Poor business model

The Metro Manila condo oversupply, now equivalent to 34 months, is not surprising.

Indeed, anyone with some brains would have expected it to happen.

The country’s condo industry is supply-driven. They build without thinking who will buy all their units. Notice how in malls, nicely dressed agents annoyingly try to sell condos like sidewalk vendors.

Their focus on the speculative buyer who buys “for investment” is dependent on a lot of factors including how buoyant the economy is and if interest rates remain affordable.

The POGOs encouraged more  speculation. The pandemic, rising interest rates and the scuttling of POGOs crashed the assumptions of the business model of our property sector. Now, the property developers have more unsold units than they want. Hopefully, they don’t end up like some of the ghost cities I saw in China. Chinese developers built all those high-rise condo buildings with a bahala na attitude. They were getting easy credit to build so they built. Then, the bottom fell.

According to data provided by Leechiu Property Consultants (LPC), it will take 34 months for the current supply of condo units to be sold, given the prevailing sales pace. Leechiu Research director Roy Golez Jr. explained how they crunch their numbers.

“What we do is we track monthly and quarterly, so the availability of units suddenly shot up. It increased, meaning they were re-released into the market. These were already either blocked off because there was a down payment but the transaction did not push through, mostly that.”

Our property developers are building ever taller condo buildings in the metro area seemingly oblivious to the existence of a market. The Bay Area, where the big casinos are, is becoming a ghost community of unoccupied condo buildings.

Apparently, gone are the days when the elite have a lot of idle money to buy units for speculation. Even the corrupt politicians who buy condo units for their mistresses are apparently deciding to stay financially liquid. The OFW market may also be reaching its limits. But why are condo prices not going down?

The market for condo units has drastically shrunk but the housing backlog of affordable units is as formidable as ever.

The administration earlier announced that they would build a million new housing units a year or a total of six million for the term of BBM. They have backtracked since, cutting the target into half and even then, they are not sure they can accomplish it.

NEDA Secretary Arsenio Balisacan cited the need to balance funds in their decision to slow down on the government’s housing project.

“When we look at the implications in the economy particularly on the fiscal issues – ang sabi natin was hindi kaya because it can impact the other sectors because the program requires subsidizing the targeted beneficiaries who are the low-income households… And as we put in more money there, of course we would have less resources for education, for health, for infrastructures,” Balisacan said.

But the NEDA chief assured the Pambansang Pabahay para sa Pilipino Housing (4PH) Project would be kept, adding that it will contribute to additional jobs for Filipinos.

Earlier, Department of Human Settlements and Urban Development Secretary Jose Rizalino Acuzar admitted that it would be difficult to complete the target of six million housing units until 2028. During the pre-SONA briefing last June, Acuzar explained that while there is no problem with funds, the construction of these housing units has been challenging. He didn’t explain why it is challenging.

One of the guys in my Viber group in the property sector commented that “while we have a surplus of mismatched property investment products, the housing backlog has increased tremendously because focus is principally on homeownership. Other shelter solutions are not being explored.”

He explained that a rental program rather than ownership is more appropriate. The low-income households prioritize food and other necessities to home ownership. They are amenable to rental arrangements of around P5,000 a month or a little more which they now pay to slum lords.

Property developers are also missing out on a ready market for worker dormitories. Those who work in, for example, BGC and live in Caloocan, will spend a fortune on transportation daily and bear the misery of traffic. A nearby dormitory makes sense.

Another member of my Viber group explained that “the current housing loan interest rates are between nine and 9.5 percent. So how can you expect the middle-income workers and OFWs that are the target of many of the condo developers like SMDC, Ayala, DMCI, Robinsons, Federal, Filinvest and others to pay-up?

“Current trend now is the ‘pasalo’ market…where early buyers sell their turned-over units to recover their initial down payment normally between 15 and 30 percent of pre-selling and let the next buyer cover the bank loan/in-house financing…But buyers shy away because of the separate turnover fees charged by the developer outside of the unit cost that now run to seven to 10 percent of additional cost!! So, when you buy the condo its acquisition/takeover cost is 115 percent of pre-selling price…”

Ignoring the market segments that need housing is driven by the greed of our property developers. They shun the affordable segment that actually needs housing because they want quick profits, as big as the market can deliver. Now, their capital is trapped in suspended construction. There are many of those near where I am in Pasig that have not progressed since the pandemic. With no market to sell to and the high cost of interest on money required for completion, why hurry?

If they want to continue selling in Metro Manila, developers must work with the government to address the housing needs of the more economically challenged sector of our population. They may have to change concepts from ownership to rental if they are to become relevant… and have a social conscience to boot.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco.