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?

Figure 1

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. 

Figure 2

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]

Figure 3

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]

  1. 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.

  1. 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.

Figure 3


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.

Figure 4

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.


[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



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.

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

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.


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/
Facebook: https://web.facebook.com/jpatagrealestate/

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.

The Big Jump

It was 9:48pm and I’m in front of a Bloomberg Terminal in my office…alone…on a Sunday. A few years back, I was a financial analyst of a local bank. During that time, I’d normally spend 13 hours a day in the office—not including the weekends.


Despite being rewarded well (in local bank terms), I came to the point where I wanted more. See, I dreamt big; and I mean BIG. Problem is, I didn’t know what I wanted exactly (though the usual dreams such as living in a mansion, driving a sports car, affording ivy league education for my kids did sound really enticing.) I was willing to sacrifice time, if it meant getting what I want. So there I was, thinking of what route to take. Eventually, I was convinced that boxing it out with ex-pats and playing politics was a dead end. So what’s next?


Whenever things bothered me, I think out loud in front of friends, hoping I’d get suggestions on how to solve problems. A few months later, I bumped into an old friend of mine who, after a long conversation, invited me to join his venture of putting up a real estate brokerage firm.


Initially I thought, I didn’t know much about real estate only that land prices were soaring in Manila and that developers were making a killing. Moreover, I never thought of myself as a salesperson. Actually, I hated talking to strangers (except when there’s liquid confidence, AKA alcohol). What attracted me though is the financial success brokers achieved. I heard (and verified) stories of how some of my broker friends were earning millions (north of Php5 Mn–net) a year! Consistently! That’s a full blown salary of local firm’s CEO! Some of them were even younger than me; people who even barely passed school! I thought if they could do it, so could a person who worked long hours and had a corporate background such as myself. Should be a walk in the park. Or so I thought.


And boy was I wrong.


Six months down from the time I became a real estate broker, I haven’t closed a single deal. I was living on my credit card, paying the minimum amount possible. I didn’t want to run to my dad for money (though I did a few times; thanks dad!) especially since I was in my 30s. I started to feel desperate. I worked on  Php11,000-a-month leases just to get by. There were times when I thought about going back to the corporate world where things may not be as exciting but provided a regular paycheck. The company we put up wasn’t going well either. We were running on fumes and we were scrambling to find ways to pay for rent.


Apparently, being a real estate broker or putting up a business wasn’t as simple as I thought. No, real estate brokerage was never rocket science (not anywhere as complex as financial derivatives). Real estate, however, requires a whole different skill set: patience, perseverance, humility. As my partner puts it, “this ain’t a job for the weak.” I never understood what he meant up until I was down.


Just to give you an idea of what I had to deal with:


Imagine dealing with government officials who claim, “o expired na yung SPA mo dahil two years ago pa yan!”  To which you reply in a VERY nice manner, “Ma’am, saan po naka lagay sa batas na nag e-ex-pire yung SPA?” And to which she answers in a very condescending tone, “Saan nakalagay sa batas na hindi nag-e-expire?”


Or the time when you thought you have a done deal since the seller accepted an offer but changed his mind, come signing day. Or your buyer backs out from a deal (which is very normal). The industry and the income was UNPREDICTABLE!


When you’re broke, have bills to pay, and not getting any younger, you’ll start to question everything. You’d be so lost you start to lose confidence.
How can I provide for a family when I can’t even afford to pay for myself?
How can I afford to go on a date or should I even try to “settle down”??
What happened to the MBA I took???


I felt lost; a failure. I reached the point where liquor no longer helps. I’d down a sleeping pill just to help me forget about my problems and fight another day. Sometimes, I  wished unfortunate things to happen just to make everything stop.


At the peak of my depression, a small deal closed (the ice-breaker). Two weeks later, another closed. Then another. And then a fat one.


Just like that, I was able to zero my credit card bill, pay back my dad and gain the self-confidence I lost.


Our real estate firm was somewhat a different story. While I recovered financially, our small company kept bleeding money. I seriously couldn’t get it. I applied everything I learned from graduate studies from Switzerland! Sales Force Management, Human Resource Management, Strategy, etc. We had to infuse additional capital to keep the company afloat.


During the dark hours, you can’t help but blame other people for things not working out. Heck, I even thought about leaving and just practice brokerage by myself, otherwise I’m going to end up broke infusing capital and continue to burn relationships!


I don’t want this article to sound dramatic, but honest to goodness—the one thing that kept me from leaving were the people behind me. If you take time to get to know the people around you, you’d be saddened by the stark realities of life. But here we were, providing livelihood to our employees, helping aspiring brokers get out of the same situations we were in! We were building something! Something positive!


And just as with the success of my new endeavor, the company began to shape up a few months later. Our associates went through the same ordeal until they landed deals; and then some big ones. Later on, we got more people to join the bandwagon. The business model was finally working. Three years from when we started the business, we achieved a LOT. At this time, we knew we were doing something right. I realized that business plans took time to work.


Just like in any business, the ebbs and flows are natural. The entrepreneurial path is a roller coaster ride: you think everything’s all well and dandy and then (BOOM!) another sink-or-swim problem comes by. The pictures that come out in social media or newspapers is never a testimony to life achievements. They are for the small successes.


On the financial aspect of things, I’m definitely earning more than my corporate job (even with the bonuses). I’m happy that, despite the problems I encounter, the sleepless nights, the drama, I know we’re on to something great. This is when I realized that it was never the fancy things that were going to make me happy. It was the “building-something” part—the feeling of building something and seeing it work; the joy that comes with having happy employees and associates; the shared success that is being celebrated with people who are happy for the group’s success; and the assurance that the success resonated even to the lowest people in the company.


After everything’s been said and done, I’m happier where I am now.


My dream is for our firm, RE/MAX Capital, to grow to more than a hundred agent strong; to unite a fragmented industry; to professionalize an industry coined to be the “Wild-Wild West”. We have a long way ahead of us, and we’ll need all the help we can get.


To those who want to earn more but can’t afford to leave their corporate jobs, RE/MAX Capital, offers a program that can earn you as much as 20% referral fee. That’s 10% more than the industry average. This is especially beneficial to those who have relatives buying properties left and right. Or those who are well connected with people who invests in real estate.


To those who are willing to take the big leap and jump to a promising industry, let’s talk and explore options.


To those planning to do real estate brokerage alone, ask yourself an honest question: which do you think people would trust more: a broker backed up by a successful global brand or a broker with none?


If any of these criteria fit you or if you were simply inspired and sparked by my curious mind, let’s sit down and talk about options.


Juan Patag
PRC Reg. No. 23114
RE/MAX Capital
7th Floor, 8 Rockwell, Hidalgo Drive, Rockwell Center, Makati
M: 0917 520-5826
E: jpatag@remax.ph


Ntoe: Special thanks to my friend, Katrina Calderon, for proof reading this article. 🙂


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, any other RE/MAX franchise, or of Rockwell Land. 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.
Published: December 4, 2017
Okay, we’ve been hearing rumors that the Capital Gains Tax (CGT) would be increased from 6% to 20% in the new Tax Reform Program of the government. They say this will be effective January 2018. While contacts in Regulators’ Offices claimed that this is a rumor, we’re surprised that even our clients heard about this. So let’s analyze what happens if they do decide to push through with this reform:

1. If CGT were increased to 20%, property owners would be better off putting all properties in a company where owners would just pay a total of 18% tax (12% VAT and 6% Creditable Withholding Tax [CWT]–both of which are deducted from the VAT-exclusive price, a lower base). Moreover, VAT and CWT can be offset by VAT-input and expenses. These give property owners the reason to put assets under a corporation.

2. In lieu of the previous insight, people would be setting up companies to put their properties in. Before, it took 2-3 months to setup a company; however SEC recently moved its office to Manila and I would assume this would make things slower as they adjust to the new office–4-6 months in my assumption. This would mean less secondary market sales in the following six months.

3. Given that sellers would get less proceeds (approximately 14% less from what they originally expected before the reform), they will make up for the decrease in proceeds by increasing the selling price. In effect, this would slow secondary market sales as less buyers can afford the higher prices. This would definitely greatly affect sales of secondary market properties in areas that have seen recent increase in zonal values (i.e. Makati).

4. Finally, what better way to avoid getting taxed by 14% more than by selling your property before the tax reform is implemented? It would be a natural decision for property owners to liquidate assets before the tax reform especially because, I believe, it would take a few years to recoup the expected loss (in case they choose to stick with their selling prices) if they had not sold their properties before. Prices in the Metro are already at their historical peaks (QC condo at Php145,000/sqm, Makati condos at Php330,000/sqm). It’s hard to imagine that the same amount of people would be willing to buy if prices increased even higher.

In sum:

Unlikely but possible. It is unlikely that legislators would pass this part of the reform (especially because I believe a lot of them own a significant amount of real estate). They would get affected in the process. However, history has proven that even the remote things may happen (minority winning the elections). Philippine politics is one of those uncertain things.

Price decline in the near future. We can’t undermine the fact that people will anticipate the possibility and act faster than the market. General prices would decline in the near future, especially in areas that have seen significant increases in value in recent years because they would want to take profit.

Invest in developing areas. With this amount of uncertainty, I would suggest investors to focus  or divert to their investments to developing areas which present higher capital appreciation potential where prices remain low and would be affected dramatically lesser since the tax bases are lower. Examples of which are Cavite and Nuvali.

Agree? Disagree? Would love to hear your thoughts. Email me at jpatag@remax.ph