Condo buyers beware

CONSUMERS DEMAND!
Herman Tiu Laurel
8/1-7/2011



Several months ago I had received a number of texts from Wilson Lee Flores, Philippine Star columnist and real estate entrepreneur, warning of a condominium bubble building up.

The past few years, Metro Manila has been seeing its skyline changing like a major tectonic realignment pushing up steep cliffs and mountains astride major avenues and boulevards.

At the same time the boom in sub-urban residential subdivision spread like uncontrolled mushroom growth just south of Makati where new names of towns have been springing up, from that strange sounding Nuvali subdivision and Eton City, etc.

SMDC, the condominium development conglomerate of the SM group, has its billboards rising all over town, especially on EDSA where they have this billboard in front of their giant development near Boni Ave. while ubiquitous in-the-face giant bus ads pounce on commuters as their tambuchos puff out black smoke.

The boom seems to be going on forever.

A Buyers’ Market
Last week Wilson texted me again, pointing out a recent column by Amado Macasaet of Malaya reporting an apparent shifting of the rising expectation in the real estate and property market.

The title said it all, “Property now a buyer’s market”.

Here are some telling information from Macasaet’s article: “The Philippine National Bank is cutting down its equity requirement for housing borrowers by 50 percent, from 20 percent to 10 percent. Before the Aquino administration took over the reins of government, equity requirement, not only for housing but for nearly all types of borrowers, averaged 40 percent….

“Three other banks surveyed by Malaya Business Insight require equity of between 20 percent and 10 percent….

“Metrobank has the longest repayment period of up to 25 years. The average among the rest of the banks is 20 years.”

While Macasaet is seeing the glut one giant realty group executive he interviewed opined differently.

Collapse in Imminent
The executive says that property development “will never be overbuilt for as long as the players are building homes and apartments for the low and low middle market….

“The A-1 market which is small in number but has all the money to buy expensive apartments…. The demand for homes … will continue to expand.”

But then, the US housing mortgaged collapse was also built on direct home buyers and users. It wasn’t the lack of a market but instead the collapsing real economy in the US as jobs dwindled and real incomes shrank while the credit bubble exploded on securitization and financial pyramiding of the banks and investment packagers and speculators.

Every human being needs housing, but if they have lost the incomes needed to keep amortization going a collapse is imminent.

Do economic conditions in the Philippines, as it is also impacted by World economic conditions, augur well for a continued real estate boom in the country or is Macasaet and Wilson Flores’ fears more real.

Less means More
The real estate developers in the Philippines has been cashing in on loopholes in the tax system giving discounts to those categories that fall under social housing, including the design features of the condo units.

Many of these loopholes simply mean less amenities in condo living for those now buying into or renting in condos.

In one of our regular discussion in our Wednesday edition of Radyo OpinYon with Liza Gaspar, our OpinYon Economics Perspective editor and “Moneyed View” columnist, we were told of the discomforts of living in these new condo units with their very limited head room and ventilation where air-conditioning become a costly necessity, and high cost of common charges offset what benefits may accrue from savings on transportation fare and time.

Liza was comparing her present condo life to the previous years when she shared facilities in those old apartment units where there were at least more windows and elbow room and no condominium fees to pay.

Suburban Life
Those new subdivisions south of Makati may take off only after the problem of high cost of the South expressway and skyway fares are resolved in favor of commuters.

Especially after the Supreme Court’s recent decision making the EVAT of 12% on toll fees legal, suburban living in these new towns 20 – 50 kms away from work or school becomes more difficult.

A friend, Joe Escartin, sold his house in the South to live in a condo at Katipunan to his only child the daily travel to UP Diliman.

The move supports the condo market in Quezon City but would weaken the real estate prices in the South.

The real big middle class condo market is the dollar earning OFWs, albeit many markets are like the troubled Middle East/North Africa and Fukushima hit Japan are shrinking.

Government is underplaying the impact of these but manpower export companies see serious impairment.

Then there’s the US debt crisis that will inevitably further erode the US Dollar.

Do these factors augur well for the Philippine real estate sector?

Bubble nearly Bursting
Wilson Flores texted some more: “Philippine government has no social conscience to discourage over investment in condos and should boost agriculture and factories for more jobs …

“Philippine realty glut of condos maybe because electricity too high and other problem, so no factories or agricultural ventures...”

In telegraph fashion, Flores has put my own thoughts on this issue in a very short gist.

We are seeing a real estate balloon building up but because the real economy does not support the jobs and income generation for the people on a long term basis to support the multiplying condo and subdivision units running into tens of thousands every year, the market will dry out.

Much of the consumers’ incomes already go to basic public utilities like electricity, water, telecoms and toll fees which are all priced with predatory greed and allowed by an oligarch-captured Congress and regulatory agencies.

The indicators of this bubble nearing bursting are the premium payments and interest rates on them precipitously declining.

No to Future Deliveries
Consumers, commuters and home seekers should demand that government stop turning a blind eye and take action on these issues, save the real estate sector, rationalize the condominium market and protect buyers.

Buyers, on the hand, should be more coy now in jumping on to the real estate buying bandwagon the realty developers massive ad campaigns are trying to fuel, we should take our cue from concerned observers and journalists like Wilson Flores and Amado Macasaet – Buyers Beware.

This is the time for condo and home buyers to press for more concessions from developers, wait for actual finished units and not future deliveries, in this way prices can be forced even lower to the benefit of new home buyers and users.

(Tune in to Radyo OpinYon, Monday to Friday, 5 to 6 p.m., and Sulo ng Pilipino, Monday, Wednesday, and Friday, 6 to 7 p.m. on 1098AM; Talk News TV with HTL, Tuesday, 8 to 9 p.m., with replay at 11 p.m., on GNN, Destiny Cable Channel 8; visit http://newkatipunero.blogspot.com and http://hermantiulaurel.blogspot.com for our articles plus TV and radio archives)