even if their context is different, they share the same 'reality' functioning under the same universal rules of nature. People think that people are not open to reason. This is no true; the problem is that they have the discretion not to be reasonable. Even if they are 'reasonable', they have the discretion to walk away when they are 'sure', rather than confront opponents or their contradictions. You never end a debate. So long as you have opponents, you keep debating. The fact that people are never able to close a debate means that fundamental issues are never resolved. i.e. We are still debating very simple or fundamental questions after hundreds of years of democracy. That is because we had 'aristocratic democracy which locked our competitors; and now we have extortion-based (3 party democracy - capitalists, labour, greenies mainly) imposing their agendas; so we never get to the facts. 

2. Decentralisation of power - Critics will argue that it would take too long to reach agreement on all issues if everyone needed to be convinced. The opposite is actually true. No decisions are really made under representative democracy, which means only 'material' or self-evident values are advanced, i.e. Its easy to get a govt to spend money; just not to do anything useful with that money. The alternative is to avoid the slow pace of decision-making by decentralising it. Not only does this allow people to contribute, which empowers and educates them, it allows them to participate in their area of knowledge or strength, and feel comforted that 'reason is never off the table'. i.e. The system is always open to them to challenge...or learn. They are not alienated by the system. There is no conflict between rational men when reason is the standard. Its a source of convince and respect for your fellow men; whether you respect their 'belated' better argument, or because they respect yours. This is a source of validation missing from representative democracy. In Western Democracy, you walk away from the table cynical, so you stop participating. You resign yourself to the fact that you have no right to exist; that your life is as a slave. 

If you want to make a difference to change the relationship between you and society. If you want a world where due regard is shown for the human mind. Then you need a different political paradigm. Representative democracy is incompatible with rationality. Only when we sponsor some small fragment of rational discourse will society come to understand what it truly means to be human. Few people are scarcely able to live by that paradigm in this era of slavery; which is posited as an era of 'rights' and 'reason'; but that is a moral relativist illusion. We are a long way from sanctioning or validating intellectual discourse. We are instead beholden to 2minute TV sound-bits and the arbitrary decisions of leaders; and the injustice of our justice system. The animal kingdom displays greater integrity than mankind. Start questioning why this is the case. Question the values upon which you were raised. You cannot separate political rights from economic rights. If you have no money because you are arbitrarily taxed, or threatened by arbitrary and punitive financial sanction by arbitrary rules, then you have no political rights. What good is 'due process' if you have no right to a material existence? This is the loophole which your government counts upon for its 'middleman' existence.

Already a great many expatriates live in the Philippines; not because its a better form of government, but because its smaller and more feeble. If you want to make a difference to our framework of political discourse - sign our petition!

Andrew Sheldon NZ Property Guide Philippine Real Estate Guide Foreclosed Japan Guide Applied Critical Thinking, Strategy, Integrity Investments SheldonThinks