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BUBBLE Debate: Is there a Bubble in PH Property?

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Residential Rents to soften further - Colliers
+ Rents fell by 1-1.5 Percent in Q4; Makati to P837psm from P847 psm (Q3)
+ Rents like to decline on: Rising supply, popularity of fringe areas
+ Expeceted drop: another 5-7% over the next 12 months
+ BGC fell from P848 to P833, year-on-year
+ Colliers is forecasting a 54.3 percent rise in supply in Metro-Manila, from 90,784 units at end 2016,
to 140,061 by 2020
+ Fringe areas appeal, because they are 10-15% cheaper to rent (and maybe at least that much cheaper to buy)
Examples: Vertis in Quezon City, Circuit in Makati
+ Fringe area completions (4,800 units) outpaced those in the main CBD's (3,900 units)
They give some figures for Capital Values, which look high to me:
: Makati : P180,300, + 2.3%
: BGC - : P163,200, + 2.2%
: Rockwell : + 1.1%
"Prices are still going up because interest rates are low"
"We see Makati CBD prices increasing by about 14 percent in the next 12 months, while Ft. Bonifacio and Rockwell wll grow by about 8 to 10 percent," Colliers said.
( article in The Manila Times, pg. B5, Feb.13, 2017)
They must be talking about prices in the 'primary' market - that is, new properties.
I see lots of evidence that prices in the secondary market are weak.
And fall rents are hardly an argument for rising prices, when the daily newspapers are full of stories of inflation rising, and short term rates under upwards pressure
===== ====
Hot Offices: Manila ranked 19th 'most dynamic city'
=
Jones Laing Lasalle (JLL) has included Metro Manila in ts top 30 markets for commercial property for the first time.
+ A particularly dynamic market with the growing an globally competitive BPO sector
+ JLL ranks 134 world cities on 42 indicators, includes population, number of corp headquarters, FDI, etc
+ They also look at something they call "high value incubators", which are attributes which help them to maintain growth momentum,
assessing things like: education, innovation, and the environment
+ Manila was included as an emerging megacity, along with Mumbai, Chennai, and Delhi - but the group has challenges in infrastructure, and quality of life
+ Manila had a strong short term momentum, with robust growth and rising real estate price, but ranked in 107th place on long term momentum
+ Cities like Hong Kong, Singapore, Tokyo, and Seoul remained in the top 30, but showed stagnation in growth
+ Top 5 were: Bangalore, Ho Chi Minh City, Silicon Valley (CA), Shanghai, and Hyperabad

+ The bottom of the Top 30, were: Hangzhou, Los Angeles, Dublin, Nanjing, and Stockholm

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It is now officially a two-tier market:

+ the developers get a much higher price, by offering finance and selling properties through their "marketing machines"

+ secondhand resellers get a lower price, because the handful of cash buyers are seeing many bargains, and there is much competition among sellers chasing those few cash buyers willing to pull the trigger

 

The Losers may be those who pay the high prices for "hot new launches", since they may never achieve expected cash yields.

With the high and rising vacancy rates, rents are likely to be lower than "promised" or expected for at least 1-2 years, maybe longer.

Might a headline story about falling secondhand prices, cause even Primary (new) sales prices to get hit - if buyers back off?

 

A DISCONTINUITY in Capital Values : Moving from Apples to expensive Fruit salad ?

 

BUYERS of new properties look set for disappointing yields (when their properties are completed)

 

There is a major discontinuity in the data that Colliers is now reporting for Capital Values, and it may be masking a drop in secondhand like-for-like prices for a single property owned in the real world.

 

The problem is that Colliers want to accommodate the much higher prices being achieved on new luxury launches, so reported prices have been "stretched" to the upside to include these new luxury properties. So in some way, we are moving from comparing the old "apples" with new "luxury fruit salad", making it meaningless to try to use the Colliers data as an indication of how the price of a particular property is performing over time. Even as these Colliers values are being pushed higher, I am hearing several anecdotal reports that secondhand resale prices have been dropped - and that the resale market for completed properties is very soft now. Perhaps it is down in line with falling rents - now some 6% below the highs of 2nd-half 2015. And someone who is in a hurry to sell may have to accept an even larger discount.

 

> http://www.colliers.com/-/media/files/marketing%20reports/4q2016_colliers_quarterly_residential.pdf

 

Qtr/ Year : Mak-Mid. QonQtr : Yr.onYr. / Low - Makati - H / Low -Bonfacio- H / Low -Rockwell- H /

4Q /2015 : 151,300 : +0.20% : + 4.71 % : 106,400- 196,200 : 114,700 - 185,400 : 121,700 - 202,100 :
1Q /2016 : 152,000 : +0.46% : + 3.16 % : 107,000- 197,000 : 115,000 - 185,000 : 121,700 - 202,100 :
2Q /2016 : 147,575 : - 2.91% : - 0.96 % : 103,770- 191,380 : 111,760 - 180.760 : 120,390 - 200,040 :
3Q /2016 : 146,485 : - 0.74% : - 2.99 % : 103,010- 189,960 : 109.790 - 177,580 : 119,090 - 197,870 :
===
3Q /2016 : 145.4ka*: - Not/A : - N/Avail. : 103.0 - 187.8a / 145.4k :
4Q /2016 : 150.6Ka* - Not/A : - N/Avail. : 109.0 - 192.2a / 150.6k :

===
3Q /2016 : 176,150 : - Not/A : - N/Avail. : 084,000- 268,300x70% : 097,200- 222,200 : 170,800 - 206,300 :
4Q /2016 : 191,800 : - 0,00% : - N/Avail. : 109,000- 274,600x70% : 110,500 - 226,400 : 188,400 - 207,700 :
Qtr/Year : Mak-Mid. QonQtr : Yr.onYr. / Low- Makati - H/ adjust / Low-Bonfacio- H / Low-Rockwell- H /
========

 

I have adjusted the new data, so that it is more comparable with what was reported before.

My adjustment is to multiply the new high-end price by 70% and then average it with the low-end price. The result for Q-2016 was P 150,600 which is only 2.8% above the P 146,485 reported for Q3-2016. I will have to monitor this adjustment for a few quarters before I will have any real confidence in this adjustment. But I do not think it would be meaningful to push my chart values up from P146.5K to P191.8K (that is +30.6%), since I do not think that anyone has seen appreciation like that in an actual Condo that they own.

 

I find this comment to be very telling:

"Take-up in Metro Manila’s residential secondary market remains soft amid the influx of new supply across submarkets."

 

Perhaps the secondary market (in both sales and rents) is being mostly neglected by big agents and by the developers - who are heavily focused on promoting the more profitable sales market for new properties.

Colliers also suggested:

"Given the falling occupancy rates, Colliers recommends that developers establish their own leasing arms to assist owners in leasing out their units to a targeted clientele and attain the promised yields. This initiative should complement the developers' well-established pre-selling teams."

(You have to smile at that phrase: "well-established pre-selling teams" - many developers are great at pre-selling, but maybe not quite so good at helping their clients get "promised yields." Can you see where the disappointments are going to be? The developers may be hoping yields will rise somehow, to justify the high prices. Another possibility is news may hit, and buyers will wake up and see where the weak link in the chain is - the unreliability of estimates of future rents levels. Then the willingness to pay high prices could suddenly evaporate, unless a developer has demonstrated a strong leasing capability, and the ability to get good tenants at "expected" rent levels. I have heard that Colliers is now assisting some developers, like Ayala, to strengthen their leasing capability)

 

Here's more evidence of buyer's abandonment of a traditional focus on cash yields. Do they even realise that rents are falling?. I reckon some Colliers clients who do consider yields in their investment criteria have begun to complain. And Colliers would like to see the developers address this so investors will not be too disappointed :

"Given the falling occupancy rates in CBDs, it would practical for developers with projects under construction within and outside the established business districts to organize their own leasing arms in order to assist their buyers to lease out their units and attain the promised yields"

In other words, buyers are going to be sorely disappointed with the returns they make after completion, unless the developers do a better job at marketing to end tenants the virtues of these expensive new properties. Right now, the landlords are mostly "on their own" or working with a handful of agents who specialize on prime tenants (like expats seeking well loacted 2BR and 3BR flats). One wonders if there are enough good tenants to go around to maintain a balanced market?. Colliers is now separating the market into PRIME areas within the main CBD, and Fringe areas with "10-15% lower rents", where Filipinos may rent smaller places as "halfway houses" to have easily access to their places of work, and avoid the massive traffic congestion.

==

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"The broader market in the leading indicator."

 

I don't know what that means??

What is the broader market? Is it:

 

+ New property prices (as the price for which the developer list their new properties)?

+ If it is, what do you do with the "discounts" they quietly offer?

+ Is it Rent levels? (and what is a good source for rental rates?)

+ Is it secondhand prices?

 

For me, I would rather look and Rents and Secondhand prices - but good data is hard to get in the very non-transparent market that exists in the PH

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WHEN WILL THE LOW be in place?

=

UPDATING the Coming Supply data - 2017 now looks like a crunch year

 

RESIDENTIAL SUPPLY : Properties keep getting delayed


Completions due in 2015 and 2016 got delayed, so as of (Early 2017, for Q4-2016).

Here's the latest estimate of completed Supply, and what is coming:

 

Estimate, -------------------- : Est, made in early 2017 ---->
Previous: End'14 : late'15 : Latest // forecast completions:
Est. for---: 2016E : 2016E : 2016E // 2017F: + Pct. / 2018F / 2019F / End'19 : chg>'19
=======
Makati - : : 24,735: 23,485: 21,633 // 4,784: +22.1% : 1,072 : 0,598 / 28,087 : + 29.8%
B.G.C. -- :: 29,755: 29,137: 24,275 // 8,566: +35.3% : 3,858 : 3,022 / 39,721 : + 63.6%
Ortigas-- :: 17,616: 17,605: 16,250 // 1,489: +9.16% / 0,782 / 0,570 / 19,091 : + 17.5%
Rck+Ewd :: 12,614: 12,695: 11,707 // 1,334: +11.4% / 0,492 / 0,901 / 14,434 : + 23.3%
================================
Total-of-5 : 84,720: 82,922: 76,208 / 16,173 +21.2% / 6,207 / 5,091/ 103,679: + 36.0%
= Delayed : --------: 01,765: 06,714 //
+++++ Expected Supply (-early 2017) //
Expected Completions (at late 2015) / 8,332 +10.0% / 5,449 / 3,919
Expected Completions (at end 2014) / 9,127 +10.8% / 5,383 / 3,628
Total-of-8 areas : ----------> 90,784 / 22,890 +25.2%/ 15559/ 7,707/ 136,938: + 50.8%
==
> source: http://www.colliers.com/-/media/files/marketing%20reports/4q2016_colliers_quarterly_residential.pdf

 

With the big jump in completions in 2017, and vacancies expected to exceed 15% for most of Greater Manila,

the next year looks like a tough one for Property: especially rents, and particularly in BGC, where the growth in Supply

is monumental. After a tough 12-18 months, it will probably take another year or so to absorb the near record vacancies,

before the market can be considered truly Bullish again. Thus, I am looking for a bottom in 2019 or so.

 

BGC has huge supply coming in 2018 and 2019 too (before delays.)

Fortunately for that area, there will be many office completions too, and so that will help bring people to BGC seeking a place to rent or to live as owner occupiers. The increasingly serious traffic jams getting in and out of BGC mean that it may be desirable for those with jobs there, to live there also - else they might be left with 3-4 hour roundtrip commutes. But not everybody can afford to live in this new district. Perhaps employers will find they are expected to pay a premium to attract new workers to their offices in BGC. This might encourage some business owners to seek office spaces elsewhere, if a BGC location is not essential for them.

 

The need to begin construction of transport linking BGC, Makati, and the bay area becomes more evident every month, as the traffic worsens.

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Is Collier's Soft-peddling a Residential Bubble?

 

Somebody is ringing the alarm bells

 

 

The headline is just plain wrong! Is says: "Colliers sees a 2-6% decline in Office Rents"
Not true! They were talking about a decline in RESIDENTIAL rents.
(Was someone paid to hide that? I would not rule that out. Seems like the bursting residential bubble is being disguised.)

 

Comment:

"Listen carefully, and you may understand that there IS A BUBBLE right now in the RESIDENTIAL market. And it is getting bigger.

Prices of newly launched properties continue to be pushed up, while actual Rents are falling.

Isn't that GAP in yields the very definition of a property bubble?

To me, it is. It seems to me that Ms Yao was not listening, or wanted to push in an assessment ("no bubble") that is wrong."

 

DELAYS have slowed the expected rise in Supply -

"A lack of skilled labor... especially in the finishing stage" has been a problem.

Colliers in the News: Market Edge with Cathy Yang

 

But eventually they buildings are getting completed and Colliers now expects residential vacancies in Makati to be about 16% by year-end - that is high !

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Philippine House Prices have resumed their relentless upward climb

 

http://systemisbroken.blogspot.com

 

Hi

 

Our friend from "the system is broken" has just recently released a new chart and this charts shows that despite the advice of all the experts, "residential prices" are rallying again in PH -- against all expectations (I might add).

 

So it appears "the system is NOT broken"

 

I am guessing which data he used to compile this index, but I suppose that it is the index used by the central bank of the philippines. Most likely this index is at least partly composed of prices of newly launched properties.

So that is only the 4th Q2016 and I know with certainty that there will be the "outlier" Federal Land 8 Park Avenue - almost hyperinflationary price increase - as well as price rises for selected DMCI projects in Pasig -- so it is possible that we will break into a new all time high in Q1 2017.

(I am even reading complaints on SSC about the price escalations in selected DMCI projects)

 

So much for the advice of all the experts. Maybe this chart is just a "sell fullfilling prophesy".

After all, the Philipppine Central Bank follows a "demand driven" model, and maybe they've compiled/designed this index in such a way to justify their ideas about the direction of the market. But then they guys are bankers, -- it is in their interest to present the data "honestly".

 

In any case, inflation is accelerating, PH will move from a low income to a medium to possibly a high income country by 2040, according to some reports so the PH housing bears got slaughtered again.

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Hmm.

An upwards tick, is not the same as "an upwards climb" he claims. IMO

He uses : " the Philippine House Price Index"

I wonder where the data comes from?

As I have noted elsewhere. Colliers seems to have rigged their data, by including new "premium" Condo prices in

with existing flats. So quarter to quarter comparisons are not truly like-to-like.

Maybe this index has the same problem

 

EXCERPT: - from the David Grimes Blog / http://systemisbroken.blogspot.hk/

Friday, February 24, 2017

Philippine House Prices Have Resumed Their Relentless Upward Climb

In the last quarter of 2016, the Philippine House Price Index climbed by 2.33% to 218.47 from a low of 213.50 in the third quarter of 2016.
Overall, house prices are still 0.94% below their peak of 220.99 posted in the first quarter of 2016.
Philippine%2BHouse%2BPrice%2BIndex%2Bvs%

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HI

 

I believe it will be a temporary upward climb - call it trend - because I see a lot of price increases.

SMDC raised prices for all its projects about 3 to 5pct in 1Q 2017, then there's the Federal Land "hyperinflationary" BGC increase,

there is the fact that DMCI pasig - and mandaluyong projects are now starting at close to PHP80.000 per square meter

(instead of the PHP67,000 a few years ago), and there s property 101 sunshine upcoming price increase,

so there's a good possibilty that this index might hit new all time highs in 1Q 2017.

 

I definitely expect some "cooling" of this index to more reasonable levels as the stock market might peak around the end of

2Q or the beginning of 3Q 2017, and any type of crash in the stock market and global economy will have ripple effects

on the PH property market so it will be tougher by year end I believe.

 

The video below talks about the "fringes", and Pasig/Mandaluyong are the fringes of BGC (north), so that's where the

appreciation appears to be taking place. Not in Makati. Makati is history. Any index which uses only Makati data as a benchmark

for the entire PH is completely irrelevant in my opinion.

 

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"The video below talks about the "fringes", and Pasig/Mandaluyong are the fringes of BGC (north), so that's where the

appreciation appears to be taking place. Not in Makati. Makati is history"

 

BGC is a very nice place - IF YOU CAN GET THERE.

 

Last time I went, it took me over 1 hour to get there, and over 1 1/2 hours to get back to Makati (it was raining!)

With so many offices and condos still under construction, the bad traffic is only going to get worse.

It is good to like what you invest in, and be excited by the long term potential. But do not close your eyes to the risks, I suggest.

 

Makati is still fetching the highest prices, for its Top end condos and offices.

One of my Filipino-American friends gives me two reasons he prefers to live in Makati:

 

+ There are both high-end and middle tier places to shop - not just high-end, like Makati

+ "My friends can find me" more easily in Makati. Many visitors find it too difficult getting in and out of BGC

 

The sales agents will not tell you this. They will just show you pretty picture, and tell you you have to Move Fast before prices go higher.

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"... prices are about 10 to 15pct lower than the CBD"

 

Historically, we saw bigger gaps than that in Hong Kong.

If you were willing to travel by 20-30 minutes by MRT, you could save 30-50% or more.

 

I find some of the commuting times that Filipinos endure pretty amazing.

And commuting is far less pleasant than in Hong kong.

maybe it helps to be under 5'6" to ride jeepnies, but they are still unpleasant (most of the time)

=== ===

 

154_graph2.jpg

 

Here's what the Property Guide had to say last year (July 2016)

=====

The Philippines' residential property market has performed spectacularly, due to robust economic growth. During the year to Q1 2016, the nationwide residential real estate price index rose by 9.2% (8% inflation-adjusted), according to the Bangko Sentral ng Pilipinas (BSP), the country’s central bank.

In the National Capital Region (NCR), residential property prices surged 9.7% (8.5% inflation-adjusted) during the year to Q1 2016 while in Areas Outside the NCR (AONCR), prices rose by 9.4% (8.2% inflation-adjusted), according to the BSP.

On the other hand, prices of high-end condominium units in Metro Manila’s CBDs rose at a much slower pace. The average price of a luxury 3-bedroom condominium unit in Makati central business district (CBD) rose by a modest 2.4% (1.23% inflation-adjusted) during the year to Q1 2016 to PHP151,622 (US$3,203) per square metre (sq. m.), according to Colliers International - the lowest y-o-y increase in Makati CBD since Q3 2010. During the latest quarter, condominium prices increased 0.2% (0.2% inflation-adjusted) in Q1 2016.

Price rises also slowed in other major Metro Manila CBDs:

  • In Rockwell Center, the average price for a 3-bedroom condominium rose by 5.5% (4.3% inflation-adjusted) to PHP162,500 (US$3,433) per sq.m., or a 0.2% q-o-q growth.
  • In Fort Bonifacio, the average price for a 3-bedroom condominium increased by 2.6% (1.4% inflation-adjusted) to PHP150,000 (US$3,169) per sq. m., or a 2.6% q-o-q rise.

Nationwide residential property prices are expected to continue to rise strongly for the remainder of the year, boosted by robust economic growth. On the other hand, Metro Manila’s CBDs are expected to slow due to a demand /supply mismatch.

==

> more: http://www.globalpropertyguide.com/Asia/Philippines

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Megaworld's stock is breaking down

 

PH:MEG ... update / Last: P 3.39 versus High P 5.51 (- 38.5%)

ac_zpsppfkosbk.gif

 

I find it hard to buy the notion that Manila property is still in a Bull market, when I see charts like the one above.

 

These are under pressure too : ALI at P33.85 - 17.5% : SMPH at P28.40 - 9.9% :

 

And Century ( CPG at P0.495 - 75% ) may soon retest the old lows.near 0.40.

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(the march 20th offering)



Sacrifice Sale -- Sale below market value


Apparently these agents think that the developers "determine" the market value,

but it is the FREE interaction between buyers and ALL sellers where the price is formed,

more so on the "secondary market".

Perhaps the stock reflects the growing mismatch between the take up in the preselling

market and the secondary market. (38K units in preselling/ 2K in the secondary market)

What that basically means is that there are too few participants with cash funds

in the secondary market and:or too much speculative buying;

Or to say it differenty: the market is completely illiquid.

Your only option -- if you can't sell it on completion -- would be to rent out your unit,

but even that is becoming more difficult -- according to Colliers.


In any case -- I thought I had made 100 Grand USD on my Times Square West unit --

but that's only "an illusionary paper profit" at the moment. Still when I look at

the Six Senses Resort development, I notice that preselling prices for a 54square

meter 2BR unit are now in the 200K per square meter price range, almost the

same as Park Avenue, and almost half of the units in the last tower,

tower 6, appear to have been sold.


Why are these people paying PHP200K per square meter for a non existential

flat that will be ready within 4-5 years when they can buy a flat on the secondary

market for about PHP150-160K and no waiting period????

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https://www.facebook.com/robluat?fref=ts

(the march 20th offering)
Sacrifice Sale -- Sale below market value
Apparently these agents think that the developers "determine" the market value,
but it is the FREE interaction between buyers and ALL sellers where the price is formed,
more so on the "secondary market".
Perhaps the stock reflects the growing mismatch between the take up in the preselling
market and the secondary market. (38K units in preselling/ 2K in the secondary market)
What that basically means is that there are too few participants with cash funds
in the secondary market and:or too much speculative buying;
Or to say it differenty: the market is completely illiquid.
Your only option -- if you can't sell it on completion -- would be to rent out your unit,
but even that is becoming more difficult -- according to Colliers.

 

Exactly!

The phenomenon in the current market is interesting:

Prices of new properties keep getting pushed higher, but rents are drifting lower.

 

I asked an agent friend, whom I know well enough to expect an honest answer about this disconnect.

His response: (i paraphrase):

"Many buyers are buying for their own use and do not care about the Rent,

or they are not very concerned about yields - and do not research the market enough to know what is

happening to rents now. They may just accept their agent's suggestion on what 'you can expect' to rent it for."

(ie they are relying on a mere guess, or an imaginary rent estimate, not what you can actually rent it for.)

 

Why the MEG price fall?

 

Megaworld's stock is breaking down

 

PH:MEG ... update / Last: P 3.39 versus High P 5.51 (- 38.5%)

ac_zpsppfkosbk.gif

 

He speculated that they may have fewer new project launches - but they have quite a few new ones, in places like

McKinley - and the numbers are higher if include their affiliate:

 

Empire East Land / PH:ELI ... update

ELI_zpsgjil7cbp.gif

 

Obviously, ELI has been under pressure even longer than MEG.

Nearby (strong?) support is P0.60, half of the P1.20 high of early 2013.

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PH Property's great divide : Office vs Residential

 

Two sides to the same coin.

One article focuses on the positive, while the other acknowledges some negatives

 

Office strong:

Strong growth sustains demand for comm'l space (Malaya Business Insight, Apr. 3)

 

"There is strong domestic demand in the country for both residential and commercial properties support by a big base of young and employed people"

+ "Despite a housing boom, there's still a large shortage of housing units" (okay.. but why are rents falling?)

+ BSP data on the residential real estate price index (RREPI) was nearly unchanged in the fourth quarter, up from 113.6 to 113.9 yoy, that's 0.3%

+ The RREPI is a composite index of residential price indices in the NCR (- 1.1%), and outside the NCR (+ 1.7%)

+ Lending ; 70.5% of property Loans were for the purchase of new property; and 48.1% of the total was for condos, and 43.9% of single detached units; with townhouses at 7.6%

+ Loan growth was rapid, up 18.1% in the last year to the end of February

+ Liquidity (M3) grew 12.6% year on year over the same period, and is now at P 9.4 trillion, as of end Feb. 2017

 

Residential weakening (because of massive supply):

Real Estate price growth slows (Business World, Apr. 3rd)

 

"Housing prices stood barely changed by the end of 2016, with lower costs tallied on Metro Manila against minimal upticks recorded in the provinces"

+ Average for Q4-2016 was up a mere 0.3% from a year earlier - and it was up 5.2% a year earlier

+ Y-on-Y rise for Q3-2016 was 2.2%

+ Prices were lower within metro Manila

+ Duplex prices were the weakest down 12.3%, with a 5.1% decline seen in the previous quarter. In MM, duplex prices were down 8.8% in Q4

+ Average Condo prices had not started to fall (yet), with a 1.8% climb overall, and a 1.3% rise in Metro Manila

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http://www.entrepreneur.com.ph/news-and-events/rising-prices-falling-rents-outlook-for-residential-condos-in-2017-a1672-20170220

 

Prices of luxury condos could climb by up to 36% while rents may drop by 6.4% in 2017

 

Well I thought this "waiting for a greater fool" was one of the hallmarks of a speculative bubble. Who are these buyers who

fork over PHP200K and up for tiny flats?? They can't be all end users, in my opinion.

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I guess the primary market of selling at 10% or 20% spread over 48 months (if 5mn pesos then only need to pay 10k pesos monthly) seems like an interesting option for a lot of buyers. Not sure if they need to apply for the 80% balloon payment immediately or whether this is done a few months prior to the completion (40th month onwards?). are there any consequences for buyers who walk away during the 48months if they can't resell their contract to sale? Treat the purchase as a 4-year call option. The disconnect in prices between primary and secondary is very significant to ignore.

 

 

Another issue I have with the primary sales market is that their congratulations sellout messages followed by price hikes don't make any sense. For example, ALVEO will keep hiking prices on projects that have already sold out only to suddenly release stock on their inventory 2-3 years later. Who knows what the true reflection of take up is? most agents don't really have a response for why inventory suddenly exists on fully sold buildings. I understand a few foreclosures for various reasons and being handed back to the developer. But not multiple floors / units. This is just a rant for the lack of transparency.....

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80% Balloon payments? Gasp!

And I worry about M-Bay

 

I guess the primary market of selling at 10% or 20% spread over 48 months (if 5mn pesos then only need to pay 10k pesos monthly) seems like an interesting option for a lot of buyers. Not sure if they need to apply for the 80% balloon payment immediately or whether this is done a few months prior to the completion (40th month onwards?).

 

Are there any consequences for buyers who walk away during the 48months if they can't resell their contract to sale? Treat the purchase as a 4-year call option. The disconnect in prices between primary and secondary is very significant to ignore.


Another issue I have with the primary sales market is that their congratulations sellout messages followed by price hike...

 

Here's the very big problem with Big Balloons: Banks are getting more cautious, and most are saying that a 60% Loan is the most they are willing to entertain, unless the borrower has excellent credit. So the big crunch is going to come when the buyer discovers in 2-3-4 years time, that he cannot finance the entire balloon, and needs to find maybe 20% or more of the price to make that last payment. He may then try to sell on his contract, and find no buyers - and have to surrender the contract back to the developer - ie walkaway from his "call" option. Up until now, I don't think developers have chased the defaulting buyers for more money - but that may change in the future if developers lose money on these deals

 

The buyer default risk is not going to hit the more conservative developers like Ayala very hard, because they are now structuring their sales with 60% or smaller balloons. Some of the other developers like Megaworld, SM, or Century may prefer to make the (partial?) sale now and get the sale on their books, and then worry about the potential default risk later.

 

Condo-PriceGap_zpsprknwqxk.jpg : Larger image

 

Mind the gap... between rising prices and falling rents - it is not healthy!

 

Until now, developers have been able offload most of the flats that they get back through buyer default at a higher price - so they may now be complacent about the risk. the problem is, as THE GAP between (Higher) prices and (Lower) rents is growing. As yields fall in a stagnant or rising interest rate environment, it will be much harder for developers to offload those defaulted units at a price that keeps them whole.

 

I am beginning to think that the BIGGEST BUST will come in the Manila bay area (and maybe small pockets like Century city.)

 

In Manila Bay, I think you will find a oonjunction of these three negative factors:

Huge incoming supply, lower quality developers offering aggressive finance, and (maybe) low quality buyers availing big balloons.

 

The Supply increases for M-Bay are pretty shocking:

-

UNITS---- : --Stock-- : Estimated completions--------- : Next3yr : + Pct. :
Location: End 2016 : -2017- + pct. : -2018 : -2019 : End2019
BGC / Fort : 24,275 // 8,566: +35.3% : 3,858 : 3,022 / 39,721 : + 63.6%
Makati CBD: 21,633 // 4,784: +22.1% : 1,072 : 0,598 / 28,087 : + 29.8%
Ortigas -----: 16,250 // 1,489: +9.16% : 0,782 : 0,570 / 19,091 : + 17.5%
Manila Bay: 8,864 // 5,507: +62.1% : 8,531 : 2,614 / 25,516 : + 188.%
Rockwell--- : 4,159 // 0,346: +8.32% : 0,492 : 0,269 / 5,266 : + 26.6%
=========
Top5 Areas : 75,181 / 20,694: +27.5%: 14,735: 7,073/ 117,683: + 56.5%
Other GrM. : 15,603 // 2,198: +14.1%: 0,824: 0,632 / 19,257 : + 23.4%
Gtr. Manila : 90,784 / 22,890: +25.2%: 15,559: 7,705/ 136,940: + 50.0%
BTW: the stock market does not seem to be buying into the Bullishness we are hearing
from property agents and the developers about higher property prices. I wonder why?

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Half-baked assumptions make for half-baked results

I stumbled across a website created a few years ago, and I was struck by how WRONG the ASSUMPTIONS were.

It left me wondering how the investors who bought using these half-baked assumptions might be feeling today. Probably not very happy!

 

 

REAL LIFE is not like the comic books, unfortunately !

aiga_symbol_signs_clip_art_16439.jpg

"Rents escalate at..." (a predictable annual rate)

.
Here's the narrative that was fed to potential investors:

.

"- According to Colliers International, the average rental rate for 1BR unit in Makati is Php30,000 per month 2BR units are roughly around Php60,000 – Php80,000.
- Rental Rates Escalate at 10% per year.
- The average monthly amortization for 1BR units at XXX is at Php24,000 per month, 2BR units is at Php 43,000.
- By the time the unit is delivered to the client, the average rental rate would escalate to at least Php45,000 per month for a 1BR unit.
- Rough Estimate of Profit will be: Rental Rate: Php45,000, Amortization: (Php24,000), Monthly Profit: Php21,000"

.

More - about who was the Target market::

"Young Executives working within Makati’s Central Business District

- Upgraders” or Longtime leasees near the area that are looking for a decent permanent address
- Parents who have children working and studying in Makati City
- Investors who are into the rental business
- ExPats who often visit the Philippines"

.

Right !

I wonder how many other condos have been sold, with the same "Target Market" in mind?
Thousands of units. I reckon. In the end, what matters is Supply and Demand, not half-baked assumptions like these!

.

I wonder how many Young Executives are left to rent - how many left, whi do not already have condos or houses of their own?

And why does no one target "older people... like foreigners who want to retire and live in the Philiippines"

Is it assumed that these people will not choose Makati? Or will be unable to afford these "luxury" condos?

Why "expats who often visit", instead of want to become permanent residents?

What different requirements or interests might the developers cater to?

And what about people who want to work from their homes, and/or maintain an internet connection with their offshore businesses?

Are PH web connections too slow, and too unreliable? If so, why not work to upgrade them; pressure the government or whatever.

BTW, here is what has actually happened to Rents.
Where's that 10% annual gain in rents that was promised?
-
RENTALS : Makati, Bonifacio, Rockwell
Qtr /Year : CapVal.: Yield% MMidpt :QonQtr: YonYr / Lo - Makati - H / L-Bonfacio-H / L-Rockwell- H /
4Q /2012 : 118.0k : 7.32% : 0,720 : +1.69% : +7.0E% / 0,525 - 0,915 / 0,570 - 0,865 / 0,686 - 0,912 :
4Q /2013 : 134.9k : 7.16% : 0,805 : +0.63% : +11.8% / 0,550 - 1,060 / 0,610 - 1,010 / 0,720 - 1,020 :
4Q /2014 : 144.5k : 6.96% : 0,838 : +0.96% : +4.10% / 0,575 - 1,100 / 0,640 - 1,045 / 0,750 - 1,055 :
4Q /2015 : 151.0k : 7.02% : 0,883 : +0.91% : +5.37% / 0,600 - 1,166 / 0,688 - 1,094 / 0,814 - 1,094 :
1Q /2016 : 152.0k : 6.82% : 0,865 : - 2.04% : +2.00% / 0,590 - 1,140 /
2Q /2016 : 147.6k : 6.95% : 0,855 : - 1.16 %:- 0.11 % / 0,580 - 1,130 / 0,660 - 1,050 / 0,800 - 1,100 :
3Q /2016 : 146.5k : 6.88% : 0,840 : - 1.75 %: - 4.00 % / 0,570 - 1,110 / 0,655 - 1,040 / 0,790 - 1,080 :
4Q /2016 : 150.6e : 6.61% : 0,830 : - 1.20 %: - 6.00 % / 0,560 - 1,100 / 0,640 - 1,026 / 0,780 - 1,070 :
=========
4 years-- : P32.6k : -------- : 0,110 : ---------- : ---------- / P 35 - P185 / P 70 - P159 /
Gain, 4yr: +27.6% : ------- +15.3% :
If 10% pa: P172.8k: ------- : 1,054 :
.
If we go back to 4Q-2012 (P720 psm) and escalate at 10%. rents today should be a P 1,054 psm.
The actual is P 830 psm - that's a - 21.3% shortfall ! The actual annual gains average < 4 % pa.
And now rents are actually FALLING thanks to oversupply.

 

Keep this real-life example in mind, the next time you hear an agent tossing out glib assumptions about future market conditions. Who really knows? And who does he serve by feeding you overly optimistic assumptions? Not the investor, who pays money and has to live with the future uncertainty. The agent keeps his/her commission even when the assumptions were wildly wrong, like in this case.

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http://systemisbroken.blogspot.com

 

What Gives in the Philippine Real Estate Market? Sales Volumes Are Up Yet House Prices Decline in 2016

 

 

It is unclear to me if these sales are in the primary and/or secondary market, or just licenses to sell issued by a government agency to the various developers.

I am a bit confused. Also the EX-NCR indexes are still (mostly) rising.

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(Here's just one of the charts from the article, and a comment):

 

RREPI%2B-%2BCondominium%2B2016%2BQ4.jpg

Much of the growth, therefore, is coming not from the over-saturated NCR, but from outside of it, indicating that the benefits of economic growth are spreading out to the rest of the Philippine economy, which could result in a much healthier real estate market.

 

The excess supply will eventually be absorbed, so long as the completion rates slows for some years, and that seems to be happening,

especially in Makati, starting in 2018 and beyond.

I do not see Ex-NCR catching up with the NCR, except in certain pockets - unless and until transport infrastructure is much improved,

or until higher paying jobs also spread out into ex-NCR

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The population - price rise myth

 

 

In this video professor Keen - an Australian - explains that it is credit growth -- bigger mortgages -- which leads to higher prices,

and this is a big problem in the developed world, and even some Asian and Asean countries. But I believe Indonesia and PH

have relatively low debt levels, because their incomes are not that high at the moment, but as they gradually develop into higher

income economies, this would normally lead to bigger borrowings and higher prices.

That is my understanding of this video. I have seen other charts in this forum which show that the debt levels in PH and IND are

relatively low compared with the rest of Asean/Asia. It is a cycle that these countries will go thru just like all the other Asean/Asian

countries which have also experienced this, -- and the spending wave correlates with the income wave, IMO.

 

Lastly prof Keen only looks at the total population, but I believe we should look at the 35-45 year old age group,

because this are the main property buyers, and he didn't look into that. Kids cannot buy and older people are sellers of property.

So he needs to come up with better/more accurate data to prove that "more people higher prices" myth is wrong.

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Colliers Summarizing their year-end (Q4-2016) report, for those who would rather Listen than Read

 

Colliers Market Update: Philippine Residential Sector

 

Residential vacancies were at 10% at year-end 2016, up 2% from the first half, and are climbing on the influx of supply.

Residents are drawn to fringe areas, where they can get bargains

 

"We see condominium prices continuing to rise, with yields going down"

Landlords should target young workers and expats (how?)

 

 

Philippines' Property Boom

A report in Bloomberg says that Inflows from OFW's is fueling the (continuing) boom in prices

(Because buyers seem to be willing to ignore falling rents?)

OFW's account for 40% of foreign sales - and developers are targeting them in places like HK

==

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First Singapore, then Hong Kong, London, and Vancouver... now Toronto

 

imposed taxes on foreign buyers, aimed most acutely at Chinese buyers...

 

Toronto imposes 15% property tax

 

The government of the Province of Ontario announced a laundry list of measures to prick the crazy house price bubble in Toronto and surrounding areas. This includes a 15% transfer tax imposed on home sales to non-resident foreign investors, including corporations. It’s aimed at Chinese investors in China that buy homes in Canada to diversify their assets and get them out of harm’s way in their own country.

For them, homes in Toronto (or anywhere outside China) are an asset class denominated in a foreign currency. But these homes also confer other benefits in the event some untoward mishaps occur in China, as these investors appear to half-expect.

. . .
>
http://wolfstreet.com/2017/04/20/toronto-house-price-bubble-foreign-buyers-tax-double-ending-by-brokers-paper-flipping-by-property-scalpers/

 

Will these large Taxes push Chinese buyers towards over-supplied marlets, like Manila and Chiang-mai, who are now still welcoming to China buyers ??

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http://www.zerohedge.com/news/2017-04-22/china%E2%80%99s-credit-excess-unlike-anything-world-has-ever-seen

 

Hi

 

Prof Steve Keen is obviously on to something. At the latter stages/ end of the bubble, there is massive built up of private debt,

and I am glad that we have seen it here for some countries. It is obviously Mainland China which is the biggest bubble today

and it is even an emerging market. That's Harry Dent's idea as well. This is the biggest bubble today.

All the countries listed in that zero hedge article had massive property bubbles at the same time.

And Oh, they forgot Canada, because Canada did not develerage after 2008. They gorged on this.

 

Can you/Do you check/follow the growth of private debt in PH? It is the rapid growth of private debt which might indicate

that the end is near.

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