PROPERTY PEAK IN PLACE for PHL - major declines ahead

[drbubb]

(Added UPDATE after End-Apr.2022 Meetup):

Since the End 2019.  We saw a drop, and now the Rally is failing, despite the removal of Covid restrictions

ALI-etc . update : ALI-32.05, -19.5% off yrH-39.80, Smph-35.00, -12.7% off yrH-40.05, MEG-2.86, -16.6% off yrH-3.43

Update ALI & CHI data

(prior note, Feb 2021):

STILL SLIDING  / Property slump seen to continue  : 

Residential vacancy rate in Metro Manila hit an all-time high of 15.6 percent in 2020 and will likely worsen further to 16.9 percent, especially in business districts with substantial stock such as the Bay Area and Bonifacio Global City, Joe Roi Bondoc, associate director at Colliers Philippines, said.

Based on Colliers’ data, residential property prices fell by 13.2 percent in 2020, reversing the 26-percent increase in 2019. Colliers expects a slow recovery of capital values starting 2022, supported by a muted rebound in Metro Manila office leasing.
At the end of 2020, residential rents also declined by 7.8 percent, sharper than the drop during the Global financial crisis of 2008-2009 but more tempered than the decline seen during the Asian financial crisis of 1997 when rents declined by 15.4 percent.

Read more: https://business.inquirer.net/317390/property-slump-seen-to-continue#ixzz6m1XE0W8l

[drbubb]

Partial conversation with agent who listed units for sale at The RISE Makati

The funny thing was… how she could not understand my objective:
Ag.: Hi Sir do you like I will help you find units to your requirements?  What properties do you need?
Me: I am looking only for True bargains, where I can expect to earn 8-10% Gross rent.  I also want them to be in or near Makati CBD.  Same with my group of buyers, who has a similar YIELD objective
Ag.: How many units do you need?
Me: NEED?  I need a high yield, that's my objective

Are agents so unaccustomed to dealing with professional property investors?
(Like I said, in a longer discussion, I decided she was okay and doing her genuine best,
But these sorts of questions I found to be hilarious.  What types of buyers does she deal with?
Maybe she see investors who have tenants they are looking to move into units.
The questions seem  strange cuz I think there must be some other BARGAIN Hunting investors in PHL.

Ag.: Do you need studio, 1BR or 2BR? What location do you like?
Me : I think we mostly target 10 Million and under  (but I cannot rule out paying more than that eventually).  And I is hard to go over P 150k per square meter, if the yield target is to be met.  Some of our time is spent in trying to work out what rents can be achieved.  And that determining Rents can be a bit tough to do right now
Ag.:  I will help you look for properties.  Is P190,000 per sqm okay for your group?
Me: At that price... P 190k x 8%, P15.2k / 12 = p1266 per sqm rent.  Is there anywhere getting such a high rent?  I really doubt that.  Most are at 800-1000 OR LESS these days, We are seeing rents of under P 700 per sqm now at serendra 2/
Me : What is the highest yield you are seeing now for sale?/
Ag.:  (NO ANSWER to my question. On Best Yield… and she moves to another question.)
Ag.:  What locations of properties do you prefer?
ME:  Makati CBD, or the immediate area.  Some of the group also like BGC... and a few the area in Mandayulong, near Boni/Shaw stations.  There are bargains elsewhere maybe. But i and others may not have a sense of Rentals we can achieve, and that is essential knolwedge for our target returns

(At that point I could see I was probably wasting my time.  The conversation continued a while longer, but I asked my self, does this agent even know how to calculate Yield?,

and why it is important.)

 

[drbubb]

CASH BUYER’S BOMBSHELL Comments

#1 : We are in A Buyers Market
Hey folks, let’s embrace some reality.  We are now in a correction, and it is a Buyers market. And that requires some new ways of thinking and doing business if you want to be successful as an agent.  I have been investing in property markets for more than four decades all around the world. And what I am seeing in the Philippines now is my 5th or 6th Bear market for property.  Many agents may be too young to have been professionals in the last one in Manila, from 1999 to 2004.  And this one may be worse than that was, especially for Condos.  I see too many Listings repeated on various platforms, with the same prices again and again.  Pre-Covid prices are not going to fly for condos now.  Buyers are smart, and they know it is a bear market.  And Cash buyers are scarce, so if you want to close a deal with one, you had better make some efforts to understand their requirements and goals.  If you are going to wait for the Sellers market to return, you may have a long wait… until 2023-24. Or even longer.  Why do I say this?  Just look around at how empty Condos are now, and consider how many are under construction all around, Makati, BGC, Ortigas, and all around Greater Manila.  100,000 mainland Chinese came to live and work in Greater Manila when there were just 125,000 condos. And now over half have gone home, and the number of completed condos continues to grow, by more than 10,000 a year on average.  What new group will replace the “now missing” Chinese tenants?

(Let me know if you want to see more comments like this or not, I have several comments queued up now

#1 : We are in A Buyers Market

#2: In the 18 Year Cycle, the downturn is 3-5 years, not 1-2
#3 : I won’t Sacrifice my cash unless it is a genuine bargain
#4 : What “professional” Cash buyers want: High Rental yields
#5 : The problem with Bank loans
#6 : Sellers can finance too
#7 : Yeah, Own Use buyers are different, but they may buy just 1
#8 : Yes, Virginia, we have a BUYER’s chat
XX : Foreclosures?

(These are just some headings, and I will add the full comments later)

[drbubb]

CORE-4 PHL Property Developers - Chart Update:

===

[drbubb]

CASH BUYER’S BOMBSHELL Comments

#2 : In 18 Year Cycle, the downturn is 3-5 years, not 1-2 years

TOUGH LOVE is still Love, even if you don't want to hear it. Sometimes only genuinely good friends can deliver bad news and have it heard.  If you can accept the news, and tackle the problem, then you can act before it gets worse, and you will greatly improve your chances of thriving in the future.  Being in denial and staying there may get you to a situation which progresses towards something worse and evetually becomes hopeless.  Then, you may have no more good choices,  only truly painful ones. 

Right now, you can see so many Condo property ads headlined with words like "Bargain,"  "Sacrifice," and "Firesale."  When you look closer, you see a property priced at maybe 5-15% off the pre-covid highs.  That's not a true bargain, when rents are down 30% or more - if you are lucky to find a good tenant at all.  Some even talk of  "blood in the streets" pricing. But that is not what we are seeing. Most reductions are just very minor cuts, like paper cuts that might not even need a bandage.  Real blood, means losses for the seller, not just a reduced profits.  Those are coming.  If 2020 was the year of falling rents.  Then, 2021 is likely to be the year of falling prices - big reductions.   I mean drops of 20%, 30%, 40%, and more, off the top.  Why do I say this?  Because, owners with reduced cash flow are bleeding, and struggling to cover their bank loans.  The banking sector has held off on foreclosures so far, but they will not hold off forever.  In fact, the B-wave relief rally that we are seeing now - that's how I see the current market - may be providing last good chance for some lucky sellers to escape with minor losses.  The current off-covid-lows-Rallly may not last many more weeks or months.  Those with debts to pay, will start hitting bids. and prices will fall.  Buyers will catch on, and realise they can just sit and wait for lower prices.  Sellers will be forced to lower their prices to get any buying interest at all.  Waiting will cost the sellers money, and bring more negative cash flow.  Moreover,  the buyers who are easy prey are already being harvested.  The cash buyers that have used their funds already will have less cash to buy the flood of Condos coming onto the market in the fearful months to come. Buyers will get more cautious as they find that Condos are harder to rent.  There are hundreds of vacant condos, in individual buildings, and more new condo buildings are being completed within each new quarter.  Post covid, visitors and workers will return, but this is more likely to be a trickle rather than a flood.  And they will have to absorb the growing excess of supply, before rents will stabilize, firm up and head higher.  I reckon peak rents will not be exceeded for another 3-5 years,

I have studied property markets over decades. There is a repeating pattern.  Books have been written about it. Youtube videos made too. And I will share one with you below.  Fred Harrison has described what he calls a "LONG CYCLE in Property", lasting about 18 years.  The natural pattern tends to be:  14 years up, followed by 3-5 years down.  And we entered the "3-5 years down:" phase just over one year ago - so by that reckoning there are still 2-4 years to go.  My own best guess right now, is the ultimate low may be around the end of 2024.  I might change my view on that someday.  But for now, I see no reason to adjust.  The worst, and nastiest part of the decline may be dead ahead, within 2021, as banks push defaulting owners towards foreclosure.  On top of that, Buyers of pre-selling properties may halt their payments, and claim MACEDA remedies, asking for half their payments back.  This will force more supply into the market, and could put severe stress on most property developers too.  They won't be able to deny that they will have big trouble sticking to their present skyhigh, delusional prices.  If developers start selling price 10% or more below prior levels, what will that do to the secondary market, that relies heavily on cash buyers?  Price cuts of new condos will shatter confidence for years to come, not just a few months.

LEARN MORE about the 18 year property cycle here: pay particular attention to the "winners' curse period, those 2-3 years at the end of the upcycle, where buyers think they are lucky, but after the peak and downturn, they find they may be lumbered with an unprofitable property for years to come.  The "Winner" who bought wasn't lucky, he/she was cursed with bad fortune in buying.

Property Crash Cycle - Introduction to Fred Harrison's 18 Years >

(Let me know if you want to see more comments like this or not, I have several more comments queued up.)

#1 : We are in A Buyers Market
#2: In the 18 Year Cycle, the downturn is 3-5 years, not 1-2

#3 : I won’t Sacrifice my cash unless it is a genuine bargain
#4 : What “professional” Cash buyers want: High Rental yields
#5 : The problem with Bank loans
#6 : Sellers can finance too
#7 : Yeah, Own Use buyers are different, but they may buy just 1
#8 : Yes, Virginia, we have a BUYER’s chat
XX : Foreclosures?

[drbubb]

UK Perspective -posted last week

Where are we in the 18 Year Property Cycle? | The Property Podcast #415

 I am not sure if I agree with their Timing.  But I have been away from the UK for too many years to have a strong opinion

The main takeaway this the "approximate two years WINNERS CURSE period that comes at the end of the Up-phase.  We saw that in PHL into the end of 2019

 

 

[drbubb]

The Property Rollover is Still underway, going into Q2.2021 ...

PSEI & Prop: Core4: 10d /  ALI-34.35 / PSEI: 6,443

We saw a rollover in Property shares in Q4-2020, which I forecast ahead of time (on this thread & elsewhere.)

Right now, I think the downturn in property or property shares is Not done yet.  In my view, we may soon see another leg down, and it could be rather destructive.  Fundamentally, we are seeing a real shortage of tenants in the Condo market, for instance.  Rents are falling, and can people really not see that Condo prices will need to fall also, to reflect the lower income & cash flow coming to property owners?  House and lots demand is stronger.  But weakness in the important Condo sector may undermine banks willingness to lend to the property sector.  Weakness in the office & retail sector will also hurt.

If I am going to be wrong... the first sign might be a further rally in ALI shares.  That is the main property share to monitor now...

1/ As a friend points on on a viber chat: "With ECQ extended I guess ALI won’t rally any time soon"

2/ I agree only somewhat with this observation: "Lowering of the rental rates are actually affecting more the end buyers who are looking for tenants ... will not (may not) affect the bottomline of the developer."    But here is the important knock on effect, and here it is:    WHY BUY NEW, when second hand is so much cheaper??

3/ Another friend comments: " I think what may happen too is that The Ayala group gives significantly less emphasis on property in the next 1-2y until this recovers. They have full flexibility .. looks like they want to push forward with renewable and Ayala Health. They won’t launch a lot of new condo projects in this market."

[drbubb]

CAN PRICES BE SUPPORTED CONTINUOUSLY by Easing payment terms?

What does the Developer data show?  Can it be believed?

Easing payment terms only goes so far in supporting Developer prices in aweak market.  People are just buying CALL options when they make very small monthly payments.  If the "Strike" / Purchase price is too far out of the money (above the FMV which is actually the secondary market price now), the Call options will look to expensive.  That is where we are going in the immediate future in my view.  Condos sales will grind to a virtual halt

I am pretty sure that ALI & all the developers are getting hit with tons of defaults, and have to sell, resell, and sell again... lots of their condo inventory. Houses and lot sales probably have a better chance of sticking now.

(BTW, there is shockingly little transparency in this market, so we mostly have to rely on guesswork.  I am basing this on the tea leaves that I can see.  I invite anyone who has better actual data to share it here.)

Q: Do you have the number of back outs or distressed downpayment buyers for Ayala ? Megaworld ? Century Properties ? Etc etc ?

I would love to see that data.  It must be top secret.  However, even what is released to analysts may be very  heavily masssaged

("Hahaha the data is there for licensed brokers who are informed of daily inventory and put backs .. ")

Ok.  So share it?  (As I say, I think it will be heavily massaged) And the best data I get is the actual stock prices.  And also the way I see the same properties for sale again and again... at lower prices.  I am not using Covid to forecast anything. But the stock prices and cycles. Have done pretty good job in keeping me (mostly) out of a sliding market.

(I think you may know, I have said many times that almost anyone who bought new property from sometime in 2018. Would probably be lumbered with a loss.  Does anyone disagree with this?

/ ALI chart /

ALI will rally... if/when the PHL property market is showing a genuine recovery/  The NOV rally faded... as I said it might at the time

[drbubb]

PSEI vs. ALI etc.   update: 10d / ALI: 34.35 / PSEI: 6,443 = 53.3% vs. YE'2020: 40/7000= xx%

==

[drbubb]

ROLLOVER well underway... Where next?

ALI & others vs. PSEI... update : ALI: 32.10 -0.90 / PSEI: 6,416 = 50.0 % (x 100)

https://i.imgur.com/ApCQxWr.gif

See anything like a Rollover here?  Let's see if the uptrend line will hold.  If not, what is going to happen to Condo prices?

[drbubb]

Here's an update on Ayalaland's (ALI's) chart since ... Before 2000 / Last: P31, after initial low under P20



Following is the updated chart

cc

[langtonbrow]

Ayala Land is still rangebound at 37 a year or so later.

My hope was that overseas Filipinos would see increasing value in their respective local markets for those with a residency position, cooling the Manila and Cebu markets as demand was diverted. In reality booms continue across the planet as the dash to hard assets continues. Why should the Philippines differ.

On a cost vs quality level the country is still very poor value. However the market can apparently remain irrational for much longer than I can be bothered waiting to enter it. 

[drbubb]

update: ALI: 33.10 / PSEI: 6,836 = 0.48%

If this is ALI and PSEI enjoying pre-election optimism, it is truly scary

[drbubb]

( As discussed at yesterday's Property Meet-up):

Update ALI & CHI data

The end 2019 Peak was forecast before it happened! 

The next major low should be in 3 - 5 years, or the end of 2024 +/- 1 year.

Since the End 2019.  We saw a drop, and now the Rally is failing, despite the removal of Covid restrictions

ALI-etc . update : ALI-32.05, -19.5% off yrH-39.80, Smph-35.00, -12.7% off yrH-40.05, MEG-2.86, -16.6% off yrH-3.43

 

[drbubb]

(UPDATE Per End-Apr.2022 Meetup):

Since the End 2019.  We saw a drop, and now the Rally is failing, despite the removal of Covid restrictions

ALI-etc . update : ALI-32.05, -19.5% off yrH-39.80, Smph-35.00, -12.7% off yrH-40.05, MEG-2.86, -16.6% off yrH-3.43

Update ALI & CHI data

(prior note):

xx