CURRENT REAL ESTATE BUSINESS INSIGHT As everyone in the real estate industry knows, the United States of America’s subprime mortgage problem since last year cannot be neglected as a major cause of a possible recession that will strike American if it will happen. It seems that we Filipinos here are lucky enough to be lesser affected, as far as real estate is concern, by the mess that USA has made for itself. Constructions of different kinds of project properties are seen everywhere over the country especially in Manila and of course in Cebu. We can notice various real estate developers are launching their projects one by one in quite high frequency. Every now and then, we, property consultants, are invited by them for their activities in product knowledge seminar, soft or official launching, buyer’s night, investor’s night so on and so forth. These really give us encouragement for positive thinking towards our beloved industry. We cannot deny that there are a lot of ready buyers all over the world. Whether they are foreign nationals or our overseas Filipino works, balikbayans, if we can make good use of the right tool such as internet technology, we definitely can tap the worldwide market. Some of these buyers are investors who prefer to shift their investment out of lesser secure or less profitable market because of the unfavorable environment especially the current US market. In addition thereto, the currency depreciation of Philippine Peso relative to US Dollar recently enables foreign buyers with US Dollar to purchase a Philippine property much more comfortable and affordable than before. These favorable conditions obviously make our day shines bright. I always encourage people to think positive. Because without positive attitude, like cars without fuel, it cannot arrive its destination and we cannot achieve our goal. But attitude should not only be blind positive, it should be with caution. The recent turn of events in the world of high oil price, directly or indirectly affect our real estate industry. As we can understand that oil is a precious commodity. Its price fluctuation gives direct and great impact to other products, commodities or services which also affect the economy. Especially as an oil import dependent country we are, higher oil price means a bigger burden for our development. Higher electricity rate because of higher fuel costing unavoidably increase our cost of living. Manufacturers have to increase the price of their products so as to compensate the higher cost of materials and production. Transportation freight charges do need an upward adjustment due to the fuel rise. Products have to suffer a higher delivery cost. As we know our real estate industry has an undeniable dependency on the supply of steel and cement. Therefore can you imagine if our steel products price has a rise of more than 100% since last quarter of year 2007 up to now, what influence it can cause to our industry. Developers have no recourse but to increase the price of their products, real estate property. As far as I know, property prices have been increased a few times since this January 2008 especially frequent since May 2008. It makes houses affordable to buyers previously become more expensive. Some of these buyers who can buy before with tight budget have to hold back their purchase because of lack of capacity. Investors will either reconsider their purchase since it is less profitable or wait for the lowering of the price. These simple and sudden change of purchase habit, effectively reduce the thrust of momentum to propel our real estate industry to a higher level. As we know the principle of supply and demand, lesser buyers will have an adverse effect on our industry. Not only we have to concern about the lack of buyers, the developers’ capacity to complete their projects within their previous budget to deliver the properties that buyers have purchased with a lower costing is also questionable. Sad to say developers with lesser capital may default their promises to the poor buyers who have reserved and purchased properties due to lack of interest, lack of funding or lack of profitability. As we cannot avoid in keeping our business within our industry since it is our bread and butter, we should have some adjustment of our strategy towards our industry, in spite of the present scenario, in order to survive and sustain our income. Since people cannot avoid in having a place to abode, if they cannot own, then they have to rent. Therefore, incapably home buyers will become home lessee, whether it is residential or commercial property. As for investors, in order to sustain their profit in investment, they will look for property with lesser cost to invest. Where can they possible to have lower cost property during the present situation of higher costing in construction? Who are willing to sell their property when the par value of property is warranted by the situation to have a higher price? I suggest we should take a look on foreclosed property. We all know that foreclosed property is owned by a lender who acquires its possession and ownership as a result of the default of the borrower to settle his obligation. No lender will be out of his mind to grant a loan to a borrower more than the fair market value of the collateral property which is used to secure the repayment of the loan. The loan amount is usually a fraction of the fair market value. Therefore, actually, the lender acquires the foreclosed property way below the fair market value whenever the borrower cannot afford to settle his obligation to the lender and transfer the ownership of the collateral property to the lender as stipulated on the agreement of the loan which we call mortgage. Whenever the lender wants to convert the foreclosed property, always a non-performing asset without earning interest, into liquid asset such as monetary currency to continue the cycle of lending in order to earn profit, he is willing to dispose of the foreclosed property even below fair market value but not less than the outstanding loan. Because of this kind of sacrifice, buyer of foreclosed property can easily acquire bargain priced property way below fair market value. The miserable lost of the borrower will become the potential gain of the investor who purchases the foreclosed property. In conclusion, I can say that even we may have some difficulty in our regular real estate activities in selling project properties, we may have alternatives in positioning ourselves in the renting and foreclosed property market or even brokerage properties owned by private owners who can be more flexible in adjusting the selling price according to their needs. My personal opinion is that the foreclosed property market is the most stable market in the real estate industry especially for investors, whether in good times or in bad times, except that it may not provide you the exact property that you need or you may have to invest for improvements before you can re-sell it for profit. As for a brokerage firm, comprehensive listings in all avenues will have more advantages in weathering all kinds of situations that we have to face and encounter. By: Raymond Ong – Chief, Land Asia Institute Philippines July 29, 2008.