Why The Philippine Real Estate Market is About to Collapse

Building from my blog post 2 weeks ago I am going to show you ample evidence why the real estate market in the Philippines is about to collapse...or go into what I call a Buyer's Market Phase 1 (declining market). I will also cite what happened in the past to give you an idea how bad this can be. Lastly, I will give you some tips on what you can do to prevent losing big time when the collapse happens.


Here are some of the reasons why the real estate market in the Philippines will go down.

1. Hyped up and unsustainable pricing - property prices in the Philippines have gone up 59.3% from 2005 to 2008 (16.2% after adjusting for inflation). This is not sustainable given the global economic recession. Two of the country's biggest developers - Ayala Land and Megaworld have suffered declining real estate sales in the first quarter of 2009 (demand has fallen by as much as 10%). After adjusting for inflation, real estate prices have declined by 0.6% and this is only the beginning.




2. Weakening dollar equals weakening demand- A big chunk of real estate in the Philippines is being bought by overseas Pinoys. As the dollar continues to weaken against the peso the cost of owning real estate becomes higher and higher for the overseas Pinoys who earn in dollars. More expensive real estate equals lesser or weaker demand. Here is the proof: the percentage of properties from Ayala Land bought by the overseas Filipino has declined as the dollar continues to weaken:

Year 2006 - 37% of properties were bought by the overseas Filipino
Year 2007 - 32%...
Year 2008 - 24%...


3. Over building- there is a lot of overbuilding going in the Philippines. Mortgage interest rates have gone down and this lower interest rate encourages builders and developers to continue building. Here's an early sign for the overbuilding: Colliers International reports that Makati vacancy rates of luxury condominiums rose to 9% in Q1 2009, up from 8.4% a year earlier. And this is only the beginning. Completions of dwellings started one to two years ago are expected to add to the oversupply. In Metro Manila, around 4,200 residential units are expected to come to completion in 2009, while around 5,400 more completed units are expected in 2010. As more supply comes in the market place with expected drop in demand...guess what will happen to the price? Yup - it will go DOWN!


If history is any guide...I expect this real estate market collapse to be a "blood bath" for the real estate speculator (one who buys real estate hoping the price goes up). During the Asian Crisis, Philippine luxury condominium prices dropped 18% (25.3% in real terms) from 1997 to 1998. Between 1997 and 2004, luxury condominium prices dropped 34.4% (56.2% in real terms). Here is the graph (and pay close attention to how low it went...right in the middle of the graph.


Now that You Know The Collapse Will Happen...Now What?!
Last March 2009 I already advised my students to sell whatever properties they have and raise cash. And my advice remains the same: unless that property is generating massive cashflows SELL NOW. If you own a luxury condominium in Makati and you cannot afford a 50% price decline - SELL NOW. Raise cash and use it to accumulate cashflow producing properties instead. Stop buying real estate for appreciation or hoping the price goes up and start buying real estate for its yield or cashflow.


Also...when the price goes down...should you BUY immediately? Not exactly either. I will talk more about HOW to PROFIT from the impending real estate collapse in the Philippines in my next blog post.


dedicated to your success,
Trace

P.S. The data and graphs I used in this blog post came from an article from Global Property Guide at http://www.globalpropertyguide.com/Asia/Philippines/Price-History

P.P.S. The recent TRQ 2.0 ("Think Rich Quick 2.0") seminar was a resounding success. 300 people attended and most importantly, the reviews I've gotten were phenomenal. One of my students "failed" to attend the seminar but good thing his wife did. Her skeptical wife quickly became a "convert". Here's his blog post about this TRQ experience: http://ezefoncardas.blogspot.com/2010/10/how-my-wife-changed-her-mindset-about.html