Quo Vadis—Ayala Alabang Village Land Values

Published October 9, 2019

Ayala Alabang Village (AAV) has always been known as a Southern sanctuary where kids talk with American twangs and have laid-back lifestyles. It has the best features gated communities have to offer: tight security, a golf course, a polo field, prestigious schools, wide roads, and other amenities. It’s home for many of the country’s celebrities, politicians, and top executives. Despite having all these, lot prices in AAV have lagged the run-up of property prices of other prominent villages in Makati and Pasig. Will AAV prices ever catch up?

History of Ayala Alabang Village

After successfully developing Makati in the 60s, the Ayala Family sought to venture into developing other parcels of land. They chose to enter into a joint venture with the Madrigals to develop the latter’s 661-hectare mango farm in Muntinlupa. They developed the property into a residential-commercial district, which today is known as areas comprising Ayala Alabang Village, Alabang Town Center, and Madrigal Business Park.

To help drive demand for the village, the Ayalas donated lands to De La Salle Zobel[1] in 1978 and Parents for Education Foundation (PAREF)[2] in 1981 as well as developed a golf course and country club. Demand for the lots was strong, and inventory was sold out as soon as the developer opened new phases.

In the early 90s, the Ayalas tried to expand the village boundaries by bidding for the government’s 244-hectare Alabang Stock Farm, which was adjacent to AAV. Unfortunately, the Gotianuns outbid the Ayalas for the property.[3] This parcel of land was transformed to what is now known as Filinvest City.

Why prices have lagged

A close look at the data would suggest that the top performing villages are found beside Central Business Districts (CBDs), particularly Makati/BGC and Ortigas/Manda/Pasig CBDs. The bigger the CBDs, the more expensive adjacent villages are. Data from Lee Chiu shows that Makati and BGC CBDs have a combined 5.72 Mn square meters of office space, while Ortigas/Manda/Pasig CBDs have a total of 2.26 Mn square meters. Alabang only has 707,000 square meters. It seems that Filinvest have taken a conservative stance in developing Filinvest City the past 2 and a half decades. 

The New Bilibid Prison––Catalyst for AAV Price Escalation

Unknown to some, the 367-hectare New Bilibid Prison (NBP), the penitentiary housing the country’s most notorious convicts is a stone’s throw away from AAV (1.3 kilometers to be exact). Transferring NBP is not a question of “if” but “when”. Plans to transfer the facility to another location had been brought up by politicians as far back as early 2000s[4].

In fact, the past two administrations had drawn plans for its transfer with the Arroyo Administration issuing Executive Orders to transfer the facility to Tanay, Rizal[5] and the Aquino Administration offering it as a Public-Private Partnership project that would have cost Php50.2 Bn.[6] Unfortunately, nothing transpired. When Duterte became President, he planned to create a Php150 Bn penitentiary facility in Nueva Ecija[7], but later withdrew plans mainly due to prioritization of other issues[8]. Nonetheless, we saw some movement in the area with (former) BuCor Chief Nicanor Faeldon ordering in March of 2019 the cutting of water and electricity supplies of the informal settlers living around the NBP to force them out.[9]

The NBP will be privatized and be put up for bidding amongst the country’s largest developers capable of raising the required capital. I’m expecting Ayala Land, Vista Land, Megaworld, and SM to be at the forefront of the auction.

It will happen in the next 3 years due to three factors

1. Congestion

As of August 2019, NBP reported that a total of 27,165 inmates are held in a facility designed for only 6,435 inmates—an over occupancy rate of 422%.[10] In fact, reports from the Institute For Criminal Policy Research (London) show that the Philippines’ has the second most crowded prison in the world. The lack of proper ventilation from overcrowding makes it hard to contain the spread of diseases, and in fact cause the death of approximately 5,200 inmates annually.[11] Despite the high mortality, the inmate population increases by an average of 4.3% annually. [12]

The over congestion of the NBP has also caused a lot of other problems: Antonio Leviste’s escape in 2011[13]; the proliferation of contraband items[14]; and more recently the “ninja-cops” issue in 2019[15]. The congestion helps disguise symptoms of these problems. Reports from the NBP show that guards to inmate ratio has ballooned to 1 guard for every 54 inmates––a lot more than the 1:9 ratio in 1990. [16] Moreover, senators have highlighted how primitive the facility is and how a state-of-the-art facility would help minimize these problems.[17]

2. Operating Costs

Between December 2018 and August 2019, the government’s appropriation to Bureau of Corrections has ballooned by 54%.[18] This is mainly attributed to the jurassic systems of the NBP, where more inmates simply mean the need for more guards for security. Having a more state-of-the-art facility such as buttons can open/close cells, CCTV coverage, cellphone signal jammers and biometric systems would lessen the need human intervention—and therefore reduce operating costs and even corruption within the facility.

3. Good timing with the general rise of property prices

Since the time of the last two previous administrations, real estate prices have increased significantly. From the time the Manila-Cavite Expressway (MCX) opened in 2014 to today, prices in NBP’s area has more than doubled[19]. Prior to the completion of the MCX in 2014, the zonal value of Katarungan Village, which used to be a portion of the NBP but was given to employees of the Department of Justice[20]) was at Php8,000 per square meter. Had the government sold the property at the time, they would have raised Php29.36 Bn, which would not have been enough to fund the cost of relocating the property and putting up a new facility (and thus the need for the private proponent for funding). Today, however, Katarungan Village zonal values have risen to Php22,000/sqm, which will allow the government to sell this land for AT LEAST Php22,000/sqm, or equivalently Php80.74 Bn enough for a new facility elsewhere.

Ayalas to develop the Next CBD

The Ayalas are likely to outbid everyone since they are the best in unlocking property values. When the FTI complex was auctioned in 2012, the Ayalas bid Php24.3 Bn (Php32,838/sqm)—138% higher than the floor price set by the government and 66% higher than the next closest bid. [21] Property analysts were dumbfounded why the Ayalas bid that high. Six months later, Ayala sold 17 commercial lots in the complex at Php150,000/sqm without having started any construction.[22] More recently, Eton Properties teamed up with Ayala Land to develop and market Eton’s land in Pasig (Parklinks)[23], a clear testament to the Ayala’s prowess in unlocking property values. They’re the ones who were able to convince the old rich in Manila to transfer to Makati. Moreover, guess who the private proponent is for the MCX, the road adjacent to NBP: AC Infra, Ayala Corporation’s infrastructure subsidiary.[24] MCX is the first and only highway project of AC Infra to date. Control of MCX is essential for the development of NBP since the highway operator will ultimately decide where entry and exit points will be put.

Conclusion

Future plans for NBP will bolster prices of AAV, narrowing the gap from lot prices in Makati/Ortigas/Pasig villages. I would be the least bit surprised if prices in AAV and surrounding areas double within 6 months after an announcement that Ayala won the NBP bidding. The underperformance of prices in AAV actually provides a good timing for investors to buy in now.

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
5th Floor, Phinma Plaza, Plaza Drive, Rockwell Center, Makati City

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Sources:

[1] Wikipedia contributors. (2019, October 4). De La Salle Santiago Zobel School. In Wikipedia. Retrieved 03:42, October 9, 2019, from https://en.wikipedia.org/

[2] PAREF Woodrose (n.d.). History Woodrose. Retrieved from http://www.parefwoodrose.edu.ph

[3] H. Dick, P. Rimmer (2003). Cities, Transport and Communications, The Integration of Southeast Asia since 1850. New York, N.Y.: Palgrave Macmillan

[4] Ferriols, D. (2003, March 5). Only 70% of prison property to be sold. Retrieved from https://www.philstar.com

[5] Official Gazette (2006, September 8). Executive Order No. 568, s. 2006. Retrieved from https://www.officialgazette.gov.ph/

[6] Public Private Partnership Center (2016, August). New date set for prison PPP project bid submission. Retrieved from https://ppp.gov.ph

[7] Echeminada, P. (2016, October 12). NBP transfer to Nueva Ecija to push through – Aguirre. Retrieved from https://www.philstar.com

[8] Buan, L. (2017, September 3). Duterte might not push through with mega prison in Nueva Ecija – Aguirre. Retrieved from https://www.rappler.com

[9] Cabalza, D. (2019, March 27). Water, power cut to force 10,000 families off Bilibid land. Retrieved from https://newsinfo.inquirer.net/

[10] Bureau of Corrections (2019, September 20). Statistic on Prison Congestion. Retrieved from http://bucor.gov.ph/

[11] Yeung, J. (2019, October 4). More than 5,000 inmates die at this prison every year. Retrieved from https://edition.cnn.com/

[12] Bureau of Corrections (2019, September 16). PDL Profile Statistics 1990-2019. Retrieved from http://bucor.gov.ph/

[13] Official Gazette (2011, May 28). DOJ fact-finding panel report on Bureau of Corrections.  Retrieved from https://www.officialgazette.gov.ph

[14] Frialde, M. (2016, April 19). Bilibid surprise search yields contraband. Retrieved from https://www.philstar.com

[15] Ramos, M. (2019, October 9). Sotto urges PNP chief to fire ‘ninja cops’. Retrieved from https://newsinfo.inquirer.net

[16] Bureau of Corrections.

[17] GMA News (2019, September 13). Lacson calls for establishment of regional prison facilities. Retrieved from https://www.gmanetwork.com

[18] Bureau of Corrections (2019, September 16). PDL Profile Statistics 1990-2019. Retrieved from http://bucor.gov.ph/

 

[19] BIR Zonal Values

[20] Department of Justice (1991). Katarungan Village I. Retrieved from https://www.doj.gov.ph

[21] Rappler (2012, August 14). Ayala Land wins FTI with P24-B bid. Retrieved from https://www.rappler.com/business/10497-ayala-land-wins-fti-with-p24-b-bid

[22] Dumlao D. (2013, February 18). Ayala Land cashes in on FTI. Retrieved from https://business.inquirer.net

[23] Ayala Land (2018, January 18). Ayala Land & Eton Properties launch their greenest urban estate: Parklinks. Retrieved from https://www.ayalaland.com.ph

[24] AC Infra (n.d.). MCX Tollway, Inc. Retrieved from http://www.acinfra.com.ph

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POGOs

Published: August 23, 2019

Philippine Offshore Gaming Operations (POGOs) have been in the headlines the past to a rising crescendo. Many articles have been written recently about the suddenly significant presence of both legal and illegal Chinese workers in the country, the freezing of applications for new POGO licenses, the request of the Chinese government for our government to ban gambling, and the curtailment of POGO operations to hubs. More recently major local banks and property developers have come out with press releases that they have limited exposure to this market. These headlines have resulted in dire predictions about the negative impact of all these events to the local real estate market.

This article will try to explain what POGOs are and how they impact our economy.

A short history on POGOs

Chinese nationals are big gamblers. Casino operators in Las Vegas saw an opportunity to tap this market when Macau loosened its restrictions on foreign operators in 2002. In just a few years, new casinos sprouted as foreign investors came in droves. By 2013, Macau’s gambling revenues grew seven times bigger than Las Vegas’.¹

Xi Jinping saw gambling as a threat to China’s economic progress as he thought that government officials used gambling as means to launder ill-gotten wealth. Not long after Xi took office as China’s President in 2012, he launched an unprecedented anti-corruption campaign, cracking down particularly on Macau casinos. Macau’s gambling revenues started to decline in 2014 and have continued to fall ever since.²

As China enforced new laws to prevent Chinese nationals from gambling in Macau, gamblers moved to other locations such as the Philippines. Casinos started to be built in the Philippines, particularly in the Bay Area: Solaire in 2015, City of Dreams in 2016, and Okada Manila in 2017.

In 2016, POGO operations began when PAGCOR started to award e-casino and sports betting licenses. A year later, POGO operations in Metro Manila boomed, leasing as much as 312,000 sqm of office space in Metro Manila the fourth quarter of 2017 (vs. just 80,000 for the full year of 2016).³

POGO Operations

The POGO employees you see here are basically marketing agents and tech support specialists–all to serve a Mandarin-speaking clientele. Most have the job of identifying and contacting China-domiciled gamblers and lure them to playing card, lottery, and other casino games online. They use cameras and headsets to communicate with gamblers watching from abroad. The tech support teams are present to make sure everything goes moves smoothly. Buy-ins can go as high as US$3 Mn per operator per day.⁴

Certain articles have likened POGO employment to modern day slavery. According to these reports, POGO employees left their factory jobs in provincial China in plight to escape poverty. They were promised salaries of as much as US$2,800 per month, but after deducting several fees charged by their recruiters, only took home US$1,000.⁵ They work 6 days a week, 12 hours a day–longer than what they were used to back home. They’re picked up from and dropped off to their assigned living spaces daily, and are prohibited from traveling outside of Manila. Some say that employees who didn’t hit their quotas were beaten up. Sadly, a number of them want to go back to their country but cannot, either in fear of being prosecuted or because their recruiters wouldn’t allow them to.⁶ If you think about it, their story resembles our OFWs’.

I think the reason why they’re so unruly is because they don’t know any better. These people are factory workers in the provinces, unaccustomed to “Western etiquette”. I’ve heard of stories where a Chinese, who upon arriving here, saw an elevator for the first time and happily rode it up and down repeatedly; or a group of Chinese, in excitement of seeing a swimming pool, jumped-in in their underwear.

POGO Operators vs. Chinese Buyers

We need to distinguish between POGO Operators and Chinese property buyers. POGO operators are interested in leasing property either for office premises or housing for their employees. On the other hand, there are Chinese nationals engaged in buying pre-selling properties.

POGO operators are completely aware of the legal risks involved in their line of work and are aware of the possibility of stopping operations in a snap. They have to be ready to pack up quickly and (possibly) run to the next possible location for operations. They rent houses, condo units, and dorms to house their employees. They prefer older condo units with larger cuts and whose association rules are not too strict with the number of occupants.

Unlike what most people think, they are really quite stingy when it comes to pricing. Yes, they’re willing to pay as much as 150% premium over the usual rate for houses and residential condos, but this is because they will pack their employees like sardines into these properties, making their effective cost of lodging space per employee quite small. They pay 12 months in advance and in cash because they like try to avoid creating a paper trail by not opening checking accounts. They’re also known to sometimes suddenly vacate rented space without informing their lessors.⁷

POGO employees simply do not have the financial capacity to buy properties.

On the other hand, the Chinese buying pre-selling condo units are mostly Mainland speculators, who intend to flip or rent these out to the growing Chinese population as soon as they are turned over. They buy low to mid-end priced condos, and choose the lightest payment terms possible. And just like POGO operators, they’re very particular about pricing.

People attribute rising real estate prices in Metro Manila to POGOs, which isn’t exactly true. When reports claim that POGO operations have pushed real estate prices, I believe they’re referring to commercial land prices in Pasay (particularly the Bay Area), where prices have increased by as much as 21% annually since 2009.⁸ The rise in real estate prices in CBDs like Makati, BGC, Pasig are driven by something else. (I’ll tackle this in another article.)

Inherent risks of POGOs

Since June of this year, Chinese government emissaries have been vocal against online gambling operations in neighboring countries. These countries responded immediately with: Vietnam arresting more than 380 Chinese nationals for operating an illegal gambling rings (July)⁹; Cambodia completely banning online gambling (August)¹⁰; and the Philippines halting the issuance of new POGO licenses (August)¹¹. While the Chinese government applauded the Philippine government’s move, they still demanded that all online gambling be stopped.

If POGO operations suddenly stop or moved to the planned hubs in Cavite or Clark, the “BPO-office space segment” will be the most affected. (Note that we have to differentiate “BPO-office space segment” from the “traditional office space segment” since most traditional office buildings do not allow 24/7 operations.)

To give an idea on how much space we’re talking about, in the first half of 2019, gaming companies occupied 374,000 sqm of office space in Metro Manila, representing 37% of the total office space leased.¹² Thus office rental rates of “BPO-office buildings” will nosedive with any adverse development in POGOs. In fact, publicly traded leasing firms have recently released statements as to how much of their revenues are traced from the gaming segment. This is to allay fears that their stock prices will also be negatively impacted by negative developments. In fact, the stock price of Megaworld, the largest office lessor to this group, dropped 8.51% on August 22, 2019.

The rental market for residential properties will likewise be negatively affected. Assuming that most of the 733,769 Chinese nationals¹³ who entered the Philippines are POGO employees, and if each of them was allotted 10 sqm of living space, this means that we’re talking as much as 73,377 sqm of residential space that will be vacated. This event will likely be isolated to a handful of condos where staff housing is prominent (i.e. older condos in Salcedo and similar areas popular for POGO housing).

¹ Riley, Charles (6 January 2014). “Macau’s gambling industry is now 7 times bigger than Vegas”. CNNMoney.

² Howard Stutz (1 May 2019). “Macau’s casino market suffers largest revenue decline in almost three years during April”. CDC Gaming Reports.

³ “Property Market Overview 2016, 2017, 2018”. Collier’s International.

⁴ David Pearson, Alice Su (1 July 2019). “China has a new casino: the Philippines”. Los Angeles Times.

⁵ Ralf Rivas (12 June 2019). “Overworked and Shortchanged, A Chinese online gambling worker’s plight in Manila”. Rappler.

⁶ A friend’s family has funded the airfare of some POGO employees (as means to give back to China).

⁷ See post: https://rem.ax/2HqoKxM

⁸ BIR Zonal Values for the City of Pasay 2009, 2018

⁹ Khanh Vu (29 July 2019). “Vietnam detains 380 Chinese people in illegal online gambling bust”. Reuters.

¹⁰ Steven Stradbrooke (18 August 2019). “Cambodia to ban online gambling to preserve public order”. Calvin Ayre.

¹¹ Press Statement (19 August 2019). “PAGCOR puts moratorium on issuance of POGO license”. PAGCOR.

¹² “Property Market Overview 2Q2019”. Collier’s International.

¹³ Philippine Department of Tourism

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
5th Floor, Phinma Plaza, Plaza Drive, Rockwell Center, Makati City

 

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

BIR Briefing on Tax Amnesty on Delinquencies and Estate Tax Amnesty

BIR Briefing on Tax Amnesty on Delinquencies and Estate Tax Amnesty held last July 2, 2019 was very helpful. Some of my notes are as follows:

“The Estate Tax Amnesty shall cover the estate of decedent/s who died on or before December 31, 2017, with or without assessments”

• Estates “with Assessment” pertain to properties that have been declared to and were assessed by the BIR, but still have not been paid.
• Estates “without Assessment” pertains to properties that have NOT been declared to the BIR.

The Estate Tax Amnesty shall not extend to the following:
 Delinquent estate tax liabilities which have become final and executory”

• Delinquent Estate Tax Liabilities pertain to estates where the BIR has issued a Final Assessment Notice (FAN), meaning the delinquency has become final and executory, you can no longer avail the ESTATE TAX AMNESTY. Instead, you can avail of the AMNESTY ON DELINQUENCY.

An Estate Tax Amnesty rate of six percent (6%) shall be imposed on each decedent’s total net taxable estate at the time of death without penalties at every stage of transfer of property…

• “at every stage of transfer of property” – This pertains to properties that were transferred without passing through the BIR (and heirs never paid for estate tax).
• For real estate properties, the titles still remain in the original decedent’s name.
• If A passed away and the sole heir B also passed away, C would have to pay for estate taxes of A and estate tax of B.

“The gross estate of a decedent…shall be comprised of the following properties and interest therein at the time of his/her death, and such lifetime transfers includible in the gross estate…”

• “Such lifetime transfers includible in the gross estate”
• An example of this is when an owner, Mr. A, transfers the legal ownership to his son, Mr. B, but has withheld usufruct (beneficial ownership) until the A’s death.
• In this case, the property shall still be considered part of A’s estate and estate taxes should be paid.

“Cash in bank in local and/or foreign currency shall be based on the peso value of the balance at the date of death.”

• Gross estate shall not include accrued interest earned, just the balance at the time of death.

“For purposes of determining the Net Estate, the gross estate may be reduced by the deductions allowed by the Estate Tax law applicable at the time of death of the decedent.”

• The historical allowable deductions are presented in Annex A of the Revenue Regulations.

“…the Estate Tax Amnesty Return … shall be filed…within two (2) years…”

• The two years shall start on June 15, 2019 and will end June 14, 2021.
• The Executor/Administrator pertains to the person mandated to manage the estate and distributes the properties to heirs.

“The duly accomplished and sworn Estate Tax Amnesty Return and Acceptance Payment Form …shall be presented to the concerned RDO for endorsement of the APF prior to the payment of the Estate Amnesty Tax with the Authorized Agent Banks or Revenue Collection Officers”

• Two forms are needed Estate Tax Amnesty Return (ETAR) and Acceptance Payment Form (APF).
• ETAR will have the computation of the tax due and the APF will serve as proof that you’ve paid the tax due.
• These need to be approved/signed by the RDO before payment in a bank/RCO.
• Don’t commit the mistake of using the wrong form (i.e. form 0605), your payment will not be considered!
• Banks are instructed by the BIR not to accept ETAR if it doesn’t have the signature of the Rev. District Officer (RDO) or the Assistant RDO.

“Failure to submit the ETAR and APF within the two (2)-year period from the effectivity of the Regulations is tantamount to non-availment of the Estate Tax Amnesty and any payment made may be applied against the total regular estate tax due inclusive of penalties.”

• Once you’ve paid for the estate taxes, and you FAIL to submit to BIR, the payment will be considered as an advance payment, deductible to the estate tax liabilities based on the OLD estate tax regulation.

“In case the estate has properties which were not declared in the previously filed return, the legal heirs/executors/administrators can file an ETAR or an amended ETAR…within two (2) years from the effectivity of the Regulations.”

• If you have filed and claimed estate tax amnesty for one property, and later realize that there’s another property, you can still claim tax amnesty on the second property–provided filing transpires before June 14, 2021.

“Properties included in the Estate Tax Amnesty availment which are likewise subject of taxable donation/sale shall be assessed of the corresponding donor’s/capital gains/or other applicable taxes at the time of donation/sale including penalties, if applicable.”

• Example of this is when an heir enters into an Extra Judicial Settlement of Estate with Deed of Sale/Donation before the ETA was implemented, the heirs can still avail estate tax amnesty.
• However, the relevant Capital Gains Tax or Donor’s Tax are not covered by the estate tax amnesty. Penalties due to failure to pay the relevant CGT/Donor’s Tax within the set deadlines shall apply.
• Another example of this is if a spouse dies, his 50% share of the property shall be distributed to the surviving spouse and their kids.
• In case, the surviving spouse decides to forego (donate to her kids) her 50% share as well as the portion that she is in entitled to inherit, this act shall be considered as a donation (to her kids), and corresponding donor’s tax shall apply.
• If one of the kids, meant to inherit a portion of the property is rich, and decides to waive his inheritance, WITHOUT naming a specific person who shall receive his share, this shall NOT be considered as a donation, but merely a waiver of rights.
• If the named a specific person to inherit his share, this shall be considered as a donation.

 

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

 

Are POGO Operators Allowed by the Chinese Government to Operate?

The Chinese POGO operators may have the license to operate in the PH, but are they allowed by their government? I’m not against them being here, for as long as they follow both Chinese and PH laws.

In the event that they suddenly disappear, it would leave a big hole in the RE market.

Read through the two articles (especially the second one) to see what I mean.

https://www.philstar.com/business/2019/06/17/1927013/special-report-inside-philippine-offshore-gaming-company

Based on this article, it seems they’re not?

https://www.rappler.com/newsbreak/investigative/232508-life-chinese-online-gambling-workers-manila

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Is a slowdown of pre-selling to Chinese buyers imminent?

Is a slowdown of pre-selling to Chinese buyers imminent?

June 14, 2019

 

In my article “Is there a real estate bubble?” (https://jpatagblog.wordpress.com/2018/12/27/is-there-a-real-estate-bubble/) published last December 21, 2018, I briefly discussed the risks involved in selling pre-selling condos to Mainland Chinese, particularly those who have payment terms.

 

Events are still unfolding but the inherent risks in selling to foreigners with payment terms are slowly becoming more evident. I’ve just heard (though unconfirmed) that certain developers are now seeing the problem of collecting the balance from these buyers. It seems that projects are starting to turnover and balances have become due. Flipping has also become a problem especially since Developers have outright banned re-sales of units without titles. Chinese or local banks won’t lend money to finance these purchases.

 

Then there’s also the problem of remitting funds into the country. True enough, I’ve heard that there’s a Chinese broker who is having trouble remitting funds into the Philippines because their government tightened restrictions on remittances. He defaulted from the hundreds of units he reserved and the developer has taken back the units.

 

So, tread carefully when buying pre-selling units in condos with a large concentration of Mainland Chinese buyers.

 

DISCLAIMER: This material, which is strictly for information purposes only. The views and opinions expressed in this article are those of Juan Patag’s and do not necessarily reflect the position of RE/MAX Capital, or of any other RE/MAX franchise. Any information is subject to change without prior notice. No liability whatsoever is accepted for any loss that may arise (whether direct or consequential) from any use of the information contained herein. Information Each RE/MAX franchise is independently owned and operated.

Revised 2019 Zonal Values for San Juan, Metro Manila Published

Revised 2019 Zonal Values for San Juan, Metro Manila Published

Please be informed that the new zonal values (ZVs) of real properties in San Juan City was published in the Manila Standard on May 8, 2019. It will be effective on May 23, 2019. Prior to this update, ZVs for San Juan were last revised in 2015.

In 2019, a number of cities have published new ZVs including, Mandaluyong, Novaliches Q.C., Quiapo (et. al), and Pasig. Soon to be released is Taguig, which conducted their public hearing last December 2018.

Why is this important?

If you’re buying a property in BGC, you have to sign the Deed of Absolute Sale before the BIR releases the new ZV. Otherwise, the contract price might be lower than the ZV, and higher taxes must be paid by the Seller/Buyer. The Seller may also opt to back out from the deal if he finds out that he’s getting less proceeds than what was originally calculated.

Are my annual real property taxes going to increase?

No, real property taxes (i.e. RPT, amilyar) will not be affected. Zonal Values are determined by the BIR and are used for calculating taxes for sale of properties (CGT, DST, TT, RF).

Feel free to ask me questions.

Juan Alfredo S. Patag, REB
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022; PTR#7335646 until 12/31/2019
M: +63 917 520.5826
E: jpatag@remax.ph

RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati City

When Bubbles Burst

When Bubbles Burst
Published: May 10, 2019

Most real estate presentations and articles talk about how the stars have aligned for the Philippine economy and how the time is ripe for people to invest in real estate. I haven’t really heard anybody talk about the flipside: what if a property bubble did exist and what if it bursts?

To have a better grasp of these bubble-burst episodes, we can take a look at the three most recent and historic bubble-burst episodes: Japan’s Property Bubble, the Asian Financial Crisis, and the Global Financial Crisis.

Japan’s Property Bubble: “The Lost Decades” (90s to Present)

Three decades after World War 2, the Japanese economy was once again a world super power. The Japanese dominated the global electronics industry, manufacturing a majority of the world’s consumer electronic products. As their economy grew, the government decided to deregulate financial markets. This meant that banks were given more power to choose whom to lend to and to determine what interest rate to lend at. With low interest rates, Japanese conglomerates borrowed recklessly to purchase real estate. The buying pushed property prices in Tokyo to increase by as much as 62% in 1987 (Takagi, 1989). At a point, Tokyo’s prime neighborhoods were 350 times more expensive than comparable properties in Manhattan (Colombo, 2012). With property prices increasing, conglomerates booked hefty profits and were able to borrow more money to invest into real estate.

By 1989, the government was alarmed by the ballooning property bubble so they tightened monetary policy, increasing interest rates by as much as 3% in a span of 3 months. Companies defaulted (due to higher interest payments); the stock market crashed; and property prices plunged. By 2004, real estate in Tokyo was only worth 10% of their 1990 peak (Barsky). Up to today, prices still haven’t recovered.

Philippine Property Market during the Asian Financial Crisis (1996 to 2003)

Coming from a revolution and a failed coup d’état, the Philippine economy was on its way to a great recovery in the early 90s. Buildings sprouted and the property sector was booming. During this time, it was common for developers to borrow in US dollars given that dollar loans had lower interest rates (5% to 6%) than peso loans (12% to 14%). Everybody was happy, until Thailand’s currency crisis.

In July 1997, the Thai Central Bank was forced to change its currency regime from a “fixed-currency” to a “floating-currency” system, after it ran out of US dollar reserves to support its policy. The Baht depreciated against the US dollar, falling from US$ 1 = THB 25 to THB 49. Fearing emerging market currencies would suffer the same fate; investors quickly sold their holdings of emerging market currencies, pushing them to devalue against the US dollar. The Philippine peso depreciated from a rate of US$ 1 = PHP 26.4 in June 1997 to PHP 42.7 in a period of 6 months.

As the Philippine currency depreciated, the country’s largest companies were at the brink of default from their dollar loans. Since these companies generated most (if not all) of their revenue in PHP, they needed more PHP to convert into US dollars to settle interest and principal payments. Philippine property developers were in turmoil. Property prices fell from their peak in 1997 and the construction of new developments halted. It took 6 years for general property prices to recover and reach their highs. Today, some properties still remain in litigation.

Global Financial Crisis (2006 to Present)

In 2001, the US economy suffered an 8-month long recession after the dot-com bubble burst. To boost the economy, the US central bank lowered its benchmark rate to 1% and the US’ housing boom ensued. Interest rates were so low that Americans could borrow money to purchase houses, rent them out, settle interest and principal payments, and still pocket sizeable profits.

Loans to people with no income, no jobs, and no assets (otherwise known as “NINJA loans”) became prominent. Buyers thought that they could always either flip properties for a profit or refinance the loan at a lower rate, especially since “property prices always increase”. More importantly, they failed to understand that their loans had “teaser rates”, and that these rates would eventually become higher. When the US central bank increased interest rates in 2004, people started to default from their loans. Properties were foreclosed and real estate prices bottomed. It took 13 years for prices to crawl back to their 2006 highs.

Take-Aways

These events show us that real estate investments are not immune to economic downturns. As pointed out by the Asian Financial Crisis, economic shocks may originate from external events/factors. Today, a number of risks exist including: rising global interest rates, a disorderly Brexit, and a military confrontation in the Korean Peninsula. But are these enough reasons to avoid investing in real estate?

In times of economic slowdown, no asset/investment/life is recession-proof. Your business is at risk; your job is at risk; even money kept in a vault is at risk (from devaluation). Real estate prices will also take a hit, but I argue that CERTAIN real estate investments will recover faster than other assets for the simple reason that they are tangible and useable. I’m not saying that you should put all your money in real estate. Global financial advisors recommend allocating 20% to 45% to real estate, depending on age. The younger you are, the more allocation you should have in real estate assets. You can mitigate the inherent risks to real estate investments by choosing which developers to buy from, which properties to buy, where to buy, and what price to buy at. This is where your trusted broker can help.

If you’re wary about a bubble in the condo market, then buy a lot/land. If you think lot prices in the metro are too high, then look in the fringes or outside where they are comparatively lower. Knowing your liquidity needs (do you want/need passive income from the property), risk appetite (are you conservative or risk averse), and investment horizon (how long you’re willing to wait) will help narrow down your options.

If you’re the type who would wait for the market to fall before buying, it’s easier said than done. The world’s most successful real estate tycoons agree that nobody can time the real estate market–not even them. If the pros can’t time it, how can you? Truth is, successful investors know how to create wealth at any point in a cycle. Time in the market is more important than market timing.

What about those who have bought condos at high prices; should they sell now? Based on what I’ve seen in the market, condo sales have started to slow down (and is continuing to do so). For example, some developers have established new rules/fees to prevent the “flipping” of units; extra incentives are given to brokers who are able to sell the remaining inventory at current prices; and some unit owners have decided to simply rent out their condos, instead of selling. This cooling down is actually essential and healthy for the market. I’ll be more concerned if average condo prices continued to rise above Php280,000 per square meter (read my article, The Need to Look Elsewhere).

The key take-away is this: asset bubbles form due to overconfidence and exuberance. They can burst due to unforeseen events. If you had one exit strategy (which is to “flip”) when you bought/buy real estate, what you’re doing is speculation (gambling). You may have profited from the practice before but you’ll have a more difficult time now (read my article, Days of the Quick Flip are Coming to an End). Real estate investment has always been meant for wealth preservation, not for capital growth. It has always been a long-term play.

If anything needs clarification or a trusted real estate broker, send me an email.

 

Juan Alfredo S. Patag
REB Lic.# 0023114; ID# 18-1612675 until 10/20/2022;
PTR#7335646 until 12/31/2019
M: +63 917 520.5826

LinkedIn: https://www.linkedin.com/in/juanpatag/
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