PH property situationer

Here’s an article about the current property market in the Philippines based on the opinion of David Leechiu of Jones Lang LaSalle Leechiu.

Is there a Philippine realty bubble?
David Leechiu, country manager of Jones Lang LaSalle Leechiu realty brokerage:“There’s still a huge untapped condominium market here in Metro Manila.”

I would give a thousand furlongs of sea for an acre of barren ground. —William Shakespeare

Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, and managed with reasonable care, it is about the safest investment in the world. — Franklin D. Roosevelt

One of the frequently asked questions by readers is this: Is there a Philippine real estate bubble? This question is intriguing and caused by observations on fast-rising prices and the supply of real estate properties like condominiums, townhouses and others. The Philippine STAR recently had an exclusive interview with the country’s leading realty brokerage firm Jones Lang LaSalle Leechiu country head David Leechiu. Excerpts:

PHILIPPINE STAR: Is there a real estate bubble now in the Philippines, especially with the seeming glut or oversupply in condominiums? Why or why not? There seem to be so many new condominium projects nowadays.

DAVID LEECHIU: No, I believe there is no glut in the Philippine real estate market, because the demand for housing in our cities is bigger than the supply now or under construction. Just look at the present housing conditions of our Philippine middle class, especially those areas outside the enclosed villages, those areas outside the business districts.

What are your statistics on this?

Based on our firm’s research, from 1999 to 2011, the supply of high-end and mid-end residential conditions are as follows — out of a total 118,230 residential condo units, about 97 percent or 114,540 units are mid-end range (prices are P1.5 million to P10 million for an average unit size of 150 square meters, or P50,000 to P110,000 per square meter), while only three percent, or 3,690 units, are high-end units. We define high-end condo units as costing P10 million and up, with an average floor area of 160 square meters up and a typical price of P120,000 or above per square meter. Can you imagine, in the last 11 years, only 118,230 condo units in all were built?

What about new or ongoing condo projects?

The future condo unit supply based on our research will be an additional 154,000 units from 2012 to 2016. Out of this total, 97 percent will still be in the mid-end range, while only three percent will be in the high-end category. In effect, we are now building 30 percent more new condominium units now at half the time before or five years, so there will be no glut in the market.

What is your basis for saying that demand for condo units is still very high right now?

Our researchers gathered information that the daytime population of Metro Manila is 14 million people, but the actual residents at night are only 11 million people, so we have at least three million people who have to commute daily from nearby provinces to work or study in our metropolis.

Can people afford the increasingly higher-priced condos in our cities, even if there’s this high demand?

The per-capita income of Metro Manila is now already US$10,000 versus the Philippine national average of $2,000. Of course, our neighbor Singapore is higher at $40,000. However, there’s money in Metro Manila among the people. There’s still a huge untapped condominium market here in Metro Manila.

Is the best place to invest in the future in real estate in Laguna’s Santa Rosa area?

I still think now that it’s the Alabang area in Muntinlupa; it has great potential and I believe real estate values there are the most undervalued in Metro Manila.

Who are the biggest developers in the Alabang area?

The Filinvest Group of the Gotianun family I think has a total of 400 hectares there. They’re the biggest in Alabang. The Ayala Group has smaller land holdings there, because they already sold most of it before.

Where is real estate the most exciting for you in the country today?

I’m excited about the Bonifacio area; it is also the safest place to invest in real estate.

Who are the leaders in the Fort among the realty developers?

Three developers are dominating in the Fort: Andrew Tan’s Megaworld is now the biggest landowner there; his McKinley Hills has 55 hectares, Jusmag has 30 hectares and Uptown near Kalayaan Avenue has 16 hectares. Ayala is second, I think they have 50 hectares (that’s hati or in partnership with Evergreen Holdings of Joselito “Butch” Dee Campos Jr.). The third biggest is Metrobank boss George S. K. Ty’s Federal Land, which is run by his son, Alfred Ty; they have 11 hectares of prime Boni land, which includes their Grand Hyatt Hotel and condo project.

If you claim there’s no real estate bubble and that there’s no glut in the condo supply, how come I’ve seen the most cutthroat competitive payment terms offered now like zero-downpayment or other fantastic payment terms?

In 2008, two things happened in Philippine real estate. First, one giant — SM Development Corp. (SMDC) — entered the condo market, and second, a sleeping giant — Ayala Land, Inc. (ALI) — woke up.

SMDC, led by Henry Sy Jr., jumped from being only No. 5 among the condo developers in the period 1999 to 2011; now they’ve become the No. 1 biggest condo developer with 22 percent of total condo market share for projects in the period 2012 to 2016. SMDC is now the biggest developer in every metric. ALI has a goal of P10 billion annual after-tax income in the next two to three years, but I think they can reach that maybe earlier.

Those two firms — SMDC and Ayala Land — have eaten up a lot of condo market share, so the other developers might think that there’s already a glut in Philippine condos because they’ve been losing market share.

Isn’t it also possible one reason realty prices are going up so high is because most business people, the well-off and millions of OFWs, are not investing in new businesses due to our having Asia’s costliest electricity, difficult labor policies, high tax rates and other challenges?

Yes, maybe you’re right on that aspect of not many people are actually investing in new businesses. Our special deposit accounts (SDAs) in banks have between P1.7 trillion to P1.8 trillion, plus there’s another P3.8 trillion in managed funds like all the mutual funds, ITFs and bond management funds, etc. If you add all that up, that’s roughly P6 trillion, or it’s like saying 50 percent of the Philippine economy is just sitting in the banks! All those funds are net of or excluding real estate investments. I agree with you, there’s so much unmobilized funds in the country, so we should improve the investment conditions.

Are you optimistic about the Philippine economy? Why or why not?

I’m still optimistic about the Philippine economy mainly because of two reasons — OWF remittances and the business process outsource (BPO) industry both keep on growing. I’m optimistic about our economy despite our politicians. I will be even more bullish about the economy if we can do structural changes like charter change, better education and other reforms.

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