Property: Still Good?

Last week I mentioned that I'd be discussing a bit about property investing. The one true thing about real estate - which most real estate agents won't say - is that there will always be real estate available. Although if you believe Lex Luthor, land is something people don't make more of.

True, but, as you may have seen by now, the gajillion condominiums being built everywhere in the metropolis (no pun intended), just goes to show that real estate will always be there. And the problem is, we don't know when the supply tips the scale of demand. Already, people have been saying that there would be a slowdown in the Philippine real property sector.

This has been evident in the Property Index of the Philippine Stock Exchange Index, as stock prices have fallen through the roof since January. Recently, there was a rally that started in late July up to the present. So far, based from a report I saw, 2008 2nd Quarter vs 2007 2nd Quarter has been generally positive for ALI, negative for VLL.

I don't have industry figures as public documents are hard to find unless they have already been reported in the news. I was able to find one though, published by the Philippine office of Colliers International. The report is a bit dated as it came out in April of this year.

Try reading this excerpt -
"Massive oversupply of residential condominium units in locations such as Fort Bonifacio where capital appreciation and rents may be subdued."

Condo sales may have picked up since April, but so has inflation. It doesn't take a rocket scientist to ask the fundamental question, "Don't you think there's just too many condos at The Fort?"

Let's try to make some guesstimates here -

Assuming there are about 20 projects being presold in the area, with each having an average height of 18 storeys. Then each story has about 12 units per floor. What do we get? Around 4,320 units that will altogether be turned over by 2010 or 2011.

It doesn't seem to be much until you ask yourself this question - who are the buyers of these condo units? End users or investors? If it's the latter, then I'd assume that the properties are for rent. There'd be 4000 units competing for tenants that rentals will probably be below what should be due. Apart from that, it is to my understanding that people who work in Makati and the Fort go home to Quezon City or Manila or other far away places. That's why the traffic is a killer during rush hour.

I'm not bashing the local property sector, but it pays to be wary of the direction the market is headed. I'm on the side that thinks we're headed into over supply territory. I do hope I am wrong.

The Fort in 2012.

Picture courtesy of this.