drbubb Posted April 19, 2018 Author Report Share Posted April 19, 2018 "Dr Bubb, when is the Philippine Real Estate market going to run out of bigger fools???" - ECB, on previous page Greater Fools look only at the rising Prices of New Properties, and ignore Rental yields and Secondhand prices. In the PH, it is impossible to see accurate Secondhand prices for the Overall market, and RENTS that are most visible on the internet are only Asking Rents, not the final negotiated Rents that people actually pay. So in watching market trends, I have to partly rely upon a parallel market, the Philippines Stock Market to get my most timely readings on what is actually happening in the current market. In I am now monitoring SMPH's prices closely, because I think it may be the best bellwether for what will happen to overall Manila Condo Prices. SMDC is probably the most active developer in the Manila Bay area. which I think will be "Ground Zero" for the next downcycle in PH property. (SMPH, is the quoted stock market entity, one of the highest market cap companies in PH, that owns SMDC.) SMPH / SM Prime Holdings Inc ... 5-yrs / 10-yr : 3-yr : 1-yr : 10d / Last: P32.30 -1.40, -3.87% SMPH is right now. late morning today, trading at P 32.30, and if it closes there, it will break below the uptrending channel, going back to 2014. Next big Support test would be the old high at P31. If that gets broken with strong volume, and trading pushing below that support, it could be an early sign that the long bull market in Manila Condos is ending. Indeed, I am expecting that because: + SMDC could hide the reality of Oversupply, when they are just selling expensive Condos to over-eager buyers, who believe their hype. But once the projects are completed, the reality shifts: + When the Owners get their keys, and those who are investors try to rent them out, they will soon discover the Law of Supply and Demand. If there are too many condos in the market, more than there are Tenants for them, Rents will be forced lower. Certain areas of Manila are most vulnerable now to falling Rents, and SMDC has been (probably) the largest developer within those vulnerable areas. + The Statistics will show us the most vulnerable area(s), and they are not hard to spot: Area SUPPLY : 12/2017: 2018 Completions : 2019 Completions > 2018-19 :Manila Bay--- : 11,000 : 11,900, +108.2% : + 2,600, + 23.6 % > +131.8 % BGC/The Fort : 27,500 : +9,300, + 33.8 % : + 3,000, + 10.9 % > + 44.7 % Makati CBD--- : 25,000 : +2,600, + 10.4 % : + 0,600, + 02.4 % > + 12.8 % Ortigas Center: 17,400 : +1,100, + 06.3 % : + 0,600, + 03.4 % > + 9.7 % ---- Gr. Manila > 101.6k : 27,200, + 26.8 % : + 8,200, + 08.1 % > + 34.9% > source: http://www.colliers.com/-/media/files/marketing reports/4q2017_colliers_quarterly_residential.pdf Despite the projected huge rise in supply, Collier's estimated vacancies at year-end 2017 were "flat" at 12.6% for Greater Manila "due to delays". Vacancies are expected to rise "to the mid-teens" in 2018-19, before falling back. But not all areas in Greater Manila are equally easy to Rent. For Manila Bay, the prospects are likely to be far worse. The statistics show a doubling of supply in a single year and 130%+ over the next two years. This is a grim scenario for those who own Condos in Manila Bay. Where are all the new tenants going to come from? Right now, SMDC is telling buyers of 1BR condos, costing over P7 million (a gigantic P280k psm) to expect a rent of P 30-35,000 Monthly. At P30k, that's gross Yield of just 5.1% on today's inflated prices. Indeed, there are some condos advertised for Rent at those prices, but who knows what the actual rents are when a serious tenant is through negotiating. (I do have some suspicions that Asking Rents are being inflated to make potential Buyer's calculations look better - ie some ads may be "planted".) In any case, those are rents being asked today, BEFORE the doubling of supply. What will Manila Bay rents be in 2-3 years after all the new supply hits the market. Maybe 30-50% Lower? Maybe even below that for restricted view or poorly looked after units, because New hotels are coming into the area, and Condo Associations are beginning to restrict and prohibit short term AirBNB type tenants. The area hotels, which are still expanding want to protect their business franchise, so they are pushing for more restrictions and more taxes on short term tenancies in condos. How easy will it be to find Long Term tenants in the area, when a commute to Makati or BGC can mean battling traffic, and there are cheaper (older) flats within those areas. I do not see rapid growth of new tenant being easy in the area, especially for businesses servicing tourists. I am thinking of a factor not much discussed, the limited size of the nearby NAIA airport. Right now, NAIA is operating at close to 90% of capacity. (Takeoffs are 41-44 per hour, and the maximum is 48 per hour.) And given the small size of the airport, there is not enough space for a second runway. The logical growth, is to move future growth to Clark Airport in the North. Are new people, the tourists whom the growth in Clark will be servicing, be willing to take a 2-3 hour bus, van, or cab journey across crowded Manila to stay in a new hotel or new condo in Manila Bay? I have serious doubts that will happen. There's no easy and obvious place for the new tenants to come from. I'm not expecting aggressive expansion of offices in Manila Bay, because land is no longer cheap in Manila Bay, and the area is too cutoff (by heavy traffic congestion) from other places of business. I am expecting this New Reality (of "obviously Excess Supply") to effect stock prices first. Institutional investors who were happily buying SMPH stock last year, probably because they saw SMDC raising Condo prices aggressively, and it seemed to be sticking - But now... Link to comment Share on other sites More sharing options...
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