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drbubb

BUBBLE Debate: Is there a Bubble in PH Property?

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"Dr Bubb, when is the Philippine Real Estate market going to run out of bigger fools???"

- ECB, on previous page

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Greater Fools look only at the rising Prices of New Properties, and ignore Rental yields and Secondhand prices.

In the PH, it is impossible to see accurate Secondhand prices for the Overall market, and RENTS that are most visible on the internet are only Asking Rents, not the final negotiated Rents that people actually pay. So in watching market trends, I  have to partly rely upon a parallel market, the Philippines Stock Market to get my most timely readings on what is actually happening in the current market.

In I am now monitoring SMPH's prices closely, because I think it may be the best bellwether for what will happen to overall Manila Condo Prices.  SMDC is probably the most active developer in the Manila Bay area. which I think will be "Ground Zero" for the next downcycle in PH property.

(SMPH, is the quoted stock market entity, one of the highest market cap companies in PH, that owns SMDC.)

SMPH / SM Prime Holdings Inc ... 5-yrs / 10-yr : 3-yr : 1-yr : 10d / Last: P32.30 -1.40, -3.87%

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SMPH is right now. late morning today, trading at P 32.30, and if it closes there, it will break below the uptrending channel, going back to 2014.

Next big Support test would be the old high at P31.  If that gets broken with strong volume, and trading pushing below that support, it could be an early sign that the long bull market in Manila Condos is ending.  Indeed, I am expecting that because:

+ SMDC could hide the reality of Oversupply, when they are just selling expensive Condos to over-eager buyers, who believe their hype. But once the projects are completed, the reality shifts:

+ When the Owners get their keys, and those who are investors try to rent them out, they will soon discover the Law of Supply and Demand.  If there are too many condos in the market, more than there are Tenants for them, Rents will be forced lower.  Certain areas of Manila are most vulnerable now to falling Rents, and SMDC has been (probably) the largest developer within those vulnerable areas.

+ The Statistics will show us the most vulnerable area(s), and they are not hard to spot:

Area SUPPLY : 12/2017: 2018 Completions : 2019 Completions > 2018-19 :
Manila Bay--- : 11,000 : 11,900,  +108.2% :  + 2,600,  + 23.6 % > +131.8 %
BGC/The Fort :  27,500 :  +9,300,  + 33.8 % :   + 3,000,  + 10.9 % > + 44.7 %
Makati CBD--- :  25,000 :  +2,600,  + 10.4 % :   + 0,600,  + 02.4 % > + 12.8 %
Ortigas Center: 17,400 :  +1,100,  + 06.3 % :   + 0,600,  + 03.4 % > +  9.7 %
---- Gr. Manila > 101.6k :  27,200,   + 26.8 % :   + 8,200,  + 08.1 % > + 34.9%

> source: http://www.colliers.com/-/media/files/marketing reports/4q2017_colliers_quarterly_residential.pdf

Despite the projected huge rise in supply, Collier's estimated vacancies at year-end 2017 were "flat" at 12.6% for Greater Manila "due to delays".  Vacancies  are expected to rise "to the mid-teens" in 2018-19,  before falling back.  But not all areas in Greater Manila are equally easy to Rent.

For Manila Bay, the prospects are likely to be far worse.  The statistics show a doubling of supply in a single year and 130%+ over the next two years.  This is a grim scenario for those who own Condos in Manila Bay.  Where are all the new tenants going to come from?  Right now, SMDC is telling buyers of 1BR condos, costing over P7 million (a gigantic P280k psm) to expect a rent of P 30-35,000 Monthly. At P30k, that's gross Yield of just 5.1% on today's inflated prices.  Indeed, there are some condos advertised for Rent at those prices, but who knows what the actual rents are when a serious tenant is through negotiating.  (I do have some suspicions that Asking Rents are being inflated to make potential Buyer's calculations look better - ie some ads may be "planted".)  In any case,  those are rents being asked today, BEFORE the doubling of supply.  What will Manila Bay rents be in 2-3 years after all the new supply hits the market.  Maybe 30-50% Lower?  Maybe even below that for restricted view or poorly looked after units, because New hotels are coming into the area, and Condo Associations are beginning to restrict and prohibit short term AirBNB type tenants.  The area hotels, which are still expanding want to protect their business franchise, so they are pushing for more restrictions and more taxes on short term tenancies in condos.  How easy will it be to find Long Term tenants in the area, when a commute to Makati or BGC can mean battling traffic, and there are cheaper (older) flats within those areas.

I do not see rapid growth of new tenant being easy in the area, especially for businesses servicing tourists.  I am thinking of a factor not much discussed, the limited size of the nearby NAIA airport. Right now, NAIA is operating at close to 90% of capacity. (Takeoffs are 41-44 per hour, and the maximum is 48 per hour.) And given the small size of the airport, there is not enough space for a second runway.  The logical growth, is to move future growth to Clark Airport in the North.  Are new people, the tourists whom the growth in Clark will be servicing, be willing to take a 2-3 hour bus, van, or cab journey across crowded Manila to stay in a new hotel or new condo in Manila Bay?  I have serious doubts that will happen.  There's no easy and obvious place for the new tenants to come from.  I'm not expecting aggressive expansion of offices in Manila Bay, because land is no longer cheap in Manila Bay, and the area is too cutoff (by heavy traffic congestion) from other places of business.

I am expecting this New Reality (of "obviously Excess Supply") to effect stock prices first.  Institutional investors who were happily buying SMPH stock last year, probably because they saw SMDC raising Condo prices aggressively, and it seemed to be sticking - But now...

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HOW SOON is a Bubble Corrected?

Was just One Year enough to make a bottom in Ontario (-30% for some properties)

First, a prediction from last year

Real Estate Crash 2018 | The Canadian Bubble Bursts

Is this pundit premature?

Real Estate Crash OVER Already? - Garth Turns BULL

I agree with the Video. "the advice to Buy Now may prove bad advice"

I have seen most Corrections on the Long Cycle upswing (12-15 year up), take at least 3-5 years to the downside

Example: 12-15 years Up + 3-5 years Down = 15-20 year Cycle.

Even so, the Correction may come in 2-3 bursts of 1-2 year drops. So Toronto Ontario may get a rally, after a drop,

and the downcycle may be less than Halfway over

Formafist says, "you are only going to know a bottom, when you are Past the Bottom"

Here:

IMPORTANT: How to Time the Real Estate Market

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Not so fast, Dr Bubb.

 

Harry Dent talks about real estate investment dynamics, but then suddenly we found out he has bought a VACATION home in Puerto Rico.

And he is apparently following the "GREATER FOOL" theory. I mean, i haven't seen any information in this video about the SUPPLY of vacation homes in Puerto Rico, and I can only conclude that the reason why he has made this investment is because there are going to be more people buying vacation homes -- there is a second wave of people who buy vacation homes and peak at the age of 65 --.

 

And VOILA, here you have it. And I have seen BABY BOOMERS in Breeze Residences. Especially American Baby boomers, and I have seen them in the sales offices of Avida Land and other places, and lo and behold, the number of people reaching the age of 65 is going to increase until 1961+65 = 2026 for American Baby Boomers and 1964+65  for European Baby Boomers = 2030 (Thailand will be Europe's favorite while PH will be an American vacation land).

(This is the reason why Thailand will become the most prosperous nation by 2030 -- because the traditional spending wave only looks at domestic spending, and Thais births peaked like Europe-China's birth peak -- but I take into account INTERNATIONAL SPENDING)

 

So the theory goes something like this. MOAR baby boomers vacation home buying peaking at age 65 and this trend rising until 2026 for PH, MOAR fools . And MOAR fools leads to "GREATER" fools and GREATER fools leads to HIGHER PRICES.

 

In any case, BABY BOOMERS, and for PH especially, American Baby Boomers are going to minimize and mitigate the effects of a supply shock coming to the Bay Area. Therefore I do not expect a 50pct retracement. We might see a slight cooling of the market but as MNL becomes one of the most densly populated areas in the world, the ECB is confident American Baby Boomers will step in and prevent a melt down.

Agreed, SMDC is a proxy for the Entire Philippines. SMDC is especially concentrated in VACATION homes.

I still expect 27sq meter Breeze units official SMDC price to reach PHP7M by year end. And that's the offical price which is totally decoupled from the secondary market.

The stock market is not always a good indicator of the real estate market. 2007-2009 proved that. The stock market fell 50pct but real estate indexes were down only 4-5pct. Normally that loss can be overcome with rental proceeds. 

The stock market would have to fall more than 50pct for it to have any meaningful impact on PH property prices. I still expect the BSP index for 1Q 2018 to be up as I have only seen price increases with most developers.

http://systemisbroken.blogspot.com/2018/02/bsps-reserve-requirement-ratio-cut-is.html

In this article you see the stock market index and the property index, and stocks are far more volatile than RE.

 

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But there is also a danger in my line of reasoning.

While everywhere in the developed and developing world, life expectancy is RISING, IN the USA life expentancy - especially for most while males is declining - due to drug use, opiod, depression and alcohol -- and thus many baby boomers might not live until the age of 65.

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"... I have seen BABY BOOMERS in Breeze Residences. Especially American Baby boomers, and I have seen them in the sales offices of Avida Land and other places, and lo and behold, the number of people reaching the age of 65 is going to increase until 1961+65 = 2026 ..."

The must get terribly bored at Breeze Residences.

How much shopping & gambling can you do?

Personally, I get bored at the beach - that's why I prefer a genuine urban environment like Makati or BGC.

AUB-chart.jpg

I do see many older foreign people in and near Greenbelt Mall, but not a flood in the way I have seen a flood of Chinese over the last 2-3 years

Tourists_Arrivals_PH_CNNPH.png  

This makes China the third country of origin of tourists in the Philippines, next to South Korea and the United States.

> http://cnnphilippines.com/news/2017/01/28/Chinese-tourists-surge-in-PH-after-Duterte-state-visit.html

1 / Colliers said Chinese investors accounted for 10 percent of SM Prime's international condominium sales in 2017, an improvement from less than five percent in 2016,

2  / Ayala Land noted that the Chinese buyers accounted for nearly 50 percent of its international sales last year,” Colliers explained

 

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Re: Market Situation ... 1st post on this page

(I received this comment of the MM Real Estate, Viber chat):

I agree with you ...on the assessment on the current market, and that is hard to get real numbers to get an accurate picture of if we are close to a large correction. Colliers market report is the best I found so far (not sure how reliable the data is ?) In Colliers report the expected vacancy for the Bay area is 18 % !!


I think long term the Philippine property Market looks good with an increase in average wages and an overall increase in economic activity and near-term infrastructure projects. However, I can’t see how the huge supply in some areas would be sucked up by local rental demand. And as you said as long as the developers can manage to sell properties to foreign buyers on “made up performas” the party would still go on. However, at some point the music would stop.


I know from other markets a good indication on that there is issue on the rental demand side is to look into the Banks quarterly reports and look for the loan default rates, if it start to creep up that should be a red light that both developers have issues with some of tier projects but also that private investor starts to default on the property investment loans

-  R.L., on a Viber chat

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A warning signal

 

This article was written early 2016 and that is just before we saw the dramatic price increases in places like the bay, bgc

 

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In many cases apartments are not old, and are selling for millions below what they bought for from the developer

https://theexpatangle.com/aroundtown/manila-property-market-to-buy-or-not-to-buy/

 

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On 4/23/2018 at 8:58 PM, Euro Chocozone Buyer said:

A warning signal

This article was written early 2016 ...

In many cases apartments are not old, and are selling for millions below what they bought for from the developer

https://theexpatangle.com/aroundtown/manila-property-market-to-buy-or-not-to-buy/

Supply/Demand

... From my balcony I can see two other buildings, which have been completed within the last 18 months. At night there are very few lights on. Again this is only anecdotal evidence but if these buildings have all been sold out, yet no one lives there. You can safely assume a lot of these are being held as investments.

With so many investors looking for tenants there is a flood of available rental stock. If the underlying demand for housing is not strong enough to meet this then rents are likely to fall as owners compete to secure tenants. I recently negotiated 33% off the asking rent for my current lease, and it really didn’t take much to do this. Can you imagine if you were holding an investment and the income was one third less than you were expecting, after a period of no income?

Again from just standing on my balcony I can see five more buildings under construction, adding another few thousand apartments into this market. Off in the distance is Circuit Makati where another cluster of buildings will from a mini condo city over the next few years. Again many of these have already been sold by the developers, but is there room for further price growth in the future? To me this looks unlikely in most areas.

 

holiday.png

Very few Condos will have all or most of the lights on - this is probably a hotel

"ANECDOTAL"?

That old "light test" is not reality.  In my experience, Do that anywhere and you will find a small number of lights on,

The RENT test - getting 33% cheaper is more meaningful, but he did not give facts & figures how can we know it means?

From my own experience on the Fringe of Makati's CBD, I have seen the market absorb a big jump in supply, and Rents for small studios are rising.

Colliers says 3BR rents are falling, but for small units Rents seem steady to firmer, and there are fewer units advertised for rent where I live, and they are mostly at higher levels.

 

Manila needs better transparency - and more sharing of anecdotal info - that's one of the purposes of this site

I do not think that relying on the "rising prices" ASKED by developers is a truly good way of assessing the market.

The big marketing machines of the major developers are scouring Manila, PH, and now The World to find someone willing to sign and installment purchase contract with high purchase prices quoted in it.  The Buyer will not know if he/she has truly made money, until it is sold and all the sales costs deducted. The fact that another buyer paid a higher price 3 or 6 months later, does not really mean you can sell YOUR unit at a higher price - you do not have access to the same buyers on the same terms.

Do not believe the "false reality" presented by the Developers quoted Sales price.  That is not YOUR reality, as someone who can only sell in the secondhand market

 

 

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