Philippines - next real estate and property boom

The Philippines has the potential to be the world’s next property “blockbuster,” but this sector’s prospects can be maximized only if the country relaxes its real estate investment trust (REIT) law and boosts infrastructure investments.

Mr. Antonio, also the chairman of Century Properties Group, Inc., said the Philippines -- with its young demographics and solid fundamentals -- has been expanding for 66 straight quarters since 2001, paving the way for its economic renaissance after being tagged “the sick man of Asia” in the past several decades.

Changes in Republic Act No. 9856, or the Real Estate Investment Trust Act of 2009, may unlock the value of the real estate sector, Philippine Stock Exchange Chief Operating Officer Roel A. Refran mentioned.

Nearly six years since the REIT law lapsed into law in December 2009, none of the major developers have come forward with their respective offerings because of contentious issues on ownership and taxation of asset transfers.

“It’s like we have sent invitations to a party, but no one came,” APREA Chief Executive Officer Peter Verwer said. But for Mr. Refran, the “party’s not yet over.”

“There is no one-size-fits-all model. We have an advantage that we can pick up from various jurisdictions, customize them and learn from that experience. The policy decision we have to buy into is that enabling real estate development -- whether through underlying assets or REITs -- has a positive impact on GDP (gross domestic product) growth,” Mr. Refran said.

The Securities and Exchange Commission intends to revive its dialogue with the industry to make REITs a “real alternative funding source,” Commissioner Ephyro Luis B. Amatong said.

While the financial system is awash with cash, Mr. Amatong said real estate firms are facing funding pressure with the Bangko Sentral ng Pilipinas (BSP) implementing the single borrower’s limit and putting a cap on bank exposure to real estate. “These... regulations mitigate risks with the ups and downs of the industry, creating pressure for the industry to find other sources of financing aside from bank borrowing.”

To sustain its economic run, and along with it real estate’s rosy outlook, it is crucial for the Philippines to increase investments in infrastructure -- an area where the country has under-invested in past decades. “We are like an eight-year old... who started in the business. We’re now 15-16 years old, but we’re wearing clothes of an eight-year old. We have outgrown the clothes we are wearing so we should now upgrade our infrastructure,” Mr. Antonio said.

Better access will enable the Philippines to realize the potential of tourism, which can be the country’s third leg after business process outsourcing (BPO) and overseas remittances, he said. “Tourism is one of the low-hanging fruits in the economy today. However, in order to attract tourists to this country... I think we have to improve our access.”

CBRE Philippines Chairman Rick M. Santos remains bullish on the BPO sector, saying its demand for space could hit 850,000 square meters (sq.m.) by 2018 from 600,000 sq.m. currently.

Your Residential Property is a Liability, not an Asset!

In my previous post about how I can immediately achieve financial independence now (click here), I talked about downsizing my house. Some people may think it is due to the profit earned from downsizing. Actually, that is only 1 part of the equation. If you think harder, you will realised that your residential property (The one you stayed in without renting out) is a liability. Yes, it is the biggest liability for most people in Singapore (Maybe worldwide?).



Contrary to what your finance course taught you (If you attended one), your residential property is not an asset! You have to pay the mortgage/loan hence, money going out of your pocket. It only becomes an asset when it puts money into your pocket. The majority of us thinks that buying a house (liability) that increase in prices will make them rich. I hope you will not faint when you look into your mortgage loan that include your interest paid in your lifetime (If you are paying via CPF, you will be even more surprised with the accrual interest you owed to your older self when you sell your property). For example, a HDB 4 room BTO flat bought at $300,000 at 2.6% interest will cost you $432,185.93 after 30 years! This exclude any opportunity cost and property taxes too.

Let us illustrate an extreme example, if everyone has a place to stay for free or sleep on the street, we would actually have half a million more in your pocket. Moral of the story? Sleep on the street? Of course not! The less liability you owed to your residential property, the richer you are.

Here, some people will think I am short-sighted because you can make some money from buying and selling of residential flat. Come on, seriously?

Let us take a quick example of most cases of selling and buying a residential property. Here, you bought a $300,000 HDB 4 room BTO flat and after 5 years, you sell it at $400,000. You would have paid interest of maybe about $36,800 at 2.6% for 30 years loan and you renovated it for $30,000 for the first flat. Your profit will be $63,200. Then, you will need to renovate your new flat, say another $30,000, your profit will only have $33,200 left. This exclude the property taxes you have paid thus far. A rule of thumb, riding the property cycle of high and low prices, you sell high, you buy high. The same for when you sell low, you buy low. You will not benefit much from the property cycle if you still need a property to call it a home.

So, how do I profit from my flat? I have to say I am lucky that I gotten a BTO beside a MRT station and with high floor unit. I will be able to command a higher selling price than average, I guess. In the above scenario, I will sell it, say, $600,000. Then my profit will be $233,200. This profit will help me to get a free 3 room BTO flat at most location in Singapore and with some cash back. This is how the mathematics work.

Nothing is free, but if you can let go, everything is free. - Frugal Daddy

How To Immediately Achieve Financial Independence

Unfortunately, most of us (low to middle-high asset class) slogged our life away for the house (a building in which people live). Let us remove the super wealthy from this equation as property is probably dirt-cheap to them. Let us also neglect the fact that many treated property as investment, instead of residential.

I just did a serious review on my financial status (yes, again and again). I realised if we are to sell away our 4 rooms flat now and buy a 3 rooms flat, we are officially financial independence immediately! So, now the question is, the luxury of having 1 more room worth the extra 3 - 5 years of working full time? The most common answer I can anticipate should be not worthwhile. Ironically, most people will rather work till retirement age to buy as luxury a house as possible.

Alternatively, we can also buy a 4 room BTO flat at around $300,000. We may have to sacrifice on the location and accessibility to amenities compared to my current flat which is beside MRT, shopping centre and future various establishments. For 2^nd timers BTO applicant, we will have to keep trying and waiting for opportunity to grab one, which can take many years.

If we want to maximum the effect of profiting from the property, we have to partially cash out it as early as possible. Why? Because the money can provide interest compared to a property stay idle and risk devaluation as lease get shorter and lose it competitive advantages (MRT will be established everywhere in future). However, we are not in urgency to move. We quite enjoy the conveniences that comes along with our current flat.

To make my options even more complicated, I am always a fan of staying near workplace. Since I am not going to work in 2-5 more years (or freelance) and my wife enjoy her work and may work for another 8 to 10 years, I am thinking to move near her workplace. This will save 2 hours of my wife and child’s time, as the childcare will be there anyway.

Summary, if I want to retire immediately:

1. Stay in current flat and keep trying BTO (4 room). Downgrade again to 3 room during old age. Bite the cherry twice like what my friend said
2. Buy 4 room resale flat near my wife workplace, where I may not have much profit (unless I bought 3 room resale flat). Thereafter, try BTO (3 or 4 rooms flat) years after

If not, I will just stick my neck out and work full time for another 5 years till 37 years old. I will achieve financial independence anyway. Alternatively, I will work full time for another 2 years, and continue with freelance for 5-8 years to achieve financial independence

My objective is to provide the best for my family. I will keep my options open. What is best for my family than my time and devotion? Here is a video that parents should watch : 

Property firms told to build outside the megacities

The housing backlog in the Philippines currently stands at 5.5 million units but is expanding by 250,000 units each year, because only about 150,000 socialized housing are built annually, based on more recent government data.

But according to housing executives, this is clearly not just a problem of building enough housing, but rather building houses in well-planned new communities that host jobs and livelihood activities outside of already overcrowded cities like Metro Manila.

In the 2014 World Cities Summit hosted by Singapore, the Shell group of companies unveiled a somewhat troubling study, titled “New Lens Scenarios,” which identified Manila as an “underprivileged, crowded city.”

The study described Manila (but it could have been referring to other Metro Manila cities, as well) as a decrepit city with a high population density and low GDP per capita, meaning too many jobless people in one place.

It warned that rapid urbanization results from people flocking to megacities in search of oftentimes nonexistent jobs and livelihood. Half of the world’s population live in overcrowded megacities, Shell said.

It is against this backdrop that consumers and industry observers alike get to appreciate housing developments outside of the megacities like most of the 17 completed and nine ongoing low- and middle-income projects of real-estate firm Property Company of Friends Inc.  or Pro-Friends, for example.

Pro-Friends has been in the business since 1999, and it has shown foresight in focusing its developments in the province of Cavite which, like Laguna, hosts job-producing economic enclaves.

Take for example Pro-Friends’ flagship development, the Lancaster New City in 1,107 hectares straddling Kawit, Imus and General Trias in Cavite. About 14,800 families have owned units in Lancaster since 2007.

With everything that families need like access to churches, schools, health care and, of course jobs (at the SunTech iPark), Lancaster is fast-realizing its developer’s vision of becoming a self-sustaining township.

Shell’s study stressed that “tomorrow’s success will depend on how well these are managed and how quickly government, business and civil society improve their collaboration today.”

Reflecting improved collaboration among stakeholders and players in property development, Pro-Friends this year inked a major industry-shaking deal with GT Capital Holdings Inc. of the Metrobank group under which the latter acquired 22.68 percent of Pro-Friends for Php7.24 billion.

The deal, which includes the option for GT to acquire 51 percent of Pro-Friends within three years, has made the company a tempting target for attack, which it promptly addressed under the Cybercrime law.

The government has had a bad track record at socialized housing, such as the BLISS project and its post-Yolanda rehabilitation effort. What the next government can, thus, do is extend more financial assistance to people in availing affordable housing in communities where they also work.  While at it, the government should fast track the construction of mass-transport systems to the provinces, like Cavite and Laguna to decongest Metro Manila.

-- Business Mirrot

Ideal Home and Ideal House

There is always a dream house in everyone mind. However, a home is where we truly belong. The difference between house and home, in my interpretation, is that house is a property and home is a place where our heart, soul and body feel attached to. A home can be more meaningful if it is filled with members close to your heart. To some, a home is a place where they seek their personal privacy.



It doesn't matter whether your house is a HDB studio apartment or a $10m penthouse condominium. What matters is the overall liveability and you are happy staying in it. There are many factors that dictate the liveability of the house and it varies from people to people.

Definitely, I have an ideal home. The question here is whether to move beside my wife's workplace or stay at my current flat. Here are my considerations:

Option 1 - Continue to stay in my 1st house

Benefits
1) Beside MRT station and bus interchange
2) Unblock view with full height windows
3) Highest corner unit with privacy and quietness
4) 1st owner of the flat with everything new
5) Shopping centre within 2 minutes walk
6) Good friends staying nearby
7) Good neighbours with children similar age as my child
8) Public sport facilities within 15 minutes walk

Option 2 - Stay beside my wife workplace (She loves her job but may stop working after we achieve financial independence) 

Benefits
1) Free sport facilities such as swimming pools and it is almost crowd-less
2) Cheaper, tastier and more varieties of hawker food
3) Save my wife travel time of 2 to 2.5 hours per day
4) Child(ren) after day-care will not need to travel
5) Cheaper and better access to daily necessities
6) Could have $100k to $200k profit from selling previous flat
7) Better school options for child(ren)
8) Able to cook most of the days due to time saved on travelling
9) Cycle-friendly, which is my preferred mode of travel
10) Could potentially save $50,000 on transports over lifetime

My inclination is to move but to look for a suitable unit at the targeted areas. Another consideration to move is when. I can't move yet since I am still in the midst of my 5 years MOP. However, it doesn't make sense to wait for a new BTO flat for years and I can't dictate the location much.

Do you have similar considerations and what are your views? I would love to hear from you.