The records ... shall be open to inspection

The records ... shall be open to inspection

I was once again told about something I do not understand when I read the following as may be seen the Philippine Corporate Code Title VIII Section 74:

The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, writing, for a copy of excerpts from said records or minutes, at his expense.



http://www.chanrobles.com/legal5title8.htm#.UvS33zZWHmI

 

TITLE VIII

CORPORATE BOOKS AND RECORDS Sec. 74. Books to be kept; stock transfer agent. - Every corporation shall keep and carefully preserve at its principal office a record of all business transactions and minutes of all meetings of stockholders or members, or of the board of directors or trustees, in which shall be set forth in detail the time and place of holding the meeting, how authorized, the notice given, whether the meeting was regular or special, if special its object, those present and absent, and every act done or ordered done at the meeting. Upon the demand of any director, trustee, stockholder or member, the time when any director, trustee, stockholder or member entered or left the meeting must be noted in the minutes; and on a similar demand, the yeas and nays must be taken on any motion or proposition, and a record thereof carefully made. The protest of any director, trustee, stockholder or member on any action or proposed action must be recorded in full on his demand. The records of all business transactions of the corporation and the minutes of any meetings shall be open to inspection by any director, trustee, stockholder or member of the corporation at reasonable hours on business days and he may demand, writing, for a copy of excerpts from said records or minutes, at his expense.

Any officer or agent of the corporation who shall refuse to allow any director, trustees, stockholder or member of the corporation to examine and copy excerpts from its records or minutes, in accordance with the provisions of this Code, shall be liable to such director, trustee, stockholder or member for damages, and in addition, shall be guilty of an offense which shall be punishable under Section 144 of this Code: Provided, That if such refusal is made pursuant to a resolution or order of the board of directors or trustees, the liability under this section for such action shall be imposed upon the directors or trustees who voted for such refusal: and Provided, further, That it shall be a defense to any action under this section that the person demanding to examine and copy excerpts from the corporation's records and minutes has improperly used any information secured through any prior examination of the records or minutes of such corporation or of any other corporation, or was not acting in good faith or for a legitimate purpose in making his demand.

Stock corporations must also keep a book to be known as the "stock and transfer book", in which must be kept a record of all stocks in the names of the stockholders alphabetically arranged; the installments paid and unpaid on all stock for which subscription has been made, and the date of payment of any installment; a statement of every alienation, sale or transfer of stock made, the date thereof, and by and to whom made; and such other entries as the by-laws may prescribe. The stock and transfer book shall be kept in the principal office of the corporation or in the office of its stock transfer agent and shall be open for inspection by any director or stockholder of the corporation at reasonable hours on business days.
 

No stock transfer agent or one engaged principally in the business of registering transfers of stocks in behalf of a stock corporation shall be allowed to operate in the Philippines unless he secures a license from the Securities and Exchange Commission and pays a fee as may be fixed by the Commission, which shall be renewable annually: Provided, That a stock corporation is not precluded from performing or making transfer of its own stocks, in which case all the rules and regulations imposed on stock transfer agents, except the payment of a license fee herein provided, shall be applicable. (51a and 32a; B. P. No. 268.)

Elevators

Elevators

I was told of someone complaining about the elevators at various websites then having another person follow writing that they are working.  I was just told by someone else they believe they know who it is.  Well, no matter all the writing and talk, Soho Central Condominium does not have six (6) elevators in the residential areas working.  We also do not have inspection notices in those that are functioning.

Please do not believe me, send someone here to experience it for themselves.  We also do not feel perfectly safe in those that are working given noises when they are in operation and the service elevator makes noise and slight movement when the doors open.  What is that all about?

Are there any government inspectors in the Philippines that can fully and completely examine these elevators and explain what is going on?  We have been told that there is a report from a private company but it has not been shown to the Unit Owners.

The Duster Problem

The Duster Problem

Just after writing about the bugs and sweeping, I went out and then saw someone adding to the balcony problem.  Of course there is all the other garbage people throw from their balconies with the duster problem being the smallest of debris adding to the mix.  I feel for the largest balconies on the 4th floor of the Mayflower Tower being catch basins of garbage that cannot be used for fear of falling objects from above.  This is a problem still not solved, I believe.

Shaking the dust from your balcony is rude & inconsiderate for the other units and the general environment about the ground below.  I believe it is also against the rules.

Here is a suggestion, for small particles caught up in whatever duster you may use gently rub them off into that waste basket/can you should have in your unit.  For the general dust, washing off the duster will only add debris to the kitchen grease trap so best not to do it there.  You may shake off the duster behind a drawn curtain in the shower with all such matter then being washed down the drain at shower time.

Yes, there is no good way to deal with the dust since there is not a personal yard area to shake the duster.  The shower seems to be the only solution since many dusters cannot be washed and letting all the duster debris fall to the other balconies is rude & inconsiderate and to the ground is also not good especially for the pool.

Bugs and Sweeping

Bugs and Sweeping

Do all Unit Owners explain what needs to be done and check their units on a regular basis when rented?  Do Unit Owners who do not live here full time and do not rent the unit(s) make sure that their unit(s) are not only secure (locks, window, electric, water) but clean and all food not left for bugs?

I have written about these issues before but we still see bugs and most of the time can point to the unit(s).  I know a unit on one floor with bugs is rented and another I am not sure if rented or occupied at this time.  Down the hall another unit has someone, I believe, is a renter sweeping out into the hall last night.

To prevent bugs, keeping the unit very clean with all foodstuffs placed in sealed containers or the refrigerator is essential.  To clean the floors, it may first be necessary to wash with a damp mop or cloth.  Then I would suggest cleaning the floors again with rubbing alcohol using paper towels.  This not only cleans very well but removes bug trails and disinfects.  Doing these things will also help to decrease the amount of insecticides lowering the toxins in the building.

Oh, as for prevention of bugs in addition to the above, place several drops of peppermint essential oil in a water sprayer.  Most bugs hate the scent of peppermint.  Another idea would be to get an aromatherapy device placing the drops in the water.  Once a week should be sufficient if all the above is also done.  This will also help to keep the bugs from units that are infested not venturing into yours looking for sustenance.

As for the dust, dirt, grit, hair and other debris on the floor, sweeping into the halls does not solve the problem.  It will come back into the unit and it is also against the rules of the building.  I would suggest getting whatever broom you may use and placing the debris in a pan and then into a waste basket/can for proper disposal.

Fire Drill

Fire Drill

On Saturday, October 11, 2014 at 9AM there will be a fire drill. The building has not had one for several years with excuses being given in one year after a delay and then nothing. For all those that will be here and for those not here but with possible representatives present in your place, tell the government authorities here that day about the elevators and other safety and building structural problems and concerns. For those that know people in the media, tell them to be here that day. Let them know that complaints have been made for several years with no action being taken. Tell them that all we get are words and no actions to solve the problems. Let your voices be heard.

Soho Central Elevators Joke

Soho Central Elevators Joke

I now hear down the hall something going on in the elevator lobby area of this floor.  What should I or anyone think about this?  Many of the original buyers had turnover of their units in 2009.  There were five (5) passenger elevators and one (1) service elevator.  What did we end up with?  A joke?

Words are BS, Actions Count.  In the ads and other information regarding the building we all read and heard words.  Words are BS.  The action of the building demonstrates the reality we have suffered with since 2009.  The numerous problems with the elevators have involved danger.  I as many others experienced drops in the elevator cars.  Mine were slight while others experienced drops of many floors.  I once almost fell on my face when the elevator car did not match the floor outside and my foot hit the elevator shaft wall when I left it.  Again, this was minor since I did not hit the floor as compared to others who have been trapped in the elevators which stopped and doors would not open.

Where is the media to report and the government to help and save us?

This is not the only problem with Soho Central Condominium and all the issues will be posted and discussed.

The Decrepit Elevators at Soho Central

The Decrepit Elevators at Soho Central

I was going to write about the deteriorating elevator situation; but after being told that writings elsewhere on the web speak of improvement, I had to write this as soon as possible.  My question is, in what universe are the elevators improving?  In this universe I experience the sky as blue.  Is it the same color for the other one?

Just prior to the Annual Meeting in August and the announcement of legal action, work was being done to get them all operating.  Well, that was a fiction in progress.  Additionally, though they may have been functioning it was not well and there was no inspection that I am aware of certifying the mechanics and safety.  Also, the work done on the entrances is atrocious.

We are now down to two passenger elevators and the service elevator.  The service elevator is an interesting ride others should experience and comment on for all to know.

The lines in the lobby are back and the wait time on the upper floors is to plan one's day around.  So here are some suggestions for things to do while waiting.  Please feel free to add to this list.

1.  Write a novel.
2.  Experiment on how long not to talk on your cell phone.
3.  Read the newspaper for bigger, better, cheaper condo units for rent.
4.  Write up a list for legal resources to search and lawyers to contact.
5.  Order and have lunch.
6.  Buy ice cream and see if it melts before reaching your unit.
7.  Play a full game of mahjong.
8.  Have a massage to relax.
9.  Watch The Godfather parts I and II though skip III not worth it.
10.  Stretching exercises to prepare for walking up and down the stairs when all elevators fail to operate.
11.  Write a book on your full experience and advice on buying or renting a condominium unit.

"To All Unit Owners of Soho Central Condominium"

"To All Unit Owners of Soho Central Condominium"

A Condominium not an Apartment

A Condominium not an Apartment

Of course, there have been many discussions about Soho Central as there are of the dozens of other condominium buildings in Metro Manila.  I have tried to discuss one small but significant aspect of being an owner, the reality of being a shareholder in the condominium corporation which is the entire project as legally constituted.  Why have this discussion?  As the title explains, a condominium corporation is not an apartment building.

As a condominium corporation, Unit Owners need to be fully involved and aware since their interest, Unit Ownership, is intimately tied to the investment in the corporation.  The value of that major investment must be a long term priority for them.

This blog as well as other writings and talk address most, if not all, of the issues.  One issue that has been brought to our attention and is possibly increasing as a serious economic problem for Soho Central Condominium Corporation is the nonpayment of dues.  I assume this may also include the common property tax and possibly the property tax for the individual units.  This issue would seem to reflect and demonstrate the incorrect notion that Soho Central is an apartment building.

Soho Central Condominium Corporation needs 100% turnout by Unit Owners at the Annual Meetings and Special Meetings scheduled.  Read and learn form the Master Deed and By-Laws.  Ask questions of as many people as it takes to keep fully informed.  Teach others since the process also educates yourself.

As for the withholding of dues and common property tax, I assume there are some who simply cannot afford to pay.  I suspect that a majority are refusing for other reasons among those being protest.  While my following suggestion will not solve the building's problems or the legal situation you may place yourself in, I would strongly suggest setting up an account with money due to the corporation.  Once that is done either you or your legal representative, write a complete and full explanation as to why you have refused to pay with that account announced.  Address this letter to the condominium corporation, the SEC and the HLURB.  All correspondence must be delivered with a copy you obtain stamped received.

The above is a suggestion to show good faith and to let all parties know what is taking place as far as your nonpayment.  I would even suggest that those unable to pay come forward and explain.

I know that serious issues not only involve residential Unit Owners but the commercial areas and those involved with developing/building the project.  I know many are confused.  I know that some beliefs are not true.  Please attend all meetings and learn and fill in the gaps.

I would suggest keeping notes for yourself and writing clear comprehensive questions.

SPECIAL REPORT: In-house financing raises alarm over unregulated growth

Special Report: The Residential Real Estate Sector

 

http://www.manilatimes.net/in-house-financing-raises-alarm-over-unregulated-growth/126681/

SPECIAL REPORT: In-house financing raises alarm over unregulated growth

September 14, 2014 9:58 pm

by BEN D. KRITZ COLUMNIST WITH MAYVELIN U. CARABALLO AND KRISTYN NIKA M. LAZO REPORTERS

Final part of an extended series

In the third part of this special report series on the Philippines’ residential real estate sector (“Demand bursting but market tempered by ‘bubble’ fears,” September 12), one of the serious concerns expressed by market watchers was about the rapid growth of “in-house financing.” As a common practice among local property developers, in-house financing provides high-interest credit with less rigid requirements for buyers, as an option to the more conventional mortgage loan through a bank or lending company.
There are several reasons why the high and growing level of in-house financing is considered a significant risk. The first is its potential adverse financial impact on families, who may be taking on much bigger debt burdens than they can manage. The second reason is the threat that it poses to the real estate sector, and in some ways, the wider economy. In addition, property market analysts are gravely concerned about the lack of oversight on the practice; in-house financing is virtually unregulated, to the extent that even determining its monetary value is virtually impossible.
And finally, and most worryingly, there are indications that in-house financing is leading to a surge in banks’ bundled-debt asset business—the same sort of product whose collapse in the United States led to a global-scale financial crisis in 2007-2008.
While monetary authorities have recently tightened regulation on the use of these assets as lending collateral within the banking system, the real worry is that their underlying value—which is based on homeowners’ continuing ability to pay their mortgages—is susceptible to economic shocks.
The same risk applies and, in fact, may even be greater for the large amount of home buyer debt generated through in-house financing that escapes any sort of regulation by simply being carried by property companies without being used for further lending.

A quick path to ownership

 Many homebuyers, particularly first-timers and buyers from among the OFW and domestic middle-income segments that have become the target market for most developers, do not qualify for more stringently regulated conventional bank loans or otherwise choose not to undergo what is even under the best of circumstances a time-consuming approval process.
Buyers who meet the qualifications for Social Security System (SSS) or Pag-Ibig Fund financing do have those options, which lie somewhere between bank mortgages and developers’ in-house financing in terms of the level of requirements and interest rates charged, but the process is still time-consuming.
Bank mortgages typically average between 5.75 percent and 12 percent, with terms up to 30 years for loan amounts of up to 80 percent of the purchase price, usually a minimum of P400,000. SSS and Pag-Ibig loans are charged more interest—between 8 percent and 11 percent—and SSS loans are limited to P2 million and terms of 20 years. All three also have age requirements; typically, borrowers are rejected if they are over 60 years of age, or will be over age 70 by the time the loan matures.
In-house financing, by contrast, has no age limitations and generally requires nothing more than verifiable proof of income and financial capacity to make a down payment, which typically averages 10 to 20 percent of the purchase price. Sometimes, that is even reduced to a very low “teaser” rate—these are the deals that are frequently advertised as “move in for only P5,000” or some similarly low amount—accompanied by significant discounts on the total price, or in some cases, waived entirely for ‘qualified’ buyers. Loan terms are short, rarely exceeding five years, and interest rates are high; a survey of various offers by Philippine developers across the country indicates an average of 14 to 18 percent, although some are as high as 22 percent for longer-term loans.

Eluding regulation

 As Bank of the Philippine Islands (BPI) lead economist on real estate Emilio Neri Jr. explained in an interview last week, there is virtually no data available that depicts exactly how big the in-house financing business actually is, because the practice is not monitored or regulated by either the Securities and Exchange Commission (SEC) or the Bangko Sentral ng Pilipinas (BSP).
“We really are in the dark as to how much property companies lend to their clients,” Neri commented.
The basic reason for this is that the term “loan” to describe an in-house financing transaction is actually a misnomer. Property companies are not lending funds to their customers, they are extending credit terms on a purchase; in a sense, in-house financing is no different than any other installment purchase.
Provided the property company has sufficient financial resources to cover construction and other costs while customer payments are recorded as receivables, it has great flexibility in setting the terms by which it sells its product, and the interest rate charged becomes pure profit for the company.
Chief financial officer Joseph Dolina of Amicus Inc., the holding company for developer ProFriends, implied as much when he described ProFriends’ typical in-house financing arrangement: 12.5 percent down payment payable over 15 months, followed by a five-year term at 18 percent interest or a 10-year term at 21 percent interest to pay the balance, the high interest rates being imposed “to encourage buyers’ financing with our other partner banks.”
Apparently, not many buyers are taking the bait. According to a manager in one of ProFriends’ branch offices, only about 1 in 10 customers opts for something other than in-house financing; other property companies we spoke to offered estimates of 60 to 90 percent of the proportion of in-house financing to bank or other lender financing in their customer portfolios.
Many property companies cannot, or choose not to carry buyer credit on their own, which has led to growth in bank lending to the real estate sector and an expansion of the debt-based asset market. In the latter, customer accounts are bundled into securities and either used as collateral for loans by property developers, or sold outright to banks or other lenders, who then become the creditors for the buyers; these packages are handled either by banks, or by specialized finance companies such as Bahay Financial Services (BFS).
BFS specializes in, among other things, credit underwriting for developers, servicing of delinquent mortgages, and sales of foreclosed properties. The company was tangentially involved in some controversy in 2006 when it took on management of a portfolio of more than 52,000 delinquent mortgages originating in the National Home Mortgage Finance Corporation (NHMFC) and carried by Balikatan Housing Finance, Inc., a special-purpose vehicle jointly owned by NHMFC and Deutsche Bank.
Complaints of aggressive collection tactics and wholesale foreclosures by BFS, particularly since the properties involved were socialized and other low-income housing, prompted Senator Loren Legarda to accuse BFS of being a ‘vulture fund’ and to call for a Senate investigation.
In October 2012, the BSP became concerned about the level of in-house financing in the property sector, and called on the Financial Stability Coordinating Council (FSCC) to investigate, because the BSP alone does not have jurisdiction over finance companies or corporations. The result of that review was a circular issued by the BSP in November 2012 that set forth reference practices to banks for sound “contract-to-sell” (CTS) financing; in other words, a set of guidelines for bank lending to property companies or asset managers like BFS for loans based on in-house financing contracts.
The new rules did impose some controls to protect the exposure of the banking system to risks from the in-house financing business, such as requiring registration of issuing developers and a number of due diligence steps to be undertaken by the banks to confirm the financial viability of both the property company seeking a loan, and the project on which the company’s CTS were based. Nevertheless, because of the BSP’s limited jurisdiction, the new rules could not directly address the practice of in-house financing; if a property company did not seek funding through a bank, the rules would not apply.

A nightmare scenario?

 Although there does not appear to be an imminent threat from the in-house financing business, one banking executive, whose bank’s portfolio of purchased CTS instruments is being managed by BFS, succinctly summed up the financial sector’s biggest fear:
“The real elephant in the room is the risk of widespread defaults,” he said. “2012-084 [the BSP circular on CTS-backed lending guidelines] did improve reporting and ‘quality assurance,’ so to speak, but it’s not a guarantee. A lot of credit is being extended on the presumption that all but a very small percentage of buyers will pay their debts in full and on schedule. But we have to have some degree of faith that the property companies are exercising prudence in whom they finance, and that makes a lot of us nervous.”
The problem, he explained, is that an external economic shock could cause a rash of borrower defaults, which would cascade through the financial system.
“Even if everyone’s done their homework, and they have a portfolio of stable borrowers who are easily paying their loans now, there’s nothing at all in our current set-up that protects us against a change in economic conditions that tightens incomes and sets off an increase in defaults,” he said.
“We don’t know that’s going to happen, we don’t foresee it happening, but the reality is once we recognize it if it does happen, we’ll already be too late. If that’s the case, we’re looking at our own version of the MBS [mortgage-backed securities] disaster in the US a few years ago. A little different in that they’re not traded on the market, but just as bad, because a lot of credit has been extended based on CTS value, and if that value disappears, the losses could be huge.”
The likely solution, he added, is the imposition of stricter rules on the “front end”—rules governing how property companies determine creditworthiness of their buyers—which would, in turn, reduce the risk associated with CTS packages. Doing that, however, might have other negative consequences: Eliminating some buyers from the market could depress prices, and put some companies in a tenuous financial position.
“We may have reached the point where we have to accept a trade-off,” the banker observed. “Either a growing property sector that’s putting a lot of money into the economy, but at a higher risk level, or a considerable downturn in exchange for greater stability. What I hope doesn’t happen, though, is that we do nothing. Because we’ll all pay for that, eventually.”

SCCC New Phone Numbers

SCCC New Phone Numbers

There was a memo dated July 15, 2014 that many Unit Owners may not have seen with the following local landline numbers.

Administration Office - (02) 650-0672

Accounting Department - (02) 584-7509

Engineering Department - (02) 584-9264

Security & Front Desk - (02) 584-9062

"Independent Survey of Century Unit Owners"

"Independent Survey of Century Unit Owners"

(This was just sent to me. I had heard about a survey in the past and this might be it.)

"Greetings to Unit Owners at The Gramercy Residences and other Century Properties projects,

We are a group of unit owners conducting an independent survey.

 
Please click on the following link to access the survey: Century Unit Owners Survey - https://docs.google.com/forms/d/1WOkZcOOdBtia5v-rY2Ho6r8ReVLCF7YQRiZXAhk7IZM/viewform

The results will be used to provide feedback to Century as to what can be improved, and may be shared with media outlets.

Thank you for your participation."

Century Properties - 2013 Annual Report with financial statements

Century Properties - 2013 Annual Report with financial statements

Soho Central is written up on the 30th page of the document.

Is the real estate bubble about to burst?

This is better than the articles. The World Bank as other such financial institutions cannot be trusted since they do the bidding of the elite centered in Europe. That is a complex for a long talk. The ratings agencies also have their own agenda and cannot be trusted to rate anything for the consumer. The writer needs to be informed as to the salaries of call center agents. 30K is not an average. I do not know which developer has borrowing problems though one is floating bonds I know of and another is using funds from one project to finance another since buyers are pulling out. A financial rush only takes place when in reality an industry has major problems that are exposed. The entire condo industry in the Philippines has major problems. How about having a major broadcast with owners expressing all the common problems. Yes, then a collapse would take place once the truth is fully revealed. As for the too often used phrase "ordinary mortals," I would not consider myself or anyone I know ordinary. We the exceptional mortals are just having information hidden behind all the fluff and illegal ads when placed against Presidential Decree 957 and its rules on advertisements. Otherwise, I like this author much of the time.

***

http://www.manilatimes.net/real-estate-bubble-burst/124939/

Is the real estate bubble about to burst?

by RIGOBERTO TIGLAO

September 7, 2014 11:48 pm

GO to any mall, from the posh to the pedestrian, and well-dressed young ladies (far more in number than the gentlemen) will approach you to hand you a brochure selling condominium units.
By the roadside along Sta. Rosa in Laguna – said to be the emerging mega-suburbia –you’d see less well-dressed sales people waving to motorists to stop so they could offer their brochures selling lots and houses in gated residential sites.   Newspaper ad space is now dominated by property advertising. Do these indicate a booming market, or one that is getting desperate?
A favorite question in coffee shops and cocktail lounges has, indeed, been: Is the property bubble—one of the few major drivers of our gross domestic product (GDP) over the past several years—about to burst? The head of one conglomerate reportedly very recently told his close friends: “Get out of property now. “
The World Bank in its regular reports, which on the whole have been optimistic on the country’s economic prospects—has been including as a “major concern” to growth, as early as May 2013, what it terms as “potential supply bubbles in the real restate industry.”
One major explanation for the real estate’s rapid expansion is the fact that developers put on hold their projects when the global financial crisis broke out in 2009. After that, the corks were unplugged. The country’s low-interest rate regime, due not only to the country’s success in weathering that global financial typhoon but to the flood of liquidity in emerging markets as a result of the US “Quantitative Easing (QE),” also boosted the property market.

 Last year, the property market was given another big boost, when the Bangko Sentral ng Pilipinas restricted banks’ Special Deposit Accounts, which had higher interest rates than savings accounts.
By the World Bank’s figures, about P1.5 trillion in funds were released to the system, and the bulk likely went both to fund developers’ property projects and investors’ purchases of real estate. “Money exiting the SDA facility could further exacerbate speculative growth of real estate, which, together with a rise in interest rates caused by the tapering of quantitative easing in the US, would increase the probability of defaults,” the World Bank report said.
As a result, the World Bank estimated that in some segments, the “number of condominium units in the pipeline is far greater” than the average number of units that was built in the last decade.
While banks’ real estate exposure is limited by regulations to not more than 20 percent, the World Bank had raised the concern that the financial system’s actual exposure may be understated because of “shadow banking,” or in-house financing by the developers.
Global property consultant Colliers International’s reported, though, that there isn’t any sign at all that the high-end market is about to burst, pointing out that the Makati central business district’s average price of a luxury 3-bedroom condominium even rose 13.4 percent this year to end-March to P136,533 per square meter. There is some softening of the market, though, in that it was the slowest price rise since 2012.
The markets for this sector are expatriates who rent them and the country’s elite, who purchase the units as investment and for rental income. But property consultants are starting to ask worrying questions.
Has the market reached the saturation point in terms of expats coming into the Philippines and the rich wanting to buy another luxury condominium? Will the elite, if they notice a slowdown in rental values, no longer buy new posh condominiums?
That there is an oversupply underestimated by prices was indicated by a World Bank report which pointed out that 10,600 units were built in 2013 alone, up from an annual average of 3,500 units in the last five years.
The most vulnerable section of the industry, though, according to the international web-based publication “Global Property Guide,” is the small, mid-end condominiums costing at least P2 million, which many property developers in recent years have focused on.
Their marketing tack borders on selling false dreams, that a small unit could be had for just P15,000 a month. The fine print, though, requires payments on a “balloon” basis after the first or second year, amounting to half a million or a million pesos. Middle-class buyers, nevertheless, still agree to those terms, hoping that after a year they’d double their salaries—which more often doesn’t happen.
The biggest clientele for mid-end property has been OFWs, and the World Bank had estimated that 60 percent of their remittances – totaling $22.9 billion in 2013 – into the country had gone into buying mid-end property.
However, according to the Global Property Guide, their remittances have slowed to an average annual rate of only 7 percent from 2009 to 2013, compared with 17 percent annually from 2004 to 2009. This has been due to political and economic uncertainties in certain host countries (the most extreme cases of which have been Spain and Greece) and the slowdown in the advanced economies, prompting OFWs to reduce remittances to their families here in the Philippines.
There is one market that has frustrated mid-end property markets: the young call-center employees of Business Process Outsourcing (BPOs) outfits. With their relatively high salaries of P30,000 monthly, they had been expected to be buyers of small, mid-range condominium units as they would prefer to be near their places of work. It seems they haven’t.
“The bottom line is that their spending power is not yet strong enough to absorb supply,” the Global Property Guide article said. “Many have family obligations and prefer to live at home or with relatives,” it pointed out.
Based on my own observations, still far from the minds of young BPO employees —as really expected for their age range – is investing in their own homes. They’ve instead been spending their incomes on partying and purchasing electronic devices and top-of-the line clothes. That has given malls and restaurants around BPO centers a boost.
So is the property bubble soon to burst? Reading between the lines of the World Bank reports pointing out its concerns over “asset bubbles” in the real estate market, it very likely will if:
• There is a major downturn in OFWs remittances due to a rise in interest rates in the US and to political and economic downturns in the Middle East, where the bulk of contract workers are; and
• As usual, a sudden phase of uncertainty in our own political and economic stability, triggered by a drastic fall in confidence over the Administration or the economy;
But the chain breaks at its weakest link, a property consultant told me.
What he meant is a scenario in which a developer—not necessarily a major one—would go belly up, as it is unable to sell enough of its units to keep its head afloat. Already there is a bit of concern about a major developer to which banks have stopped lending.
That kind of difficulty even by one property company would send the markets into panic, potential buyers would hear about it and hold off their purchasing plans, causing other property developers to keel over. Impossible? Just think of Fil-Estate, Luke Roxas’ ASB Holdings, and more recently Globe Asiatique—once the favorite of property brokers.
The problem with ordinary mortals like us, and most OFWs, is that we are the last to know about these things. As usual, it would be the elites who would know first that the property bubble has, in fact, already burst.

SPECIAL REPORT: Demand bursting but market tempered by ‘bubble’ fears

Special Report: The Residential Real Estate Sector

 

http://www.manilatimes.net/special-report-demand-bursting-but-market-tempered-by-bubble-fears/126001/

SPECIAL REPORT: Demand bursting but market tempered by ‘bubble’ fears

September 11, 2014 9:18 pm

by BEN D. KRITZ COLUMNIST, WITH MAYVELIN U. CARABALLO AND KRISTYN NIKA M. LAZO REPORTERS

Third installment of an extended series

The first two parts of this week’s special report on the Philippines’ residential real estate sector have revealed largely unserved demand for real housing, driven by positive economic conditions and favorable buyer demographics, but at the same time tempered by tight lending controls and intense competition among developers.
There is rapid growth in real demand for affordable housing from end-users and supply is hardly catching up. An increasing number of customers are already reporting problems ranging from long delays in delivery of new units, to poor quality construction, to even cases that might be described as outright fraud.
The outlook offered earlier this week by Lamudi, a global property listing portal focusing on emerging markets, encapsulates the positive view of the Philippine residential real estate sector that prevails among local developers and some analysts.
For one thing, according to the report, there is still a tremendous backlog of demand; while the higher-end condominium market may be nearing a saturation point, the need for affordable housing is estimated to be 3.9 million units as a result of a young and growing population that is gradually increasing its purchasing power.
Lamudi’s report also points to tight lending conditions, such as relatively high interest rates of 6 to 7 percent for conventional mortgages and regulatory caution on the part of the Bangko Sentral ng Pilipinas (BSP) as a defense against overheated credit in the real estate market.
Claro dG. Cordero Jr., head of Research, Consulting and Valuation for industry monitor Jones Lang LaSalle, offered a similar assessment. In a recent briefing, Cordero pointed out that the Philippine residential property sector moves in time to general economic conditions; the current positive economic outlook, expansion of BPOs, manageable interest rates, and healthy inflow of remittances from overseas Filipinos, according to Cordero, encourages developers to be aggressive in launching new projects, for which demand is still quite high.

BSP wary, but confident

 One of the key factors cited in the positive analyses of the residential real estate sector is the relatively aggressive approach by the BSP toward controlling growth, an approach that is presumably driven by the desire to avoid a repeat of the economic calamities of the Asian Financial Crisis of 1997 and the general global financial crisis a decade later.
Banks are limited to capital exposure to real estate loans of 20 percent; as of mid-June, when the BSP implemented a new, more stringent “stress test” for lenders to further strengthen banks’ capital adequacy and protection against bad loans, the ratio stood at just under 11 percent. The BSP has also noted that while lending has increased, surveys of lending standards covering the second quarter of 2014 and the month of July showed that banks have moderately tightened lending standards for consumer real estate loans.
This has led to a consistent assessment by the BSP, at least this year, that there is no significant economic threat to the industry and that there are few, if any, signs that a “bubble” is forming, although the central bank is quick to point out that it continues to monitor the situation closely. In practical terms, the tightening of lending serves to reduce demand by either preventing or discouraging some would-be buyers, and this has helped to keep rapid price increases in check to some degree.

‘Bubble’ debate

 Many analysts, however, are unconvinced that the real estate industry is not at risk of facing a significant downturn. “Our sense is that we haven’t come to bubble proportions yet,” said Bank of the Philippine Islands lead economist on real estate Emilio Neri Jr. in an interview. “We don’t see it happening.”
“But the data is very limited. The data of the Philippines in many assets indicators that would tell us if we have an asset bubble already is very sparse,” Neri added. “So we are still a bit concerned.”
While sounding a more optimistic note, the Korea-based National Information and Credit Evaluation firm (NICE) also expressed caution about the real estate sector in connection with its recent upgrade of sovereign credit rating for the Philippines.
In its report, NICE explained, “Low interest rates and strong optimism about economic growth, which is backed by [GDP] growth of above 6 percent for eight consecutive quarters since the first quarter of 2012, are supporting the real estate market.”
The report added, however, that “The issue of the real estate market overheating is emerging due to the expansion of the construction industry and the rise in real estate prices, and might pose a risk to the economy. Against this backdrop, NICE thinks the authorities should keep monitoring and tighten oversight over real estate loans.” At this point, NICE sees the potential overheating as “still under manageable levels,” but the implication that risks are growing is clear.
In his column this past Monday (“Is the real estate bubble about to burst?”, September 8), Times columnist Rigoberto Tiglao also pointed out a couple worrisome indicators. As early as May 2013, Tiglao explained, a regular economic assessment from the World Bank that was otherwise optimistic about the country’s prospects noted that “potential supply bubbles in the real estate industry” are “a major concern” because recent monetary policy released some P1.5 trillion into the financial system.
This seems to explain why despite the BSP’s tightening of real estate lending, property loan portfolios continue to grow; in the World Bank’s view, the speculative growth of the real estate sector could lead to an increase in defaults, particularly with the rise in interest rates expected after the end of the US “quantitative easing” program that fueled large inflows of foreign funds.
Tiglao also highlighted a recent report by the Global Property Guide that indicated developers may have misread the market. Encouraged by the robust growth of the business process out sourcing (BPO) industry producing a large number of what seemed to be natural customers for small, mid-income range condominiums – young workers earning relatively high salaries of about P30,000 per month—developers have focused on this sector, only to be surprised by a lack of buyers.
“The bottom line is that their spending-power is not yet strong enough to absorb supply,” the report said. “Many have family obligations and prefer to live at home or with relatives.”
As a consequence, the ‘wrong’ market—primarily OFWs, many of whom are actually looking for second or third small properties as speculative investments—has been taking up the slack. This has led to circumstances that many developers evidently had not anticipated: Somewhat fewer units being sold or sales occurring at a somewhat slower pace, for lower than expected prices and under different terms than the developers planned.

The sector’s Achilles’ heel?

 Those “terms” include the widespread use of “in-house financing” among developers, which may prove to be the sector’s Achilles Heel, or the weakest link where the chain will break, as one property consultant described it to Tiglao.
Thanks in large part to the overall tightening of the bank lending market and the lengthy loan approval process even under ideal circumstances, many buyers have been attracted to in-house financing and its promises of low downpayments and quick processing times, which come at the cost of very high interest rates —according to ProFriends’ Dolina, 18 percent for a five-year loan, and 21 percent for a ten-year loan, compared to the 6 to 7 percent average for more conventional 15- to 30-year mortgages offered by banks and other institutional lenders.
As Tiglao pointed out in his column, even the World Bank raised the issue of in-house financing, noting that “the financial system’s actual exposure [to real estate lending] may be understated because of ‘shadow banking,’ or in-house financing by the developers.
How big is the “actual exposure”? The alarming problem is that nobody seems to know. As BPI’s Neri explained, “There is no indicator to show how much property companies are lending to their clients, there’s no kind of data. The SEC doesn’t monitor it. The BSP doesn’t monitor it because they don’t have jurisdiction over property companies. What the central bank can only monitor are banks. So we really are in the dark as to how much property companies lend to their clients unless we have a grasp on that data.”
Because of that, Neri added, “It’s quite a risky statement to make that we are completely spared from a bubble.”

The need for greater regulation is obvious

 The full picture of the residential real estate sector in the Philippines is one that may be unprecedented: Extremely high demand, albeit demand that in some ways has confounded the supply side, is fueling consistent growth in the sector, as well as intense competition among developers.
Because demand is both extremely high and coming from a mid- to lower-income range that has typically had less access to conventional credit through the banking system, and because monetary authorities are concerned about the implications for the economy the rapid growth in the real estate industry represents, bank credit is even tighter than this market would face under “normal” circumstances.
This, along with the need for developers to move properties quickly to hold their own against intense competition, has led to a rapid rise in “creative” financing solutions, such as “in-house financing” characterized by low down payments and lower monthly payments initially, but at very high interest rates.
The explanation of a likely scenario provided by a property consultant in Tiglao’s Monday column was alarming: A single developer, and not necessarily a large one, is all it would take to create a panic in the market. Not only would that particular developer’s customer be affected, others would see their prospective customers delaying or even canceling purchase plans, creating a cascade of failure throughout the market.
With no apparent regulation of the “in-house financing” part of the business, and an existing regulator, the Housing and Land Use Regulatory Board (HLURB) that is rather candid about being overwhelmed by the volume of business it is responsible for overseeing, which is leading to widespread skirting of the rules by property companies, it is difficult not to conclude that the residential real estate sector might be a disaster waiting to happen. And that could, if it is not already, further fuel concerns growing in the commercial and investment sides of the real estate market that a true real estate “bubble” is in fact forming.
The alarming set of circumstances should not really exist, if looked at purely from the perspective that sees a positive market because of good economic conditions, sound prices, and very robust demand. The missing ingredient, it is apparent, is firm regulation of the sort applied by the BSP to real estate lending in the banking sector, but expanded to cover financial activities by developers, compliance and monitoring with licensing and registration through the HLURB, and more efficient and timely resolutions of consumer complaints and violations by builders.
Addressing the shortcomings in proper regulation of the market now, before disaster strikes, would not only be a proper reaction on the part of the government to a potential economic threat, but would also be a proactive move towards getting the most out of the economic opportunity the real estate sector represents.
In the meantime, unfortunately, the best advice for prospective homebuyers might be “caveat emptor”—let the buyer beware. Many analysts and buyers who focus on real estate in the Philippines for investment purposes certainly think so; in the final part of this series on Monday, the prospects for the industry from a capital investment perspective will be examined.

SPECIAL REPORT: The woes of buying a home in the hyperactive, under-regulated PH market

Second of three parts

 

http://www.manilatimes.net/woes-buying-home-philippines-hyperactive-regulated-market/125475/

SPECIAL REPORT: The woes of buying a home in the hyperactive, under-regulated PH market

September 9, 2014 10:41 pm

by BEN D. KRITZ COLUMNIST AND KRISTYN NIKA M. LAZO REPORTER

A row of tiny sand-colored townhouses on the block where Jane’s (not her real name) home of two years is located looks particularly serene, unperturbed by the woes suffered by their supposed owners in the process of acquiring them.
Except for the fact that only her house in the row of 10 units is occupied, outwardly there is no sign of a “problem.” The houses appear to be in good repair, if a little drab looking, and even the grass and weeds in the uninhabited yard spaces have been trimmed. Jane’s own house, which she shares with her two teenage sons and her husband, when he is not deployed to the far corners of the globe as a merchant seaman, is pleasant and tidy, but appearances can be deceiving.
“I’ve met most of the people who are supposed to be buying these,” she explains. “They come to visit on their own, or the property agents bring them here to see the houses. But nobody’s moved in yet.” She points to each house in turn, and recites a litany of issues: These three are not finished on the inside, even though the people have paid up and are waiting to move in, this one has some kind of trouble with the electrical wiring, this one was sold but the people have backed out and are trying to get a refund, this one on the end had some squatters in it, but the property company hasn’t cleaned it up and repaired it yet.”
Recalling her own home-buying experience causes Jane to roll her eyes and sigh dramatically. “Hay naku, it took so long. More than two years, from the time we first looked at the area and decided we would buy here until we finally moved in,” she says. “There are so many requirements. We had the money saved for the down payment, almost half the price for the house, it took us years and years, but even so, it took a couple of months to be approved. Then they said it would take time to finish the house, so we just made monthly payments for the down payment as they suggested—15 months, we did that. And then the house still wasn’t ready.
“And then, when we finally were able to move in, I think it was about three months past the due date, what did we find? Cracks in some of the walls,” she continues. “My husband said it was because they didn’t mix the concrete right for plastering, or something like that. I don’t know, he knows about these things,” she adds with a laugh. “Anyway, we were so tired of waiting, we didn’t even bother to complain about it. My husband just patched them up himself when he was home for vacation.”
Asked about the title for her home, Jane frowns. “We haven’t seen it yet,” she says.
“I guess we don’t get the actual, “official” title until the house is fully paid, but they said we could have a copy. I’ve asked, or my husband has asked a couple of times for it, but every time, it’s ‘being processed.’ And then, we found out we don’t even own the lot. Just the house; the property belongs to the village, or the property company I guess. That was a surprise, because we thought we were buying a ‘house-and-lot,’ like it was advertised. My husband—galit na galit siya (he’s furious)—he wanted to file a case. But we read all the paperwork very carefully, and no, it actually explains it if you look hard enough. And we signed that, so…”
But the pride of home ownership is apparently a powerful panacea, because Jane smiles as she looks around her own living room. “Still, it’s our very own house, and after all that, it’s okay. We like it.”

Fast and loose?

 How typical Jane’s story is, or the stories she tells of other homebuyers, really seems to be difficult to determine with any reliability. The subdivision where her home is located, Lancaster New City in Imus, Cavite, is one of the flagship projects of property developer Company of Friends Inc. (ProFriends), and both the company and its property projects have been the source of some controversy in recent months.
The issues raised against ProFriends in connection with its business are apparently not unique, but prevalent among many other property developers. As the Global Property Guide noted in an overall assessment of the Philippine real estate sector published earlier this year, high transaction costs, red tape and time-consuming loan and purchase approval processes, problems with land titling and registration, construction quality issues, and lack of infrastructure and amenities in some developments are persistent complaints among residential property buyers.
In another case that attracted some media attention last year, New San Jose Builders, which has been developing several condominium projects throughout Metro Manila, was accused by several would-be customers of not delivering units as promised and delaying refunds. In one instance, a buyer who was interviewed by Channel 5 claimed that she had shelled out a P200,000 down payment for a condo unit to be delivered in 2014, only to discover that the location of the supposed project (called Victoria Station 2 and located near the GMA-Kamuning MRT station) was still a vacant lot by the fall of 2013. The company had allegedly been pre-selling units since 2010, but the project was the subject of a cease-and-desist order (CDO) issued by the Housing and Land Use Regulatory Board (HLURB), because construction had started before New San Jose Builders had obtained the required Certificate of Registration and License to Sell from the agency.
At the time, New San Jose explained away the controversy by clarifying the necessary paperwork was “in process” and claiming that pre-selling properties before the required clearances were obtained was common practice (even though that is against the law, according to the HLURB). The present status of the year-old controversy involving New San Jose Builders and its troubled project appears to be unchanged, however; according to the most recent listing of CDOs available from HLURB, two such orders—one issued in May 2010 and another issued in August of last year—are still in force.
In an interview with The Manila Times, officials of Amicus Holdings Inc., the parent company of ProFriends, were asked to respond to some of the complaints raised about their projects. They offered a clue as to why some developers may be tempted to play fast and loose with legal requirements.
“Since 1999, we’ve had about 43,000 home buyers, and we’ve had about 36,000 houses available. Yes, we have a very small percentage of delays, in the context of the number of homes that we’ve delivered already, but this is a consequence of the surge in sales. The surge in sales and demand naturally leads to a decrease in supply, and that causes some delays,” Amicus Holding’s marketing head Vince Abejo explained.
“We try to resolve our bottlenecks in production,” Amicus Chief Financial Officer Joseph Dolina added, when asked about reports of delays of up to two years in delivering houses to buyers. “I think we’ve been able to address a good part of it [the delays]. Part of the problem, though, is that our houses are built-to-order only if the buyer has finished the 15-month down payment term. It’s only after the 15 months that we can be assured of turnover, so we finish the house at that point.
Because sometimes, others avail [of the property] and due to whatever reasons, cancel their availment. So in order to prevent that, we wait for buyers to complete the 15-month payment then we could be assured of turning over the units.”
Dolina’s explanation does not, however, address the case of a buyer of a Gabrielle
house-and-lot unit in the Lancaster Estate, perhaps one of several buyers who have fully paid the total contract price to avail of a promo discount offered by ProFriends but have yet to see the structure built more than two years since the amount was settled.
Abejo further explained, “We have about 2 percent [of ProFriends buyers] that have complained. Though it’s a small percentage, that doesn’t mean it’s to be ignored. For a first time homebuyer, even 2 percent means a lot. I assure you, we’re on the way addressing these delays. We take the delays very seriously. And actually, it’s not just the company, but it’s an industry-wide issue because of the surge in demand.”

An overworked regulator

 The agency that is primarily responsible for overseeing the residential construction industry is the HLURB, which must approve any project before it can be sold to buyers. The contention of New San Jose Builders that “short-cutting” the process and marketing new developments before licenses to sell are actually obtained is a widespread problem – several other property companies the Times contacted, while hesitant to admit they engage in the practice, did acknowledge that it is done probably more often than the HLURB or the public realizes.
Part of the problem stems from the lengthy approval process. In its “citizen’s charter” posted on its website, the HLURB describes the process of approving a residential project in detail—a process that has 29 separate steps and can take up to 57 days. Depending on the nature of the project, fees for all the necessary requirements can range from several thousand to several million pesos, and must be paid to several agencies or government units.
In practice, though, the sheer volume of applications makes the process much longer. One HLURB official speaking on condition of anonymity admitted, “We simply have more than we can handle in the timeframe goal we’ve set for ourselves.
We have implemented some ideas to speed up our processes, especially when it comes to addressing complaints and conflicts over real estate transactions, and things have improved a lot from last year, but we still struggle to keep up with the volume of business.”
That may bode ill for consumers who are caught by situations like the New San Jose Builders case last year; in that instance, at least one customer was told by the HLURB that it could take up to a year for his complaint to the agency to be resolved.
For now, the best consumer protection appears to be foreknowledge. On its website (www.hlurb.gov.ph), the HLURB posts a listing organized by region of projects that have had a CDO issued against them, and also provides a search function where a prospective buyer can look for information about a specific developer or property agent.

An image problem

 When asked if, knowing what she knows now, she would go through the process again, Lancaster New City homeowner Jane said: “Honestly, I don’t think so,” she said. “Now, in fairness, we did get what we paid for, the problems we had were solved eventually, and even though some of the things that were advertised—the ‘clubhouse,’ the ‘pool,’ the ‘shopping area’ weren’t here, or weren’t exactly what they looked like in the brochure when we finally moved in, it seems like they’re slowly working on it. So we’ll see. Owning our own home, actually living in it, that means a lot to our family. I guess that makes a lot of the trouble we went through worth it. But would I do it again? No, not if there was a better choice.”
That perspective should be a serious cause for concern for the residential property sector. It does not seem a tipping point between demand for the product and a general perception that the product is undesirable has been reached yet, but unless the industry can improve its image—an image that is, after all, being damaged by actual experiences, even if the true extent of those experiences may be debatable—that tipping point might be reached rather quickly.
The issue of business performance in the residential real estate sector contributes to the persistent concern that the country may be experiencing, or about to experience, a real estate “bubble” and a resulting serious downturn in the industry.
From one perspective, strong demand among a market that is mostly composed of end-users planning to occupy and keep their homes is a sign of a healthy market that, barring an unforeseen circumstance such as a general economic downturn, should continue on its current trajectory for some time to come. But if that demand changes, the sector could be in big trouble.
In the next installment of this special report on Friday, the prospects of the industry for the next few years will be examined in an attempt to answer the burning question, “Are the warnings of rough times for the property ahead valid or not?”

SPECIAL REPORT: Sizzling property market shows no signs of cooling

The article is aimed in the right direction but the industry is worse than the article pretends. Stats in the Philippines cannot be trusted as all those that have bought condos can attest. Shortly after moving here, we saw the signs of the glut now turned to bubble ready to burst. There are tears in the bubble and we will all know the complete burst when all those cranes on top of buildings stop and basements dug for foundations turn into mosquito pits.

***

SPECIAL REPORT: RESIDENTIAL PROPERTY SECTOR

 

http://www.manilatimes.net/sizzling-market-shows-signs-cooling/124924/

SPECIAL REPORT: Sizzling property market shows no signs of cooling

September 7, 2014 11:29 pm

by BEN D. KRITZ
COLUMNIST

Should regulators start to worry?

Editor’s Note:

What may be a brash assessment of the state of the Philippine property market is a quick, simple conclusion based on available figures that indeed, there is a “bubble” forming, given the stirrings in the sector caused by brisk economic activity and the inflow of both hot money and overseas Filipino workers’ (OFW) remittances over recent years.
But things are not always what they seem, especially when it concerns this market.
More than a few analysts have raised concern about a possible overheating in the real estate sector in the country. One reason such perception persists among property market observers is that the focus of most analysis is from the perspective of capital investors, and is largely limited to observations of high-end markets in Metro Manila, specifically, the Makati central business district, Ortigas Center, and Bonifacio Global City.
Seen from a purely investment and regulatory perspective, the concerns about a property “bubble” cannot be entirely discounted; in any “hot market,” price and demand pressures can easily outrun the wider economy’s ability to absorb them. The possibility of the real estate market overheating and creating problems for the financial sector has been the focus of attention from the central bank in recent months, and is a serious concern from the point of view of a number of analysts (see Rigoberto Tiglao’s column on A1).
From a consumer perspective, though, the picture of the residential real estate market is much broader, and very much more attractive, though not without some potential risks, than conventional analysis might indicate.
In this first installment of this week’s special report, Columnist Ben Kritz examines the features of the local property market and presents an overview of the residential real estate segment. While this sort of examination necessarily involves reference to a sizable database of raw statistics, they do present an interesting picture, and a largely positive one for the prospective property buyer.

First of three parts

By the numbers

Construction activity, given its role as a key component of gross domestic product (GDP) under the category of “capital formation,” is carefully tracked and presented by the Philippine Statistics Authority (PSA) in a fairly detailed overview on a quarterly basis.
The data is based on the number of new construction permits issued during the period, and divided into residential construction, non-residential (i.e. commercial and industrial) construction, and “additions, alterations and repairs,” which include any construction to add on to or refurbish existing buildings.
As has been the case for many years, the number of residential construction projects during the second quarter of this year — the most recent period for which full data is available — was far greater than any other type of construction activity.
Residential property construction in the April to June period this year accounted for 72.8 percent of the total number of construction starts. The 23,817 residential projects started in the second quarter represented an 11.5 percent increase year-on-year, a slightly faster rate than growth in construction overall, which expanded by 11.2 percent from the second quarter of 2013.
In value terms, new residential construction projects rose by P1.89 billion to reach P34.52 billion in the second quarter of this year from P32.63 billion in the year-earlier period.
Residential building accounted for about 54 percent of the overall P3.51 billion increase in total construction value, which was otherwise driven by the sharp rise in the value of existing buildings’ additions, alterations and repairs.
Non-residential construction, while expanding slightly in the number of new projects started, actually declined in value by a little over P1 billion from a year ago, from P28.51 billion to P27.5 billion.

NCR not the hottest market

 Despite the focus of market analysts on key areas within Metro Manila, the National Capital Region actually ranks a poor sixth-place among the 17 regions tracked by the PSA in terms of new construction starts. By this measure, the hottest market in the country right now is the Calabarzon Region (Region IV-A), comprising the provinces of Cavite, Laguna, Batangas, Rizal, and Quezon, with 5,920 new projects in the second quarter of 2014, nearly 25 percent of the national total.
Cavite is the most active province in terms of both residential and non-residential construction, accounting for about 10.3 percent of the total and 10.5 percent of residential projects nationwide in Q2, with 2,503 projects worth a total of P3.1 billion getting underway.
Other regions with strong markets include Region III (Central Luzon) with 3,131 projects; Region VII (Central Visayas) with 2,530 projects; and Region XI (Davao Region), with 2,033.
Overall, however, the pace of construction starts seems to be decelerating, if only slightly, from last year. Another measure of construction and real estate marketing activity is the number of “licenses to sell” issued by the Housing and Land Use Regulatory Board (HLURB); as a matter of practice, developers obtain these licenses early on in a project’s development, often before ground is broken, in order to give themselves flexibility in pre-selling residential units, which is an important source of construction funding.
According to HLURB data, which is only available for the first quarter of 2014 as of now, a total of 153 licenses to sell for projects comprising a total of 47,417 units were issued in the first quarter, a rate that is slightly slower than in the 2013 period, when 637 licenses for 225,051 individual units were issued by the agency.

Prices rising, but at slower pace

 In terms of prices, variances across the entire country make a “national average” virtually meaningless; according to property monitor Collier’s International, the average per-square-meter price during the first quarter was $3,043, or approximately P132,498 per square meter at the current peso-dollar conversion. This figure, however, is an average of prices in Makati, Bonifacio Global City, and Ortigas – the default area monitored by most analysts – and is in all likelihood significantly higher than most other areas of the country.
Nevertheless, the trends in prices seem to be consistent across the whole country, despite differences in the actual values. After experiencing a decline in 2008-2009 in the wake of the global financial crisis, residential real estate prices have increased steadily.
Collier’s notes, however, that the pace of the increase has slowed considerably this year; after rising by an average of about 3.44 percent through 2013, Q1 2014 saw residential real estate prices advance by only 1.2 percent, the slowest increase in two years. Despite this, Philippine property prices are still advancing at the fifth-fastest rate in the entire world, according to the Global Property Guide.

There are two key reasons for the moderation of price increases despite high demand. The biggest reason, in Collier’s view, is the recent action by the Bangko Sentral ng Pilipinas (BSP) to tighten real estate lending by banks; for example, the central bank has recently implemented a credit “stress test” for lenders to ensure adequate capitalization and provisions for bad loans.
This and other moves, such as increasing banks’ reserve requirements, have slowed the pace of real estate lending. Real estate lending is still expanding at an impressive rate, having expanded by 25 percent to P843 billion in 2013, but this was markedly slower than the 34 percent expansion the sector experienced in 2012.
The net effect of tightening lending is to boost the supply by eliminating some customers, and as a result, developers have had to moderate the increases in property prices while banks have been encouraged to offer more flexible financing.
The majority of real estate loans are still relatively short-term (high down payment followed by 5- to 7-year loan periods), high interest loans. However, Global Property Guide notes that more ‘conventional’ terms, such as 15- and 30-year tenors on loans up to 90 percent of value, are being offered by some banks, although these are not yet common.

Market shift

 The second reason price increases have decelerated is the noticeable shift in the market. Property consultancy KMC MAG Group in its Midyear Review of the Philippine property market points out that growth in the high-end market (i.e., the market in Makati and other upscale areas typically monitored by analysts) has slowed considerably, but that demand has grown in the middle-income segment.
This is a rare case in which the usual function of demand and prices does not work as it normally does; while developers, who are behind the demand curve (although this is also area-dependent), can command higher prices, the boundary between having a development which is fully subscribed and one that is mostly empty is exceedingly narrow, thanks to intense competition.
Developers also have to be flexible to some degree in matching the income and credit-worthiness of their prospective buyers; even if raw economic math indicates much higher prices could be charged, the realities of the marketplace serve as a damper on price increases.
A big part of the reason for the “power of the buyers” in the Philippines, as KMC MAG points out, is that unlike other hot real estate markets (such as in China, and to some degree in Malaysia in the past couple years), the market is mainly made up of OFWs and relatively financially stable middle-income domestic buyers who are seeking homes for themselves, rather than buying property as a speculative investment.
While the continuing increase in prices, even though retarded somewhat by market conditions, may push some buyers out of the market eventually if the larger economy does not keep pace, one fortunate sign for buyers is that prices are not increasing nearly as fast as property values.
According to estimates by the Global Property Guide, residential property values in the Philippines are growing by about 10 percent over a one-year period, about 32 percent over five years, and about 75 percent over 10 years (the increase in property values typically decelerates over time). Thus, the typical Filipino homebuyer can, at least at this point, count on a stable investment for his or her hard-earned income.

A buyer’s market, but not without risk

 Even though the prospects for property buyers in the Philippines are generally very positive, price and demand pressures being exerted on a supply side that appears to have been a little late in recognizing the shift to a more middle-income market means there are risks for consumers.
Developers have only a narrow window of flexibility in pricing their offerings, and are under added pressure to keep expanding not only because of high demand, but because of intense competition in the real estate sector as well.
That has, unfortunately led to a number of issues that have left some homebuyers facing a nightmare instead of the dream home they thought they were buying – high transaction costs, problems with land titling and registration, construction quality issues, and lack of infrastructure and amenities in some developments.
In the second part of this special report on Wednesday, we will examine some of these issues, and investigate what is being done – or not done – to protect consumers and the wider property market from the negative financial impact.