PH incomes can match Europe level – in 2050

The catch is that it won’t be happening anytime soon.

England-based research and advisory company Oxford Economics said in a report released on Wednesday night that it expects Manila residents’ incomes to approach the European level by 2050, as it highlighted the rapid ascent of Asian cities within global value chains and the “closing” gaps in living standards between emerging and developed economies.

Oxford Economics associate director Liam Sides and senior economist Christopher Reynolds said Manila is projected to add more than a million jobs in business services from 2025 to 2050.

In cities like the Philippine capital, they said such roles have expanded far beyond call-center work to include higher-skilled positions in IT, software development, data analytics, and other technical fields, offering both better pay and career growth.

High-value services

Sides and Reynolds said three other Asian cities — Delhi and Mumbai in India and Shenzhen, China — are expected to see similar gains, reflecting a broader shift in the region toward high-value service employment.

While job growth in business services has also been strong across the Middle East, the two analysts said it was Asian markets “that have dominated growth in business services since 2010 — and they will continue to do so.”

“Indeed, cities across Asia are becoming both significantly more populous and wealthier. In terms of the overall increase in high-income households between 2025 and 2050, Asian cities take eight of the top 10 spots globally,” they added.

Wide gap

Latest figures from the Philippine Statistics Authority show that the average annual income of families in Manila reached P482,490 in 2023, well above the national average of P353,230.

The income increase in Manila marked a 16.7-percent rise from 2021, the last year the triennial household survey was conducted. That slightly outpaced the 15-percent growth recorded nationwide.

Meanwhile, families in the wider National Capital Region earned an average of P513,520 in 2023, nearly 23-percent higher than in 2021.

The European Commission’s Eurostat policy department puts the average income of its residents at €37,860 a year (equivalent to P2.6 million at the current exchange rate).

Laggard

Among the nine major Asian cities analyzed in the report, Manila will be the slowest to catch up.

Estimates from Oxford Economics showed that Manila’s projected income growth would make it “increasingly comparable,” but not fully on par with European averages, over the next 25 years.

On the other hand, Shanghai, Beijing, Bengaluru, Hyderabad, Shenzhen, Jakarta and Mumbai are all expected to surpass average European city living standards, while Ho Chi Minh City could reach parity.

In India, Hyderabad and Bengaluru are expected to surpass the European average for personal incomes before the end of the next decade, with Mumbai following before the end of 2050. 

Jakarta is projected to follow a similar trajectory, supported by Indonesia’s abundant natural resources and its relatively young, highly skilled workforce.

“Overall, these shifts represent a dramatic reversal, with people in China, India, and Indonesia returning to more similar levels of income relative to Europe, as they had before the Industrial Revolution,” Sides and Reynolds said.

“Convergence in global living standards is not inevitable,” they added.

Source: Business World

Navigating the US Economic and Real Estate Transition

This year is set to be a turning point for commercial property markets in the US. A gradual easing in inflationary pressures alongside a steady, if unspectacular, year for GDP and employment growth should help to ease the market through the final leg of the post-COVID adjustment.

We shall delve into four areas which are likely to have a bearing on returns, funding markets and the differing demand by property types.

Can we expect rate cuts in 2024?

Despite current speculations and recent inflation showing a modest re-acceleration, as well as growth in the economy remaining resilient despite higher interest rates, we don’t think it likely that the Fed will refrain from cutting rates until next year.

Global supply chains continue to normalize and remain consistent with ongoing goods price disinflation, at least for the next few months. Commodity prices also seem to have settled at higher levels, implying falling inflation, and although consumer prices are concentrated in the service sector are rising, recent surges in productivity and declining wage growth point to lower services price inflation ahead.

Considering the expectation of returning to 2% inflation, three reasons support the potential for the Fed to cut rates.

Firstly, the time for monetary policy to impact the real economy has lengthened, necessitating prompt easing to prevent further economic slowdown and potential undershooting of the inflation target.

Secondly, even if the Fed reduces rates by 75 basis points this year, monetary policy would remain restrictive, above levels considered neutral. Thirdly, the substantial reduction in fiscal policy stimulus compared to the previous year is anticipated in 2024, potentially facilitating the Fed’s control over inflation.

Can AI lift the long-term outlook?

The US is likely to be at the forefront of adoption of Generative AI, and it will drive a wedge between real estate returns and economic growth. The economic gains will come slowly over the next decade, and it could significantly raise the outlook for US GDP, but this will be driven by productivity rather than employment.

This growth will be accompanied by a reduction in demand for some types of space ¬– most notably office, but also life sciences and manufacturing as these areas have the highest exposure to generative AI.

Is globalisation over?

Although geopolitics may seem somewhat academic in the highly localised world of real estate, the magnitude of changes to domestic and international politics make it a factor shaping the outlook for real estate markets.

US and China decoupling is shaping domestic policies. Regardless of the outcome, the upcoming presidential election is likely to shape US domestic policies (through subsidies or tariffs) to see increased demand for industrial space as it seeks to replace parts of the global supply chain, with foreign investment into US real estate set to remain weak.

Is it a new era for inflation and rates?

A persistently higher inflation regime would have profound impacts on real estate returns as well as other asset classes and the relationships between them. Currently financial markets are pricing in approximately a 30% chance that inflation will still be 3% or above in 5 years’ time but we think those odds are too high because a high proportion of the recent surge in inflation can be explained by excess demand.

But we are more cautious when it comes to the volatility of inflation. The pre-pandemic economy was unusual for its low and stable inflation rate, with the 20 years leading up to the pandemic being the lowest and most stable periods of inflation over the past 700 years. Whilst the simple law of averages would suggest the future is set to be more volatile, geopolitics and the disruptive influence of generative AI also point in that direction. And if we do see more volatility, we expect central banks to react more swiftly to nascent signs of inflation in the future.

The recent collapse of the Baltimore Key Bridge is another reminder of how adverse supply shocks can also become more frequent as narrowing global supply chains place more emphasis on key assets.

The key lesson for real estate markets is that interest rates may be more volatile in the future.

Source: Oxford Economics

House prices overvalued by 10% in richest nations, Oxford economics says

House prices in the richest nations may be overvalued by about 10 per cent after a decade-long boom that’s one of the strongest since 1900, Oxford Economics says.

The British research firm identified the Netherlands, Canada, Sweden, Germany and France as the most risky property markets, basing its findings on long-term trends and price-to-rent ratios. It estimated that values across 14 advanced economies have rise 43 per cent in 10 years.

The current boom is on course to become the second-longest and third-largest in terms of price rises in 120 years, rivaled mainly by the last peak in 2006 right before the global financial crisis.

American homes in April saw the biggest price jump in more than 30 years, while U.K. properties in the same month rose the most in nearly two decades. In both markets, low mortgage rates, strong demand for larger properties in the suburbs and supply shortages have been among the drivers.

Despite smaller growth in the last two months, U.K. average house prices are projected to jump 21 per cent over the next four years, long outlasting a tax break on new property purchases phased out from July, according to real estate broker Savills published earlier this year.

High valuations and continued price inflation raise the prospect of a “big price reversal” further down the line, though slower rises in mortgage credit compared with the lead up to the financial crisis suggests much lower risks of bust, said Adam Slater, an economist at Oxford.

“A key issue for the coming years will be how real rates behave given opposing influences such as demographics, the savings glut, and the possibility of higher inflation,” the report said.

Source: Bloomberg