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Property bubble in the Philippines?

By Francisco S. Tatad | Mar. 12, 2013 at 06:01pm
Search for “Philippine property bubble” on Google and you’ll find plenty of news reports, in which real estate developers and banks assert that a property bubble is far from happening in the Philippines. The phenomenon is believed to be going on in other booming property markets, like China. But experts say that we are still safe from it.

A real estate bubble is characterized by rapid increases in valuations of real property until they reach extremely high levels, which are unsustainable, and then, decline. Bubbles can go on for years, with prices rising above reasonable and normal levels per annum, before eventually bursting and crashing. A common precursor to a looming property bubble is the excessive purchases of property for investment purposes (buy and sell), which contributes to the skyrocketing prices.

With condominium building constructions ongoing at every street corner of the metropolis and beyond, is there cause for alarm?

In the Philippines, reports indicate that a majority of property buyers are end-users, not investors. Among these end-users, the most purchases come from first-time owners—young professionals and new families with increased purchasing power. Most of them will only be able to live in their purchased units starting 2016, when a lot of the developments reach completion.

It should also be noted that only 149,000 new residential units are expected to be delivered within five years from now. This is a healthy sign that means that there is still real demand in the market that needs to be addressed.

According to Ayala Corp. chairman Jaime Augusto Zobel de Ayala, there is a further demand of 4 million homes despite the widespread construction of horizontal and vertical residential developments in Metro Manila and other major cities nationwide by a number of different developers.

BPI family Savings Bank president Jose Teodoro Limcaoco echoes this, saying their studies show that “the perceived rise in real estate prices has not kept up with the rise in real wages.”

University of Asia and the Pacific economist Victor Abola said late last year that current trends suggest that a bubble is expected to occur “in four to five years,” and this is likely to start in the high-end segment.
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