“How wonderful it is that nobody need wait a single moment before starting to improve the world.”
– Anne Frank, Holocaust Victim
A recent survey of SWS said that 1 million more Filipinos have joined the ranks of the unemployed.
This piece of news comes at a time when the Philippines received a rating upgrade by Standard and Poor’s. Like Fitch Ratings, S&P upgraded our credit rating to BBB- from BB+.
As a result, our stock market closed at another all-time high and the peso appreciated against the US Dollar going into the P40 level once again.
But should we actually care about getting an upgrade from another international ratings agency? What does it mean to us real estate service practitioners?
In the article of Valentino Sy (Philequity Corner) this morning, he listed 3 tangible benefits of getting an Investment Grade status: 1. LOWER BORROWING COST; 2. MORE INVESTMENTS; and 3. HIGHER INCOME AND MORE SPENDING.
We are all witnesses to the current low interest rate regime at present. And this is good for small businesses (build-and-sell investors) who are considering expanding their business and homeowners who are thinking of upgrading to a new home or purchasing a house and lot instead of merely renting.
For now, in terms of investments, the ones that come from abroad directly go to the equities market. It will take some time before Foreign Direct Investment (FDI) comes and makes a meaningful impact on job creation.
But experts warn us that there is a risk of asset bubbles forming if property prices rise faster than they ought to. Yet, at this time, the Bangko Sentral ng Pilipinas (BSP) is optimistic that we are still safe from asset bubbles.
The BSP has rolled out a host of macroprudential measures to mitigate the impact of so-called “hot money” directed at equities. Credit guidelines, especially for real estate, were tightened through loan-to-value ratios, concentration limits and single borrower’s loan limits.
Meanwhile, CBRE Philippines said that “the real-estate industry will greatly benefit from an investment-grade credit rating. More investments and foreign companies will come in and its impact will be felt across key property sectors through a domino effect. A sustained growth in the office/BPO, industrial and residential sectors is expected, and it will push industry growth to even greater heights.”
In terms of higher income and more spending, there is no doubt that an improved business climate will bring such results. However, we do remind everyone that as your income grows your savings should proportionately increase accordingly.
As our economy continues to improve, RESPs will have more opportunities to increase their income as well. CBRE Philippines said that “the Philippines is expecting democratization in the housing sector from a nation of renters to owners based on low interest rates and financing schemes.”
However, in pursuit of higher professional fees, RESPs should also guard against irrational increase in prices of real estate properties which might contribute to the formation of asset bubbles.
We should be elated at the news of a ratings upgrade. It can only bring positive effects to us in the real estate industry. Happy selling!!